UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No.1)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2021
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NO. 000-50253
| | |
| South Dakota Soybean Processors, LLC |
| (Exact name of registrant as specified in its charter) |
| | | | | | | | |
| South Dakota | | 46-0462968 |
| (State or Other Jurisdiction of Incorporation or Organization) | | (I.R.S. Employer Identification No.) |
| | |
100 Caspian Avenue; PO Box 500 Volga, South Dakota | | 57071 |
| (Address of Principal Executive Offices | | (Zip Code) |
| | |
| (605) 627-9240 |
| (Registrant's telephone number, including area code) |
SECURITIES REGISTERED PURSUANT TO SECTION 12 (b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12 (g) OF THE ACT:
CLASS A CAPITAL UNITS
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
¨ Yes x No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
¨ Yes x No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes ¨ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes ¨ No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained in this form, and no disclosure will 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.
x Yes ¨ No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of accelerated filer, large accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | | | | |
¨ Large Accelerated Filer | ¨ Accelerated Filer | x Non-Accelerated Filer | ☐ Smaller Reporting Company | ☐ Emerging Growth Company |
| | | (do not check if a smaller reporting company) | | |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
¨ Yes ☒ No
The aggregate market value of the registrant’s Class A units held by non-affiliates at June 30, 2021 was approximately $128,536,053 computed by reference to the most recent public offering price on Form S-1. The registrant's Class A units are not listed on an exchange or otherwise publicly traded. Additionally, the Class A units are subject to significant restrictions on transfer under the registrant's operating agreement.
As of the day of this filing, there were 30,419,000 Class A capital units of the registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of Form 10-K - Portions of the Definitive Proxy Statement to be filed with the Securities Exchange Commission within 120 days after the close of the registrant's fiscal year (December 31, 2021).
EXPLANATORY NOTE
This Amendment No. 1 on Form 10-K/A (this “Form 10-K/A”) amends the Annual Report on Form 10-K of South Dakota Soybean Processors, LLC (the “Company”) for the fiscal year ended December 31, 2021, originally filed with the Securities and Exchange Commission (the “SEC”) on March 18, 2022 (the “Original 10-K”). This Form 10-K/A is being filed to amend and refile Part IV, Item 15 to reflect the Report of Independent Registered Public Accounting Firm delivered by Eide Bailly LLP. The stated values of inventories and commodity contracts in both asset and liability positions within the Critical Audit Matters and audit tenure sections of that report previously included incorrect amounts and omitted audit tenure of a predecessor firm.
Pursuant to Rule 12b-15 promulgated under the Securities Exchange Act of 1934, as amended, we have provided the entire list of Items in Part IV, Item 15 of the Form 10-K in this Amendment No. 1.
In addition, the Company is including in this Amendment No. 1 currently dated certifications from its Chief Executive Officer and Chief Financial Officer as required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as Exhibits 31.1 and 31.2 and Exhibits 32.1 and 32.2, respectively.
Except as described above, no other changes have been made to the Original 10-K. Except as otherwise indicated herein, this Form 10-K/A continues to speak as of the date of the Original 10-K, and we have not updated the disclosures contained therein to reflect any events that occurred subsequent to the date of the Original 10-K. The filing of this Form 10-K/A is not a representation that any statements contained in items of the Original 10-K other than Part IV, Item 15; and the aforementioned portions of the cover page are true or complete as of any date subsequent to the Original 10-K.
Table of Contents
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 on the page immediately preceding page F-1 of this report, and financial statements and schedules for the years ended December 31, 2021, 2020 and 2019.
Part IV
Item 15. Exhibits, Financial Statement Schedules.
The following exhibits and financial statements are filed as part of, or are incorporated by reference into, this report:
(a)(1) Financial Statements — Reference is made to the “Index to Financial Statements” of South Dakota Soybean Processors, LLC located on the page immediately preceding page F-1 of this report for a list of the financial statements for the year ended December 31, 2021. The financial statements appear on page F-2 of this Report.
(2) All supplemental schedules are omitted because of the absence of conditions under which they are required or because the information is shown in the Consolidated Financial Statements or notes thereto.
(3) Exhibits - Exhibits required to be filed by Item 601 of Regulation S-K are set forth in the Exhibit Index accompanying this Annual Report on Form 10-K and are incorporated herein by reference.
____________________________________________________________________________
(1) Incorporated by reference from Appendix B to the information statement/prospectus filed as a part of the issuer’s Registration Statement on Form S-4 (File No. 333-75804).
(2) Assigned by General Electric Railcar Services Corporation to Wells Fargo Rail Corporation on August 1, 2016.
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, LLC |
| | | | |
| Dated: | April 26, 2022 | By | /s/ Thomas Kersting |
| | | | Thomas Kersting, Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | | |
| Dated: | April 26, 2022 | | /s/ Mark Hyde |
| | | | Mark Hyde, Chief Financial Officer |
| | | | (Principal Financial Officer) |
Pursuant to the requirements of the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| | | | | | | | | | | |
| Dated: | April 26, 2022 | By | /s/ Thomas Kersting |
| | | | Thomas Kersting, Chief Executive Officer |
| | | | (Principal Executive Officer) |
| | | | |
| Dated: | April 26, 2022 | By | /s/ Mark Hyde |
| | | | Mark Hyde |
| | | | Chief Financial Officer (Principal Financial Officer) |
| | | |
| Dated: | April 26, 2022 | By | /s/ Ronald Anderson |
| | | | Ronald Anderson, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Lewis Bainbridge |
| | | Lewis Bainbridge, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Mark Brown |
| | | Mark Brown, Manager |
| | | |
| | | |
| | | | | | | | | | | |
| Dated: | April 26, 2022 | By | /s/ Wayne Enger |
| | | | Wayne Enger, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Spencer Enninga |
| | | | Spencer Enninga, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Gary Goplen |
| | | Gary Goplen, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Jeffrey Hanson |
| | | | Jeffrey Hanson, Manager |
| | | | |
| Dated: | April 26, 2022 | By | /s/ Kent Howell |
| | | Kent Howell, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Jonathan Kleinjan |
| | | | Jonathan Kleinjan, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Gary Kruggel |
| | | | Gary Kruggel, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Robert Nelsen |
| | | | Robert Nelsen, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Michael Reiner |
| | | Michael Reiner, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Doyle Renaas |
| | | | Doyle Renaas, Manager |
| | | |
| Dated: | April 26, 2022 | By | /s/ Ned Skinner |
| | | Ned Skinner, Manager |
| | | | |
| Dated: | April 26, 2022 | By | /s/ Craig Weber |
| | | | Craig Weber, Manager |
South Dakota Soybean Processors, LLC
Financial Statements
December 31, 2021, 2020, and 2019
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
Index to Financial Statements
| | | | | |
| | Page |
| | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM (PCAOB ID 286) | |
| | |
| FINANCIAL STATEMENTS | |
| Balance Sheets | |
| Statements of Operations | |
| Statements of Changes in Members’ Equity | |
| Statements of Cash Flows | |
| Notes to Financial Statements | |
| | |
| REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM |
The Board of Managers and Members
South Dakota Soybean Processors, LLC
Volga, South Dakota
Opinion on the Financial Statements
We have audited the accompanying balance sheets of South Dakota Soybean Processors, LLC (the Company) as of December 31, 2021 and 2020, and the related statements of operations, changes in members’ equity, and cash flows for the years ended December 31, 2021, 2020, and 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of South Dakota Soybean Processors, LLC as of December 31, 2021 and 2020, and the results of its operations and its cash flows for the years ended December 31, 2021, 2020 and 2019, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the entity's management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to South Dakota Soybean Processors, LLC in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. South Dakota Soybean Processors, LLC is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risk of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgement. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Inventory Basis Adjustment
As explained further in Notes 1, 3, 13 and 14 in the accompanying financial statements, fair value measurement for inventories carried at market value, which approximates net realizable value, and forward commodity purchase and sale contracts are based on exchange-quoted prices adjusted for differences in local markets and/or quality, referred to as basis. Fair values for forward commodity purchase and sales contracts are adjusted for location and quality differences (basis) because the exchange-quoted prices represent contracts that have standardized terms for commodity, quantity, future delivery period, delivery location, and commodity quality or grade. The reported fair
values as of December 31, 2021 for inventories, commodity contracts in an asset position, and commodity contracts in a liability position were $95.1 million, $11.9 million and $27.6 million, respectively.
We identified the Inventory Basis Adjustment as a critical audit matter. Auditing these complex judgments and assumptions involves especially challenging auditor judgment due to the nature and extent of audit evidence and effort required to address these matters, including the extent of specialized skill or knowledge needed.
The primary procedures we performed to address this critical audit matter included:
•Obtaining an understanding of internal controls over the Company’s determination of the estimated fair values.
•Testing and evaluation of management's process and methodology for determining and developing the estimated fair values of inventories carried at market value and forward commodity purchase and sale contracts through evaluating (i) the reasonableness of the significant assumptions used by management including comparison of quoted commodity pricing to local and regional market conditions (ii) the historical adjustments to inventory balances as compared to the current year’s adjustment, and (iii) the completeness and accuracy of the underlying data supporting the basis adjustments.
•Evaluating whether the assumptions used were reasonable by considering comparable basis adjustments used by management to local grain elevators and recent trade prices, including recently executed transactions, and whether such assumptions were consistent with evidence obtained in other areas of the audit.
•Evaluating the adequacy of the financial statement disclosure related to the estimated fair value of inventories carried at market value and forward commodity purchase and sale contracts.
We have served as South Dakota Soybean Processors LLC’s auditor since 2001. Gordon, Hughes & Banks, LLP, who joined Eide Bailly LLP in 2008, had served as the Company’s auditor from 2005 through 2008.
/s/ Eide Bailly LLP
Fargo, North Dakota
March 17, 2022
South Dakota Soybean Processors, LLC
Balance Sheets
December 31, 2021 and 2020
___________________________________________________________________________________________________________________
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Assets | | | |
| Current assets | | | |
| Cash and cash equivalents | $ | 833,738 | | | $ | 3,650,950 | |
| Trade accounts receivable | 36,571,001 | | | 28,990,655 | |
| Inventories | 95,066,385 | | | 69,593,473 | |
| Commodity derivative instruments | 11,933,759 | | | 28,417,680 | |
| Margin deposits | 2,099,626 | | | 6,018,001 | |
| | | |
| Prepaid expenses | 2,692,338 | | | 2,093,622 | |
| | | |
| Total current assets | 149,196,847 | | | 138,764,381 | |
| | | |
| Property and equipment | 133,919,053 | | | 122,195,099 | |
| Less accumulated depreciation | (61,386,445) | | | (57,963,905) | |
| Total property and equipment, net | 72,532,608 | | | 64,231,194 | |
| | | |
| Other assets | | | |
| Investments in related parties | 10,764,310 | | | 9,327,890 | |
| Investments in cooperatives | 1,559,800 | | | 1,539,293 | |
| Right-of-use lease asset, net | 11,232,558 | | | 11,960,289 | |
| | | |
| | | |
| Total other assets | 23,556,668 | | | 22,827,472 | |
| | | |
| Total assets | $ | 245,286,123 | | | $ | 225,823,047 | |
| | | |
| Liabilities and Members' Equity | | | |
| Current liabilities | | | |
| Excess of outstanding checks over bank balance | $ | 10,698,239 | | | $ | 8,263,020 | |
| Current maturities of long-term debt | 2,902,473 | | | — | |
| Note payable - seasonal loan | — | | | — | |
| Current operating lease liabilities | 1,958,707 | | | 5,846,456 | |
| Accounts payable | 1,931,911 | | | 1,506,779 | |
| | | |
| Accrued commodity purchases | 60,892,294 | | | 44,962,904 | |
| Commodity derivative instruments | 27,644,858 | | | 41,940,744 | |
| Accrued expenses | 4,305,749 | | | 3,083,591 | |
| Accrued interest | 67,126 | | | 40,564 | |
| Deferred liabilities - current | 1,347,409 | | | 1,728,407 | |
| Total current liabilities | 111,748,766 | | | 107,372,465 | |
| | | |
| Long-term liabilities | | | |
| Long-term debt, net of current maturities and unamortized debt issuance costs | 13,991,458 | | | 17,499,868 | |
| Long-term operating lease liabilities | 6,130,994 | | | 6,113,834 | |
| | | |
| Total long-term liabilities | 20,122,452 | | | 23,613,702 | |
| | | |
| Commitments and contingencies (Notes 8, 9, 10, 16 & 18) | 0 | | 0 |
| | | |
| Members' equity Class A Units, no par value, 30,419,000 units issued and outstanding | 113,414,905 | | | 94,836,880 | |
| | | |
| Total liabilities and members' equity | $ | 245,286,123 | | | $ | 225,823,047 | |
The accompanying notes are an integral part of these financial statements.
South Dakota Soybean Processors, LLC
Statements of Operations
For the Years Ended December 31, 2021, 2020, and 2019
___________________________________________________________________________________________________________________
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | | | | |
| Net revenues | $ | 590,150,153 | | | $ | 415,025,765 | | | $ | 371,275,766 | |
| | | | | |
| Cost of revenues: | | | | | |
| Cost of product sold | 481,430,381 | | | 327,346,105 | | | 289,379,275 | |
| Production | 31,980,845 | | | 29,452,928 | | | 30,889,789 | |
| Freight and rail | 42,487,645 | | | 38,301,610 | | | 35,572,737 | |
| Brokerage fees | 776,936 | | | 671,817 | | | 634,129 | |
| Total cost of revenues | 556,675,807 | | | 395,772,460 | | | 356,475,930 | |
| | | | | |
| Gross profit | 33,474,346 | | | 19,253,305 | | | 14,799,836 | |
| | | | | |
| Operating expenses: | | | | | |
| Administration | 4,590,227 | | | 3,819,645 | | | 3,624,306 | |
| Operating income | 28,884,119 | | | 15,433,660 | | | 11,175,530 | |
| | | | | |
| Other income (expense): | | | | | |
| Interest expense | (1,634,367) | | | (1,090,951) | | | (919,157) | |
| Other non-operating income (expense) | 393,016 | | | 1,043,465 | | | 554,356 | |
| Patronage dividend income | 365,147 | | | 195,553 | | | 169,456 | |
| Total other income (expense) | (876,204) | | | 148,067 | | | (195,345) | |
| | | | | |
| Income before income taxes | 28,007,915 | | | 15,581,727 | | | 10,980,185 | |
| | | | | |
| Income tax (expense), net | — | | | — | | | (600) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Net income | $ | 28,007,915 | | | $ | 15,581,727 | | | $ | 10,979,585 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| Basic and diluted earnings (loss) per capital unit: | $ | 0.92 | | | $ | 0.51 | | | $ | 0.36 | |
| | | | | |
| Weighted average number of capital units outstanding for calculation of basic and diluted earnings (loss) per capital unit | 30,419,000 | | | 30,419,000 | | | 30,419,000 | |
The accompanying notes are an integral part of these financial statements.
South Dakota Soybean Processors, LLC
Statements of Changes in Members’ Equity
For the Years Ended December 31, 2021, 2020, and 2019
___________________________________________________________________________________________________________________
| | | | | | | | | | | |
| | Class A Units |
| | Units | | Amount |
| | | |
| Balances, January 1, 2019 | 30,419,000 | | | $ | 90,177,248 | |
| | | |
| Net income | — | | | 10,979,585 | |
| | | |
| Distribution to members | — | | | (15,209,500) | |
| | | |
| Balances, December 31, 2019 | 30,419,000 | | | 85,947,333 | |
| | | |
| Net income | — | | | 15,581,727 | |
| | | |
| Distribution to members | — | | | (6,692,180) | |
| | | |
| Balances, December 31, 2020 | 30,419,000 | | | 94,836,880 | |
| | | |
| Net income | — | | | 28,007,915 | |
| | | |
| Distributions to members | — | | | (9,429,890) | |
| | | |
| Balances, December 31, 2021 | 30,419,000 | | | $ | 113,414,905 | |
The accompanying notes are an integral part of these financial statements.
South Dakota Soybean Processors, LLC
Statements of Cash Flows
For the Years Ended December 31, 2021, 2020, and 2019
___________________________________________________________________________________________________________________
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Operating activities | | | | | |
| Net income | $ | 28,007,915 | | | $ | 15,581,727 | | | $ | 10,979,585 | |
| Charges and credits to net income not affecting cash: | | | | | |
| Depreciation and amortization | 5,092,868 | | | 4,909,271 | | | 4,489,614 | |
| Net (gain) loss recognized on derivative instruments | 10,042,360 | | | 8,925,177 | | | 4,150,476 | |
| | | | | |
| (Gain) loss on sales of property and equipment | (96,506) | | | (7,454) | | | 64,244 | |
| Loss on equity method investment | — | | | — | | | 135,588 | |
| Non-cash patronage dividends and interest income | (75,411) | | | (43,405) | | | (42,364) | |
| Forgiveness of Paycheck Protection Program loan | (10,000) | | | (1,205,700) | | | — | |
| Change in current operating assets and liabilities | (24,944,958) | | | (13,952,784) | | | (23,124,160) | |
| Net cash (used for) from operating activities | 18,016,268 | | | 14,206,832 | | | (3,347,017) | |
| | | | | |
| Investing activities | | | | | |
| | | | | |
| Purchase of investments | — | | | (404,329) | | | — | |
| Retirement of patronage dividends | 54,904 | | | 66,210 | | | 32,288 | |
| | | | | |
| | | | | |
| Proceeds from sales of property and equipment | 150,060 | | | 41,216 | | | 65,825 | |
| Purchase of property and equipment | (13,442,955) | | | (4,652,368) | | | (10,066,719) | |
| Net cash (used for) investing activities | (13,237,991) | | | (4,949,271) | | | (9,968,606) | |
| | | | | |
| Financing activities | | | | | |
| Change in excess of outstanding checks over bank balances | 2,435,219 | | | 98,268 | | | 4,271,573 | |
| Net (payments) proceeds from seasonal borrowings | — | | | (1,743,029) | | | 1,743,029 | |
| Distributions to members | (9,429,890) | | | (6,692,180) | | | (15,209,500) | |
| | | | | |
| Payments for debt issue costs | — | | | (10,000) | | | — | |
| Proceeds from long-term debt | 20,344,412 | | | 35,999,802 | | | 71,476,467 | |
| Principal payments on long-term debt | (20,945,230) | | | (33,884,153) | | | (55,538,347) | |
| Net cash from (used for) financing activities | (7,595,489) | | | (6,231,292) | | | 6,743,222 | |
| | | | | |
| Net change in cash and cash equivalents | (2,817,212) | | | 3,026,269 | | | (6,572,401) | |
| | | | | |
| Cash and cash equivalents, beginning of year | 3,650,950 | | | 624,681 | | | 7,197,082 | |
| | | | | |
| Cash and cash equivalents, end of year | $ | 833,738 | | | $ | 3,650,950 | | | $ | 624,681 | |
| | | | | |
| Supplemental disclosures of cash flow information | | | | | |
| Cash paid (received) during the year for: | | | | | |
| Interest | $ | 1,607,805 | | | $ | 1,125,157 | | | $ | 855,060 | |
| Income taxes | $ | — | | | $ | — | | | $ | — | |
| | | | | |
| Noncash investing activities: | | | | | |
| Soybean meal contributed as investment in related party | $ | 1,436,420 | | | $ | 1,049,834 | | | $ | — | |
The accompanying notes are an integral part of these financial statements.
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Note 1 - Principal Activity and Significant Accounting Policies
Organization
South Dakota Soybean Processors, LLC (the “Company” or “LLC”) processes and sells soybean products, such as soybean meal, oil, and hulls. The Company’s principal operations are located where we have plants in Volga and Miller, South Dakota.
Cash and cash equivalents
The Company considers all highly liquid investment instruments with original maturities of three months or less at the time of acquisition to be cash equivalents.
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 Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 905, Agriculture (formerly AICPA Statement of Position No. 85-3, Accounting by Agricultural Producers and Agricultural Cooperatives). Supplies and other inventories are stated at lower of cost or net realizable value.
Investments
The Company accounts for its equity investments in Prairie AquaTech, LLC, Prairie AquaTech Manufacturing, LLC, and Prairie AquaTech Investments, LLC using Accounting Standards Update (ASU) No. 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities. All equity securities that do not result in consolidation and are not accounted for under the equity method are measured at fair value with changes therein reflected in net income. We have elected to utilize the measurement alternative for equity investments that do not have readily determinable fair values and measure these investments at cost less any impairment plus or minus observable price changes in orderly transactions.
Prior to October 1, 2019, the Company accounted for its investment in Prairie AquaTech, LLC using the equity method due to the Company's ability to influence management decisions of Prairie AquaTech, LLC, due to its Board position on the Entity's Board of Managers. While the Company still holds its position on that entity's Board of Managers, the Company's ability to influence management decisions has been reduced due to additional quantity of board seats outstanding. Therefore, the Company ceased its accounting for its investment in Prairie AquaTech, LLC under the equity method, and began accounting for the investment using ASU No. 2016-01.
Investments in cooperatives are recorded in a manner similar to equity investments without readily determinable fair values, cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
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.
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:
| | | | | |
| Building and improvements | 10-39 years |
| Equipment and furnishings | 3-15 years |
| Railcars | 50 years |
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
The Company reviews its long-lived assets for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. If impairment indicators are present and the future cash flows is less than the carrying amount of the assets, values are reduced to the estimated fair value of those assets. The Company did not recognize any impairment on property and equipment during the years ended December 31, 2021, 2020, and 2019.
Deferred revenue
The Company recognizes revenues as earned. Amounts received in advance of the period in which service is rendered are recorded as a liability under “Deferred liabilities”. The Company's deferred revenues as of January 1, 2020 was $101,111.
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
The Company accounts for all of its revenues from contracts with customers under ASC 606, Revenue from Contracts with Customers.
The Company principally generates revenue from merchandising and transporting manufactured agricultural products used as ingredients in food, feed, energy and industrial products. Revenue is measured based on the consideration specified in the contract with a customer, and excludes any amounts collected on behalf of third parties (e.g. - taxes). The Company follows a policy of recognizing revenue at a single point in time when it satisfies its performance obligation by transferring control over a product to a customer. Control transfer typically occurs when goods are shipped from our facilities or at other predetermined control transfer points (for instance, destination terms). Shipping and handling costs related to contracts with customers for sale of goods are accounted for as a fulfillment activity and are included in cost of revenues. Accordingly, amounts billed to customers for such costs are included as a component of revenues.
Payments received in advance to the transfer of goods, or "contract liabilities", are included in "Deferred liabilities - current" on the Company's balance sheets. These customer prepayments totaled $1,347,409 and $1,728,407 as of December 31, 2021 and 2020, respectively. All of the $1,728,407 balance as of December 31, 2020 was recognized as revenue during the year ended December 31, 2021. All of the $313,347 balance as of December 31, 2019 was recognized as revenue during the year ended December 31, 2020.
The following table presents a disaggregation of revenue from contracts with customers for the years ended December initiated 31, 2021, 2020, and 2019, by product type:
| | | | | | | | | | | | | | | | | |
| 2021 | | 2020 | | 2019 |
| | | | | |
| Soybean meal and hulls | $ | 335,175,830 | | | $ | 268,163,989 | | | $ | 244,012,663 | |
| Soybean oil and oil byproducts | 254,974,323 | | | 146,861,776 | | | 127,263,103 | |
| | | | | |
| Totals | $ | 590,150,153 | | | $ | 415,025,765 | | | $ | 371,275,766 | |
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.
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Advertising costs
Advertising and promotion costs are expensed as incurred. The Company incurred $66,000, $65,000, and $76,000, of advertising costs in the years ended December 31, 2021, 2020, and 2019, 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, as well as the interest rate swaps, caps and floors, 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. Unrealized gains and losses on futures and options contracts used to hedge soybean, oil and meal inventories, as well as foreign exchange rates, are recognized as a component of net proceeds for financial reporting.
The Company uses interest rate swaps, caps and floors offered through regulated commodity exchanges. The Company is exposed to risk of loss resulting from potential increases in interest rates on their variable rate debt. To reduce that risk, the Company has purchased interest rate swaps, caps and floors. Unrealized gains and losses on interest rate swaps, caps and floors are reflected in current earnings immediately.
Earnings per capital unit
Earnings per capital unit are calculated based on the weighted average number of capital units outstanding. The Company has no other capital units or other member equity instruments that are dilutive for purposes of calculating earnings per capital unit.
Income taxes
As a limited liability company, the Company’s taxable income or loss is allocated to members in accordance with their respective percentage ownership. Therefore, no provision or liability for income taxes has been included in the financial statements.
The Company has evaluated the provisions of FASB ASC 740-10 for uncertain tax positions. As of December 31, 2021 and 2020, the unrecognized tax benefit accrual was zero.
The Company will recognize future accrued interest and penalties related to unrecognized tax benefits in income tax expense if incurred.
As of December 31, 2021, the book value of the Company’s net assets exceeds the tax basis of those assets by approximately $25.5 million.
The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to income tax examinations by U.S. federal and state tax authorities for years prior to 2018. We currently have no tax years under examination.
Recent accounting pronouncements
Any recent accounting pronouncements are not expected to have a material impact on our financial statements.
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Note 2 - Accounts Receivable
Accounts receivable are considered past due when payments are not received on a timely basis in accordance with the Company’s credit terms, which is generally 30 days from invoice date. Accounts considered uncollectible are written off. The Company’s estimate of the allowance for doubtful accounts is based on historical experience, its evaluation of the current status of receivables, and unusual circumstances, if any.
The following table presents the aging analysis of trade receivables as of December 31, 2021 and 2020:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Past due: | | | |
| Less than 30 days past due | $ | 11,431,358 | | | $ | 4,827,150 | |
| 30-59 days past due | 693,286 | | | 85,177 | |
| 60-89 days past due | 56,831 | | | 11,366 | |
| Greater than 90 days past due | 144,572 | | | 43,524 | |
| Total past due | 12,326,047 | | | 4,967,217 | |
| Current | 24,244,954 | | | 24,023,438 | |
| Totals | $ | 36,571,001 | | | $ | 28,990,655 | |
The following table provides information regarding the Company’s allowance for doubtful accounts receivable as of December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Balances, beginning of year | $ | — | | | $ | — | | | $ | — | |
| Amounts charged (credited) to costs and expenses | 258,747 | | | — | | | — | |
| Additions (deductions) | (258,747) | | | — | | | — | |
| Balances, end of year | $ | — | | | $ | — | | | $ | — | |
In general cash received is applied to the oldest outstanding invoice first, unless payment is for a specified invoice. The Company, on a case by case basis, may charge a late fee of 1.5% per month on past due receivables.
The Company's accounts receivable as of January 1, 2020 was $24,418,443.
Note 3 - Inventories
The Company’s inventories consist of the following as of December 31:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Finished goods | $ | 60,233,567 | | | $ | 35,502,780 | |
| Raw materials | 34,501,561 | | | 33,824,265 | |
| Supplies & miscellaneous | 331,257 | | | 266,428 | |
| Totals | $ | 95,066,385 | | | $ | 69,593,473 | |
Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. Supplies and other inventories are stated at lower of cost or net realizable value.
Note 4 - Margin Deposits
The Company has margin deposits with a commodity brokerage firm used to acquire futures and option contracts to manage the price volatility risk of soybeans, crude soybean oil and soybean meal. Consistent with its inventory accounting policy, these contracts are recorded at market value. At December 31, 2021, the Company’s futures contracts all mature within 12 months.
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Note 5 - Investments in Related Parties
The Company's investment in related parties consists of the following at December 31:
| | | | | | | | | | | |
| 2021 | | 2020 |
| | | |
| Prairie AquaTech, LLC | $ | 1,553,727 | | | $ | 1,553,727 | |
| Prairie AquaTech Investments, LLC | 5,000,000 | | | 5,000,000 | |
| Prairie AquaTech Manufacturing, LLC | 4,210,583 | | | 2,774,163 | |
| Totals | $ | 10,764,310 | | | $ | 9,327,890 | |
The Company accounts for the investments in Prairie AquaTech, LLC, Prairie AquaTech Investments, LLC and Prairie AquaTech Manufacturing, LLC using the fair value method in ASU No. 2016-01. The Company has elected to utilize the measurement alternative for equity investments that do not have readily determinable fair values and measure these investments at their cost less any impairment plus or minus any observable price changes in orderly transactions.
Prior to October 2019, the Company accounted for the investment in Prairie AquaTech, LLC using the equity method due to the Company's ability to exercise significant influence based on its board position. The Company recognized losses of $0, $0, and $135,588 in 2021, 2020, and 2019, respectively, which is included in other non-operating income (expense). In October 2019, the Company ceased the accounting for its investment in Prairie AquaTech, LLC under the equity method, and began accounting for the investment at fair value as a result of its decreased ability to exercise significant influence due to an increased quantity of board positions.
The Company invested in Prairie AquaTech Manufacturing, LLC $0 and $404,329 in cash and an additional $1,436,420 and $1,049,834 of soybean meal in 2021 and 2020, respectively, to be used in the entity's operations.
Note 6 - Investments in Cooperatives
The Company’s investments in cooperatives consist of the following at December 31:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| | | |
| | | |
| | | |
| CoBank | $ | 1,559,800 | | | $ | 1,539,293 | |
| | | |
Note 7 - Property and Equipment
The following is a summary of property and equipment at December 31:
| | | | | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| Cost | | Accumulated
Depreciation | | Net | | Net |
| Land | $ | 516,326 | | | $ | — | | | $ | 516,326 | | | $ | 516,326 | |
| Land improvements | 2,538,645 | | | (910,442) | | | 1,628,203 | | | 1,647,052 | |
| Buildings and improvements | 25,988,837 | | | (10,627,414) | | | 15,361,423 | | | 12,391,726 | |
| Machinery and equipment | 91,160,339 | | | (48,422,556) | | | 42,737,783 | | | 41,674,080 | |
| Railroad cars | 5,852,292 | | | (265,055) | | | 5,587,237 | | | 5,704,283 | |
| Company vehicles | 151,682 | | | (108,763) | | | 42,919 | | | 59,613 | |
| Furniture and fixtures | 1,387,880 | | | (1,052,215) | | | 335,665 | | | 408,288 | |
| Construction in progress | 6,323,052 | | | — | | | 6,323,052 | | | 1,829,826 | |
| Totals | $ | 133,919,053 | | | $ | (61,386,445) | | | $ | 72,532,608 | | | $ | 64,231,194 | |
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Depreciation of property and equipment amounts to $5,087,987, $4,904,617, and $4,487,460 for the years ended December 31, 2021, 2020, and 2019, respectively.
Note 8 - Notes Payable - Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires December 1, 2022. The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company could borrow up to $70 million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (2.31% at December 31, 2021). The Company pays a 0.20% annual commitment fee on any funds not borrowed. There were no advances outstanding at December 31, 2021 and 2020. The remaining available funds to borrow under the terms of the revolving credit agreement were $70.0 million as of December 31, 2021.
Note 9 - Long-Term Debt
The following is a summary of the Company's long-term debt at December 31, 2021 and 2020:
| | | | | | | | | | | |
| | 2021 | | 2020 |
| Revolving term loan from CoBank, interest at variable rates (2.56% and 2.60% at December 31, 2021 and 2020, respectively), secured by substantially all property and equipment. Loan matures March 20, 2026. | $ | 16,902,473 | | | $ | 17,503,291 | |
| Note payable to U.S. Small Business Administration, due in monthly principal and interest installments, interest rate at 1.00%, unsecured. Note matures July 20, 2022. | — | | | 10,000 | |
| Total debt before current maturities and debt issuance costs | 16,902,473 | | | 17,513,291 | |
| Less current maturities | (2,902,473) | | | — | |
| Less debt issuance costs, net of amortization of $15,458 and $10,577 as of December 31, 2020 and 2019, respectively | (8,542) | | | (13,423) | |
| | | |
| Totals | $ | 13,991,458 | | | $ | 17,499,868 | |
The Company entered into an agreement as of December 14, 2021 with CoBank to amend and restate its Credit Agreement, which includes both the revolving term and seasonal loans. Under the terms and conditions of the Credit Agreement, CoBank agreed to make advances to the Company for up to $18,000,000 on the revolving term loan with a variable effective interest rate of 2.56%. The amount available for borrowing on the revolving term loan, will decrease by $2,000,000 every six months starting March 20, 2022 until the loan's maturity date of March 20, 2026. The Company pays a 0.40% annual commitment fee on any funds not borrowed. The debt issuance costs of $24,000 paid by the Company will be amortized over the term of the loan. The principal balance outstanding on the revolving term loan was $16.9 million and $17,503,291 as of December 31, 2021 and 2020, respectively. There were approximately $1.1 million in remaining commitments available to borrow on the revolving term loan as of December 31, 2021.
Under this agreement, the Company is subject to compliance with standard financial covenants and the maintenance of certain financial ratios. The Company was in compliance with all covenants and conditions with CoBank as of December 31, 2021.
Effective March 1, 2013, the State of South Dakota Department of Transportation agreed to loan the Brookings County Regional Railway Authority $964,070 for purposes of making improvements to the railway infrastructure near the Company's soybean processing facility near Volga, South Dakota. In consideration of this secured loan, the Company agreed to provide a guarantee to the State of South Dakota Department of Transportation for the full amount of the loan, plus interest. This guarantee was converted into a direct obligation of the Company's on October 16, 2013, when the Company received the entire loan proceeds and assumed responsibility for paying the annual principal and interest payments. On June 1, 2020, the loan was re-paid in full.
On April 20, 2020, the Company entered into an unsecured promissory note for $1,215,700 under the U.S. Small Business Administration's Paycheck Protection Program ("PPP Loan"), a loan program created under the Coronavirus Aid, Relief and Economic Security (the "CARES Act"). The PPP Loan is being made through First Bank
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
& Trust, N.A. The PPP Loan was scheduled to mature on July 20, 2022 and had a 1% interest rate. The Company submitted to the SBA a loan forgiveness application on November 20, 2020, with the amount which may be forgiven equal to the sum of qualifying expenses such as payroll costs, rent obligations, and covered utility payments. The forgiveness application was approved by the SBA for $1,205,700 on November 25, 2020 and $10,000 on February 19, 2021.
The following are minimum principal payments on long-term debt obligations for the years ended December 31:
| | | | | |
| 2022 | $ | 2,902,473 | |
| 2023 | 4,000,000 | |
| 2024 | 4,000,000 | |
| 2025 | 4,000,000 | |
| 2026 | 2,000,000 | |
| |
| Total | $ | 16,902,473 | |
Note 10 - Operating Leases
The Company has several operating leases for railcars. These leases have terms ranging from 3-18 years and most do not have renewal terms provided. The leases require the Company to maintain the condition of the railcars, restrict the use of the railcars to specified products, such as soybean meal, hulls or oil, limit usage to the continental United States, Canada or Mexico, require approval to sublease to other entities, and require the Company's submission of its financial statements. Lease expense for all railcars was $3,026,270, $3,099,585, and $3,086,823 for the years ended December 31, 2021, 2020, and 2019, respectively.
The following is a schedule of the Company's operating leases for railcars as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lessor | | Quantity of
Railcars | | Commencement
Date | | Maturity
Date | | Monthly
Payment |
| | | | | | | | |
| American Railcar Leasing | | 13 | | | 6/1/2021 | | 5/31/2024 | | $ | 7,150 | |
| Andersons Railcar Leasing Co. | | 10 | | | 7/1/2018 | | 6/30/2023 | | 5,000 | |
| Andersons Railcar Leasing Co. | | 20 | | | 7/1/2019 | | 6/30/2026 | | 11,300 | |
| Andersons Railcar Leasing Co. | | 15 | | | 11/1/2021 | | 10/31/2026 | | 8,250 | |
| Farm Credit Leasing | | 87 | | | 9/1/2020 | | 8/31/2032 | | 34,929 | |
| Farm Credit Leasing | | 8 | | | 6/1/2021 | | 5/31/2033 | | 5,966 | |
| Farm Credit Leasing | | 9 | | | 10/1/2021 | | 9/30/2033 | | 4,624 | |
| GATX Corporation | | 14 | | | 7/1/2020 | | 6/30/2024 | | 4,200 | |
| Trinity Capital | | 29 | | | 11/1/2020 | | 10/31/2023 | | 17,255 | |
| Trinity Capital | | 20 | | | 11/1/2020 | | 10/31/2023 | | 11,900 | |
| Trinity Capital | | 24 | | | 2/1/2021 | | 1/31/2026 | | 10,440 | |
| Trinity Capital | | 2 | | | 6/1/2021 | | 5/31/2026 | | 980 | |
| Wells Fargo Rail | | 112 | | | 8/1/2017 | | 7/31/2022 | | 52,557 | |
| Wells Fargo Rail | | 107 | | | 1/1/2018 | | 12/31/2022 | | 35,845 | |
| Wells Fargo Rail | | 7 | | | 5/1/2004 | | 4/30/2022 | | 2,926 | |
| Wells Fargo Rail | | 15 | | | 5/1/2004 | | 4/30/2022 | | 5,850 | |
| | | | | | | | |
| Totals | | 492 | | | | | | | $ | 219,172 | |
The Company also has a number of other operating leases for machinery and equipment. These leases have terms ranging from 3-7 years; however, most of these leases have automatic renewal terms. These leases require monthly payments of $3,779. Rental expense under these other operating leases was $38,606, $41,079, and $56,322, for the years ended December 31, 2021, 2020, and 2019, respectively.
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
On March 19, 2020, the Company entered into an agreement with an entity in the western United States to provide storage and handling services for the Company's soybean meal. The Company paid the entity $3,300,000, which is included in current operating lease liabilities on the Company's balance sheet, after the entity's construction of additional storage and handling facilities. The agreement began May 1, 2021 and will mature on April 30, 2027 but includes an additional seven-year renewal period at the sole discretion of the Company. Rental expense under this agreement was $157,143, $0, and $0, for the years ended December 31, 2021, 2020, and 2019, respectively.
Operating leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the Company's balance sheets. These assets and liabilities are recognized at the commencement date based on the present value of remaining lease payments over the lease term using the Company's secured incremental borrowing rates or implicit rates, when readily determinable. Short-term operating leases, which have an initial term of 12 months or less, are not recorded on the balance sheet.
Lease expense for these operating leases is recognized on a straight-line basis over the lease terms. The components of lease costs recognized within our statements of operations for the years ended December 31, 2021, 2020, and 2019 were as follows:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | | | | | |
| Cost of revenues - Freight and rail | | $ | 3,026,270 | | | $ | 3,099,585 | | | $ | 3,086,823 | |
| Cost of revenues - Production | | 29,072 | | | 30,611 | | | 43,783 | |
| Administration expenses | | 9,534 | | | 10,468 | | | 12,539 | |
| Total operating lease costs | | $ | 3,064,876 | | | $ | 3,140,664 | | | $ | 3,143,145 | |
The following summarizes the supplemental cash flow information for the years ended December 31, 2021, 2020, and 2019:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Cash paid for amounts included in measurement of lease liabilities | | $ | 6,263,277 | | | $ | 3,007,066 | | | $ | 2,951,574 | |
| | | | | | |
| Supplemental non-cash information: | | | | | | |
| Right-of-use assets obtained in exchange for lease liabilities | | $ | 2,577,558 | | | $ | 8,823,499 | | | $ | 809,916 | |
The following summarizes the weighted-average remaining lease term and weighted-average discount rate:
| | | | | | | | |
| | December 31, 2021 |
| Weighted-average remaining lease term - operating leases (in years) | | 8.1 |
| Weighted-average discount rate - operating leases | | 2.99 | % |
The following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of December 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| | Railcars | | Other | | Total |
| Year ended December 31: | | | | | | |
| 2022 | | $ | 2,297,068 | | | $ | 278,062 | | | $ | 2,575,130 | |
| 2023 | | 1,375,614 | | | 270,101 | | | 1,645,715 | |
| 2024 | | 978,814 | | | 258,283 | | | 1,237,097 | |
| 2025 | | 917,864 | | | 237,778 | | | 1,155,642 | |
| 2026 | | 711,864 | | | 236,402 | | | 948,266 | |
| Thereafter | | 3,209,072 | | | 1,964,286 | | | 5,173,358 | |
| Total lease payments | | 9,490,296 | | | 3,244,912 | | | 12,735,208 | |
| Less amount of lease payments representing interest | | (1,496,428) | | | (6,222) | | | (1,502,650) | |
| Total present value of lease payments | | $ | 7,993,868 | | | $ | 3,238,690 | | | $ | 11,232,558 | |
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Note 11 - Employee Benefit Plans
The Company maintains a Section 401(k) plan for employees who meet the eligibility requirements set forth in the plan documents. The Company matches a percentage of an employee's contributed earnings. The amounts charged to expense under this plan were approximately $249,000, $214,000, and $186,000 for the years ended December 31, 2021, 2020, and 2019, respectively.
The Company's Board of Managers approved payment of a profit-based incentive bonus to be awarded to eligible employees following the close of each fiscal year. The Board has allocated approximately 4.7% of profits over $2 million to fund this benefit. Individual amounts are based upon criteria determined by a formula that considers current pay, level of responsibility, and impact on profits of each position. The amounts charged to expense under this incentive were approximately $1,289,000, $673,000, and $442,000 for the years ended December 31, 2021, 2020, and 2019, respectively.
Note 12 - Cash Flow Information
The following is a schedule of changes in assets and liabilities used to determine cash from operating activities:
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| Changes in operating assets and liabilities: | | | | | |
| Trade accounts receivable | $ | (7,580,346) | | | $ | (4,572,212) | | | $ | (3,896,533) | |
| Inventories | (26,909,332) | | | (20,562,734) | | | (14,338,269) | |
| Commodity derivative instruments | (7,854,325) | | | (1,358,041) | | | 2,608,222 | |
| Margin account deposit | 3,918,375 | | | 754,159 | | | (4,421,308) | |
| Prepaid expenses | (3,741,574) | | | (208,880) | | | (392,579) | |
| Accounts payable | 425,132 | | | (3,398,184) | | | 2,579,559 | |
| Accrued commodity purchases | 15,929,390 | | | 13,616,371 | | | (4,037,857) | |
| Accrued expenses and interest | 1,248,720 | | | 496,788 | | | (881,469) | |
| Deferred liabilities | (380,998) | | | 1,279,949 | | | (343,926) | |
| Totals | $ | (24,944,958) | | | $ | (13,952,784) | | | $ | (23,124,160) | |
Note 13 - Derivative Instruments and Hedging Activities
In the ordinary course of business, the Company enters into contractual arrangements as a means of managing exposure to changes in commodity prices and, occasionally, foreign exchange and interest rates. The Company’s derivative instruments primarily consist of commodity futures, options and forward contracts, and interest rate swaps, caps and floors. Although these contracts may be effective economic hedges of specified risks, they are not designated as, nor accounted for, as hedging instruments. These contracts are recorded on the Company’s balance sheets at fair value as discussed in Note 14, Fair Value.
As of December 31, 2021 and 2020, the value of the Company’s open futures, options and forward contracts was approximately $(15,711,099) and $(13,523,064), respectively.
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2021 |
| Balance Sheet
Classification | | Asset
Derivatives | | Liability
Derivatives |
| Derivatives not designated as hedging instruments: | | | | |
| Commodity contracts | Current Assets/Liabilities | | $ | 11,584,595 | | | $ | 27,141,888 | |
| Foreign exchange contracts | Current Assets/Liabilities | | 58,673 | | | 68,683 | |
| Interest rate caps and floors | Current Assets/Liabilities | | 290,491 | | | 434,287 | |
| Totals | | | $ | 11,933,759 | | | $ | 27,644,858 | |
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
| | | | | | | | | | | | | | | | | |
| | | | December 31, 2020 |
| Balance Sheet
Classification | | Asset
Derivatives | | Liability
Derivatives |
| Derivatives not designated as hedging instruments: | | | | |
| Commodity contracts | Current Assets/Liabilities | | $ | 28,365,908 | | | $ | 41,196,628 | |
| Foreign exchange contracts | Current Assets/Liabilities | | 50,979 | | | 48,539 | |
| Interest rate caps and floors | Current Assets/Liabilities | | 793 | | | 695,577 | |
| Totals | | | $ | 28,417,680 | | | $ | 41,940,744 | |
During the years ended December 31, 2021, 2020, and 2019, net realized and unrealized gains (losses) on derivative transactions were recognized in the statements of operations as follows:
| | | | | | | | | | | | | | | | | |
| Net Gain (Loss) Recognized on Derivative
Activities for the Year Ending December 31: |
| | 2021 | | 2020 | | 2019 |
| Derivatives not designated as hedging instruments: | | | | | |
| Commodity contracts | $ | (10,308,738) | | | $ | (8,552,207) | | | $ | (4,057,389) | |
| Foreign exchange contracts | 20,409 | | | (34,437) | | | 54,966 | |
| Interest rate swaps, caps and floors | 245,969 | | | (338,533) | | | (148,053) | |
| Totals | $ | (10,042,360) | | | $ | (8,925,177) | | | $ | (4,150,476) | |
The Company recorded gains (losses) of $(10,042,360), $(8,925,177), and $(4,150,476) in cost of goods sold related to its commodity derivative instruments for the years ended December 31, 2021, 2020, and 2019, respectively.
Note 14 - Fair Value
ASC 820, Fair Value Measurements and Disclosures, defines fair value, establishes a comprehensive framework for measuring fair value and expands disclosures which are required about fair value measurements. Specifically, this guidance establishes a hierarchy prioritizing the inputs to valuation techniques, giving the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable value inputs. The three levels of hierarchy and examples are as follows:
•Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reported date. The types of assets and liabilities included in Level 1 are highly liquid and actively traded instruments with quoted prices, such as equities listed on the New York Stock Exchange and commodity derivative contracts listed on the Chicago Board of Trade (“CBOT”).
•Level 2 – Pricing inputs are other than quoted prices in active markets, but are either directly or indirectly observable as of the reported date. The types of assets and liabilities in Level 2 are typically either comparable to actively traded securities or contracts, or priced with models using highly observable inputs, such as commodity prices using forward future prices.
•Level 3 – Significant inputs to pricing that are unobservable as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as complex and subjective models and forecasts used to determine the fair value of financial transmission rights.
The following tables set forth financial assets and liabilities measured at fair value in the balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of December 31, 2021 and 2020:
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of December 31, 2021 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Financial assets: | | | | | | | |
| Inventory | $ | — | | | $ | 94,508,520 | | | $ | — | | | $ | 94,508,520 | |
| Commodity derivative instruments | $ | (15,711,099) | | | $ | — | | | $ | — | | | $ | (15,711,099) | |
| Margin deposits | $ | 2,099,626 | | | $ | — | | | $ | — | | | $ | 2,099,626 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Fair Value as of December 31, 2020 |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| Financial Assets: | | | | | | | |
| Inventory | $ | — | | | $ | 69,127,700 | | | $ | — | | | $ | 69,127,700 | |
| Commodity derivative instruments | $ | (13,523,064) | | | $ | — | | | $ | — | | | $ | (13,523,064) | |
| Margin deposits | $ | 6,018,001 | | | $ | — | | | $ | — | | | $ | 6,018,001 | |
The Company enters into various commodity derivative instruments, including futures, options, swaps and other agreements. The fair value of the Company’s commodity derivatives is determined using unadjusted quoted prices for identical instruments on the CBOT. The Company estimates the fair market value of their finished goods and raw materials inventories using the market price quotations of similar forward future contracts listed on the CBOT and adjusts for the local market adjustments derived from other grain terminals in the area.
The Company considers the carrying amount of significant classes of financial instruments on the balance sheets, including cash, accounts receivable, and accounts payable, to be reasonable estimates of fair value due to their length or maturity. The fair value of the Company’s long-term debt approximates the carrying value. The interest rates on the long-term debt are similar to rates the Company would be able to obtain currently in the market.
The Company has patronage investments in other cooperatives and common and preferred stock holdings in privately held entities. There is no market for their patronage credits or the entity’s common and preferred holdings, and it is impracticable to estimate the fair value of the Company’s investments. These investments are carried on the balance sheet at original cost plus the amount of patronage earnings allocated to the Company, less any cash distributions received.
Note 15 - Related Party Transactions
The Company sold soybean products to Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC totaling $7,333,479, $1,550,772, and $1,582,064 during the years ended December 31, 2021, 2020, and 2019, respectively. As of December 31, 2021 and 2020, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $776,767 and $339,967, respectively.
The Company has entered into agreements with Prairie AquaTech Manufacturing, LLC to perform various management services and to serve as the owner's representative during the construction of its new manufacturing facility adjacent to the Company's plant in Volga, South Dakota. The Company received a total of $1.72 million in compensation for those services, which was recorded in deferred liabilities on the Company's balance sheet. The Company recognized revenues from management services of $0, $121,111, and $758,931 during the years ended December 31, 2021, 2020 and 2019, respectively.
Note 16 - Business Credit Risk and Concentrations
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 $36,568,741 and $28,990,181 at December 31, 2021 and 2020, respectively.
Soybean meal sales accounted for approximately 55%, 62%, and 63% of total revenues for the years ended December 31, 2021, 2020, and 2019, respectively. Soybean oil sales represented approximately 41%, 34%, and 33% of total revenues for the years ended December 31, 2021, 2020, and 2019, respectively.
South Dakota Soybean Processors, LLC
Notes to the Financial Statements
___________________________________________________________________________________________________________________
Net revenue by geographic area for the years ended December 31, 2021, 2020, and 2019 are as follows:
| | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| United States | $ | 474,313,245 | | | $ | 343,415,949 | | | $ | 296,767,276 | |
| Canada | 115,836,908 | | | 71,609,816 | | | 74,508,490 | |
| Totals | $ | 590,150,153 | | | $ | 415,025,765 | | | $ | 371,275,766 | |
Note 17 - Members' Equity
A minimum of 2,500 capital units is required for an ownership interest in the Company. Such units are subject to certain transfer restrictions. The Company retains the right to redeem the units at the greater of $0.20 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 10% of the issued and outstanding capital units. Earnings, losses and cash distributions are allocated to members based on their percentage of ownership in the Company.
On February 2, 2021, the Company's Board of Managers approved a cash distribution of approximately $9.4 million, or 31.0 cents per capital unit. The distribution was paid in accordance with the Company's operating agreement and distribution policy on February 4, 2021.
Note 18 - Contingencies
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. We are not currently involved in any material legal proceedings and are not aware of any potential claims.
Note 19 - Subsequent Events
Except for the events listed below, we evaluated all of our activity and concluded that no subsequent events have occurred that would require recognition in our financial statements or disclosed in the notes to our financial statements.
On February 1, 2022, the Company’s Board of Managers declared a cash distribution to its members of approximately $17.3 million. The distribution was issued and paid to members on February 4, 2022 in accordance with the Company's operating agreement and distribution policy.
On February 9, 2022, the Company announced its plans to construct a multi-seed processing plant near Mitchell, South Dakota. Operation of the facility is expected to begin in 2025.
