Company Quick10K Filing
South Dakota Soybean Processors
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 -0 $-0
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-09 Quarter: 2019-06-30
10-Q 2019-05-10 Quarter: 2019-03-31
10-K 2019-03-20 Annual: 2018-12-31
10-Q 2018-11-08 Quarter: 2018-09-30
10-Q 2018-08-10 Quarter: 2018-06-30
10-Q 2018-05-10 Quarter: 2018-03-31
10-K 2018-03-21 Annual: 2017-12-31
10-Q 2017-11-09 Quarter: 2017-09-30
10-Q 2017-07-25 Quarter: 2017-06-30
10-Q 2017-05-12 Quarter: 2017-03-31
10-K 2017-03-22 Annual: 2016-12-31
10-Q 2016-11-09 Quarter: 2016-09-30
10-Q 2016-08-05 Quarter: 2016-06-30
10-Q 2016-05-12 Quarter: 2016-03-31
10-K 2016-03-23 Annual: 2015-12-31
10-Q 2015-11-12 Quarter: 2015-09-30
10-Q 2015-08-14 Quarter: 2015-06-30
10-Q 2015-05-13 Quarter: 2015-03-31
10-K 2015-03-25 Annual: 2014-12-31
10-Q 2014-11-10 Quarter: 2014-09-30
10-Q 2014-08-12 Quarter: 2014-06-30
10-Q 2014-05-09 Quarter: 2014-03-31
10-K 2014-03-21 Annual: 2013-12-31
10-Q 2013-11-06 Quarter: 2013-09-30
10-Q 2013-08-09 Quarter: 2013-06-30
10-Q 2013-05-14 Quarter: 2013-03-31
10-K 2013-03-25 Annual: 2012-12-31
10-Q 2012-11-14 Quarter: 2012-09-30
10-Q 2012-08-14 Quarter: 2012-06-30
10-Q 2012-05-15 Quarter: 2012-03-31
10-K 2012-03-30 Annual: 2011-12-31
10-Q 2011-11-21 Quarter: 2011-09-30
10-Q 2011-08-15 Quarter: 2011-06-30
10-Q 2011-05-16 Quarter: 2011-03-31
10-K 2011-03-30 Annual: 2010-12-31
10-Q 2010-11-10 Quarter: 2010-09-30
10-Q 2010-08-16 Quarter: 2010-06-30
10-Q 2010-05-11 Quarter: 2010-03-31
10-K 2010-03-26 Annual: 2009-12-31
8-K 2020-01-27 Enter Agreement, Off-BS Arrangement
8-K 2020-01-21 Other Events
8-K 2020-01-01 Officers, Exhibits
8-K 2019-06-18 Shareholder Vote
8-K 2019-02-27 Earnings, Exhibits
8-K 2019-02-05 Other Events
8-K 2018-11-23 Enter Agreement, Off-BS Arrangement
8-K 2018-06-19 Shareholder Vote
8-K 2018-02-27 Enter Agreement, Off-BS Arrangement
8-K 2018-02-06 Other Events
SDSP 2019-09-30
Part I - Financial Information
Item 1. Financial Statements
Note 1 - Principal Activity and Significant Accounting Policies
Note 2 - Accounts Receivable
Note 3 - Inventories
Note 4 - Investments in Related Parties
Note 5 - Property and Equipment
Note 6 - Note Payable - Seasonal Loan
Note 7 - Long-Term Debt
Note 8 - Operating Leases
Note 9 - Member Distribution
Note 10 - Derivative Instruments and Hedging Activities
Note 11 - Fair Value
Note 12 - Related Party Transactions
Note 13 - Commitments and Contingencies
Note 14 - Subsequent Event
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 exhibit3112019q3.htm
EX-31.2 exhibit3122019q3.htm
EX-32.1 exhibit3212019q3.htm
EX-32.2 exhibit3222019q3.htm

South Dakota Soybean Processors Earnings 2019-09-30

SDSP 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
PL 117,446 109,083 5,464 0 393 552 -243 0% -0.4 0%
BRKA 760,108 373,717 251,440 0 29,220 53,416 -45,102 0% -0.8 4%
ZETAI 0 0 0 0 -0 -0 -0 0.4 -413%
JAKRO 9 4 11 6 0 1 -3 58% -3.7 4%
C964 58 7 103 -1 -4 1 -5 -1% -4.2 -7%
GCC 130 0 0 0 -8 -8 -5 0.6 -7%
PEPL 2,927 1,474 588 586 160 352 246 100% 0.7 5%
AIXN 2 4 1 0 -1 -1 -0 49% 0.0 -72%
ENDL 0 0 0 0 -0 -0 -0 0.5 -184%
WEYL 11 5 29 -1 -4 -4 -5 -3% 1.3 -40%

10-Q 1 sdsp2019-09x30doc.htm 10-Q Document

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2019
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                to
 COMMISSION FILE NO. 000-50253
newsdsbpl1a25.jpg 
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)
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   x     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 whether the registrant is a large accelerated filer, accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
¨     Large Accelerated Filer
¨     Accelerated Filer
x     Non-Accelerated Filer
¨    Smaller Reporting 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       x    No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court.     Yes   ¨  No   ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date: On November 7, 2019, the registrant had 30,419,000 capital units outstanding.




Table of Contents  
 
 


2



PART I – FINANCIAL INFORMATION
Item 1.    Financial Statements
South Dakota Soybean Processors, LLC
Condensed Financial Statements
September 30, 2019 and 2018

3



South Dakota Soybean Processors, LLC
Condensed Balance Sheets
 
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
Assets
 

 
 

Current assets
 

 
 

Cash and cash equivalents
$
239,121

 
$
7,197,082

Trade accounts receivable
17,959,870

 
20,550,438

Inventories
52,577,554

 
36,716,014

Margin deposits
2,764,721

 
2,350,852

Prepaid expenses
719,047

 
1,492,163

Total current assets
74,260,313

 
68,306,549

 
 
 
 
Property and equipment
115,116,127

 
110,314,779

Less accumulated depreciation
(54,325,980
)
 
(51,246,765
)
Total property and equipment, net
60,790,147

 
59,068,014

 
 
 
 
Other assets
 

 
 

Investments in related parties
7,873,727

 
8,009,315

Investments in cooperatives
1,562,098

 
1,552,022

Right-of-use lease asset, net
6,735,845

 
7,918,283

Total other assets
16,171,670

 
17,479,620

 
 
 
 
Total assets
$
151,222,130

 
$
144,854,183

(continued on following page)

4



South Dakota Soybean Processors, LLC
Condensed Balance Sheets (continued)
 
 
September 30, 2019
 
December 31, 2018
 
(Unaudited)
 
Liabilities and Members' Equity
 

 
 

Current liabilities
 

 
 

Excess of outstanding checks over bank balance
$
5,192,413

 
$
3,893,179

Current maturities of long-term debt
4,603,342

 
61,964

Note payable - seasonal loan
3,738,236

 

Current operating lease liabilities
2,818,321

 
2,714,928

Accounts payable
2,148,992

 
2,325,404

Accrued commodity purchases
26,093,911

 
35,384,390

Accrued expenses
3,182,372

 
3,697,631

Accrued interest
62,675

 
10,673

Deferred liabilities - current
319,007

 
792,384

Total current liabilities
48,159,269

 
48,880,553

 
 
 
 
Long-term liabilities
 
 
 
Long-term debt, net of current maturities and unamortized debt
    issuance costs
11,991,385

 
593,027

Long-term operating lease liabilities
3,917,524

 
5,203,355

Total long-term liabilities
15,908,909

 
5,796,382

 
 
 
 
Commitments and contingencies (Notes 6, 7, 8, and 13)


 


 
 
 
 
Members' equity
 

 
 

Class A Units, no par value, 30,419,000 units issued and
    outstanding at September 30, 2019 and December 31, 2018
87,153,952

 
90,177,248

 
 
 
 
Total liabilities and members' equity
$
151,222,130

 
$
144,854,183


The accompanying notes are an integral part of these condensed financial statements.


5



South Dakota Soybean Processors, LLC
Condensed Statements of Operations (Unaudited)
For the Three and Nine-Month Periods Ended September 30, 2019 and 2018
 
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
 
Net revenues
 
$
85,001,379

 
$
100,386,226

 
$
277,299,775

 
$
292,173,855

 
 
 
 
 
 
 
 
 
Cost of revenues:
 
 

 
 

 
 

 
 

Cost of product sold
 
65,035,124

 
70,997,345

 
212,714,179

 
227,452,292

Production
 
8,889,751

 
6,691,112

 
22,583,763

 
19,664,019

Freight and rail
 
8,212,636

 
9,879,915

 
26,472,517

 
26,954,523

Brokerage fees
 
146,960

 
155,753

 
476,047

 
466,707

Total cost of revenues
 
82,284,471

 
87,724,125

 
262,246,506

 
274,537,541

 
 
 
 
 
 
 
 
 
Gross profit (loss)
 
2,716,908

 
12,662,101

 
15,053,269

 
17,636,314

 
 
 
 
 
 
 
 
 
Operating expenses:
 
 
 
 
 
 

 
 

Administration
 
848,890

 
1,009,383

 
2,781,405

 
2,791,039

 
 
 
 
 
 
 
 
 
Operating income (loss)
 
1,868,018

 
11,652,718

 
12,271,864

 
14,845,275

 
 
 
 
 
 
 
 
 
Other income (expense):
 
 
 
 
 
 

 
 

Interest expense
 
(196,440
)
 
(257,772
)
 
(656,729
)
 
(841,503
)
Other non-operating income (expense)
 
(17,253
)
 
162,989

 
402,213

 
557,865

Patronage dividend income
 

 
49,735

 
169,456

 
146,258

Total other income (expense)
 
(213,693
)
 
(45,048
)
 
(85,060
)
 
(137,380
)
 
 
 
 
 
 
 
 
 
Income (loss) before income taxes
 
1,654,325

 
11,607,670

 
12,186,804

 
14,707,895

 
 
 
 
 
 
 
 
 
Income tax benefit (expense)
 

 

 
(600
)
 
(1,960
)
 
 
 
 
 
 
 
 
 
Net income (loss)
 
$
1,654,325

 
$
11,607,670

 
$
12,186,204

 
$
14,705,935

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
 

Basic and diluted earnings (loss) per capital unit
 
$
0.05

 
$
0.38

 
$
0.40

 
$
0.48

 
 
 
 
 
 
 
 
 
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

 
30,419,000


The accompanying notes are an integral part of these condensed financial statements.

6



South Dakota Soybean Processors, LLC
Condensed Statements of Changes in Members' Equity (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018
 
 
Class A Units
 
Units
 
Amount
 
 
 
 
Balances, December 31, 2017
30,419,000

 
$
69,375,206

Net income

 
14,705,935

Distribution to members

 
(5,075,303
)
Balances, September 30, 2018
30,419,000

 
$
79,005,838

 
 
 
 
Balances, December 31, 2018
30,419,000

 
$
90,177,248

Net income

 
12,186,204

Distribution to members

 
(15,209,500
)
Balances, September 30, 2019
30,419,000

 
$
87,153,952

The accompanying notes are an integral part of these condensed financial statements.

7



South Dakota Soybean Processors, LLC
Condensed Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2019 and 2018
 
 
2019
 
2018
Operating activities
 

 
 

Net income (loss)
$
12,186,204

 
$
14,705,935

Charges and credits to net income not affecting cash:
 

 
 

Depreciation and amortization
3,199,108

 
3,097,587

Net (gain) loss recognized on derivative activities
(2,983,943
)
 
(3,059,988
)
Gain on sales of property and equipment
(6,687
)
 
(271,933
)
Loss on equity method investment
135,588

 
61,996

Non-cash patronage dividends
(42,364
)
 
(24,131
)
Change in current assets and liabilities
(20,331,307
)
 
202,992

Net cash provided by (used for) operating activities
(7,843,401
)
 
14,712,458

 
 
 
 
Investing activities
 

 
 

Purchase of investments

 
(5,000,000
)
Retirement of patronage dividends
32,288

 

Proceeds from sales of property and equipment
64,800

 
309,870

Purchase of property and equipment
(4,977,738
)
 
(5,874,304
)
Net cash provided by (used for) investing activities
(4,880,650
)
 
(10,564,434
)
 
 
 
 
Financing activities
 

 
 

Change in excess of outstanding checks over bank balances
1,299,234

 
(285,932
)
Net proceeds (payments) from seasonal borrowings
3,738,236

 

Distributions to members
(15,209,500
)
 
(5,075,303
)
Payments for debt issue costs

 
(10,500
)
Proceeds from long-term debt
71,476,467

 
47,306,495

Principal payments on long-term debt
(55,538,347
)
 
(46,074,101
)
Net cash provided by (used for) financing activities
5,766,090

 
(4,139,341
)
 
 
 
 
Net change in cash and cash equivalents
(6,957,961
)
 
8,683

 
 
 
 
Cash and cash equivalents, beginning of period
7,197,082

 
683,523

 
 
 
 
Cash and cash equivalents, end of period
$
239,121

 
$
692,206

 
 
 
 
Supplemental disclosures of cash flow information
 

 
 

Cash paid during the period for:
 

 
 

Interest
$
604,727

 
$
801,815

 
 
 
 
Income taxes
$

 
$


The accompanying notes are an integral part of these condensed financial statements. 

8

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 


Note 1 -         Principal Activity and Significant Accounting Policies
The unaudited condensed financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although South Dakota Soybean Processors, LLC (the “Company”, “LLC”, “we”, “our”, or “us”) believes that the disclosures made are adequate to make the information not misleading.
In the opinion of management, all normal recurring adjustments considered necessary for a fair presentation have been included in the accompanying condensed financial statements. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full year due in part to the seasonal nature of some of the Company’s businesses. The balance sheet data as of December 31, 2018 has been derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America.
These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2018, included in the Company’s annual report on Form 10-K filed with the Securities and Exchange Commission on March 20, 2019.
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 condensed balance sheets. These customer prepayments totaled $140,396 and $15,042 as of September 30, 2019 and December 31, 2018, respectively. Of the $15,042 balance as of December 31, 2018, contract liabilities recognized as revenues were $0 and $15,042 for the three and nine month periods ended September 30, 2019, respectively.
The following table presents a disaggregation of revenue from contracts with customers for the three and nine month periods ended September 30, 2019 and 2018, by product type:

9

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Soybean meal and hulls
$
57,332,025

 
$
70,011,833

 
$
181,532,951

 
$
195,009,313

Soybean oil and oil byproducts
27,669,354

 
30,374,393

 
95,766,824

 
97,164,542

 
 
 
 
 
 
 
 
Totals
$
85,001,379

 
$
100,386,226

 
$
277,299,775

 
$
292,173,855

Recent accounting pronouncements
Effective January 1, 2019, the Company adopted Accounting Standards Update No. 2016-02 (Leases). The standard requires companies to recognize operating lease assets and liabilities on the balance sheet and disclose key information regarding leasing arrangements. The Company has elected the package of practical expedients permitted in ASC Topic 842. Accordingly, the Company accounted for all its leases as operating leases under the new guidance, without reassessing (a) whether the contracts contain leases under Topic 842, (b) whether classification of the operating leases would be different in accordance with ASC Topic 842, or (c) whether the unamortized initial direct costs before transition adjustments, if any, would have met the definition of initial direct costs in ASC Topic 842 at lease commencement. As a result of the adoption of the new lease accounting guidance, the Company recognized on January 1, 2018 (the beginning of the earliest period presented): (a) a lease liability of $10.3 million, which represents the present value of the remaining lease payments of $11,000,000, discounted using the Company's incremental borrowing rate at the time of adoption of the respective leases, and (b) a right-to-use asset of $10.3 million, which represents the total lease liability adjusted for any unamortized initial direct costs. The Company also elected not to recognize and measure any short-term lease, which is a lease that, at the commencement date, has a term of 12 months or less and does not contain an option to purchase the underlying asset that the lessee is reasonably certain to exercise.
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 September 30, 2019 and December 31, 2018:
 
September 30,
2019
 
December 31,
2018
Past due:
 

 
 

Less than 30 days past due
$
3,674,172

 
$
5,362,970

30-60 days past due
312,339

 
387,670

60-90 days past due
14,279

 
101,687

Greater than 90 days past due
15,782

 
84

Total past due
4,016,572

 
5,852,411

Current
13,943,298

 
14,698,027

 
 
 
 
Totals
$
17,959,870

 
$
20,550,438


10

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

The following table provides information regarding the Company’s allowance for doubtful accounts receivable as of September 30, 2019 and December 31, 2018:
 
September 30,
2019
 
December 31,
2018
 
 
 
 
Balances, beginning of period
$

 
$

Amounts charged (credited) to costs and expenses

 

Additions (deductions)

 

 
 
 
 
Balances, end of period
$

 
$

In general, cash 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.
Note 3 -           Inventories
The Company’s inventories consist of the following at September 30, 2019 and December 31, 2018:
 
September 30,
2019
 
December 31,
2018
Finished goods
$
26,736,079

 
$
21,283,354

Raw materials
25,531,163

 
15,206,526

Supplies & miscellaneous
310,312

 
226,134

 
 
 
 
Totals
$
52,577,554

 
$
36,716,014

Finished goods and raw materials are valued at estimated market value, which approximates net realizable value. In addition, futures and option contracts are marked to market through cost of revenues, with unrealized gains and losses recorded in the above inventory amounts. Supplies and other inventories are stated at net realizable value.
Note 4 -         Investments in Related Parties
The Company accounts for its investment in Prairie AquaTech, LLC using the equity method due to the Company's ability to exercise significant influence based on its position on the board of managers. The Company recognized gains (losses) of $(36,099) and $91,781 during the three months ended September 30, 2019 and 2018, respectively, and $(135,588) and $(61,996) during the nine months ended September 30, 2019 and 2018, respectively, which is included in other non-operating income (expense).
The Company accounts for the investments in Prairie AquaTech Investments, LLC and Prairie AquaTech Manufacturing, LLC using the cost method. In the construction phase of the facility, the Company is acting as the Owner’s representative and providing various construction and management services. However, once the facility is operational in fiscal year 2019, the Company will not be able to exercise significant influence or control over any aspect of operations. Under the cost method, the investments are recorded at cost and the Company will record any dividends as income when received.
The results of operations and financial position of the Company's equity method investment in Prairie AquaTech, LLC as of September 30, 2019 and December 31, 2018 and for the three and nine-month periods ended September 30, 2019 and 2018 are summarized below.

11

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Condensed income statement:
 
 
 
 
 
 
 
Revenues
$
315,130

 
$
476,250

 
$
598,223

 
$
762,359

Expenses
(733,092
)
 
136,606

 
(2,159,700
)
 
(1,145,481
)
Other income (expense)
10,268

 
48,067

 
30,183

 
(172,071
)
Net income (loss)
$
(407,694
)
 
$
660,923

 
$
(1,531,294
)
 
$
(555,193
)
 
September 30,
2019
 
December 31,
2018
Condensed balance sheet information:
 
 
 
Assets
$
5,472,206

 
$
7,264,092

Liabilities
362,044

 
610,789

Equity
5,110,162

 
6,653,303

Note 5 -         Property and Equipment
The following is a summary of the Company's property and equipment at September 30, 2019 and December 31, 2018:
 
2019

2018
 
Cost
 
Accumulated Depreciation
 
Net
 
Net
Land
$
516,326

 
$

 
$
516,326

 
$
516,326

Land improvements
2,043,236

 
(581,255
)
 
1,461,981

 
1,556,183

Buildings and improvements
21,602,738

 
(9,346,014
)
 
12,256,724

 
12,588,664

Machinery and equipment
79,613,657

 
(43,219,649
)
 
36,394,008

 
38,513,796

Railroad cars
1,238,508

 
(24,770
)
 
1,213,738

 
1,232,315

Company vehicles
146,754

 
(106,417
)
 
40,337

 
16,307

Furniture and fixtures
1,526,779

 
(1,047,875
)
 
478,904

 
543,801

Construction in progress
8,428,129

 

 
8,428,129

 
4,100,622

 
 
 
 
 
 
 
 
Totals
$
115,116,127

 
$
(54,325,980
)
 
$
60,790,147

 
$
59,068,014

Depreciation of property and equipment was $1,067,076 and $1,087,935 for the three months ended September 30, 2019 and 2018, respectively, and $3,197,493 and $3,085,472 for the nine months ended September 30, 2019 and 2018, respectively.
Note 6 -         Note Payable – Seasonal Loan
The Company has entered into a revolving credit agreement with CoBank which expires December 1, 2019. The purpose of the credit agreement is to finance the operating needs of the Company. Under this agreement, the Company may borrow up to $20 million, and advances on the revolving credit agreement are secured. Interest accrues at a variable rate (4.22% at September 30, 2019). The Company pays a 0.20% annual commitment fee on any funds not borrowed. There were advances outstanding of $3,738,236 and $0 at September 30, 2019 and December 31, 2018, respectively. The remaining available funds to borrow under the terms of the revolving credit agreement were $16.3 million as of September 30, 2019.

12

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

Note 7 -         Long-Term Debt
The following is a summary of the Company's long-term debt at September 30, 2019 and December 31, 2018:
 
September 30,
2019
 
December 31,
2018
Revolving term loan from CoBank, interest at variable rates (4.47% and 4.96% at September 30, 2019 and December 31, 2018, respectively), secured by substantially all property and equipment. Loan matures September 20, 2023.
$
16,000,000

 
$

Note payable to Brookings Regional Railroad Authority, due in annual principal and interest installments of $75,500, interest rate at 2.00%, secured by railroad track assets. Note matures June 1, 2020.
603,342

 
665,222

Total debt before debt issuance costs
16,603,342

 
665,222

Less current maturities
(4,603,342
)
 
(61,964
)
Less debt issuance costs, net of amortization of $5,385 and $3,769 as of September 30, 2019 and December 31, 2018, respectively
(8,615
)
 
(10,231
)
 
 
 
 
Total long-term debt
$
11,991,385

 
$
593,027

The Company entered into an agreement as of March 28, 2017 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 $24,000,000 on the revolving term loan with a variable effective interest rate of 4.47%. The available commitment decreases in scheduled periodic increments of $2,000,000 every six months starting March 20, 2018 until maturity on September 20, 2023. The Company pays a 0.40% annual commitment fee on any funds not borrowed. The debt issuance costs of $14,000 paid by the Company on this amendment will be amortized over the term of loan. The principal balance outstanding on the revolving term loan was $16,000,000 and $0 as of September 30, 2019 and December 31, 2018, respectively. There were no remaining commitments available to borrow on the revolving term loan as of September 30, 2019.
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 September 30, 2019.
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 in 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 guaranty 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.
The following are minimum principal payments on long-term debt obligations for the twelve-month periods ended September 30:
2020
$
4,603,342

2021
4,000,000

2022
4,000,000

2023
4,000,000

 
 

Total
$
16,603,342


13

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

Note 8 -        Operating Leases
The Company has several operating leases for railcars. These leases have terms ranging from 3-18 years and 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 $766,022 and $787,306 for the three months ended September 30, 2019 and 2018, respectively, and $2,302,012 and $2,369,318 for the nine months ended September 30, 2019 and 2018, respectively.
The following is a schedule of the Company's operating leases for railcars as of September 30, 2019:
Lessor
 
Quantity of
Railcars
 
Commencement
Date
 
Maturity
Date
 
Monthly
Payment
 
 
 
 
 
 
 
 
 
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

 
1/1/2004
 
12/31/2021
 
2,926

Wells Fargo Rail
 
15

 
1/1/2004
 
12/31/2021
 
5,850

Wells Fargo Rail
 
8

 
1/1/2015
 
12/31/2021
 
3,600

Trinity Capital
 
88

 
8/1/2002
 
7/31/2020
 
33,704

Trinity Capital
 
29

 
12/1/2015
 
11/30/2020
 
28,536

Trinity Capital
 
20

 
10/1/2015
 
9/30/2020
 
13,600

Midwest Railcar Corporation
 
64

 
1/1/2015
 
12/31/2021
 
27,200

American Railcar Leasing
 
30

 
7/1/2015
 
6/30/2021
 
30,780

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

GATX Corporation
 
15

 
7/1/2017
 
6/30/2020
 
4,500

 
 
 
 
 
 
 
 
 
 
 
525

 
 
 
 
 
$
255,398

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 $3,912. Rental expense under these other operating leases was $21,081 and $9,540 for the three months ended September 30, 2019 and 2018, respectively, and $41,723 and $34,118 for the nine-month periods ended September 30, 2019 and 2018, respectively.
Operating leases are included in right-to-use lease assets, current operating lease liabilities, and long-term lease liabilities on the condensed 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 condensed statements of operations for the nine-month periods ended September 30, 2019 and 2018 were as follows:

14

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
 
 
 
 
 
 
 
 
Cost of revenues - Freight and rail
$
766,022

 
$
787,306

 
$
2,302,012

 
$
2,369,318

Cost of revenues - Production
17,973

 
6,306

 
32,606

 
25,665

Administration expenses
3,108

 
3,234

 
9,117

 
8,453

Total operating lease costs
$
787,103

 
$
796,846

 
$
2,343,735

 
$
2,403,436

The following is a maturity analysis of the undiscounted cash flows of the operating lease liabilities as of September 30, 2019:
 
 
Railcars
 
Other
 
Total
Twelve-month periods ended September 30:
 
 
 
 
 
 
2020
 
$
2,931,312

 
$
41,377

 
$
2,972,689

2021
 
2,065,429

 
38,263

 
2,103,692

2022
 
1,322,596

 
37,640

 
1,360,236

2023
 
288,135

 
36,696

 
324,831

2024
 
135,600

 
20,818

 
156,418

Thereafter
 
237,300

 
4,943

 
242,243

Total lease payments
 
6,980,372

 
179,737

 
7,160,109

Less amount of lease payments representing interest
 
(404,268
)
 
(19,996
)
 
(424,264
)
Total present value of lease payments
 
$
6,576,104

 
$
159,741

 
$
6,735,845

Note 9 -        Member Distribution
On February 5, 2019, the Company’s Board of Managers approved a cash distribution of approximately $15.2 million, or 50.0¢ per capital unit. The distribution was paid in accordance with the Company’s operating agreement and distribution policy on February 7, 2019.
Note 10 -         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 condensed balance sheets at fair value as discussed in Note 11, Fair Value.
As of September 30, 2019 and December 31, 2018, the value of the Company’s open futures, options and forward contracts was approximately $484,832 and $802,770, respectively.
 
 
 
As of September 30, 2019
 
Balance Sheet Classification
 
Asset Derivatives
 
Liability Derivatives
Derivatives not designated as hedging instruments:
 
 
 

 
 

Commodity contracts
Current Assets
 
$
3,633,222

 
$
2,707,719

Foreign exchange contracts
Current Assets
 
16,457

 
8,509

Interest rate caps and floors
Current Liabilities
 

 
448,619

 
 
 
 
 
 
Totals
 
 
$
3,649,679

 
$
3,164,847


15

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

 
 
 
As of December 31, 2018
 
Balance Sheet Classification
 
Asset Derivatives
 
Liability Derivatives
Derivatives not designated as hedging instruments:
 
 
 

 
 

Commodity contracts
Current Assets
 
$
3,696,540

 
$
2,722,830

Foreign exchange contracts
Current Assets
 
129,258

 
100,730

Interest rate caps and floors
Current Liabilities
 

 
199,468

 
 
 
 
 
 
Totals
 
 
$
3,825,798

 
$
3,023,028

During the three and nine-month periods ended September 30, 2019 and 2018, net realized and unrealized gains (losses) on derivative transactions were recognized in the condensed statements of operations as follows:
 
Net Gain (Loss) Recognized 
on Derivative Activities for the
 
Net Gain (Loss) Recognized 
on Derivative Activities for the
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2019
 
2018
 
2019
 
2018
Derivatives not designated as hedging instruments:
 
 

 
 

Commodity contracts
$
2,188,931

 
$
4,607,791

 
$
3,197,752

 
$
2,801,898

Foreign exchange contracts
(10,091
)
 
46,342

 
34,738

 
6,158

Interest rate swaps, caps and floors
(92,998
)
 
40,008

 
(248,547
)
 
251,932

 
 
 
 
 
 
 
 
Totals
$
2,085,842

 
$
4,694,141

 
$
2,983,943

 
$
3,059,988

Note 11 -       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 condensed balance sheets and the respective levels to which fair value measurements are classified within the fair value hierarchy as of September 30, 2019 and December 31, 2018:

16

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

 
Fair Value as of September 30, 2019
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 

 
 

 
 

 
 

Inventory
$
925,503

 
$
51,258,118

 
$

 
$
52,183,621

Margin deposits (deficits)
$
2,764,721

 
$

 
$

 
$
2,764,721

 
Fair Value as of December 31, 2018
 
Level 1
 
Level 2
 
Level 3
 
Total
Financial assets:
 

 
 

 
 

 
 

Inventory
$
973,710

 
$
35,338,531

 
$

 
$
36,312,241

Margin deposits
$
2,350,852

 
$

 
$

 
$
2,350,852

In accordance with ASC 825, Financial Instruments, 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 our 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 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 12 -       Related Party Transactions
The Company sold soybean products to Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC totaling $648,215 and $152,838 during the three months ended September 30, 2019 and 2018, respectively, and $942,195 and $233,233 during the nine months ended September 30, 2019 and 2018, respectively. As of September 30, 2019 and December 31, 2018, Prairie AquaTech, LLC and Prairie AquaTech Manufacturing, LLC owed the Company $90,414 and $18,540, 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. As of September 30, 2019 and December 31, 2018, the balance remaining in deferred liabilities was $178,611 and $777,342, respectively. The Company recognized revenues from management services of $100,834 and $27,693 during the three-month periods ended September 30, 2019 and 2018, respectively, and $666,431 and $55,385 during the nine months ended September 30, 2019 and 2018, respectively.
Note 13 -       Commitments and Contingencies
As of September 30, 2019, the Company had unpaid commitments of approximately $87,000 for construction and acquisition of property and equipment, all of which is expected to be incurred by December 2019.
From time to time in the ordinary course of our business, the Company may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual dispute. The Company carries insurance that provides protection against general commercial liability claims, claims against

17

South Dakota Soybean Processors, LLC
Notes to Condensed Financial Statements
 

our directors, officer and employees, business interruption, automobile liability, and workers' compensation. The Company is not currently involved in any material legal proceedings and are not aware of any potential claims.
Note 14 -       Subsequent Event
The Company evaluated all of its activities and concluded that no subsequent events have occurred that would require recognition in its financial statements or disclosed in the notes to its financial statements.

18



Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The information in this quarterly report on Form 10-Q for the nine-month period ended September 30, 2019, (including reports filed with the Securities and Exchange Commission (the “SEC” or “Commission”), contains “forward-looking statements” that deal with future results, expectations, plans and performance, and should be read in conjunction with the financial statements and Annual Report on Form 10-K for the year ended December 31, 2018. Forward-looking statements may include statements which use words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “predict,” “hope,” “will,” “should,” “could,” “may,” “future,” “potential,” or the negatives of these words, and all similar expressions. Forward-looking statements involve numerous assumptions, risks and uncertainties. Actual results or actual business or other conditions may differ materially from those contemplated by any forward-looking statements. Factors that could cause actual results to differ materially from the forward-looking statements are identified in our Form 10-K for the year ended December 31, 2018.
We are not under any duty to update the forward-looking statements contained in this report, nor do we guarantee future results or performance or what future business conditions will be like. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.
Executive Overview and Summary
During the nine months ended September 30, 2019, we reported a net income of $12.2 million, compared to $14.7 million during the same period in 2018. The decrease in profitability is largely driven by adverse weather conditions in our soybean procurement area, increased soybean processing in the U.S., and higher maintenance costs.
Poor weather conditions, including heavy snow and rainfall, during the spring of 2019 adversely affected our profitability. Severe flooding in our area contributed to a very late planting season and left a significant number of unplanted fields, causing uncertainty about the quantity and quality of this fall's soybean crop. As a result, farmers became reluctant sellers, leading to increases in soybean prices and deteriorating soybean crush margins.
China's implementation of a 25% tariff on U.S. soybeans in May 2018 effectively halted soybean exports to China, in turn shifting soybean demand to other countries such as Brazil and Argentina. Since China does not typically buy or import soybean meal or oil, soybean meal and oil prices did not decrease at the same rate as soybeans which helped generate unprecedented board crush levels. By 2019, however, U.S. soybean processing facilities, in efforts to capitalize on the high crushing margins, increased their production capacity, decreasing margins back to historically average amounts.
Lastly, our Volga facility completed its regularly scheduled annual shutdown for maintenance. Unfortunately, this year's shutdown was approximately twice as long in duration than in previous years due to extensive repairs and replacements of process equipment. As a result, maintenance expenses, which are part of production costs, increased by approximately $2.1 million during the nine months ended September 30, 2019, compared to the same period in 2018.
We believe the fourth quarter of 2019 will be subject to continued uncertainty. We are unsure about the quantity and quality of the soybeans to be procured at harvest given the effect of poor weather conditions. The prolonged trade disputes with China and other countries are also likely to continue to have a destabilizing effect, adversely impacting soybean prices and crush margins.

19



RESULTS OF OPERATIONS
Comparison of the three months ended September 30, 2019 and 2018
 
Three Months Ended September 30, 2019
 
Three Months Ended September 30, 2018
 
$
 
% of Revenue
 
$
 
% of Revenue
Revenue
$
85,001,379

 
100.0

 
$
100,386,226

 
100.0

Cost of revenues
(82,284,471
)
 
(96.8
)
 
(87,724,125
)
 
(87.4
)
Operating expenses
(848,890
)
 
(1.0
)
 
(1,009,383
)
 
(1.0
)
Other income (expense)
(213,693
)
 
(0.3
)
 
(45,048
)
 

 
 
 
 
 
 
 
 
Net income
$
1,654,325

 
1.9

 
$
11,607,670

 
11.6

Revenue – Revenue decreased $15.4 million, or 15.3%, for the three months ended September 30, 2019, compared to the same period in 2018. The decrease in revenues is due to a reduction in the quantity of soybeans processed, which decreased the volume of our soybean products available for sale to customers. Our processing volume decreased due to an extended shutdown at our Volga facility in August 2019 for annual maintenance.
Gross Profit/Loss – Gross profit decreased $9.9 million, or 78.5%, for the three-month period ended September 30, 2019, compared to the same period in 2018. The decrease in gross profit is primarily driven by the effect of the current trade dispute between the U.S. and China on the soybean export market and an increase in production expenses. The threat and imposition of tariffs by China on U.S. soybeans in 2018 resulted in a decrease in U.S. soybean prices which improved processing margins for our products in 2018 and early 2019. By 2019, however, U.S. soybean processing facilities, in efforts to capitalize on the high crushing margins, increased their production capacity, decreasing margins back to historically average amounts. In addition, gross profit decreased due to an increase in production expenses of $2.2 million, or 32.9%, for the three-month period ended September 30, 2019, compared to the same period in 2018. Production expenses increased between periods because of an extended shutdown of our Volga facility in August 2019, where we were required to make extensive repairs and replace certain processing equipment.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, decreased $160,000, or 15.9%, for the three months ended September 30, 2019, compared to the same period in 2018. The decrease is primarily due to a decrease in personnel costs.
Interest Expense – Interest expense decreased $61,000, or 23.8%, during the three-month period ended September 30, 2019, compared to the same period in 2018. The decrease in interest expense is due primarily to a decrease in borrowings from our lines of credit, as we had less need to borrow due to an increase in working capital and a decrease in commodity prices. The average debt level during the three months ended September 30, 2019 was approximately $16.2 million, compared to $20.5 million for the same period in 2018.
Other Non-Operating Income – Other non-operating income, including patronage dividend income, decreased $230,000 during the three months ended September 30, 2019, compared to the same period in 2018. The decrease in other non-operating income is primarily due to decreases in our equity method investment in Prairie AquaTech, LLC and in patronage dividend income. During the three-month period ended September 30, 2019, losses on our equity method investment totaled $36,099, compared to a gain of $92,000 during the same period in 2018. In addition, CoBank issued to us a dividend in the amount of $50,000 during the quarter ended September 30, 2018, compared to $0 during the same period in 2019.
Net Income/Loss – During the three months ended September 30, 2019, we generated a net income of $1.7 million, compared to $11.6 million for the same period in 2018. The $9.9 million decrease is primarily attributable to a decrease in processing margins and an increase in production costs.

20



Comparison of the nine months ended September 30, 2019 and 2018
 
Nine Months Ended September 30, 2019
 
Nine Months Ended September 30, 2018
 
$
 
% of Revenue
 
$
 
% of Revenue
Revenue
$
277,299,775

 
100.0

 
$
292,173,855

 
100.0

Cost of revenues
(262,246,506
)
 
(94.6
)
 
(274,537,541
)
 
(94.0
)
Operating expenses
(2,781,405
)
 
(1.0
)
 
(2,791,039
)
 
(1.0
)
Other income (expense)
(85,060
)
 

 
(137,380
)
 

Income tax benefit (expense)
(600
)
 

 
(1,960
)
 

 
 
 
 
 
 
 
 
Net income
$
12,186,204

 
4.4

 
$
14,705,935

 
5.0

Revenue – Revenue decreased $14.9 million, or 5.1%, for the nine-month period ended September 30, 2019, compared to the same period in 2018. The decrease in revenues is primarily due to a 6.5% decrease in the average sales price of soybean meal. Soybean meal prices were affected by increased production of U.S. soybeans during the nine months ended September 30, 2019, compared to the same period in 2018. With good margins, a record sized soybean crop in the fall of 2018, and the trade dispute with China, the primary importer of U.S. soybeans, soybean processors in the U.S. operated at full capacity, and in some cases increased capacity, in efforts to maximize margins.
Gross Profit/Loss – Gross profit decreased $2.6 million for the nine months ended September 30, 2019, compared to the same period in 2018. The decrease in gross profit is primarily due to a $2.9 million increase in production costs following the extended shutdown at our Volga facility in August 2019.
Operating Expenses – Administrative expenses, including all selling, general and administrative expenses, remained relatively constant for the nine-month period ended September 30, 2019, compared to the same period in 2018.
Interest Expense – Interest expense decreased $185,000, or 22.0%, during the nine months ended September 30, 2019, compared to the same period in 2018. The decrease in interest expense is due primarily to a decrease in borrowings from our lines of credit, as we had less need to borrow due to an increase in working capital and a decrease in commodity prices. The average debt level during the nine-month period ended September 30, 2019 was approximately $17.4 million, compared to $24.0 million for the same period in 2018.
Other Non-Operating Income – Other non-operating income, including patronage dividend income, decreased $132,000 during the nine-month period ended September 30, 2019, compared to the same period in 2018. The decrease in other non-operating income is due to a $265,000 decrease in gains on sales of property and equipment. During the nine-month period ended September 30, 2019, gains on sales of property and equipment totaled $7,000, compared to $272,000 during the same period in 2018.
Net Income/Loss – During the nine-month period ended September 30, 2019, we generated a net income of $12.2 million, compared to $14.7 million for the same period in 2018. The $2.5 million decrease is primarily attributable to an increase in production costs.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations and borrowings under our two lines of credit which are discussed below under “Indebtedness.” On September 30, 2019, we had working capital, defined as current assets less current liabilities, of approximately $26.1 million, compared to $18.8 million on September 30, 2018. Working capital increased $7.3 million between periods primarily due to an increase in net income since September 30, 2018. Based on our current plans, we believe that we will continue funding our operating and capital needs from operations and revolving lines of credit.

21



Comparison of the Nine Months Ended September 30, 2019 and 2018
 
2019
 
2018
Net cash provided by (used for) operating activities
$
(7,843,401
)
 
$
14,712,458

Net cash used for investing activities
(4,880,650
)
 
(10,564,434
)
Net cash provided by (used for) financing activities
5,766,090

 
(4,139,341
)
Cash Flows Used For Operations
The $22.6 million change in cash flows provided by (used for) operating activities is attributed to a delayed soybean harvest in 2019, compared to the same period in 2018. Typically, we expect that a substantial amount of soybeans harvested in the fall will be delivered to our facilities by early October. However, a long winter and extremely wet spring in 2019 delayed planting and, ultimately, the fall harvest. Consequently, we were required to purchase a significant quantity of soybeans from 2018 to enable us to continue processing until the unexpected peak of harvest in late October. These purchases led to a $15.9 million increase in inventory during the nine-month period ended September 30, 2019, compared to $8.2 million reduction during the same period in 2018.
Cash Flows Used For Investing Activities
The $5.7 million decrease in cash flows used for investing activities during the nine-month period ended September 30, 2019, compared to the same period in 2018, is due to a decrease in investment purchases. During the nine months ended September 30, 2018, we invested an additional $5.0 million in Prairie AquaTech, LLC and its affiliates, compared to $0 during the same period in 2019.
Cash Flows Provided By (Used For) Financing Activities
The $9.9 million change in cash flows provided by (used for) financing activities is principally due to an $18.4 million increase in net proceeds on borrowings. During the nine months ended September 30, 2019, net proceeds on borrowings increased $19.6 million , compared to $1.2 million during the same period in 2018. Partially offsetting the increase in borrowings was a $10.1 million increase in cash distributions to our members. Cash distributions to our members totaled approximately $15.2 million during the nine-month period ended September 30, 2019, compared to $5.1 million during the same period in 2018.
Indebtedness
We have two lines of credit with CoBank, our primary lender, to meet the short and long-term needs of our operations. The first credit line is a revolving long-term loan. Under the terms of this loan, we may borrow funds as needed up to the credit line maximum, or $24.0 million, and then pay down the principal whenever excess cash is available. Repaid amounts may be borrowed up to the available credit line. On March 20, 2018, the available credit line decreased by $2.0 million, and decreases continually by the same amount every six months until the credit line’s maturity on September 20, 2023. We pay a 0.40% annual commitment fee on any funds not borrowed. The principal balance outstanding on the revolving term loan is $16.0 million and $0 as of September 30, 2019 and December 31, 2018. Under this loan, there were no additional funds available to be borrowed as of September 30, 2019.
The second credit line is a revolving working capital (seasonal) loan that matures on December 1, 2019. The primary purpose of this loan is to finance our operating needs. The maximum we may borrow under this credit line is $20 million. We pay a 0.20% annual commitment fee on any funds not borrowed; however, we have the option to reduce the credit line during any given commitment period listed in the credit agreement to avoid the commitment fee. As of September 30, 2019 and December 31, 2018, there were advances outstanding on the seasonal loan of $3.7 million and $0, respectively. There was $16.3 million available to borrow under this loan as of September 30, 2019.
Both loans with CoBank are set up with a variable rate option. The variable rate is set by CoBank and changes weekly on the first business day of each week. We also have a fixed rate option on both loans allowing us to fix rates for any period between one day and the entire commitment period. The annual interest rate on the revolving term loan is 4.47% and 4.96% as of September 30, 2019 and December 31, 2018, respectively. As of September 30, 2019 and December 31, 2018, the interest rate on the seasonal loan is 4.22% and 4.71%, respectively. We were in compliance with all covenants and conditions under the loans as of September 30, 2019 and the date of this filing.

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We also have a loan with the State of South Dakota Department of Transportation in connection with previous improvements made to the railway infrastructure near our soybean processing facility in Volga, South Dakota. Under this loan, which matures on June 1, 2020, we make annual principal and interest payments of $75,500. The principal balance outstanding on this loan was $603,342 and $665,222 as of September 30, 2019 and December 31, 2018, respectively.
OFF BALANCE SHEET FINANCING ARRANGEMENTS
We do not utilize variable interest entities or other off-balance sheet financial arrangements.
Lease Commitments
We have commitments under various operating leases for rail cars, various types of vehicles, and lab and office equipment. Our most significant lease commitments are for rail cars used in the transportation of our products. We have several long-term leases for hopper rail cars and oil tank cars with American Railcar Leasing, Andersons Railcar Leasing Co., GATX Corporation, Midwest Railcar Corporation, Trinity Capital and Wells Fargo Rail. Total lease expense under these arrangements is approximately $766,000 and $787,000 for the three month periods ended September 30, 2019 and 2018, respectively, and $2.3 million and $2.4 million for the nine-month periods ended September 30, 2019 and 2018, respectively.
In addition to rail car leases, we have a few operating leases for various machinery, equipment and storage facilities. Total lease expense under these arrangements is $21,000 and $10,000 for the three month periods ended September 30, 2019 and 2018, respectively, and $41,000 and $34,000 for the nine months ended September 30, 2019 and 2018, respectively. Some of our leases include purchase options, none of which, however, are for a value less than fair market value at the end of the lease.
Contractual Obligations
The following table shows our contractual obligations for the periods presented:
 
 
Payment due by period
CONTRACTUAL
OBLIGATIONS
 
Total
 
Less than
1 year
 
1-3 years
 
3-5 years
 
More than
5 years
Long-Term Debt Obligations (1)
 
$
18,227,000

 
$
5,327,000

 
$
8,800,000

 
$
4,100,000

 
$

 
 
 
 
 
 
 
 
 
 
 
Operating Lease Obligations
 
7,160,000

 
2,973,000

 
3,464,000

 
481,000

 
242,000

 
 
 
 
 
 
 
 
 
 
 
Totals
 
$
25,387,000

 
$
8,300,000

 
$
12,264,000

 
$
4,581,000

 
$
242,000

(1)
Represents principal and interest payments on our notes payable, which are included on our Balance Sheet.
RECENT ACCOUNTING PRONOUNCEMENTS
See Note 1 of our Financial Statements under Part I, Item 1, for a discussion on the impact, if any, of the recently pronounced accounting standards.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Except for the adoption of Accounting Standards Update No. 2016-02 (Leases) noted below, there have been no material changes to our critical accounting policies and estimates from those set forth in our Annual Report on Form 10-K for the year ended December 31, 2018.
We adopted ASU 2016-02 (Leases) as of January 1, 2019. As a result of the adoption of the new lease accounting guidance, we recognized on January 1, 2018 (the beginning of the earliest period presented): (a) a lease liability of $10.3 million, which represents the present value of the remaining lease payments of $11,000,000, discounted using

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our incremental borrowing rate at the time of adoption of the respective leases, and (b) a right-to-use asset of $10.3 million, which represents the total lease liability adjusted for any unamortized initial direct costs.
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
Commodities Risk & Risk Management. To reduce the price change risks associated with holding fixed price commodity positions, we generally take opposite and offsetting positions by entering into commodity futures contracts (either a straight or options futures contract) on a regulated commodity futures exchange, the Chicago Board of Trade. While hedging activities reduce the risk of loss from changing market prices, such activities also limit the gain potential which otherwise could result from these significant fluctuations in market prices. Our policy is generally to maintain a hedged position within limits, but we can be long or short at any time. Our profitability is primarily derived from margins on soybeans processed, not from hedging transactions. Our management does not anticipate that hedging activities will have a significant impact on future operating results or liquidity. Hedging arrangements do not protect against nonperformance of a cash contract.
At any one time, our inventory and purchase contracts for delivery to our facility may be substantial. We have risk management policies and procedures that include net position limits. They are defined by commodity, and include both trader and management limits. This policy and procedure triggers a review by management when any trader is outside of position limits. The position limits are reviewed at least annually with the board of managers. We monitor current market conditions and may expand or reduce the limits in response to changes in those conditions.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Foreign Currency Risk. We conduct essentially all of our business in U.S. dollars and have minimal direct risk regarding foreign currency fluctuations. Foreign currency fluctuations do, however, impact the ability of foreign buyers to purchase U.S. agricultural products and the competitiveness of and demand for U.S. agricultural products compared to the same products offered by foreign suppliers.
An adverse change in market prices would not materially affect our profitability since we generally take opposite and offsetting positions by entering into commodity futures and forward contracts as economic hedges of price risk.
Interest Rate Risk. We manage exposure to interest rate changes by using variable rate loan agreements with fixed rate options. Long-term loan agreements can utilize the fixed option through maturity; however, the revolving ability to pay down and borrow back would be eliminated once the funds were fixed.
As of September 30, 2019, we had $603,342 in fixed rate debt outstanding and $36 million of variable rate lines of credit. Interest rate changes impact the amount of our interest payments and, therefore, our future earnings and cash flows. Assuming other variables remain constant, a 1.0% increase in interest rates on our variable rate debt could have an estimated impact on profitability of approximately $360,000 per year.
Item 4.    Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Based on their evaluation as of the end of the period covered by this quarterly report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
Changes in Internal Control Over Financial Reporting. There were no changes to our internal controls over financial reporting that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting during the quarter ended September 30, 2019.

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PART II – OTHER INFORMATION
Item 1.    Legal Proceedings.
From time to time in the ordinary course of our business, we may be named as a defendant in legal proceedings related to various issues, including without limitation, workers’ compensation claims, tort claims, or contractual dispute. We carry insurance that provides protection against general commercial liability claims, claims against our directors, officer and employees, business interruption, automobile liability, and workers' compensation. We are not currently involved in any material legal proceedings and are not aware of any potential claims.
Item 1A. Risk Factors.
During the quarter ended September 30, 2019, there were no material changes to the Risk Factors disclosed in Item 1A (Part I) of our 2018 Annual Report on Form 10-K.
Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3.    Defaults Upon Senior Securities.
None.
Item 4.    Mine Safety Disclosures.
None.
Item 5.    Other Information.
None.
Item 6.    Exhibits. 
____________________________________________________________________________

(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) Incorporated by reference from the same numbered exhibit to the issuer’s Form 8-K filed on June 22, 2017.
(3) Incorporated by reference from the same numbered exhibit to the issuer’s Form 10-Q filed on August 14, 2002.
(4) Incorporated by reference from the same numbered exhibit to the issuer’s Registration Statement on Form S-4 (File No. 333-75804).

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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 
 
SOUTH DAKOTA SOYBEAN PROCESSORS, LLC
 
 
 
 
Dated:
November 7, 2019
By
/s/ Thomas Kersting
 
 
 
Thomas Kersting, Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Dated:
November 7, 2019
By
/s/ Mark Hyde
 
 
 
Mark Hyde, Chief Financial Officer
 
 
 
(Principal Financial Officer)

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