x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the fiscal quarter ended June 30, 2011 | |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
Commission file number 000-50254 |
LAKE AREA CORN PROCESSORS, LLC | |||
(Exact name of registrant as specified in its charter) | |||
South Dakota | 46-0460790 | ||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||
46269 SD Highway 34 P.O. Box 100 Wentworth, South Dakota | 57075 | ||
(Address of principal executive offices) | (Zip Code) | ||
(605) 483-2676 | |||
(Registrant's telephone number, including area code) | |||
Securities registered pursuant to Section 12(b) of the Act: None | |||
Securities registered pursuant to Section 12(g) of the Act: Membership Units |
Large accelerated filer o | Accelerated filer o | |
Non-accelerated filer x | Smaller Reporting Company o | |
(Do not check if a smaller reporting company) |
Page No. | |
June 30, 2011 | December 31, 2010* | ||||||
ASSETS | |||||||
CURRENT ASSETS | |||||||
Cash | $ | 354,430 | $ | 637,804 | |||
Accounts receivable | 5,813,983 | 4,114,940 | |||||
Other receivables | 105,414 | 188,959 | |||||
Inventory | 12,075,460 | 10,063,208 | |||||
Due from broker | 1,515,898 | 3,725,998 | |||||
Derivative financial instruments | 3,409,163 | 73,800 | |||||
Prepaid expenses | 118,981 | 126,523 | |||||
Total current assets | 23,393,329 | 18,931,232 | |||||
PROPERTY AND EQUIPMENT | |||||||
Land | 676,097 | 676,097 | |||||
Land improvements | 2,665,358 | 2,665,358 | |||||
Buildings | 8,088,853 | 8,088,853 | |||||
Equipment | 40,760,255 | 40,799,589 | |||||
52,190,563 | 52,229,897 | ||||||
Less accumulated depreciation | (23,784,896 | ) | (22,469,329 | ) | |||
Net property and equipment | 28,405,667 | 29,760,568 | |||||
OTHER ASSETS | |||||||
Goodwill | 10,395,766 | 10,395,766 | |||||
Investments | 2,968,536 | 2,856,445 | |||||
Other | 191,512 | 234,410 | |||||
Total other assets | 13,555,814 | 13,486,621 | |||||
TOTAL ASSETS | $ | 65,354,810 | $ | 62,178,421 | |||
*Derived from audited financial statements. |
June 30, 2011 | December 31, 2010* | ||||||
LIABILITIES AND MEMBERS’ EQUITY | |||||||
CURRENT LIABILITIES | |||||||
Outstanding checks in excess of bank balance | $ | 2,459,584 | $ | 584,412 | |||
Accounts payable | 3,447,446 | 5,377,598 | |||||
Accrued liabilities | 442,672 | 672,802 | |||||
Derivative financial instruments | 3,052,880 | 2,527,175 | |||||
Short-term notes payable | — | 1,872,000 | |||||
Current portion of guarantee payable | 77,129 | 52,382 | |||||
Current portion of notes payable | 380,913 | 1,813,494 | |||||
Total current liabilities | 9,860,624 | 12,899,863 | |||||
LONG-TERM LIABILITIES | |||||||
Notes payable, net of current maturities | 697,824 | 833,655 | |||||
Guarantee payable, net of current portion | 95,411 | 95,411 | |||||
Other | 258,659 | 252,344 | |||||
Total long-term liabilities | 1,051,894 | 1,181,410 | |||||
COMMITMENTS AND CONTINGENCIES | |||||||
MEMBERS’ EQUITY | |||||||
Capital units, $0.50 stated value, 29,620,000 units issued and outstanding | 14,810,000 | 14,810,000 | |||||
Additional paid-in capital | 96,400 | 96,400 | |||||
Retained earnings | 39,535,892 | 33,190,748 | |||||
Total members' equity | 54,442,292 | 48,097,148 | |||||
TOTAL LIABILITIES AND MEMBERS' EQUITY | $ | 65,354,810 | $ | 62,178,421 | |||
*Derived from audited financial statements. |
Three Months Ended June 30, 2011 | Three Months Ended June 30, 2010 | Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 | ||||||||||||
REVENUES | $ | 36,943,458 | $ | 20,245,683 | $ | 72,026,567 | $ | 43,084,445 | |||||||
COSTS OF REVENUES | 31,352,313 | 18,542,586 | 61,196,746 | 38,024,667 | |||||||||||
GROSS PROFIT | 5,591,145 | 1,703,097 | 10,829,821 | 5,059,778 | |||||||||||
OPERATING EXPENSES | 769,962 | 708,003 | 1,586,432 | 1,468,012 | |||||||||||
INCOME FROM OPERATIONS | 4,821,183 | 995,094 | 9,243,389 | 3,591,766 | |||||||||||
OTHER INCOME (EXPENSE) | |||||||||||||||
Interest and other income | 43,605 | 11,471 | 57,162 | 16,311 | |||||||||||
Equity in net income of investments | 48,958 | 68,018 | 112,091 | 144,324 | |||||||||||
Interest expense | (41,096 | ) | (111,742 | ) | (105,498 | ) | (242,874 | ) | |||||||
Total other income (expense) | 51,467 | (32,253 | ) | 63,755 | (82,239 | ) | |||||||||
NET INCOME | $ | 4,872,650 | $ | 962,841 | $ | 9,307,144 | $ | 3,509,527 | |||||||
BASIC AND DILUTED EARNINGS PER UNIT | $ | 0.16 | $ | 0.03 | $ | 0.31 | $ | 0.12 | |||||||
WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR THE CALCULATION OF BASIC & DILUTED EARNINGS PER UNIT | 29,620,000 | 29,620,000 | 29,620,000 | 29,620,000 | |||||||||||
DISTRIBUTIONS DECLARED PER UNIT | $ | 0.10 | $ | — | $ | 0.10 | $ | — | |||||||
Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 | ||||||
OPERATING ACTIVITIES | |||||||
Net income | $ | 9,307,144 | $ | 3,509,527 | |||
Changes to net income not affecting cash | |||||||
Depreciation and amortization | 1,397,799 | 1,319,943 | |||||
Equity in net (income) loss of investments | (112,091 | ) | (144,324 | ) | |||
Unrealized loss on purchase commitments | — | 511,814 | |||||
Lower of cost or market adjustment on inventory | — | 90,264 | |||||
Gain on sale of equipment | (9,300 | ) | — | ||||
Derivative financial instruments and due from broker | (599,557 | ) | (9,522 | ) | |||
(Increase) decrease in | |||||||
Receivables | (1,615,352 | ) | 1,339,990 | ||||
Inventory | (2,012,252 | ) | 167,166 | ||||
Prepaid expenses | 7,542 | 11,104 | |||||
Increase (decrease) in | |||||||
Accounts payable | (1,930,298 | ) | (3,736,360 | ) | |||
Accrued liabilities | (223,815 | ) | (209,153 | ) | |||
NET CASH PROVIDED BY OPERATING ACTIVITIES | 4,209,820 | 2,850,449 | |||||
INVESTING ACTIVITIES | |||||||
Sale of equipment | 9,300 | — | |||||
NET CASH PROVIDED BY INVESTING ACTIVITIES | 9,300 | — | |||||
FINANCING ACTIVITIES | |||||||
Increase in outstanding checks in excess of bank balance | 1,875,171 | (285,804 | ) | ||||
Principal payments on short-term notes payable | (1,872,000 | ) | — | ||||
Principal payments on long-term notes payable | (1,543,665 | ) | (1,262,497 | ) | |||
Distributions paid to members | (2,962,000 | ) | — | ||||
NET CASH (USED FOR) FINANCING ACTIVITIES | (4,502,494 | ) | (1,548,301 | ) | |||
NET INCREASE (DECREASE) IN CASH | (283,374 | ) | 1,302,148 | ||||
CASH AT BEGINNING OF PERIOD | 637,804 | 365,066 | |||||
CASH AT END OF PERIOD | $ | 354,430 | $ | 1,667,214 | |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | |||||||
Cash paid during the period for interest | $ | 220,481 | $ | 341,250 |
Balance Sheet Classification | June 30, 2011 | December 31, 2010* | ||||||||
Futures and options contracts | Current Assets | $ | 3,409,163 | $ | — | |||||
Forward contracts | Current Assets | $ | — | $ | 73,800 | |||||
Futures and options contracts | (Current Liabilities) | $ | — | $ | (2,527,175 | ) | ||||
Forward contracts | (Current Liabilities) | $ | (3,052,880 | ) | $ | — |
Statement of Income | Three Months Ended June 30, | |||||||||
Classification | 2011 | 2010 | ||||||||
Net realized and unrealized gains (losses) related to purchase contracts: | ||||||||||
Futures and options contracts | Cost of Revenues | $ | 4,297,045 | $ | 247,692 | |||||
Forward contracts | Cost of Revenues | $ | (3,448,197 | ) | $ | (255,068 | ) |
Statement of Income | Six Months Ended June 30, | |||||||||
Classification | 2011 | 2010 | ||||||||
Net realized and unrealized gains (losses) related to sales contracts: | ||||||||||
Futures and options contracts | Revenues | $ | — | $ | 252,938 | |||||
Net realized and unrealized gains (losses) related to purchase contracts: | ||||||||||
Futures and options contracts | Cost of Revenues | $ | 1,881,237 | $ | 2,759,608 | |||||
Forward contracts | Cost of Revenues | $ | (3,126,680 | ) | $ | (567,838 | ) |
June 30, 2011 | December 31, 2010* | |||||||
Raw Materials | $ | 9,119,189 | $ | 6,100,759 | ||||
Finished Goods | 1,005,221 | 2,233,676 | ||||||
Work in process | 988,378 | 821,897 | ||||||
Parts inventory | 962,672 | 906,876 | ||||||
$ | 12,075,460 | $ | 10,063,208 |
June 30, 2011 | December 31, 2010* | |||||||
Note payable to First National Bank, Omaha | ||||||||
Term Note 5 | $ | — | $ | — | ||||
Note payable - Land | 225,000 | 225,000 | ||||||
Note payable - Subordinated notes | — | 1,439,000 | ||||||
Note payable - REED | 612,193 | 708,881 | ||||||
Note payable - FDDC | 123,275 | 142,497 | ||||||
Note payable - Other | 118,269 | 131,771 | ||||||
1,078,737 | 2,647,149 | |||||||
Less current portion | (380,913 | ) | (1,813,494 | ) | ||||
$ | 697,824 | $ | 833,655 |
Years Ending June 30, | Amount | |||
2012 | $ | 380,913 | ||
2013 | 394,227 | |||
2014 | 273,811 | |||
2015 | 29,786 | |||
2016 | — |
Total | Level 1 | Level 2 | Level 3 | |||||||||||||
June 30, 2011 | ||||||||||||||||
Assets: | ||||||||||||||||
Derivative financial instruments, forward contracts | $ | 3,409,163 | $ | — | $ | 3,409,163 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Derivative financial instruments, futures and options contracts | $ | (3,052,880 | ) | $ | — | $ | (3,052,880 | ) | $ | — | ||||||
December 31, 2010* | ||||||||||||||||
Assets: | ||||||||||||||||
Derivative financial instruments, forward contracts | $ | 73,800 | $ | — | $ | 73,800 | $ | — | ||||||||
Liabilities: | ||||||||||||||||
Derivative financial instruments, futures and options contracts | $ | (2,527,175 | ) | $ | (2,527,175 | ) | $ | — | $ | — |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Sales ethanol | $ | 30,338,079 | $ | 16,781,922 | $ | 59,940,385 | $ | 35,689,308 | ||||||||
Sales distillers grains | 1,939,033 | 1,831,953 | 3,646,751 | 3,602,775 | ||||||||||||
Marketing fees ethanol | 57,036 | 52,621 | 117,791 | 106,992 | ||||||||||||
Marketing fees coproducts | 18,086 | 21,663 | 37,313 | 43,754 | ||||||||||||
Jume 30, 2011 | December 31, 2010 | |||||||||||||||
Amounts due included in accounts receivable | $ | 4,441,670 | $ | 3,504,400 |
2011 | 2010 | |||||||||||||
Income Statement Data | Amount | % | Amount | % | ||||||||||
Revenue | $ | 36,943,458 | 100.0 | $ | 20,245,683 | 100.0 | ||||||||
Cost of Revenues | 31,352,313 | 84.9 | 18,542,586 | 91.6 | ||||||||||
Gross Profit | 5,591,145 | 15.1 | 1,703,097 | 8.4 | ||||||||||
Operating Expense | 769,962 | 2.1 | 708,003 | 3.5 | ||||||||||
Income from Operations | 4,821,183 | 13.1 | 995,094 | 4.9 | ||||||||||
Other Income (Expense) | 51,467 | 0.1 | (32,253 | ) | (0.2 | ) | ||||||||
Net Income | $ | 4,872,650 | 13.2 | $ | 962,841 | 4.8 |
2011 | 2010 | |||||||||||||
Income Statement Data | Amount | % | Amount | % | ||||||||||
Revenue | $ | 72,026,567 | 100.0 | $ | 43,084,445 | 100.0 | ||||||||
Cost of Revenues | 61,196,746 | 85.0 | 38,024,667 | 88.3 | ||||||||||
Gross Profit | 10,829,821 | 15.0 | 5,059,778 | 11.7 | ||||||||||
Operating Expense | 1,586,432 | 2.2 | 1,468,012 | 3.4 | ||||||||||
Income from Operations | 9,243,389 | 12.8 | 3,591,766 | 8.3 | ||||||||||
Other Income (Expense) | 63,755 | 0.1 | (82,239 | ) | (0.2 | ) | ||||||||
Net Income | $ | 9,307,144 | 12.9 | $ | 3,509,527 | 8.1 |
Six Months Ended June 30, | ||||||||
2011 | 2010 | |||||||
Net cash provided by operating activities | $ | 4,209,820 | $ | 2,850,449 | ||||
Net cash provided by investing activities | 9,300 | — | ||||||
Net cash (used for) financing activities | (4,502,494 | ) | (1,548,301 | ) |
Period Ended | Fair Value | Effect of Hypothetical Adverse Change - Market Risk | ||||||
June 30, 2011 | $ | 5,998,442 | $ | 599,844 | ||||
December 31, 2010 | 6,535,668 | 653,567 |
Exhibit No. | Exhibit | |
10.1 | Second Amendment of First Amended and Restated Construction Loan Agreement dated May 12, 2011 between Dakota Ethanol, L.L.C. and First National Bank of Omaha.* | |
10.2 | Operating Line of Credit First Amended and Restated Revolving Promissory Note dated May 12, 2011 between Dakota Ethanol, L.L.C. and First National Bank of Omaha.* | |
10.3 | Long Term Reducing Revolver First Amended and Restated Promissory Note dated May 12, 2011 between Dakota Ethanol, L.L.C. and First National Bank of Omaha.* | |
31.1 | Certificate Pursuant to 17 CFR 240.13a-14(a)* | |
31.2 | Certificate Pursuant to 17 CFR 240.13a-14(a)* | |
32.1 | Certificate Pursuant to 18 U.S.C. Section 1350* | |
32.2 | Certificate Pursuant to 18 U.S.C. Section 1350* | |
101 | The following financial information from Lake Area Corn Processors, LLC's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2011 and December 31, 2010, (ii) Consolidated Statements of Income for the three and six months ended June 30, 2011 and 2010, (iii) Consolidated Statements of Cash Flows for the six months ended June 30, 2011 and 2010, and (iv) the Notes to Consolidated Financial Statements.** |
LAKE AREA CORN PROCESSORS, LLC | |||
Date: | August 11, 2011 | /s/ Scott Mundt | |
Scott Mundt | |||
President and Chief Executive Officer (Principal Executive Officer) | |||
Date: | August 11, 2011 | /s/ Robbi Buchholtz | |
Robbi Buchholtz | |||
Chief Financial Officer (Principal Financial and Accounting Officer) |
REDUCTION DATE | MAXIMUM AVAILABILITY |
May 1, 2012 | $4,500,000.00 |
May 1, 2013 | $4,000,000.00 |
May 1, 2014 | $0.00 |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
Date: | August 11, 2011 | /s/ Scott Mundt | |
Scott Mundt, Chief Executive Officer |
a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) | Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d) | Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and |
Date: | August 11, 2011 | /s/ Robbi Buchholtz | |
Robbi Buchholtz, ChiefFinancial Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | August 11, 2011 | /s/ Scott Mundt | |
Scott Mundt, | |||
Chief Executive Officer |
1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and |
2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: | August 11, 2011 | /s/ Robbi Buchholtz | |
Robbi Buchholtz, | |||
Chief Financial Officer | |||
Balance Sheet Parenthetical (USD $)
|
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Capital units, stated value | $ 0.50 | $ 0.50 |
Capital units, units issued and outstanding | 29,620,000 | 29,620,000 |
Consolidated Statements of Income (USD $)
|
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
REVENUES | $ 36,943,458 | $ 20,245,683 | $ 72,026,567 | $ 43,084,445 |
COSTS OF REVENUES | 31,352,313 | 18,542,586 | 61,196,746 | 38,024,667 |
GROSS PROFIT | 5,591,145 | 1,703,097 | 10,829,821 | 5,059,778 |
OPERATING EXPENSES | 769,962 | 708,003 | 1,586,432 | 1,468,012 |
INCOME FROM OPERATIONS | 4,821,183 | 995,094 | 9,243,389 | 3,591,766 |
OTHER INCOME (EXPENSE) | Â | Â | Â | Â |
Interest and other income | 43,605 | 11,471 | 57,162 | 16,311 |
Equity in net income of investments | 48,958 | 68,018 | 112,091 | 144,324 |
Interest expense | (41,096) | (111,742) | (105,498) | (242,874) |
Total other income (expense) | 51,467 | (32,253) | 63,755 | (82,239) |
NET INCOME | $ 4,872,650 | $ 962,841 | $ 9,307,144 | $ 3,509,527 |
BASIC AND DILUTED EARNINGS PER UNIT | $ 0.16 | $ 0.03 | $ 0.31 | $ 0.12 |
Weighted average number of units outstanding for the calculation of basic & diluted earnings per unit | 29,620,000 | 29,620,000 | 29,620,000 | 29,620,000 |
Distributions Per Unit | $ 0.10 | $ 0.00 | $ 0.10 | $ 0.00 |
Document and Entity Information
|
6 Months Ended | |
---|---|---|
Jun. 30, 2011
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Aug. 11, 2011
|
|
Document and Entity Information [Line Items] | Â | Â |
Entity Registrant Name | LAKE AREA CORN PROCESSORS LLC | Â |
Entity Central Index Key | 0001156174 | Â |
Current Fiscal Year End Date | --12-31 | Â |
Entity Filer Category | Non-accelerated Filer | Â |
Document Type | 10-Q | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q2 | Â |
Amendment Flag | false | Â |
Entity Common Stock, Shares Outstanding | Â | 29,620,000 |
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Related Party Transactions
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Related Party Transactions [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Related Party Transactions | RELATED PARTY TRANSACTIONS Dakota Ethanol owns a 8% interest in RPMG, in which Dakota Ethanol has entered into marketing agreements for the exclusive rights to market, sell and distribute the entire ethanol and dried distiller's grains inventories produced by Dakota Ethanol. The marketing fees are included in net revenues. Sales and marketing fees related to the agreements are as follows:
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Inventory
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Inventory [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventory | INVENTORY Inventory consisted of the following as of June 30, 2011 and December 31, 2010:
*Derived from audited financial statements. |
Subsequent Events
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6 Months Ended |
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Jun. 30, 2011
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Subsequent Events [Abstract] | Â |
Subsequent Events | SUBSEQUENT EVENTS During July 2011, the Company declared and paid a distribution to its members of $2,962,000, or $0.10 per capital unit. |
Nature of Operations
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6 Months Ended |
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Jun. 30, 2011
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Nature of Operations [Abstract] | Â |
Nature of Operations | NATURE OF OPERATIONS Principal Business Activity Lake Area Corn Processors, LLC and subsidiary (the Company) is a South Dakota limited liability company located in Wentworth, South Dakota. The Company was organized by investors to provide a portion of the corn supply for a 40 million-gallon (annual capacity) ethanol plant, owned by Dakota Ethanol, LLC (Dakota Ethanol). The Company sells ethanol and related products to customers located in North America. |
Short Term Note Payable
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6 Months Ended |
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Jun. 30, 2011
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Short Term Note Payable [Abstract] | Â |
Short Term Note Payable | SHORT-TERM NOTE PAYABLE On June 6, 2011, Dakota Ethanol renewed a revolving promissory note from First National Bank of Omaha in the amount of $10,000,000. The note expires on May 1, 2012 and the amount available is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital, net worth and borrowing base requirements. Interest on the outstanding principal balances will accrue at 350 basis points above the 1 month LIBOR rate (4.00 percent at June 30, 2011). The rate is subject to a floor of 4.0 percent. There is a commitment fee of 0.4 percent on the unused portion of the $10,000,000 availability. In addition, the bank draws the checking account balance to a minimum balance on a daily basis. The excess cash pays down or the shortfall is drawn upon the note as needed. The note is collateralized by the ethanol plant, its accounts receivable and inventories. On June 30, 2011 Dakota Ethanol had $0 outstanding and $10,000,000 available to be drawn on the revolving promissory note. On December 31, 2010, Dakota Ethanol had $1,872,000 outstanding and $3,128,000 available to be drawn on the revolving promissory note. |
Long Term Note Payable
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Jun. 30, 2011
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Long Term Note Payable [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long Term Note Payable | LONG-TERM NOTES PAYABLE Dakota Ethanol has a note payable to First National Bank of Omaha, Nebraska (the Bank) (Term Note 5). As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing minimum reporting requirements, ratios, working capital and net worth requirements. The notes are collateralized by the ethanol plant and equipment, its accounts receivable and inventories. We are in compliance with our financial covenants as of June 30, 2011. On June 6, 2011, Dakota Ethanol restructured Term Note 5. Term Note 5 is a reducing revolving note with an availability of $5,000,000. Interest on outstanding principal balances will accrue at 350 basis points above the 1 month LIBOR rate (4.00 percent at June 30, 2011). The rate is subject to a floor of 4.0 percent. Dakota Ethanol may elect to borrow any principal amount repaid on Term Note 5 up to $5,000,000 subject to the terms of the agreement. Should Dakota Ethanol elect not to utilize this feature, the lender will assess an unused commitment fee of 0.4 percent on the unused portion of the note. Term Note 5 has a reducing feature through which the available amount of the note is reduced by $500,000 on the anniversary of the note. The note matures on May 1, 2014. On June 30, 2011, Dakota Ethanol had $0 outstanding and $5,000,000 available to be drawn on Term Note 5. On December 31, 2010, Dakota Ethanol had $0 outstanding and $5,000,000 available to be drawn on Term Note 5. During December 2008, Dakota Ethanol issued a note payable related to the purchase of land adjacent to the plant site. The note was issued for $450,000. The note matures on December 1, 2012. The note is payable in annual installments of $112,500 plus interest. Interest on outstanding principal balances will accrue at a fixed rate of 7.0 percent. Dakota Ethanol conducted a private placement offering of subordinated unsecured debt securities which closed on May 30, 2009. The securities mature two years from the date of issuance. Interest on the outstanding balances will accrue at a fixed rate of 9 percent. Interest will be paid annually on January 30th of each year beginning on January 30, 2010. We have raised $1,439,000 in subordinated debt through this offering. The outstanding balances were paid off at maturity in 2011. On May 22, 2009, Dakota Ethanol entered into two loan agreements for alternative financing for our corn oil extraction equipment as we had agreed with FNBO; one loan with Rural Electric Economic Development, Inc (REED) and the other loan with First District Development Company (FDDC). The note to REED for $1 million has a fixed interest rate of 4.7%. The note requires monthly installments of $18,734 and matures on May 25, 2014. The note is secured by the oil extraction equipment. The note to FDDC for $200,000 has a fixed interest rate of 5.5%. The note requires monthly installments of $3,820 and matures on May 22, 2014. The note is secured by the oil extraction equipment. The balances of the notes payable are as follows:
*Derived from audited financial statements Minimum principal payments for the next five years are as follows:
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Fair Value Measurements
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Jun. 30, 2011
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Fair Value Measurements [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | 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. 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. For the quarter ending June 30, 2011, the Company evaluated the markets that it participates in for the measurement of fair value at the representative market value. The activity that occurred on June 30, 2011 showed a significant decrease in the transaction volume from normal activity, the indexes that were previously highly correlated with the fair values of the assets and liabilities were demonstrably uncorrelated with recent indications of fair value for those assets and liabilities. As a result of these conditions, we concluded that transactions or quoted prices were not representative of fair value and opted to choose a fair value measurement criteria or pricing information that were more representative of the fair value of those items on June 30, 2011 based on the Company’s local market pricing on July 5, 2011. Consequently, corn futures and exchange traded options asset (liability) transferred from Level 1 to Level 2 due to the decrease in market activity for these assets. The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of June 30, 2011 and December 31, 2010, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
*Derived from audited financial statements. 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, when there is evidence of impairment). Financial assets and financial liabilities measured at fair value on a non-recurring basis were not significant at June 30, 2011. 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 non recurring basis are discussed above. The methodologies for other financial assets and financial liabilities are discussed below. The Company believes the carrying amount of cash, cash equivalents, accounts receivable, due from broker, outstanding checks in excess of bank balance, accounts payable and short-term debt approximates fair value due to the short maturity of these instruments. The carrying amount of long-term obligations at June 30, 2011 of $1,251,277 had an estimated fair value of approximately $1,228,604 based on estimated interest rates for comparable debt. The carrying amount and fair value were $2,794,942 and $2,797,016 respectively at December 31, 2010. |
Summary of Significant Accounting Policies
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Jun. 30, 2011
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Summary of Significant Accounting Policies [Abstract] | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America although the Company believes that the disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments consisting only of normal recurring adjustments considered necessary for a fair presentation have been included in the accompanying financial statements. The results of operations for the three and six months ended June 30, 2011 and 2010 are not necessarily indicative of the results to be expected for a full year. These financial statements should be read in conjunction with the financial statements and notes included in the Company's audited financial statements for the year ended December 31, 2010, contained in the annual report on Form 10-K for 2010. 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 Revenue from the production of ethanol and related products is recorded when title transfers to customers, net of allowances for estimated returns. Generally, ethanol and related products are shipped FOB shipping point, based on written contract terms between Dakota Ethanol and its customers. Collectability of revenue is reasonably assured based on historical evidence of collectability between Dakota Ethanol and its customers. Interest income is recognized as earned. Shipping costs incurred by the Company in the sale of ethanol, dried distillers grains and corn oil are not specifically identifiable and as a result, revenue from the sale of these products is recorded based on the net selling price reported to the Company from the marketer. Cost of Revenues The primary components of cost of revenues from the production of ethanol and related co-product are corn expense, energy expense (natural gas and electricity), raw materials expense (chemicals and denaturant), and direct labor costs. Shipping costs incurred in the sale of dried distiller's grains are classified in net revenues. Shipping costs on modified and wet distiller's grains are included in cost of revenues. Shipping costs were approximately $525,000 and $287,000 for the six and three months ended June 30, 2011, respectively. Shipping costs were approximately $319,000 and $146,000 for the six and three months ended June 30, 2010, respectively. Inventory Valuation Ethanol inventory, raw materials, work-in-process, and parts inventory are valued using methods which approximate the lower of cost (first-in, first-out) or market. Distillers grains and related products are stated at net realizable value. In the valuation of inventories and purchase and sale commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin. 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 we manage by using forward or derivative instruments are price risk on anticipated purchases of corn, natural gas and the sale of ethanol. The Company is subject to market risk with respect to the price and availability of corn, the principal raw material we use 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. For transactions initiated prior to January 1, 2011, we applied the normal purchase and sales exemption under derivative accounting for forward purchases of corn and sales of distiller's grains. We are choosing not to exempt corn purchase contracts initiated after December 31, 2010 from the derivative accounting and reporting requirements. As of June 30, 2011, we are committed to purchasing 3.7 million bushels of corn on a forward contract basis with an average price of $6.51 per bushel, of which 2.7 million bushels are subject to derivative accounting treatment and 1.0 million bushels are accounted for as normal purchases, and accordingly, are not marked to market and are accounted for using lower of cost or market accounting. Dakota Ethanol has a derivative financial instrument liability of approximately $3.1 million related to the forward contracted purchases of corn. The corn purchase contracts represent 22% of the annual corn usage. The Company enters into firm-price purchase commitments with some of our natural gas suppliers under which we agree to buy natural gas at a price set in advance of the actual delivery of that natural gas to us. Under these arrangements, we assume the risk of a price decrease in the market price of natural gas between the time this price is fixed and the time the natural gas is delivered. At June 30, 2011, we are committed to purchasing 60,000 MMBtu's of natural gas with an average price of $4.32 per MMBtu. We account for these transactions as normal purchases, and accordingly, do not mark these transactions to market. The Company enters into short-term forward, option and futures contracts as a means of securing corn and natural gas for the ethanol plant and managing exposure to changes in commodity and energy prices. The Company enters into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in energy prices. All of our derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments. As part of our trading activity, The Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk and we are exposed to risk of loss in the market value of inventories. To reduce that risk, we generally take positions using forward and futures contracts and options. Derivatives not designated as hedging instruments at June 30, 2011 and December 31, 2010 were as follows:
*Derived from audited financial statements. 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.
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. Environmental Liabilities Dakota Ethanol's operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require Dakota Ethanol to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, Dakota Ethanol 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 Dakota Ethanol's liability is probable and the costs can be reasonably estimated. Recent Accounting Pronouncements In January 2010, the FASB issued ASU 2010.06, Improving Disclosures About Fair Value Measurements, which amends ASC 820.10 to require new disclosures about transfers in and out of Level 1 and Level 2 fair value measurements and the roll forward activity in Level 3 fair value measurements. ASU 2010.06 also clarifies existing disclosure requirements regarding the level of disaggregation of each class of assets and liabilities within a line item in the statement of financial condition and clarifies that a reporting entity should provide disclosures about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements that fall in either Level 2 or Level 3 fair value measurements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the new disclosures about the roll forward of activity in Level 3 fair value measurements which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The Company's adoption of this guidance did not have an impact on its financial condition or results of operations. |