LAKE AREA CORN PROCESSORS, LLC
Consolidated Statements of Cash Flows | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| | | | | |
OPERATING ACTIVITIES | | | | | |
Net income (loss) | $ | 57,086,286 | | | $ | 1,055,639 | | | $ | (3,824,184) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | | | |
Depreciation and amortization | 5,396,440 | | | 5,718,454 | | | 4,965,966 | |
Distributions in excess of earnings (earnings in excess of distributions) from investments | (3,544,606) | | | 45,803 | | | 1,252,223 | |
Paycheck Protection Program loan forgiveness | (768,400) | | | — | | | — | |
Government grant income | (10,000) | | | — | | | — | |
| | | | | |
(Increase) decrease in | | | | | |
Accounts receivable | 309,324 | | | (642,721) | | | (347,041) | |
Inventory | (6,641,522) | | | 774,506 | | | (2,981,920) | |
Prepaid expenses | (55,718) | | | (198,049) | | | (213,629) | |
Derivative financial instruments | 433,509 | | | (2,023,655) | | | 379,355 | |
| | | | | |
Increase (decrease) in | | | | | |
Accounts payable | 7,328,901 | | | 4,713,782 | | | 8,123,326 | |
Accrued and other liabilities | 186,450 | | | (205,124) | | | 163,674 | |
NET CASH PROVIDED BY OPERATING ACTIVITIES | 59,720,664 | | | 9,238,635 | | | 7,517,770 | |
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INVESTING ACTIVITIES | | | | | |
| | | | | |
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Purchase of property and equipment | (2,061,972) | | | (359,221) | | | (9,066,179) | |
Purchase of investments | (323,869) | | | — | | | (633,924) | |
NET CASH USED IN INVESTING ACTIVITIES | (2,385,841) | | | (359,221) | | | (9,700,103) | |
| | | | | |
FINANCING ACTIVITIES | | | | | |
Increase (decrease) in outstanding checks in excess of bank balance | 1,908,676 | | | (835,656) | | | (1,091,951) | |
Borrowings on notes payable | 21,000,000 | | | 60,770,400 | | | 85,500,000 | |
Payments on notes payable | (52,000,000) | | | (63,000,000) | | | (71,100,000) | |
| | | | | |
| | | | | |
Distributions paid to members | (8,886,000) | | | — | | | — | |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (37,977,324) | | | (3,065,256) | | | 13,308,049 | |
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NET INCREASE IN CASH AND CASH EQUIVALENTS | 19,357,499 | | | 5,814,158 | | | 11,125,716 | |
| | | | | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 18,637,811 | | | 12,823,653 | | | 1,697,937 | |
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CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 37,995,310 | | | $ | 18,637,811 | | | $ | 12,823,653 | |
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SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | | | | | |
Cash paid during the period for interest, net of capitalized interest of $6,339; $148; and $831,170 in 2021, 2020 and 2019, respectively | $ | 943,736 | | | $ | 1,510,468 | | | $ | 835,236 | |
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See Notes to Consolidated Financial Statements
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
NOTE 1 - NATURE OF OPERATIONS
Principal Business Activity
Lake Area Corn Processors, LLC and subsidiary (the Company) is a South Dakota limited liability company.
The Company owns and manages Dakota Ethanol, LLC (Dakota Ethanol), a 90 million-gallon (annual nameplate capacity) ethanol plant located near Wentworth, South Dakota. Dakota Ethanol sells ethanol and related products to customers located in North America.
In addition, the Company has investment interests in five companies in related industries. See note 5 for further details.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Dakota Ethanol. All significant inter-company transactions and balances have been eliminated in consolidation.
Revenue Recognition
ASC Topic 606, Revenue from Contracts with Customers requires the Company to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance requires the Company to apply the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the Company satisfies a performance obligation. The Company generally recognizes revenue at a point in time. The Company's contracts with customers have one performance obligation and a contract duration of one year or less.
The following is a description of principal activities from which we generate revenue. Revenues from contracts with customers are recognized when control of the promised goods or services are transferred to our customers, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services. Generally, ethanol and related products are shipped FOB shipping point and control of the goods transfers to customers when the goods are loaded into trucks or when rail cars are shipped. Consideration is based on predetermined contractual prices or on current market prices.
•Sales of Ethanol
•Sales of Distillers Grains
•Sales of Distillers Corn Oil
Disaggregation of Revenue:
All revenue recognized in the income statement is considered to be revenue from contracts with customers. The following table depicts the disaggregation of revenue according to product line:
| | | | | | | | | | | | | | | | | | | | |
| | 2021 | | 2020 | | 2019 |
| | | | | | |
Revenues ethanol | | $ | 203,540,577 | | | $ | 99,077,363 | | | $ | 90,415,936 | |
Revenues distillers grains | | 41,168,903 | | | 25,519,999 | | | 21,200,904 | |
Revenues distillers corn oil | | 14,280,123 | | | 5,924,452 | | | 4,369,981 | |
| | $ | 258,989,603 | | | $ | 130,521,814 | | | $ | 115,986,821 | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
Contract Assets and Contract Liabilities:
The Company receives payments from customers based upon contractual billing schedules; accounts receivable are recorded when the right to consideration becomes unconditional. Contract liabilities include payments received in advance of performance under the contract, and are realized with the associated revenue recognized under the contract.
The Company has no significant contract assets or contract liabilities from contracts with customers at December 31, 2021 and 2020, respectively.
Shipping Costs
Shipping costs incurred by the Company in the sale of ethanol, dried distiller's grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.
When the Company performs shipping and handling activities after the transfer of control to the customers (e.g., when control transfers prior to delivery), they are considered as fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized.
Cost of Revenues
The primary raw materials we use to produce ethanol, distillers grains and corn oil are corn and natural gas.
Electricity, raw materials expense (chemicals and denaturant), direct labor costs, and shipping costs on modified and wet distiller's grains are included in cost of revenues.
Inventory Valuation
Inventories are generally valued using methods which approximate the lower of cost (first-in, first-out) or net realizable value. In the valuation of inventories, net realizable value is based on estimated selling prices in the ordinary course of business less reasonably predictable costs of completion, disposal and transportation.
Cash and Cash Equivalents
Cash and cash equivalents consist of demand accounts and other accounts with original maturities of three months or less that provide withdrawal privileges.
Receivables and Credit Policies
Accounts receivable are uncollateralized customer obligations due under normal trade terms requiring payment within fifteen days from the invoice date. Unpaid accounts receivable with invoice dates over thirty days old bear interest at 1.5% per month. Accounts receivable are stated at the amount billed to the customer. Payments of accounts receivable are allocated to the specific invoices identified on the customer's remittance advice or, if unspecified, are applied to the earliest unpaid invoices.
The carrying amount of trade receivables is reduced by a valuation allowance that reflects management's best estimate of the amounts that will not be collected. Management regularly reviews trade receivable balances and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. The valuation allowance was $0 and $0 as of December 31, 2021 and 2020 respectively.
Investment in commodities contracts, derivative instruments and hedging activities
The Company is exposed to certain risks related to our ongoing business operations. The primary risks that the Company manages by using forward contracts or derivative instruments are price risk on anticipated purchases of corn and natural gas and the sale of ethanol, distillers grains and distillers corn oil.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
The Company is subject to market risk with respect to the price and availability of corn, the principal raw material the Company uses to produce ethanol and ethanol by-products. In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow us to pass along increased corn costs to our customers. The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.
Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting 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 the accounting and reporting requirements of derivative accounting.
The Company does not apply the normal purchase and sales exemption for forward corn purchase contracts. As of December 31, 2021, the Company is committed to purchasing approximately 8.7 million bushels of corn on a forward contract basis with an average price of $5.95 per bushel. The total corn purchase contracts represent 29% of the projected annual plant corn usage.
The Company has 291,000 bushels of corn inventory delivered under delayed-pricing contracts. The contracts have various pricing deadlines through November 30, 2022. The Company is subject to risk of changes in the corn market until they are priced.
The Company enters into firm-price purchase commitments with natural gas suppliers under which the Company agrees to buy natural gas at a price set in advance of the actual delivery. Under these arrangements, the Company assumes the risk of a price decrease in the market price of natural gas between the time the price is fixed and the time the natural gas is delivered. At December 31, 2021, the Company is committed to purchasing approximately 1,275,000 MMBtu's of natural gas with an average price of $3.68 per MMBtu. The Company accounts for these transactions as normal purchases, and accordingly, does not mark these transactions to market. The natural gas purchases represent approximately 63% of the projected annual plant requirements.
The Company enters into firm-price sales commitments with distillers grains customers under which the Company agrees to sell distillers grains at a price set in advance of the actual delivery. Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers grain between the time the price is fixed and the time the distillers grains are delivered. At December 31, 2021, the Company is committed to selling approximately 38,000 dry equivalent tons of distillers grains with an average price of $192 per ton. The Company accounts for these transactions as normal sales, and accordingly, does not mark these transactions to market. The distillers grains sales represent approximately 18% of the projected annual plant production.
The Company enters into firm-price sales commitments with distillers corn oil customers under which the Company agrees to sell distillers corn oil at a price set in advance of the actual delivery. Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers corn oil between the time this price is fixed and the time the distillers corn oil is delivered. At December 31, 2021, the Company is committed to selling approximately 3,464,000 pounds of distillers corn oil with an average price of $0.59 per pound. The Company accounts for these transactions as normal sales, and accordingly, does not mark these transactions to market. The distillers corn oil sales represent approximately 15% of the projected annual plant production.
The Company does not have any firm-priced sales commitments for ethanol as of December 31, 2021.
The Company enters into short-term forward, option and futures contracts for ethanol, corn and natural gas as a means of managing exposure to changes in commodity and energy prices. All contracts of the Company are designated as non-hedge derivatives and are recorded at fair value with changes being recognized in net income, or are designated as normal purchases and normal sales and are evaluated for inherent losses. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
As part of our trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk of loss in the market value of inventories and purchase commitments. To reduce that risk, the Company generally takes positions using forward and futures contracts and options.
Derivatives not designated as hedging instruments at December 31, 2021 and December 31, 2020 were as follows:
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| | Balance Sheet Classification | | December 31, 2021 | | December 31, 2020 |
| | | | | | |
Corn forward contracts in gain position | | | | $ | 892,509 | | | $ | 1,742,054 | |
Futures and options contracts in gain position | | | | 140,863 | | | — | |
Futures and options contracts in loss position | | | | (1,238,560) | | | (1,799,688) | |
Total forward, futures and options contracts | | | | (205,188) | | | (57,634) | |
Cash held by broker | | | | 3,092,019 | | | 2,131,644 | |
| | Current Assets | | $ | 2,886,831 | | | $ | 2,074,010 | |
| | | | | | |
Corn forward contracts in loss position | | Current Liabilities | | $ | (1,490,510) | | | $ | (244,181) | |
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Futures and options contracts and cash held by broker are all with one party and the right of offset exists. Therefore, on the balance sheet, these items are netted in one balance regardless of position.
Forward contracts are with multiple parties and the right of offset does not exist. Therefore, these contracts are reported at the gross amounts on the balance sheet.
Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements.
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| | Statement of Operations | | Years Ended December 31, |
| | Classification | | 2021 | | 2020 | | 2019 |
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Net realized and unrealized gains (losses) related to purchase contracts: | | | | | | | | |
Futures and options contracts | | Cost of Revenues | | $ | (10,137,035) | | | $ | (1,211,861) | | | $ | (8,631) | |
Forward contracts | | Cost of Revenues | | 6,222,026 | | | (415,420) | | | (897,283) | |
Investments
The Company has investment interests in five companies in related industries. All of these interests are at ownership shares less than 20%. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company's share of net income is recognized as income in the Company's statements of operations and added to the investment account. Distributions or dividends received from the investments are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income based on the most recent reliable data.
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 amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the fair value of derivative
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
financial instruments, lower of cost or net realizable value accounting for inventory, and goodwill and fixed asset impairment evaluation.
Concentrations of Credit Risk
The Company's cash balances are maintained in bank depositories and regularly exceed federally insured limits. The Company has not experienced any losses in connection with these balances.
Property and Equipment
Property and equipment is stated at cost. Significant additions and betterments are capitalized, while expenditures for maintenance, repairs and minor renewals are charged to operations when incurred. Depreciation on assets placed in service is computed using the straight-line method over estimated useful lives as follows:
•Land improvements 20-40 years
•Equipment 5-20 years
•Buildings 15-40 years
Equipment relates to two general categories: mechanical equipment and administrative and maintenance equipment. Mechanical equipment generally relates to equipment for handling inventories and the production of ethanol and related products, with useful lives of 15 to 20 years, including boilers, cooling towers, grain bins, centrifuges, conveyors, fermentation tanks, pumps and drying equipment. Administrative and maintenance equipment is equipment with useful lives of 5 to 15 years, including vehicles, computer systems, security equipment, testing devices and shop equipment.
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of an asset group may not be recoverable. An impairment loss is recorded when the sum of the undiscounted future cash flows is less than the carrying amount of the asset group. An impairment loss is measured as the amount by which the carrying amount of the asset group exceeds its fair value. During the first quarter of 2020, the COVID-19 pandemic represented a change in circumstance that indicated the carrying value of property and equipment may not be recoverable. The Company calculated the undiscounted future cash flows of the property and equipment and determined them to be recoverable. Accordingly, no impairment was recorded. No indicators of impairment were identified at December 31, 2021.
Goodwill
Annually, as well as when an event triggering impairment may have occurred, the Company performs an impairment test on goodwill. The Company performs a quantitative analysis that tests for impairment. The second step, if necessary, measures the impairment. During the first quarter of 2020 a triggering event was determined to have occurred and an impairment test was performed as of March 31, 2020. The Company determined there was no impairment at that time. The Company performs the annual analysis on December 31 of each fiscal year. The Company determined that there was no impairment of goodwill at December 31, 2021 and 2020, respectively.
Earnings Per Unit
For purposes of calculating basic earnings per unit, units issued are considered outstanding on the effective date of issuance. Diluted earnings per unit are calculated by including dilutive potential equity units in the denominator. There were no dilutive equity units for the years ending December 31, 2021, 2020, and 2019.
Income Taxes
The Company is taxed as a limited liability company under the Internal Revenue Code. The income of the Company flows through to the members to be taxed at the member level rather than the corporate level. Accordingly, the Company has no tax liability.
Management has evaluated the Company's tax positions under the Financial Accounting Standards Board issued guidance on accounting for uncertainty in income taxes and concluded that the Company had taken no uncertain tax positions that require
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
adjustment to the financial statements to comply with the provisions of this guidance. Generally, the Company is no longer subject to income tax examinations by the U.S. federal, state or local authorities for the years before 2017.
Environmental Liabilities
The Company's operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdictions in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company's liability is probable and the costs can be reasonably estimated.
Reporting Segment
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 or decision making group in deciding how to allocate resources and in assessing performance. The Company has determined that it has six operating segments that give rise to two reportable segments. See "Note 3 - Segments" in our Notes to Consolidated Financial Statements included elsewhere in this report for financial information about our segment reporting.
Recently Issued Accounting Pronouncements
There are currently no recently issued accounting pronouncements that the Company determined to be factually relevant to the understanding of the financial statements.
Risks and Uncertainties
The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distiller grains to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. For the twelve months ended December 31, 2021, ethanol sales averaged approximately 79% of total revenues, while approximately 16% of revenues were generated from the sale of distillers grains and 5% of revenues were generated from the sale of corn oil. For the twelve months ended December 31, 2021, corn costs averaged approximately 77% of cost of goods sold.
The Company's operating and financial performance is largely driven by the prices at which it sells ethanol and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets. Excess ethanol supply in the 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, weather, and government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.
On January 30, 2020, the World Health Organization declared the coronavirus outbreak (COVID-19) a “Public Health Emergency of International Concern” and on March 11, 2020, declared COVID-19 a pandemic. Quarantines, labor shortages, and other disruptions to the Company’s operations, and those of its customers, adversely impacted the Company’s revenues, ability to provide its services and operating results. Any future quarantines, labor shortages, or other disruptions to the Company's operations, or those of its customers may adversely impact the Company's revenues, ability to provide its services and operating results. Like the COVID-19 pandemic, any significant outbreak of epidemic, pandemic or contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and financial markets of many countries, including the geographical area in which the Company operates, resulting in an economic downturn that could affect demand for its goods and services. The extent to which COVID-19 will impact the Company’s long-term results will depend on future developments, which are highly uncertain and cannot be predicted, including new developments regarding continued distribution of the COVID-19 vaccine, new information which may emerge concerning the severity of the coronavirus, prevalence of new COVID-19 cases and actions taken to contain the coronavirus or its impact, among others.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
NOTE 3 - SEGMENTS
The Company reports its financial and operating performance in two segments: (1) production, which includes the manufacture and marketing of fuel-grade ethanol and co-products of the ethanol production process and (2) ethanol producing equity method investments, which consists of the aggregation of the Company's two equity method operating segments of investment in Guardian Hankinson, LLC and investment in Ring-neck Energy & Feed, LLC. The Company discloses its other identified operating segments in an all other category, which consists of the Company's investments in RPMG, LLC, Lawrenceville Tank, LLC, and Guardian Energy Management, LLC.
The Company's two reportable segments have been identified based on their unique characteristics. Our production segment is the Company's ethanol plant that is operated in a manner chosen by our chief decision making team. The ethanol producing equity method segment are aggregated operating segments investments that have exceeded the quantitative thresholds for reportable segments which have similar economic characteristics but our chief decision making team does not have input into the daily operations of those entities. The all other category is comprised of investments that fall below the quantitative thresholds for reporting segments and the Company's chief decision making team has no input into their daily operations. Production includes the core operating drivers of the Company's consolidated financial statements which consist of the production and sale of ethanol and its co-products. Ethanol producing equity method investments derive their revenues from the production and sale of ethanol and its co-products. The all other category receives its revenues from marketing fees, management fees, and storage fees. The reconciliation item is necessary due to reportable segments not being consolidated in the financial statements, but rather are reflected as equity method investments.
The segments were identified using standards under ASC 280-10-50. They each engage in business activities, the operating results are reviewed by the Company’s chief operating decision maker, and discrete financial information is available for each segment.
The following tables set forth certain financial data for the Company's operating segments:
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| Year Ended | | Year Ended | | Year Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
Net Sales | | | | | |
Production | $ | 258,989,603 | | | $ | 130,521,814 | | | $ | 115,986,821 | |
Ethanol Producing Equity Method Investments | 650,859,715 | | | 325,954,417 | | | 321,321,517 | |
All Other | 16,262,276 | | | 14,200,489 | | | 19,180,356 | |
Total | 926,111,594 | | | 470,676,720 | | | 456,488,694 | |
Reconciliation | (667,121,991) | | | (340,154,906) | | | (340,501,873) | |
Consolidated | $ | 258,989,603 | | | $ | 130,521,814 | | | $ | 115,986,821 | |
| | | | | |
Gross Profit | | | | | |
Production | $ | 51,713,988 | | | $ | 6,028,546 | | | $ | 1,299,590 | |
Ethanol Producing Equity Method Investments | 102,631,701 | | | 11,976,243 | | | 12,354,418 | |
All Other | 10,280,024 | | | 8,840,138 | | | 13,024,964 | |
Total | 164,625,713 | | | 26,844,927 | | | 26,678,972 | |
Reconciliation | (112,911,725) | | | (20,816,381) | | | (25,379,382) | |
Consolidated | $ | 51,713,988 | | | $ | 6,028,546 | | | $ | 1,299,590 | |
| | | | | |
Net Income (Loss) | | | | | |
Production | $ | 57,086,286 | | | $ | 1,055,639 | | | $ | (3,824,184) | |
Ethanol Producing Equity Method Investments | 97,010,893 | | | 307,019 | | | (708,491) | |
All Other | 5,538,295 | | | 2,411,213 | | | 2,562,676 | |
Total | 159,635,474 | | | 3,773,871 | | | (1,969,999) | |
Reconciliation | (102,549,188) | | | (2,718,232) | | | (1,854,185) | |
Consolidated | $ | 57,086,286 | | | $ | 1,055,639 | | | $ | (3,824,184) | |
| | | | | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
| | | | | | | | | | | | | | | | | |
Interest Income | | | | | |
Production | $ | 13,361 | | | $ | 3,615 | | | $ | 11,876 | |
Ethanol Producing Equity Method Investments | 39,177 | | | 21,902 | | | 23,104 | |
All Other | 2,135,470 | | | 2,395,057 | | | 2,810,198 | |
Total | 2,188,008 | | | 2,420,574 | | | 2,845,178 | |
Reconciliation | (2,174,647) | | | (2,416,959) | | | (2,833,302) | |
Consolidated | $ | 13,361 | | | $ | 3,615 | | | $ | 11,876 | |
| | | | | |
Interest Expense | | | | | |
Production | $ | 727,452 | | | $ | 1,394,035 | | | $ | 1,183,324 | |
Ethanol Producing Equity Method Investments | 3,293,641 | | | 4,276,226 | | | 5,673,185 | |
All Other | 3,082,000 | | | 2,469,656 | | | 3,337,002 | |
Total | 7,103,093 | | | 8,139,917 | | | 10,193,511 | |
Reconciliation | (6,375,641) | | | (6,745,882) | | | (9,010,187) | |
Consolidated | $ | 727,452 | | | $ | 1,394,035 | | | 1,183,324 | |
| | | | | |
Depreciation and Amortization | | | | | |
Production | $ | 5,396,439 | | | $ | 5,718,454 | | | $ | 4,965,966 | |
Ethanol Producing Equity Method Investments | 26,798,254 | | | 26,742,646 | | | 23,314,542 | |
All Other | 204,745 | | | 235,325 | | | 871,269 | |
Total | 32,399,438 | | | 32,696,425 | | | 29,151,777 | |
Reconciliation | (27,002,999) | | | (26,977,971) | | | (24,185,811) | |
Consolidated | $ | 5,396,439 | | | $ | 5,718,454 | | | $ | 4,965,966 | |
| | | | | |
Expenditures for Additions to Long-lived Assets | | | | | |
Production | $ | 2,061,972 | | | $ | 359,221 | | | $ | 9,066,179 | |
Ethanol Producing Equity Method Investments | 1,780,335 | | | 2,431,446 | | | 22,592,254 | |
All Other | — | | | 47,650 | | | 50,176 | |
Total | 3,842,307 | | | 2,838,317 | | | 31,708,609 | |
Reconciliation | (1,780,335) | | | (2,479,096) | | | (22,642,430) | |
Consolidated | $ | 2,061,972 | | | $ | 359,221 | | | 9,066,179 | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
| | | | | | | | | | | |
| December 31, 2021 | | December 31, 2020 |
Total Assets | | | |
Production | $ | 148,952,863 | | | $ | 121,857,947 | |
Ethanol Producing Equity Method Investments | 261,642,408 | | | 244,353,900 | |
All Other | 283,835,871 | | | 175,909,073 | |
Total | 694,431,142 | | | 542,120,920 | |
Reconciliation | (545,478,279) | | | (420,262,973) | |
Consolidated | $ | 148,952,863 | | | $ | 121,857,947 | |
| | | |
Equity Method Investments | | | |
Production | $ | 20,504,842 | | | $ | 16,636,367 | |
Ethanol Producing Equity Method Investments | 4,125,459 | | | 2,206,234 | |
All Other | 209,328 | | | 189,347 | |
Total | 24,839,629 | | | 19,031,948 | |
Reconciliation | (4,334,787) | | | (2,395,581) | |
Consolidated | $ | 20,504,842 | | | $ | 16,636,367 | |
NOTE 4 - INVENTORY
Inventory consisted of the following as of December 31, 2021 and 2020:
| | | | | | | | | | | | | | |
| | December 31, 2021 | | December 31, 2020 |
Raw materials | | $ | 7,278,381 | | | $ | 5,096,067 | |
Finished goods | | 6,195,222 | | | 2,474,638 | |
Work in process | | 1,779,170 | | | 1,090,893 | |
Parts inventory | | 1,157,664 | | | 1,107,318 | |
| | $ | 16,410,437 | | | $ | 9,768,916 | |
As of December 31, 2021 and December 31, 2020, the Company recorded a lower of cost or net realizable value write-down on inventory of approximately $0 and $13,000, respectively.
NOTE 5 - INVESTMENTS
Dakota Ethanol has a 5% investment interest in the Company's ethanol marketer, Renewable Products Marketing Group, LLC (RPMG). The net income which is reported in the Company's income statement for RPMG is based on RPMG's September 30, 2021, 2020 and 2019 audited results. The carrying amount of the Company's investment was approximately $1,709,000 and $1,208,000 as of December 31, 2021 and 2020, respectively.
Dakota Ethanol has a 10% investment interest in Lawrenceville Tanks, LLC (LT), a partnership to construct and operate an ethanol storage terminal in Georgia. The net income which is reported in the Company's income statement for LT is based on LT's December 31, 2021, 2020 and 2019 unaudited results. The carrying amount of the Company's investment was approximately $215,000 and $194,000 as of December 31, 2021 and 2020, respectively.
Lake Area Corn Processors has a 10% investment interest in Guardian Hankinson, LLC (GH), a partnership to operate an ethanol plant in North Dakota. The net income which is reported in the Company's income statement for GH is based on GH's December 31, 2021, 2020 and 2019 audited results. The carrying amount of the Company's investment was approximately $5,714,000 and $5,012,000 as of December 31, 2021 and 2020, respectively.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
Lake Area Corn Processors has a 17% investment interest in Guardian Energy Management, LLC (GEM), a partnership to provide management services to ethanol plants. The net income which is reported in the Company's income statement for GEM is based on GEM's December 31, 2021, 2020 and 2019 unaudited interim results. The carrying amount of the Company's investment was approximately $90,000 and $90,000 as of December 31, 2021 and 2020, respectively.
Lake Area Corn Processors has an 11% investment interest in Ring-neck Energy & Feed, LLC (REF), a partnership to operate an ethanol plant in South Dakota. The net income which is reported in the Company's income statement for REF is based on REF's December 31, 2021 and 2020 audited results. The carrying amount of the Company's investment was approximately $12,778,000 and $10,134,000 as of December 31, 2021 and 2020, respectively. REF commenced operations during the second quarter of 2019. Prior to then, the ethanol plant was under construction. The carrying amount of the investment exceeds the underlying equity in net assets by approximately $999,000. The excess is comprised of a basis adjustment of approximately $410,000 and capitalized interest of $589,000. The excess is amortized over 20 years. The amortization is recorded in equity in net income of investments.
Condensed, combined unaudited financial information of the Company's investments in RPMG, LT, GH, GEM and REF are as follows:
| | | | | | | | | | | | | | | | | | | | |
Balance Sheet | | 12/31/2021 | | 12/31/2020 | | 12/31/2019 |
| | | | | | |
Current assets | | $ | 370,470,221 | | | $ | 218,336,920 | | | $ | 219,618,012 | |
Other assets | | 179,230,853 | | | 201,926,053 | | | 226,475,381 | |
Current liabilities | | 308,504,144 | | | 209,538,950 | | | 187,381,453 | |
Long-term liabilities | | 44,248,272 | | | 48,854,217 | | | 95,219,540 | |
Member's equity | | 196,948,658 | | | 161,869,806 | | | 163,492,402 | |
Revenue | | 667,121,991 | | | 340,154,906 | | | 340,501,873 | |
Gross Profit | | 112,911,725 | | | 20,816,381 | | | 25,379,382 | |
Net Income | | 102,549,188 | | | 2,718,232 | | | 1,854,185 | |
The following table shows the condensed financial information of Guardian Energy Hankinson; the investment in which represents greater than 10% of the Company's income as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | |
Balance Sheet | | 12/31/2021 | | 12/31/2020 | | 12/31/2019 |
| | | | | | |
Current assets | | $ | 43,793,006 | | | $ | 29,709,743 | | | $ | 22,448,739 | |
Other assets | | 54,451,233 | | | 71,133,974 | | | 88,765,658 | |
Current liabilities | | 34,990,527 | | | 48,451,437 | | | 22,475,261 | |
Long-term liabilities | | 6,115,092 | | | 2,568,850 | | | 38,453,025 | |
Member's equity | | 57,138,620 | | | 49,823,430 | | | 50,286,111 | |
Revenue | | 442,502,900 | | | 211,380,830 | | | 250,769,851 | |
Gross Profit | | 68,569,989 | | | 2,664,119 | | | 12,896,477 | |
Net Income | | 71,815,190 | | | (462,681) | | | 8,054,076 | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
The following table shows the condensed financial information of Ring-neck Energy & Feed; the investment in which represents greater than 10% of the Company's assets as of December 31, 2021.
| | | | | | | | | | | | | | | | | | | | |
Balance Sheet | | 12/31/2021 | | 12/31/2020 | | 12/31/2019 |
| | | | | | |
Current assets | | $ | 44,893,050 | | | $ | 14,651,294 | | | $ | 12,928,367 | |
Other assets | | 122,727,914 | | | 128,858,889 | | | 135,519,290 | |
Current liabilities | | 23,595,688 | | | 16,314,452 | | | 11,554,477 | |
Long-term liabilities | | 38,133,180 | | | 46,285,367 | | | 56,752,516 | |
Member's equity | | 105,892,096 | | | 80,910,363 | | | 80,140,664 | |
Revenue | | 208,356,815 | | | 114,573,587 | | | 70,551,667 | |
Gross Profit | | 34,061,712 | | | 9,312,124 | | | 3,854,114 | |
Net Income | | 25,195,703 | | | 769,700 | | | (8,762,567) | |
The Company recorded equity in net income (loss) of approximately $10,170,000, $344,000 and $(61,000) from our investments for the years ended December 31, 2021, 2020 and 2019 respectively. The Company received distributions of approximately $6,625,000, $390,000 and $1,191,000 for our investments for the years ended December 31, 2021, 2020 and 2019 respectively. The Company has undistributed net earnings in investees of approximately $3,108,000 and $662,000 as of December 31, 2021 and 2020, respectively.
NOTE 6 - REVOLVING OPERATING NOTE
On February 6, 2018, Dakota Ethanol executed a revolving promissory note with Farm Credit Services of America (FCSA) in the amount up to $10,000,000 or the amount available in accordance with the borrowing base calculation, whichever is less. Dakota Ethanol amended the note agreement with FCSA in June of 2020 and October of 2021. Under the amendments, the available credit under the revolving operating note was reduced to $2,000,000. There is a non-use fee of 0.25% on the unused portion of the $2,000,000 availability. The note is collateralized by substantially all assets of the Company. The note expires on November 1, 2023. Interest on the outstanding principal balance will accrue at 305 basis points above the SOFR 30-day average rate. The interest rate is not subject to a floor. The rate was 3.10% at December 31, 2021. On December 31, 2021, Dakota Ethanol had no balance outstanding and $0 available to be drawn on the revolving promissory note.
NOTE 7 - LONG-TERM NOTES PAYABLE
On August 1, 2017, Dakota Ethanol executed a term note from FCSA in the amount of $8,000,000. Dakota Ethanol agreed to make monthly interest payments starting September 1, 2017 and annual principal payments of $1,000,000 starting on August 1, 2018. The payment on August 1, 2020 was deferred after the note was amended with FCSA and is now due on August 1, 2025. The notes matures on August 1, 2025. Interest on the outstanding principal balance will accrue at 330 basis points above the SOFR 30-day average rate. The interest rate is not subject to a floor. The rate was 3.35% at December 31, 2021. On December 31, 2021, Dakota Ethanol had $5,000,000 outstanding on the note.
On February 6, 2018, Dakota Ethanol executed a reducing revolving promissory note from FCSA in the amount up to $40,000,000 or the amount available in accordance with the borrowing availability under the credit agreement. Dakota Ethanol amended the note agreement with FCSA in June of 2020. Under the amendment, the available credit on the reducing revolving note was increased to $48,000,000. The amount Dakota Ethanol can borrow on the note decreases by $1,750,000 semi-annually starting on July 1, 2021 until the maximum balance reaches $32,250,000 on July 1, 2025. The note matures on January 1, 2026. Interest on the outstanding principal balance will accrue at 330 basis points above the SOFR 30-day average rate. The interest rate is not subject to a floor. The rate was 3.35% at December 31, 2021. The note contains a non-use fee of 0.50% on the unused portion of the note. On December 31, 2021, Dakota Ethanol had $0 outstanding and $46,250,000 available to be drawn on the note.
As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing financial reporting requirements, distribution and capital expenditure limits, minimum debt service coverage ratios, net worth and working capital requirements. The note is collateralized by substantially all assets of the Company. The note payable agreement was amended in October 2021 with modifications to the requirements. The working capital covenant was increased to $13,500,000 and the
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
net worth covenant was increased to $28,000,000. We are required to maintain a debt service coverage ratio of at least 1.25:1.00.
The Company entered into a loan agreement with the Small Business Association through First State Bank, Gothenburg, NE on April 4, 2020 for $760,400 as part of the Paycheck Protection Program under Division A, Title I of the Coronavirus Aid, Relief and Economic Security Act (CARES Act). In June 2021, the Company received notification from the Small Business Administration that all loan proceeds and accrued interest received and recorded by the Company were forgiven. Due to forgiveness of the loan, the Company recorded a gain on debt extinguishment in other income in the statement of operations for $768,400 for the year ending December 31, 2021.
The Company also received an Economic Injury Disaster Loan (EIDL) in the amount of $10,000 in June 2020. The Company was notified by the Small Business Association in June 2021 that all EIDL proceeds received by the Company had been forgiven. Due to forgiveness of the loan, the Company recorded a gain on debt extinguishment in other income in the statement of operations for $10,000 for the year ending December 31, 2021.
The balance of the notes payable as of December 31, 2021 and 2020 is as follows:
| | | | | | | | | | | | | | |
| | 2021 | | 2020 |
| | | | |
Note Payable - FCSA | | $ | 5,000,000 | | | $ | 36,000,000 | |
Note Payable - Other | | — | | | 770,400 | |
Less unamortized debt issuance costs | | (4,861) | | | (7,535) | |
| | 4,995,139 | | | 36,762,865 | |
Less current portion | | (1,000,000) | | | (1,201,628) | |
| | $ | 3,995,139 | | | $ | 35,561,237 | |
Principal maturities for the next five years are estimated as follows:
| | | | | | | | | | |
| | | | |
Years Ending December 31, | | Principal | | |
2022 | | $ | 1,000,000 | | | |
2023 | | 1,000,000 | | | |
2024 | | 1,000,000 | | | |
2025 | | 2,000,000 | | | |
| | | | |
thereafter | | — | | | |
| | $ | 5,000,000 | | | |
NOTE 8 - EMPLOYEE BENEFIT PLANS
Dakota Ethanol maintains a 401(k) plan for the employees who meet the eligibility requirements set forth in the plan documents. Dakota Ethanol matches a percentage of the employees' contributed earnings. Employer contributions to the plan totaled approximately $142,000, $133,000 and $123,000 for the years ended December 31, 2021, 2020 and 2019, respectively.
NOTE 9 - FAIR VALUE MEASUREMENTS
The Company complies with the fair value measurements and disclosures standard which defines fair value, establishes a framework for measuring fair value, and expands disclosure for those assets and liabilities carried on the balance sheet on a fair value basis.
The Company's balance sheet contains derivative financial instruments that are recorded at fair value on a recurring basis. Fair value measurements and disclosures require that assets and liabilities carried at fair value be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
Level 1 uses quoted market prices in active markets for identical assets or liabilities.
Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.
Level 3 uses unobservable inputs that are not corroborated by market data.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
Derivative financial instruments. Commodity futures and options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CBOT and NYMEX markets. Over-the-counter commodity options contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the over-the-counter markets. Forward purchase contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from local grain terminal bid values. The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based off the CBOT markets.
The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of December 31, 2021 and 2020, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Total | | Level 1 | | Level 2 | | Level 3 |
December 31, 2021 | | | | | | | | |
| | | | | | | | |
Assets: | | | | | | | | |
Derivative financial instruments, futures and options contracts | | $ | 140,863 | | | $ | 140,863 | | | $ | — | | | $ | — | |
Forward contracts | | 892,509 | | | — | | | 892,509 | | | — | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Derivative financial instruments, futures and options contracts | | $ | 1,238,560 | | | $ | 1,238,560 | | | $ | — | | | $ | — | |
Forward contracts | | 1,490,510 | | | — | | | 1,490,510 | | | — | |
| | | | | | | | |
December 31, 2020 | | | | | | | | |
| | | | | | | | |
Assets: | | | | | | | | |
| | | | | | | | |
Derivative financial instruments, forward contracts | | $ | 1,742,054 | | | $ | — | | | $ | 1,742,054 | | | $ | — | |
| | | | | | | | |
Liabilities: | | | | | | | | |
Derivative financial instruments, futures and options contracts | | $ | 1,799,688 | | | $ | 1,799,688 | | | $ | — | | | $ | — | |
Forward contracts | | 244,181 | | | — | | | 244,181 | | | — | |
During the years ended December 31, 2021 and 2020, the Company did not make any changes between Level 1 and Level 2 assets and liabilities. As of December 31, 2021 and 2020, the Company did not have any Level 3 assets or liabilities.
Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example,
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis were not significant at December 31, 2021 and 2020.
Disclosure requirements for fair value of financial instruments require disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or nonrecurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or nonrecurring basis are discussed above.
The Company believes the carrying amount of cash and cash equivalents (level 1), accounts receivable (level 2), accounts payable and accruals (level 2) and short-term debt (level 2) approximates fair value.
The carrying amount of long-term obligations (level 3) at December 31, 2021 of $5,000,000 had an estimated fair value of approximately $5,000,000 based on estimated interest rates for comparable debt. The carrying amount of long-term obligations at December 31, 2020 of $36,770,400 had an estimated fair value of approximately $36,770,400.
NOTE 10 - COMMITMENTS, CONTINGENCIES AND AGREEMENTS
Dakota Ethanol has entered into contracts and agreements regarding the operation of the ethanol plant as follows:
Natural Gas - The agreements provide Dakota Ethanol with transportation and distribution services for natural gas through October 2028, and is renewable annually thereafter. Fees for the services are at tariff rates approved by regulatory agencies. The agreement does not require minimum purchases of natural gas during their initial term.
Electricity - The agreement provides Dakota Ethanol with electric service through June 2029. The contract automatically renews unless prior notice of cancellation is given. The agreement sets rates for energy usage based on market rates and requires a minimum charge each month during the term of the agreement.
Expenses related to the agreements for the purchase of electricity and natural gas were approximately $12,415,000, $8,899,000, and $8,157,000, for the years ended December 31, 2021, 2020 and 2019, respectively.
Minimum annual payments during the term of the electricity agreement are as follows:
| | | | | | | | |
Years Ending December 31, | | Amount |
2022 | | $184,800 |
2023 | | 184,800 |
2024 | | 184,800 |
2025 | | 184,800 |
2026 | | 184,800 |
thereafter | | 462,000 |
Ethanol Fuel Marketing Agreement - Dakota Ethanol has an agreement with RPMG (a related party, see note 11), a joint venture of ethanol producers, for the sale, marketing, billing and receipt of payment and other administrative services for all ethanol produced by the plant. The agreement continues indefinitely unless terminated under terms set forth in the agreement.
Distiller's Grain Marketing Agreement - Dakota Ethanol has an agreement with RPMG (a related party, see note 11), for the marketing of all distiller's dried grains produced by the plant. The agreement continues indefinitely unless terminated under terms set forth in the agreement.
Corn Oil Marketing Agreement - Dakota Ethanol has an agreement with RPMG (a related party, see note 11), for the marketing of all corn oil produced by the plant. The agreement continues indefinitely unless terminated under terms set forth in the agreement.
Capital Expenditures - Dakota Ethanol has committed to a contract for the design and construction of a new 2 million gallon ethanol storage tank. The value of the construction is approximately $2.2 million, of which approximately $1.5
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
million is outstanding as of December 31, 2021. The project is expected to be completed during the fourth quarter of 2022. The Company has also committed to a contract for the design and construction of an eighth fermentor. The value of the construction is approximately $3.1 million, of which approximately $2.2 million is outstanding as of December 31, 2021. The project is expected to be completed during the third quarter of 2022.
From time to time in the normal course of business, the Company can be subject to litigation based on its operations. There is no current litigation nor any litigation that is considered probable at this time.
NOTE 11 - RELATED PARTY TRANSACTIONS
Dakota Ethanol has a 5% interest in RPMG, and Dakota Ethanol has entered into marketing agreements for the exclusive rights to market, sell and distribute the entire ethanol, dried distiller's grains, and corn oil inventories produced by Dakota Ethanol. The marketing fees are included in net revenues. Dakota Ethanol also purchases denaturant from RPMG. Amounts due from RPMG are presented as accounts receivable (related party) on the balance sheet.
Revenues and marketing fees related to the agreements are as follows:
| | | | | | | | | | | | | | | | | | | | |
| | Years Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| | | | | | |
Revenues ethanol | | $ | 203,807,925 | | | $ | 99,280,464 | | | $ | 90,555,111 | |
Revenues distillers grains | | 13,971,006 | | | 9,541,074 | | | 5,108,266 | |
Revenues corn oil | | 14,330,754 | | | 5,969,230 | | | 4,406,438 | |
| | | | | | |
Marketing fees ethanol | | $ | 267,348 | | | $ | 203,101 | | | $ | 242,607 | |
Marketing fees distillers grains | | 65,651 | | | 68,354 | | | 36,935 | |
Marketing fees corn oil | | 50,631 | | | 44,778 | | | 36,457 | |
Denaturant purchases | | 3,647,081 | | | 1,503,071 | | | 918,071 | |
| | | | | | |
| | | | | | |
Amounts due to RPMG | | 79,909 | | | 47,073 | | | 46,234 | |
The Company purchased corn and services from members of its Board of Directors that farm and operate local businesses. Corn purchases from these related parties during the fiscal years ended December 31, 2021, 2020 and 2019 totaled approximately $2,139,000, $1,022,000 and $1,084,000, respectively. As of December 31, 2021 and 2020, the Company no outstanding obligations to these related parties.
NOTE 12 - CAPTIVE INSURANCE
The Company participates, along with other plants in the industry, in a group captive insurance company (Captive). The Captive insures losses related to workman's compensation, commercial property and general liability. The Captive reinsures catastrophic losses for all participants, including the Company, in excess of predetermined amounts. The Company's premiums are accrued by a charge to income for the period to which the premium relates and is remitted by the Company's insurer to the captive reinsurer. These premiums are structured such that the Company has made a prepaid collateral deposit estimated for losses related to the above coverage. The Captive insurer has estimated and collected an amount in excess of the estimated losses but less than the catastrophic loss limit insured by the Captive. The Company cannot be assessed over the amount in the collateral fund.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
NOTE 13 - QUARTERLY FINANCIAL REPORTING (UNAUDITED)
Summary quarterly results are as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| First Quarter | | Second Quarter | | Third Quarter | | Fourth Quarter |
Year ended December 31, 2021 | | | | | | | |
Total revenues | $ | 48,615,653 | | | $ | 64,238,127 | | | $ | 63,794,494 | | | $ | 82,341,329 | |
Gross profit | 6,957,219 | | | 9,468,054 | | | 9,041,115 | | | 26,247,600 | |
Income from operations | 5,706,085 | | | 8,191,959 | | | 7,791,872 | | | 24,593,778 | |
Net income | 6,535,530 | | | 10,058,652 | | | 8,812,557 | | | 31,679,547 | |
Basic and diluted earnings per unit | 0.22 | | | 0.34 | | | 0.30 | | | 1.07 | |
| | | | | | | |
Year ended December 31, 2020 | | | | | | | |
Total revenues | $ | 32,456,238 | | | $ | 25,424,832 | | | $ | 33,917,787 | | | $ | 38,722,957 | |
Gross profit (loss) | (7,849,642) | | | 5,611,925 | | | 6,046,492 | | | 2,219,771 | |
Income (loss) from operations | (9,189,480) | | | 4,666,216 | | | 5,054,469 | | | 1,079,267 | |
Net income (loss) | (10,475,043) | | | 4,213,375 | | | 5,810,426 | | | 1,506,881 | |
Basic and diluted earnings (loss) per unit | (0.35) | | | 0.14 | | | 0.20 | | | 0.05 | |
| | | | | | | |
Year ended December 31, 2019 | | | | | | | |
Total revenues | $ | 21,613,298 | | | $ | 26,096,989 | | | $ | 32,441,510 | | | $ | 35,835,024 | |
Gross profit (loss) | 2,450,262 | | | 1,298,964 | | | (1,815,202) | | | (634,434) | |
Income (loss) from operations | 1,440,935 | | | 372,585 | | | (2,786,864) | | | (1,787,409) | |
Net income (loss) | 1,790,204 | | | (192,897) | | | (3,599,789) | | | (1,821,702) | |
Basic and diluted earnings (loss) per unit | 0.06 | | | (0.01) | | | (0.12) | | | (0.06) | |
NOTE 14 - PARENT FINANCIAL STATEMENTS
The following financial information represents the unconsolidated financial statements of Lake Area Corn Processors, LLC as of December 31, 2021 and 2020, and for the years ended December 31, 2021, 2020 and 2019. The Company's ability to receive distributions from its wholly owned subsidiary, Dakota Ethanol, LLC, is based on the terms and conditions set forth in the Fourth Amendment to its credit agreement with Farm Credit Services of America, PCA and Farm Credit Services of America, FLCA. Under the Fourth Amendment, if no event of default or potential default exists, Dakota Ethanol may make distributions in an amount up to 75% of prior year's net income, so long as the Company's working capital stays above $18,000,000 post distribution. The combined distributions for 2021 and 2022 shall also be limited to 75% of the combined net income of 2020 and 2021.
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
The unconsolidated balance sheet is as follows:
| | | | | | | | | | | |
LAKE AREA CORN PROCESSORS, LLC | | | |
UNCONSOLIDATED BALANCE SHEETS | | | |
| | | |
| December 31, 2021 | | December 31, 2020 |
ASSETS | | | |
| | | |
CURRENT ASSETS | | | |
Cash and cash equivalents | $ | 121,244 | | | $ | 58,505 | |
Accounts Receivable - Subsidiary | 2,500,000 | | | — | |
Prepaid expenses | — | | | 24,542 | |
Total current assets | 2,621,244 | | | 83,047 | |
| | | |
OTHER ASSETS | | | |
Goodwill | 10,395,766 | | | 10,395,766 | |
Investment in Dakota Ethanol | 81,870,361 | | | 39,554,776 | |
Investments - other | 18,581,494 | | | 15,234,990 | |
Total other assets | 110,847,621 | | | 65,185,532 | |
| | | |
TOTAL ASSETS | $ | 113,468,865 | | | $ | 65,268,579 | |
| | | |
LIABILITIES AND MEMBERS' EQUITY | | | |
| | | |
CURRENT LIABILITIES | | | |
Total current liabilities | — | | | — | |
| | | |
LONG-TERM LIABILITIES | | | |
Total long-term liabilities | — | | | — | |
| | | |
MEMBERS' EQUITY (29,620,000 units issued and outstanding) | 113,468,865 | | | 65,268,579 | |
| | | |
TOTAL LIABILITIES AND MEMBERS' EQUITY | $ | 113,468,865 | | | $ | 65,268,579 | |
| | | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
The unconsolidated statement of operation is as follows:
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LAKE AREA CORN PROCESSORS, LLC | | | | | |
UNCONSOLIDATED STATEMENTS OF OPERATIONS | | | | | |
| Year Ended | | Year Ended | | Year Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
EQUITY IN NET INCOME (LOSS) OF CONSOLIDATED SUBSIDIARY | $ | 47,366,330 | | | $ | 1,073,965 | | | $ | (3,298,638) | |
OPERATING EXPENSES | 83,659 | | | 127,978 | | | 311,001 | |
INCOME (LOSS) FROM OPERATIONS | 47,282,671 | | | 945,987 | | | (3,609,639) | |
OTHER INCOME (EXPENSE) | | | | | |
Interest and other income | 7,112 | | | 10,737 | | | 5,949 | |
Equity in net income (loss) of investments | 9,796,503 | | | 98,915 | | | (220,494) | |
Total other income (expense) | 9,803,615 | | | 109,652 | | | (214,545) | |
NET INCOME (LOSS) | $ | 57,086,286 | | | $ | 1,055,639 | | | $ | (3,824,184) | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
The unconsolidated statement of cash flows is as follows:
| | | | | | | | | | | | | | | | | |
LAKE AREA CORN PROCESSORS, LLC | | | | | |
UNCONSOLIDATED STATEMENTS OF CASH FLOWS | | | | | |
| Year Ended | | Year Ended | | Year Ended |
| December 31, 2021 | | December 31, 2020 | | December 31, 2019 |
OPERATING ACTIVITIES | | | | | |
Net income (loss) | $ | 57,086,286 | | | $ | 1,055,639 | | | $ | (3,824,184) | |
Adjustments to reconcile net income (loss) to net cash provided by operating activities | | | | | |
Distributions in excess of earnings (earnings in excess of distributions) from investments | (3,346,503) | | | (98,915) | | | 1,220,493 | |
Equity in (net income) loss of consolidated subsidiary | (47,366,330) | | | (1,073,965) | | | 3,298,638 | |
(Increase) decrease in | | | | | |
Accounts receivable - subsidiary | (2,500,000) | | | — | | | — | |
Prepaid expenses | 24,542 | | | (7,456) | | | (275) | |
Increase (decrease) in | | | | | |
Accounts payable | — | | | — | | | — | |
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES | 3,897,995 | | | (124,697) | | | 694,672 | |
| | | | | |
INVESTING ACTIVITIES | | | | | |
Distributions received from consolidated subsidiary | 5,050,744 | | | 100,000 | | | 750,000 | |
Investment in consolidated subsidiary | — | | | — | | | (1,000,000) | |
Purchase of investments | — | | | — | | | (500,000) | |
Other investing cash inflow (outflow) | — | | | 49,729 | | | 41,338 | |
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES | 5,050,744 | | | 149,729 | | | (708,662) | |
| | | | | |
FINANCING ACTIVITIES | | | | | |
Distributions to members | (8,886,000) | | | — | | | — | |
NET CASH USED FOR FINANCING ACTIVITIES | (8,886,000) | | | — | | | — | |
| | | | | |
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | 62,739 | | | 25,032 | | | (13,990) | |
| | | | | |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 58,505 | | | 33,473 | | | 47,463 | |
| | | | | |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | $ | 121,244 | | | $ | 58,505 | | | $ | 33,473 | |
LAKE AREA CORN PROCESSORS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2021, 2020 AND 2019
NOTE 16 - SUBSEQUENT EVENTS
During January 2022, the Company declared a distribution to its members of $14,810,000, or $0.50 per capital unit, to unit holders of record as of January 1, 2022.
During March 2022, Dakota Ethanol committed to an agreement for the design and construction of an additional grain storage bin. The value of the agreement is approximately $4.5 million. The project is expected to be completed during the fourth quarter of 2022.