Company Quick10K Filing
Quick10K
Granite Falls Energy
10-Q 2019-04-30 Quarter: 2019-04-30
10-Q 2019-01-31 Quarter: 2019-01-31
10-K 2018-10-31 Annual: 2018-10-31
10-Q 2018-07-31 Quarter: 2018-07-31
10-Q 2018-04-30 Quarter: 2018-04-30
10-Q 2018-01-31 Quarter: 2018-01-31
10-K 2017-10-31 Annual: 2017-10-31
10-Q 2017-07-31 Quarter: 2017-07-31
10-Q 2017-04-30 Quarter: 2017-04-30
10-Q 2017-01-31 Quarter: 2017-01-31
10-K 2016-10-31 Annual: 2016-10-31
10-Q 2016-07-31 Quarter: 2016-07-31
10-Q 2016-04-30 Quarter: 2016-04-30
10-Q 2016-01-31 Quarter: 2016-01-31
10-K 2015-10-31 Annual: 2015-10-31
10-Q 2015-07-31 Quarter: 2015-07-31
10-Q 2015-04-30 Quarter: 2015-04-30
10-Q 2015-01-31 Quarter: 2015-01-31
10-K 2014-10-31 Annual: 2014-10-31
10-Q 2014-07-31 Quarter: 2014-07-31
10-Q 2014-04-30 Quarter: 2014-04-30
10-Q 2014-01-31 Quarter: 2014-01-31
10-K 2013-10-31 Annual: 2013-10-31
8-K 2019-03-25 Shareholder Vote
8-K 2018-12-19 Earnings, Regulation FD, Other Events, Exhibits
8-K 2018-07-06 Enter Agreement
8-K 2018-03-27 Shareholder Vote
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C749 2019-04-30
Part Ifinancial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II. Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits.
EX-31.1 gfe-20190430ex3112ee775.htm
EX-31.2 gfe-20190430ex3121fe29d.htm
EX-32.1 gfe-20190430ex32105ada3.htm
EX-32.2 gfe-20190430ex32204aa92.htm

Granite Falls Energy Earnings 2019-04-30

C749 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

10-Q 1 gfe-20190430x10q.htm gfe_Current_Folio_10Q

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the quarterly period ended April 30, 2019

 

OR

 

Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the transition period from               to               .

 

COMMISSION FILE NUMBER 000-51277

 

GRANITE FALLS ENERGY, LLC

(Exact name of registrant as specified in its charter)

 

 

 

 

Minnesota

 

41-1997390

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

 

 

15045 Highway 23 SE, Granite Falls, MN 56241-0216

(Address of principal executive offices)

 

(320) 564-3100

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

☒Yes    ☐No

 

Indicate by checkmark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

☒Yes    ☐No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

 

 

 

 

 

 

 

Large Accelerated Filer

Non-Accelerated Filer

Accelerated Filer

Smaller Reporting Company

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes    ☒No

 

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

As of June 14, 2019, there were 30,606 membership units outstanding.

 

 

 

 

2

 

PART IFINANCIAL INFORMATION

 

Item 1.  Financial Statements

 

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

 

 

 

 

 

 

 

 

 

 

    

April 30, 2019

    

October 31, 2018

 

 ASSETS

    

(unaudited)

    

 

 

Current Assets

 

 

 

 

 

 

 

Cash

 

$

8,260,821

 

$

14,901,091

 

Restricted cash

 

 

399,875

 

 

 —

 

Accounts receivable

 

 

7,343,885

 

 

7,325,203

 

Inventory

 

 

12,327,731

 

 

14,916,809

 

Commodity derivative instruments

 

 

69,951

 

 

957,938

 

Prepaid expenses and other current assets

 

 

1,068,068

 

 

506,926

 

Total current assets

 

 

29,470,331

 

 

38,607,967

 

 

 

 

 

 

 

 

 

Property and Equipment, net

 

 

62,340,485

 

 

66,675,671

 

 

 

 

 

 

 

 

 

Goodwill

 

 

1,372,473

 

 

1,372,473

 

 

 

 

 

 

 

 

 

Investments

 

 

9,500,000

 

 

9,500,000

 

 

 

 

 

 

 

 

 

Other Assets

 

 

685,884

 

 

704,958

 

 

 

 

 

 

 

 

 

Total Assets

 

$

103,369,173

 

$

116,861,069

 

 

 

 

 

 

 

 

 

LIABILITIES AND MEMBERS' EQUITY

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

Current maturities of long-term debt

 

$

1,113,488

 

$

659,791

 

Accounts payable

 

 

4,692,006

 

 

10,033,168

 

Commodity derivative instruments

 

 

98,776

 

 

50,360

 

Accrued expenses

 

 

1,401,153

 

 

1,388,293

 

Total current liabilities

 

 

7,305,423

 

 

12,131,612

 

 

 

 

 

 

 

 

 

Long-Term Debt, less current portion

 

 

7,333,812

 

 

7,799,410

 

 

 

 

 

 

 

 

 

Commitments and Contingencies

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Members' Equity

 

 

 

 

 

 

 

Members' equity attributable to Granite Falls Energy, LLC consists of 30,606 units authorized, issued, and outstanding at both April 30, 2019 and October 31, 2018

 

 

68,379,405

 

 

75,083,782

 

Non-controlling interest

 

 

20,350,533

 

 

21,846,265

 

Total members' equity

 

 

88,729,938

 

 

96,930,047

 

 

 

 

 

 

 

 

 

Total Liabilities and Members' Equity

 

$

103,369,173

 

$

116,861,069

 

 

Notes to Condensed Consolidated Unaudited Financial Statements are an integral part of this Statement.

 

 

3

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 

 

Six Months Ended April 30, 

 

 

 

2019

 

2018

 

2019

 

2018

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

49,424,390

 

$

55,550,274

 

$

98,799,487

 

$

108,543,773

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of Goods Sold

 

 

50,418,243

 

 

51,734,835

 

 

102,528,865

 

 

101,723,342

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit (Loss)

 

 

(993,853)

 

 

3,815,439

 

 

(3,729,378)

 

 

6,820,431

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Expenses

 

 

1,626,519

 

 

1,648,003

 

 

3,396,692

 

 

3,328,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating Income (Loss)

 

 

(2,620,372)

 

 

2,167,436

 

 

(7,126,070)

 

 

3,492,285

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Income (Expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

 

226,206

 

 

72,124

 

 

227,665

 

 

331,380

 

Interest income

 

 

43,436

 

 

23,380

 

 

116,711

 

 

69,853

 

Interest expense

 

 

(80,526)

 

 

(102,731)

 

 

(194,189)

 

 

(208,486)

 

Total other income (expense), net

 

 

189,116

 

 

(7,227)

 

 

150,187

 

 

192,747

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

(2,431,256)

 

$

2,160,209

 

$

(6,975,883)

 

$

3,685,032

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less: Net (Income) Loss Attributable to Non-controlling Interest

 

 

528,607

 

 

(662,607)

 

 

1,495,732

 

 

(1,135,825)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Attributable to Granite Falls Energy, LLC

 

$

(1,902,649)

 

$

1,497,602

 

$

(5,480,151)

 

$

2,549,207

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average Units Outstanding - Basic and Diluted

 

 

30,606

 

 

30,606

 

 

30,606

 

 

30,606

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to Granite Falls Energy, LLC:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss) Per Unit - Basic and Diluted

 

$

(62.17)

 

$

48.93

 

$

(179.05)

 

$

83.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Distributions Per Unit

 

$

 —

 

$

 —

 

$

40.00

 

$

385.00

 

 

Notes to Condensed Consolidated Unaudited Financial Statements are an integral part of this Statement.

4

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Changes in Members’ Equity

 

 

 

 

 

 

 

 

 

 

Members' Equity attributable to

 

 

 

 

 

 

Granite Falls Energy, LLC

 

Non-controlling Interest

 

Total Members' Equity

 

 

 

 

 

 

 

Balance - October 31, 2018

 

$ 75,083,782

 

$ 21,846,265

 

$ 96,930,047

 

 

 

 

 

 

 

Member distribution

 

(1,224,226)

 

 -

 

(1,224,226)

Net loss attributable to non-controlling interest

 

 -

 

(967,125)

 

(967,125)

Net loss attributable to Granite Falls Energy, LLC

 

(3,577,502)

 

 -

 

(3,577,502)

 

 

 

 

 

 

 

Balance - January 31, 2019

 

$ 70,282,054

 

$ 20,879,140

 

$ 91,161,194

 

 

 

 

 

 

 

Net loss attributable to non-controlling interest

 

 -

 

(528,607)

 

(528,607)

Net loss attributable to Granite Falls Energy, LLC

 

(1,902,649)

 

 -

 

(1,902,649)

 

 

 

 

 

 

 

Balance - April 30, 2019

 

$ 68,379,405

 

$ 20,350,533

 

$ 88,729,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - October 31, 2017

 

$ 83,998,672

 

$ 25,645,283

 

$ 109,643,955

 

 

 

 

 

 

 

Member distribution

 

(11,779,102)

 

(4,311,192)

 

(16,090,294)

Net income attributable to non-controlling interest

 

 -

 

473,217

 

473,217

Net income attributable to Granite Falls Energy, LLC

 

1,051,606

 

 -

 

1,051,606

 

 

 

 

 

 

 

Balance - January 31, 2018

 

$ 73,271,176

 

$ 21,807,308

 

$ 95,078,484

 

 

 

 

 

 

 

Net income attributable to non-controlling interest

 

 -

 

662,607

 

662,607

Net income attributable to Granite Falls Energy, LLC

 

1,497,602

 

 -

 

1,497,602

 

 

 

 

 

 

 

Balance - April 30, 2018

 

$ 74,768,778

 

$ 22,469,915

 

$ 97,238,693

 

 

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements are an integral part of this Statement.

 

 

 

 

 

 

 

 

5

GRANITE FALLS ENERGY, LLC AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

 

 

 

 

 

 

 

 

 

 

    

Six Months Ended April 30, 

 

 

 

2019

 

2018

 

 

 

(unaudited)

 

(unaudited)

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

(6,975,883)

 

$

3,685,032

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operations:

 

 

 

 

 

 

 

Depreciation and amortization

 

 

4,720,009

 

 

4,606,217

 

Change in fair value of commodity derivative instruments

 

 

(288,819)

 

 

819,089

 

Gain on sale of assets

 

 

 —

 

 

(24,815)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Commodity derivative instruments

 

 

1,225,222

 

 

(121,006)

 

Accounts receivable

 

 

(18,682)

 

 

3,113,506

 

Inventory

 

 

2,589,078

 

 

1,091,646

 

Prepaid expenses and other current assets

 

 

(561,142)

 

 

(235,604)

 

Accounts payable

 

 

(5,314,204)

 

 

(2,961,045)

 

Accrued expenses

 

 

12,860

 

 

496,735

 

Net Cash Provided by (Used in) Operating Activities

 

 

(4,611,561)

 

 

10,469,755

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

Payments for capital expenditures

 

 

(392,707)

 

 

(997,207)

 

Proceeds from disposal of assets

 

 

 —

 

 

24,815

 

Net Cash Used in Investing Activities

 

 

(392,707)

 

 

(972,392)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

Payments on long-term debt

 

 

(11,901)

 

 

(121,892)

 

Distributions to non-controlling interests

 

 

 —

 

 

(4,311,192)

 

Member distributions paid

 

 

(1,224,226)

 

 

(11,779,102)

 

Net Cash Used in Financing Activities

 

 

(1,236,127)

 

 

(16,212,186)

 

 

 

 

 

 

 

 

 

Net Decrease in Cash and Restricted Cash

 

 

(6,240,395)

 

 

(6,714,823)

 

 

 

 

 

 

 

 

 

Cash and Restricted Cash - Beginning of Period

 

 

14,901,091

 

 

21,733,611

 

 

 

 

 

 

 

 

 

Cash and Restricted Cash - End of Period

 

$

8,660,696

 

$

15,018,788

 

 

 

 

 

 

 

 

 

Reconciliation of Cash and Restricted Cash

 

 

 

 

 

 

 

Cash - Balance Sheet

 

$

8,260,821

 

$

13,662,916

 

Restricted Cash - Balance Sheet

 

 

399,875

 

 

1,355,872

 

Cash and Restricted Cash

 

$

8,660,696

 

$

15,018,788

 

 

 

 

 

 

 

 

 

Supplemental Cash Flow Information

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

Interest expense

 

$

194,189

 

$

208,486

 

 

 

 

 

 

 

 

 

Supplemental Disclosure of Non-Cash Investing and Financing Activities

 

 

 

 

 

 

 

Capital expenditures and construction in process included in accounts payable

 

$

29,464

 

$

 —

 

 

Notes to Condensed Consolidated Unaudited Financial Statements are an integral part of this Statement.

 

6

Table of Contents

 

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Nature of Business

 

Granite Falls Energy, LLC (“GFE”) is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers' grains, and crude corn oil near Granite Falls, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States and on the international market. GFE's plant has an approximate annual production capacity of 60 million gallons, but is currently permitted to produce up to 70 million gallons of undenatured ethanol on a twelve month rolling sum basis.

 

Additionally, GFE owns a majority interest in Heron Lake BioEnergy, LLC (“HLBE”). HLBE is a Minnesota limited liability company currently producing fuel-grade ethanol, distillers' grains, and crude corn oil near Heron Lake, Minnesota and sells these products, pursuant to marketing agreements, throughout the continental United States. HLBE's plant has an approximate annual production capacity of 60 million gallons, but is permitted to produce approximately 72.3 million gallons of undenatured ethanol on a twelve month rolling sum basis. HLBE owns a majority interest in Agrinatural Gas, LLC (“Agrinatural”), which operates a natural gas pipeline that provides natural gas to HLBE's ethanol production facility and other customers.

 

All references to “we”, “us”, “our”, and the “Company” collectively refer to GFE and its wholly-owned and majority-owned subsidiaries.

 

Basis of Presentation and Principles of Consolidation

 

The condensed consolidated unaudited financial statements as of April 30, 2019 consolidate the operating results and financial position of GFE, and its approximately 50.7% owned subsidiary, HLBE (through GFE's 100% ownership of Project Viking, LLC). Given the Company’s control over the operations of HLBE and its majority voting interest, the Company consolidates the condensed consolidated unaudited financial statements of HLBE with GFE's condensed consolidated unaudited financial statements. The remaining 49.3% ownership of HLBE is included in the condensed consolidated unaudited financial statements as a non-controlling interest. HLBE, through its wholly owned subsidiary, HLBE Pipeline Company, LLC, owns approximately 73% of Agrinatural. Given HLBE’s control over the operations of Agrinatural and its majority voting interest, HLBE consolidates the financial statements of Agrinatural with its consolidated unaudited financial statements, with the equity and earnings attributed to the remaining approximately 27% noncontrolling interest. All significant intercompany balances and transactions are eliminated in consolidation.

 

The accompanying condensed consolidated unaudited financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited consolidated financial statements for the year ended October 31, 2018, contained in the Company’s annual report on Form 10-K.

 

In the opinion of management, the condensed consolidated unaudited financial statements reflect all adjustments consisting of normal recurring accruals that we consider necessary to present fairly the Company’s results of operations, financial position and cash flows. The results reported in these condensed consolidated unaudited financial statements should not be regarded as necessarily indicative of results that may be expected for any other fiscal period or for the fiscal year.

 

Reportable Operating Segments

 

Accounting Standards Codification (“ASC”) 280, “Segment Reporting,” establishes the standards for reporting information about segments in financial statements. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Therefore, in applying the criteria set forth in ASC 280, the Company determined that based on the nature of the products and production process and the expected financial results,

7

Table of Contents

 

Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

the Company’s operations at GFE’s ethanol plant and HLBE’s plant, including the production and sale of ethanol and its co-products, are aggregated into one reporting segment.

 

Additionally, the Company also realizes relatively immaterial revenue from natural gas pipeline operations at Agrinatural, HLBE’s majority owned subsidiary. Before and after accounting for intercompany eliminations, these revenues from Agrinatural’s represent less than less than 1% of our consolidated revenues and have little to no impact on the overall performance of the Company. Therefore, the Company does not separately review Agrinatural’s revenues, cost of sales or other operating performance information. Rather, the Company reviews Agrinatural’s natural gas pipeline financial data on a consolidated basis with the Company’s ethanol production operating segment. The Company believes that the presentation of separate operating performance information for Agrinatural’s natural gas pipeline operations would not provide meaningful information to a reader of the Company’s consolidated financial statements and would not achieve the basic principles and objectives of ASC 280.

 

Accounting Estimates

 

Management uses estimates and assumptions in preparing these condensed consolidated unaudited financial statements in accordance with generally accepted accounting principles in the United States of America. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for the following significant matters, among others: economic lives of property and equipment, valuation of commodity derivatives, inventory, inventory purchase and sale commitments, evaluation of railcar damages contingency, and the assumptions used in the impairment analysis of long-lived assets, which includes goodwill. Actual results may differ from previously estimated amounts, and such differences may be material to our condensed consolidated unaudited financial statements. The Company periodically reviews estimates and assumptions, and the effects of revisions are reflected in the period in which the revision is made.

 

Revenue Recognition

 

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. Our contracts primarily consist of agreements with marketing companies and other customers as described below. Our performance obligations consist of the delivery of ethanol, distillers' grains, and corn oil to our customers. Our customers primarily consist of two distinct marketing companies as described below. The consideration we receive for these products is fixed or determinable based on current observable market prices at the Chicago Mercantile Exchange, generally, and adjusted for local market differentials. Our contracts have specific delivery modes, rail or truck, and dates. Revenue is recognized when the Company delivers the products to the mode of transportation specified in the contract, at the transaction price established in the contract, net of commissions, fees, and freight. We sell each of the products via different marketing channels as described below.

 

·

Ethanol. The Company sells its ethanol via a marketing agreement with Eco-Energy, Inc. Eco-Energy sells one hundred percent of the Company's ethanol production based on agreements with end users at prices agreed upon mutually among the end user, Eco-Energy and the Company. Our performance obligations consist of our obligation to deliver ethanol to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. The marketing agreement calls for control and title to pass to Eco-Energy once a rail car is released to the railroad or a truck is released from the Company's scales. Revenue is recognized then at the price in the agreement with the end user, net of commissions, freight, and fees.

 

·

Distillers grains. The Company engages another third-party marketing company, RPMG, Inc., to sell one hundred percent of the distillers grains it produces at the plant. RPMG takes title and control once a rail car is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company.  Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

 

·

Distillers corn oil (corn oil). The Company sells one hundred percent of its corn oil production to RPMG, Inc.  The process for selling corn oil is the same as our distillers’ grains. RPMG takes title and control once a rail car

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

is released to the railroad or a truck is released from the Company's scales. Prices are agreed upon between RPMG and the Company. Our performance obligations consist of our obligation to deliver corn oil to our customers. Our customer contracts consist of orders received from the customer pursuant to a marketing agreement. Revenue is recognized net of commissions, freight and fees.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value. Cost for all inventories is determined using the first in first out method (“FIFO”). Net realizable value is the estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal, and transportation. Inventory consists of raw materials, work in process, finished goods, and spare parts. Corn is the primary raw material along with other raw materials.  Finished goods consist of ethanol, distillers' grains, and corn oil.

 

Derivative Instruments

 

From time to time the Company enters into derivative transactions to hedge its exposures to commodity price fluctuations. The Company is required to record these derivatives on the balance sheets at fair value.

 

In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recorded in earnings.

 

Additionally, the Company is required to evaluate its contracts to determine whether the contracts are derivatives. Certain contracts that literally meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting and reporting requirements, and therefore, are not marked to market in our condensed consolidated unaudited financial statements.

 

In order to reduce the risks caused by market fluctuations, the Company occasionally hedges its anticipated corn, natural gas, and denaturant purchases and ethanol sales by entering into options and futures contracts. These contracts are used with the intention to fix the purchase price of anticipated requirements for corn in the Company's ethanol production activities and the related sales price of ethanol. The fair value of these contracts is based on quoted prices in active exchange-traded or over-the-counter market conditions. Although the Company believes its commodity derivative positions are economic hedges, none have been formally designated as a hedge for accounting purposes and derivative positions are recorded on the balance sheet at their fair market value, with changes in fair value recognized in current period earnings or losses. The Company does not enter into financial instruments for trading or speculative purposes.

 

The Company has adopted authoritative guidance related to “Derivatives and Hedging,” and has included the required enhanced quantitative and qualitative disclosure about objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses from derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. See further discussion in Note 5.

 

Investments 

 

On November 1, 2016, GFE subscribed to purchase 1,500 capital units of Ringneck Energy & Feed, LLC (“Ringneck”) at a price of $5,000 per unit for a total of $7,500,000.  Ringneck is a South Dakota limited liability company which is constructing an 80 million gallon per year ethanol manufacturing plant outside of Onida, South Dakota in Sully County. Construction has reached substantial completion and the plant is commencing operations. GFE’s investment is sufficient to secure the Company the right to appoint one director to the board of directors of Ringneck. GFE has appointed Steve Christensen, its CEO, to serve as its appointed director.

 

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

GFE paid a down payment of $750,000 in connection with the subscription, and signed a promissory note for $6,750,000 for the remaining balance of the subscription. On August 2, 2017, following notice from Ringneck accepting GFE’s subscription and that payment of the balance of GFE’s subscription and promissory note was due, GFE borrowed $7.5 million under its credit facility with Project Hawkeye, LLC (“Project Hawkeye”) and paid $6,750,000 to Ringneck as payment for the remaining balance of GFE’s subscription.  Project Hawkeye is an affiliate of Fagen, Inc., which is a member of GFE.  See Note 7 below for the terms of GFE’s credit facility with Project Hawkeye.

 

On June 29, 2018, GFE executed a subscription agreement for investment in Harvestone Group, LLC (“Harvestone”), a Delaware limited liability company, and a Joinder to the Operating Agreement of Harvestone.  In connection with the execution of the subscription agreement and joinder, GFE made a capital contribution of $2.0 million in exchange for twenty (20) preferred membership units and was sufficient to secure GFE the right to appoint one advisor to the advisory committee to the managers of Harvestone.  GFE has appointed Eric Baukol, its Risk Manager, to serve as its appointed advisor. Harvestone is a start-up ethanol marketing, logistics, and trading company headquartered in Franklin, Tennessee.  Harvestone is owned by several other ethanol producers and other private investors that expects that its primary business will be marketing and trading for member and non-member ethanol producers. The marketing and trading commenced in January 2019.

 

The investments are accounted for by the equity method, under which the Company’s share of the net income of the investee is recognized as income in the Company’s Condensed Consolidated Statements of Operations and added to the investment account, and distributions received from the affiliates are treated as a reduction of the investment.

 

Recently Adopted Accounting Pronouncements

 

Effective November 1, 2018, the Company adopted the amended guidance ASC Topic 606, Revenue from Contracts with Customers. Refer to Note 1 – Summary of Significant Accounting Policies and Note 3 – Revenue for further details.

 

In November 2016 the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-18, Restricted Cash, which amended Statement of Cash Flows (Topic 230) of the Accounting Standards Codification. The new guidance requires an entity to reconcile and explain the period-over-period change in total cash, cash equivalents, restricted cash and restricted cash equivalents within its statement of cash flows. Effective November 1, 2018, the Company adopted the new standard and has applied it retrospectively. Accordingly, the condensed consolidated statements of cash flows for the periods ended April 30, 2019 and 2018 have been adjusted from amounts previously reported.

 

In August 2018, the SEC adopted the final rule under SEC Release No. 33-10532, "Disclosure Update and Simplification," amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. In addition, the amendments expanded the disclosure requirements on the analysis of stockholders' equity for interim financial statements. Under the amendments, an analysis of changes in each caption of stockholders' equity presented in the balance sheet must be provided in a note or separate statement. The analysis must present a reconciliation of the beginning balance to the ending balance for each period for which a statement of comprehensive income is required to be filed. Accordingly, the condensed consolidated statements of changes in members’ equity for the periods ended April 30, 2019 and 2018 have been presented.

 

2.   RISKS AND UNCERTAINTIES

 

The Company has certain risks and uncertainties that it experiences during volatile market conditions. These volatilities can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol, distillers' grains, corn oil, and natural gas to customers primarily located in the United States. Corn for the production process is supplied to our plant primarily from local agricultural producers and from purchases on the open market. Ethanol sales typically average 75% - 90% of total revenues and corn costs typically average 65% - 85% of cost of goods sold.

 

The Company's operating and financial performance is largely driven by the prices at which they sell ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, the weather, government policies and programs, and unleaded gasoline prices and the petroleum markets as a whole. Excess ethanol supply in the

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

market, in particular, puts downward pressure on the price of ethanol. The Company’s largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, the weather, government policies and programs, and a risk management program used to protect against the price volatility of these commodities. Market fluctuations in the price of and demand for these products may have a significant adverse effect on the Company’s operations, profitability and the availability and adequacy of cash flow to meet the Company’s working capital requirements.

 

The Company, and the ethanol industry as a whole, experienced significant adverse conditions throughout most of 2018 and into 2019 as a result of industry-wide record low ethanol prices due to reduced demand and high industry inventory levels. These factors resulted in prolonged negative operating margins, significantly lower cash flow from operations and substantial net losses. Margins improved for the second fiscal quarter of 2019. The Company believes its cash on hand and available debt from its lender will provide sufficient liquidity to meet its anticipated working capital, debt service and other liquidity needs through the next twelve months.

 

3.   REVENUE

 

Adoption of ASC Topic 606

 

On November 1, 2018, the Company adopted the amended guidance in ASC Topic 606, Revenue from Contracts with Customers, and all related amendments (“new revenue standard”) and applied it to all contracts using the modified retrospective transition method. The adoption of the new revenue standard did not result in any changes to the timing or amount of revenue recognized prior to November 1, 2018, but did result in expanded disclosures to our consolidated financial statements.

 

Revenue by Source

 

All revenues from contracts with customers under ASC Topic 606 are recognized at a point in time. The following table disaggregates revenue by major source for the three and six months ended April 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended April 30, 2019

 

 

Ethanol Production

 

 

Natural Gas Pipeline

 

 

Total

Ethanol

$

38,521,636

 

$

 

$

38,521,636

Distillers’ Grains

 

8,651,733

 

 

 

 

8,651,733

Corn Oil

 

1,600,398

 

 

 

 

1,600,398

Other

 

260,264

 

 

 

 

260,264

Natural Gas

 

 

 

390,359

 

 

390,359

Total Revenues

$

49,034,031

 

$

390,359

 

$

49,424,390

 

 

 

 

 

 

 

 

 

 

Six Months Ended April 30, 2019

 

 

Ethanol Production

 

 

Natural Gas Pipeline

 

 

Total

Ethanol

$

74,486,921

 

$

 

$

74,486,921

Distillers’ Grains

 

19,221,992

 

 

 

 

19,221,992

Corn Oil

 

3,593,734

 

 

 

 

3,593,734

Other

 

524,567

 

 

 

 

524,567

Natural Gas

 

 

 

972,273

 

 

972,273

Total Revenues

$

97,827,214

 

$

972,273

 

$

98,799,487

 

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

Payment Terms

 

The Company has contractual payment terms with each respective marketer that sells ethanol, distillers’ grains and corn oil. These terms are 10 calendar days after the transfer of control date.

 

Shipping and Handling Costs

 

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 goods sold. Accordingly, amounts billed to customers for such costs are included as a component of revenue.

 

4.   INVENTORY

 

Inventories consist of the following:

 

 

 

 

 

 

 

 

 

 

    

April 30,  2019

    

October 31,  2018

 

 

 

(unaudited)

    

 

 

Raw materials

 

$

3,386,550

 

$

4,508,297

 

Supplies

 

 

3,062,407

 

 

2,957,452

 

Work in process

 

 

1,503,116

 

 

1,222,251

 

Finished goods

 

 

4,375,658

 

 

6,228,809

 

Totals

 

$

12,327,731

 

$

14,916,809

 

 

The Company performs a lower of cost or net realizable value analysis on inventory to determine if the net realizable values of certain inventories are less than their carrying value, which is attributable primarily to decreases in market prices of corn and ethanol. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on ethanol inventories of approximately $765,000 and $82,000 for the six months ended April 30, 2019 and 2018, respectively. Based on the lower of cost or net realizable value analysis, as a component of cost of goods sold, the Company recorded a loss on corn inventories of approximately $95,000 for the six months ended April 30, 2019.

 

5.   DERIVATIVE INSTRUMENTS

 

As of April 30, 2019, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 8,055,000 bushels, comprised of long corn futures positions on 1,235,000 bushels that were entered into to hedge forecasted ethanol sales through December 2019, and short corn futures positions on 2,070,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. Additionally, there are corn options positions of 4,750,000 bushels through July 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

 

As of April 30, 2019, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 5,360,000 bushels, comprised of short corn futures positions on 610,000 bushels that were entered into to hedge forecasted corn purchases through December 2020. Additionally, there are corn options positions of 4,750,000 bushels through July 2019. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

 

As of April 30, 2019, GFE had approximately $140,000 of cash collateral (restricted cash) related to derivatives held by a broker.

 

As of April 30, 2019, HLBE had approximately $260,000 of cash collateral (restricted cash) related to derivatives held by a broker.

 

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

The following tables provide details regarding the Company's derivative instruments at April 30, 2019, none of which were designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

    

Consolidated Balance Sheet Location

    

Assets

    

Liabilities

 

Corn contracts - GFE

 

Commodity derivative instruments

 

$

69,951

 

$

 —

 

Corn contracts - HLBE

 

Commodity derivative instruments

 

 

 —

 

 

67,063

 

Ethanol contracts - GFE

 

Commodity derivative instruments

 

 

 —

 

 

31,713

 

Totals

 

 

 

$

69,951

 

$

98,776

 

 

As of October 31, 2018, the total notional amount of GFE’s outstanding corn derivative instruments was approximately 3,105,000 bushels, comprised of long corn positions on 575,000 bushels that were entered into to hedge forecasted ethanol sales through July 2019, and short corn positions on 2,530,000 bushels that were entered into to hedge forecasted corn purchases through December 2021. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

 

As of October 31, 2018, GFE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

 

As of October 31, 2018, the total notional amount of HLBE’s outstanding corn derivative instruments was approximately 2,685,000 bushels, comprised of long corn positions on 510,000 bushels that were entered into to hedge forecasted ethanol sales through July 2019, and short corn positions on 2,175,000 bushels that were entered into to hedge forecasted corn purchases through March 2020. There may be offsetting positions that are not shown on a net basis that could lower the notional amount of positions outstanding.

 

As of October 31, 2018, HLBE did not have any cash collateral (restricted cash) related to derivatives held by a broker.

 

The following tables provide details regarding the Company's derivative instruments at October 31, 2018, none of which were designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

    

Consolidated Balance Sheet Location

    

Assets

    

Liabilities

 

Corn contracts - GFE

 

Commodity derivative instruments

 

$

532,300

 

$

 —

 

Corn contracts - HLBE

 

Commodity derivative instruments

 

 

425,638

 

 

 —

 

Corn contracts - GFE

 

Commodity derivative instruments

 

 

 —

 

 

25,180

 

Corn contracts - HLBE

 

Commodity derivative instruments

 

 

 —

 

 

25,180

 

Totals

 

 

 

$

957,938

 

$

50,360

 

 

The following tables provide details regarding the gains (losses) from Company's derivative instruments in the consolidated statements of operations, none of which are designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated Statement

 

Three Months Ended  April 30, 

 

Fiscal Six Months Ended April 30, 

 

    

 of Operations Location

    

2019

    

2018

 

2019

    

2018

Corn contracts

 

Cost of Goods Sold

 

$

281,424

 

$

(946,543)

 

$

325,652

 

$

(1,211,611)

Ethanol contracts

 

Revenues

 

 

(36,833)

 

 

254,623

 

 

(36,833)

 

 

394,120

Natural gas contracts

 

Cost of Goods Sold

 

 

 —

 

 

(13,936)

 

 

 —

 

 

(1,598)

Total gain (loss)

 

 

 

$

244,591

 

$

(705,856)

 

$

288,819

 

$

(819,089)

 

 

 

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Granite Falls Energy, LLC and Subsidiaries

Notes to Condensed Consolidated Unaudited Financial Statements

April 30, 2019

 

6.   FAIR VALUE

 

The following table sets forth, by level, the Company assets that were accounted for at fair value on a recurring basis at April 30, 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement Using

 

 

 

 

 

 

 

 

Quoted Prices

 

Significant Other

 

Significant

 

 

 

Carrying Amount in

 

 

 

 

in Active Markets

 

Observable Inputs

 

Unobservable Inputs

 

Financial Asset:

 

Consolidated Balance Sheet

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Commodity Derivative Instruments - Corn

 

$

69,951

 

$

69,951

 

$

69,951

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commodity Derivative Instruments - Ethanol

 

$

31,713

 

$

31,713

 

$

31,713

 

$

 —

 

$

 —

 

Commodity Derivative Instruments - Corn

 

$

67,063

 

$

67,063

 

$

67,063

 

$

 —

 

$

 —

 

 

The following table provides information on those derivative assets and liabilities measured at fair value on a recurring basis at October 31, 2018:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurement Using

 

 

 

 

 

 

 

 

Quoted Prices

 

Significant Other

 

Significant

 

 

 

Carrying Amount in

 

 

 

 

in Active Markets

 

Observable Inputs

 

Unobservable Inputs

 

Financial Asset:

 

Consolidated Balance Sheet

 

Fair Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

Commodity Derivative Instruments - Corn

 

$

957,938

 

$

957,938

 

$

957,938

 

$

 —

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial Liabilities: