x | Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the quarterly period ended April 30, 2019 | |
OR | |
o | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. |
For the transition period from to . | |
COMMISSION FILE NUMBER 000-53588 |
Minnesota | 20-4798531 | |||
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
24500 US Highway 14, Lamberton, MN 56152 | ||||
(Address of principal executive offices) | ||||
(507) 752-6160 | ||||
(Registrant's telephone number, including area code) |
Large Accelerated Filer o | Accelerated Filer o |
Non-Accelerated Filer x | Smaller Reporting Company o |
Emerging Growth Company o | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o |
Page Number | |
ASSETS | April 30, 2019 | October 31, 2018 | |||||
(Unaudited) | |||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 1,267,388 | $ | 430,702 | |||
Derivative instruments | 513,804 | 942,885 | |||||
Accounts receivable | 2,554,011 | 1,316,129 | |||||
Inventories | 7,285,222 | 8,068,691 | |||||
Prepaids and other | 219,628 | 91,595 | |||||
Total current assets | 11,840,053 | 10,850,002 | |||||
Property and Equipment | |||||||
Land and land improvements | 12,836,332 | 12,647,512 | |||||
Buildings | 38,818,532 | 38,818,532 | |||||
Office equipment | 1,151,330 | 1,151,330 | |||||
Equipment | 77,137,079 | 76,467,906 | |||||
Vehicles | 123,779 | 74,094 | |||||
Construction in progress | 308,100 | 445,455 | |||||
130,375,152 | 129,604,829 | ||||||
Less accumulated depreciation | (68,297,669 | ) | (63,874,604 | ) | |||
Net property and equipment | 62,077,483 | 65,730,225 | |||||
Other Assets | |||||||
Investments | 2,729,189 | 2,775,257 | |||||
Deposits | 191,457 | 191,457 | |||||
Total other assets | 2,920,646 | 2,966,714 | |||||
Total Assets | $ | 76,838,182 | $ | 79,546,941 |
LIABILITIES AND MEMBERS' EQUITY | April 30, 2019 | October 31, 2018 | |||||
(Unaudited) | |||||||
Current Liabilities | |||||||
Accounts payable | $ | 3,486,281 | $ | 4,149,907 | |||
Accrued expenses | 1,913,677 | 1,161,340 | |||||
Customer Deposits | 13,265 | — | |||||
Current maturities of long-term debt | 2,722,587 | 2,715,436 | |||||
Total current liabilities | 8,135,810 | 8,026,683 | |||||
Long-Term Debt | 9,735,698 | 7,222,371 | |||||
Commitments and Contingencies | — | — | |||||
Members' Equity | |||||||
Members' equity, 4,808 and 4,812 units issued and outstanding | 58,966,674 | 64,297,887 | |||||
Total Liabilities and Members’ Equity | $ | 76,838,182 | $ | 79,546,941 |
Three Months Ended | Six Months Ended | ||||||||||||||
April 30, 2019 | April 30, 2018 | April 30, 2019 | April 30, 2018 | ||||||||||||
Revenues | $ | 22,939,711 | $ | 24,262,577 | $ | 45,628,121 | $ | 47,242,624 | |||||||
Cost of Goods Sold | 24,556,335 | 21,979,252 | 49,043,632 | 45,010,995 | |||||||||||
Gross Profit (Loss) | (1,616,624 | ) | 2,283,325 | (3,415,511 | ) | 2,231,629 | |||||||||
Operating Expenses | 811,557 | 790,744 | 1,572,888 | 1,533,693 | |||||||||||
Operating Profit (Loss) | (2,428,181 | ) | 1,492,581 | (4,988,399 | ) | 697,936 | |||||||||
Other Income (Expense) | |||||||||||||||
Interest income | 2,539 | 369 | 3,281 | 695 | |||||||||||
Other income | 46,019 | 14,987 | 52,917 | 25,909 | |||||||||||
Interest expense | (213,570 | ) | (182,850 | ) | (416,164 | ) | (356,428 | ) | |||||||
Income from equity method investments | 13,692 | 10,395 | 49,152 | 14,175 | |||||||||||
Total other income (expense), net | (151,320 | ) | (157,099 | ) | (310,814 | ) | (315,649 | ) | |||||||
Net Income (Loss) | $ | (2,579,501 | ) | $ | 1,335,482 | $ | (5,299,213 | ) | $ | 382,287 | |||||
Weighted Average Units Outstanding | 4,810 | 4,814 | 4,811 | 4,814 | |||||||||||
Net Income (Loss) Per Unit, Basic and Diluted | $ | (536.28 | ) | $ | 277.42 | $ | (1,101.48 | ) | $ | 79.41 | |||||
Distributions Per Unit | $ | — | $ | — | $ | — | $ | 345 |
Members' Equity | |||
Balance - October 31, 2017 | $ | 72,133,969 | |
Net loss for the three-month period ended January 31, 2018 | (953,195 | ) | |
Member distributions | (1,660,658 | ) | |
Balance - January 31, 2018 | 69,520,116 | ||
Net income for the three-month period ended April 30, 2018 | 1,335,482 | ||
Member distributions | — | ||
Balance April 30, 2018 | $ | 70,855,598 |
Members' Equity | |||
Balance - October 31, 2018 | $ | 64,297,887 | |
Net loss for the three-month period ended January 31, 2019 | (2,719,712 | ) | |
Member distributions | — | ||
Balance - January 31, 2019 | 61,578,175 | ||
Net loss for the three-month period ended April 30, 2019 | (2,579,501 | ) | |
Member unit repurchase, 4 units | (32,000 | ) | |
Balance - April 30, 2019 | 58,966,674 |
Six Months Ended | |||||||
April 30, 2019 | April 30, 2018 | ||||||
Cash Flows from Operating Activities | |||||||
Net Income (Loss) | $ | (5,299,213 | ) | $ | 382,287 | ||
Depreciation and amortization | 4,443,543 | 4,288,317 | |||||
Distributions in excess of earnings from equity method investments | 270,532 | 350,475 | |||||
Non-cash patronage income | (224,464 | ) | (114,194 | ) | |||
Changes in assets and liabilities | |||||||
Accounts receivable | (1,237,882 | ) | (275,644 | ) | |||
Inventories | 783,469 | 80,967 | |||||
Derivative instruments | 429,082 | 57,344 | |||||
Prepaids and other | (128,033 | ) | (26,142 | ) | |||
Customer deposits | 13,265 | 7,566 | |||||
Accounts payable | (623,195 | ) | (614,400 | ) | |||
Accrued expenses | 752,336 | (59,644 | ) | ||||
Net cash (used in) provided by operating activities | (820,560 | ) | 4,076,932 | ||||
Cash Flows from Investing Activities | |||||||
Capital expenditures | (810,754 | ) | (574,380 | ) | |||
Net cash used in investing activities | (810,754 | ) | (574,380 | ) | |||
Cash Flows from Financing Activities | |||||||
Payments on long-term debt | (1,500,000 | ) | (1,500,000 | ) | |||
Proceeds from long-term debt | 4,000,000 | 1,000,000 | |||||
Member unit repurchase | (32,000 | ) | — | ||||
Member distributions | — | (1,660,658 | ) | ||||
Net cash (used in) provided by financing activities | 2,468,000 | (2,160,658 | ) | ||||
Net Increase in Cash and Cash Equivalents | 836,686 | 1,341,894 | |||||
Cash and Cash equivalents – Beginning of Period | 430,702 | 738,209 | |||||
Cash and Cash equivalents – End of Period | $ | 1,267,388 | $ | 2,080,103 | |||
Supplemental Cash Flow Information | |||||||
Cash paid for interest | $ | 356,260 | $ | 289,807 | |||
Supplemental Disclosure of Noncash Financing and Investing Activities | |||||||
Capital expenditures included in accounts payable | $ | 27,559 | $ | 58,739 |
• | ethanol sales |
• | modified distillers grains sales |
• | dried distillers grains sales |
• | corn oil sales |
Three Months Ended April 30, 2019 | Three Months Ended April 30, 2018 | Six Months Ended April 30, 2019 | Six Months Ended April 20, 2018 | ||||||||||||
Revenue Sources | Amount (Unaudited) | Amount (Unaudited) | Amount (Unaudited) | Amount (Unaudited) | |||||||||||
Ethanol Sales | $ | 17,333,479 | $ | 18,737,309 | $ | 34,282,684 | $ | 36,597,367 | |||||||
Modified Distillers Grains Sales | 953,103 | 1,048,830 | 2,110,556 | 1,753,488 | |||||||||||
Dried Distillers Grains Sales | 4,000,185 | 3,891,497 | 7,850,551 | 7,503,579 | |||||||||||
Corn Oil Sales | 652,944 | 584,941 | 1,384,330 | 1,388,190 | |||||||||||
Total Revenues | $ | 22,939,711 | $ | 24,262,577 | $ | 45,628,121 | $ | 47,242,624 |
April 30, 2019 | October 31, 2018* | ||||||
Accounts receivable | $ | 2,554,011 | $ | 1,316,129 | |||
Short term contract liabilities | 13,265 | — |
April 30, 2019 | October 31, 2018 | |||||||
Raw materials | $ | 1,211,002 | $ | 2,339,767 | ||||
Spare parts and supplies | 3,593,560 | 3,118,195 | ||||||
Work in process | 762,102 | 752,454 | ||||||
Finished goods | 1,718,558 | 1,858,275 | ||||||
Total | $ | 7,285,222 | $ | 8,068,691 |
Instrument | Balance Sheet location | April 30, 2019 | October 31, 2018 | |||||
Corn, natural gas and ethanol contracts | ||||||||
In gain position | $ | 259,000 | $ | — | ||||
In loss position | (1,324,235 | ) | (2,280,280 | ) | ||||
Deposits with broker | 1,579,039 | 3,223,165 | ||||||
Current assets | $ | 513,804 | $ | 942,885 |
Statement of | Three Months Ended April 30, | ||||||||
Operations location | 2019 | 2018 | |||||||
Ethanol contracts | Revenues | $ | 40,738 | $ | 61,138 | ||||
Corn contracts | Cost of goods sold | (767,484 | ) | 1,160,553 | |||||
Natural gas contracts | Cost of goods sold | — | 4,480 | ||||||
Statement of | Six Months Ended April 30, | ||||||||
Operations location | 2019 | 2018 | |||||||
Ethanol contracts | Revenues | $ | (95,059 | ) | $ | (36,188 | ) | ||
Corn contracts | Cost of goods sold | (92,119 | ) | 1,658,343 | |||||
Natural gas contracts | Cost of goods sold | 19,806 | 35,332 |
Fair Value as of | Fair Value Measurement Using | |||||||||||||||
April 30, 2019 | Level 1 | Level 2 | Level 3 | |||||||||||||
Derivative instruments - commodities | ||||||||||||||||
In gain position | $ | 259,000 | $ | 15,250 | $ | 243,750 | $ | — | ||||||||
In loss position | (1,324,235 | ) | (2,037 | ) | (1,322,198 | ) | — |
Fair Value as of | Fair Value Measurement Using | |||||||||||||||
October 31, 2018 | Level 1 | Level 2 | Level 3 | |||||||||||||
Derivative instruments - commodities | ||||||||||||||||
In gain position | $ | — | $ | — | $ | — | $ | — | ||||||||
In loss position | (2,280,280 | ) | (37,485 | ) | (2,242,795 | ) | — |
April 30, 2019 | October 31, 2018 | ||||||
Variable Rate Term Loan | $ | 5,000,000 | $ | 6,500,000 | |||
Term Revolving Loan | 7,500,000 | 3,500,000 | |||||
Total | 12,500,000 | 10,000,000 | |||||
Less Debt Issuance Costs | (41,715 | ) | (62,193 | ) | |||
Less amounts due within one year | (2,722,587 | ) | (2,715,436 | ) | |||
Net long-term debt | $ | 9,735,698 | $ | 7,222,371 |
Principal | Debt Issuance Costs | Total | |||||||||
April 2020 | $ | 2,750,000 | $ | (27,413 | ) | $ | 2,722,587 | ||||
April 2021 | 2,250,000 | (14,302 | ) | 2,235,698 | |||||||
April 2022 | — | — | — | ||||||||
April 2023 | 7,500,000 | — | 7,500,000 | ||||||||
Long-term debt | $ | 12,500,000 | $ | (41,715 | ) | $ | 12,458,285 |
| Changes in the availability and price of corn and natural gas; |
| Reduction or elimination of the Renewable Fuel Standard; |
| Volatile commodity and financial markets; |
| Changes in legislation benefiting renewable fuels; |
| Our ability to comply with the financial covenants contained in our credit agreements with our lenders; |
| Our ability to profitably operate the ethanol plant and maintain a positive spread between the selling price of our products and our raw material costs; |
| Results of our hedging activities and other risk management strategies; |
| Ethanol and distillers grains supply exceeding demand and corresponding price reductions; |
| Our ability to generate cash flow to invest in our business and service our debt; |
| Changes in the environmental regulations that apply to our plant operations and changes in our ability to comply with such regulations; |
| Changes in our business strategy, capital improvements or development plans; |
| Changes in plant production capacity or technical difficulties in operating the plant; |
| Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries; |
| Lack of transportation, storage and blending infrastructure preventing ethanol from reaching high demand markets; |
| Changes in federal and/or state laws or policies impacting the ethanol industry; |
| Changes and advances in ethanol production technology and the development of alternative fuels and energy sources and advanced biofuels; |
| Competition from alternative fuel additives; |
| Changes in interest rates and lending conditions; |
| Decreases in the price we receive for our ethanol and distillers grains; |
| Our inability to secure credit or obtain additional equity financing we may require in the future; |
| Our ability to retain key employees and maintain labor relations; |
| Changes in the price of oil and gasoline; |
| Competition from clean power systems using fuel cells, plug-in hybrids and electric cars; and |
| International trade disputes and the imposition of tariffs by foreign governments on our products. |
2019 | 2018 | ||||||||||||
Statements of Operations Data | Amount (unaudited) | % | Amount (unaudited) | % | |||||||||
Revenues | $ | 22,939,711 | 100.00 | % | $ | 24,262,577 | 100.00 | % | |||||
Cost of Goods Sold | 24,556,335 | 107.05 | % | 21,979,252 | 90.59 | % | |||||||
Gross Profit (Loss) | (1,616,624 | ) | (7.05 | )% | 2,283,325 | 9.41 | % | ||||||
Operating Expenses | 811,557 | 3.54 | % | 790,744 | 3.26 | % | |||||||
Operating Profit (Loss) | (2,428,181 | ) | (11.29 | )% | 1,492,581 | 6.15 | % | ||||||
Other Income (Expense), net | (151,320 | ) | (0.66 | )% | (157,099 | ) | (0.65 | )% | |||||
Net Income (Loss) | $ | (2,579,501 | ) | (11.24 | )% | $ | 1,335,482 | 5.50 | % |
2019 | 2018 | ||||||||||||
Revenue Sources | Amount (Unaudited) | % | Amount (Unaudited) | % | |||||||||
Ethanol Sales | $ | 17,333,479 | 75.56 | % | $ | 18,737,309 | 77.23 | % | |||||
Modified Distillers Grains Sales | 953,103 | 4.15 | % | 1,048,830 | 4.32 | % | |||||||
Dried Distillers Grains Sales | 4,000,185 | 17.44 | % | 3,891,497 | 16.04 | % | |||||||
Corn Oil Sales | 652,944 | 2.85 | % | 584,941 | 2.41 | % | |||||||
Total Revenues | $ | 22,939,711 | 100.00 | % | $ | 24,262,577 | 100.00 | % |
2019 | 2018 | ||||||||||||
Statements of Operations Data | Amount (unaudited) | % | Amount (unaudited) | % | |||||||||
Revenues | $ | 45,628,121 | 100.00 | % | $ | 47,242,624 | 100.00 | % | |||||
Cost of Goods Sold | $ | 49,043,632 | 107.49 | % | $ | 45,010,995 | 95.28 | % | |||||
Gross Profit (Loss) | $ | (3,415,511 | ) | (7.49 | )% | $ | 2,231,629 | 4.72 | % | ||||
Operating Expenses | $ | 1,572,888 | 3.44 | % | $ | 1,533,693 | 3.24 | % | |||||
Operating Profit (Loss) | $ | (4,988,399 | ) | (10.93 | )% | $ | 697,936 | 1.48 | % | ||||
Other Income (Expense), net | $ | (310,814 | ) | (0.68 | )% | $ | (315,649 | ) | (0.67 | )% | |||
Net Income (Loss) | $ | (5,299,213 | ) | (11.61 | )% | $ | 382,287 | 0.81 | % |
2019 | 2018 | ||||||||||||
Revenue Sources | Amount (Unaudited) | % | Amount (Unaudited) | % | |||||||||
Ethanol Sales | $ | 34,282,684 | 75.13 | % | 36,597,367 | 77.47 | % | ||||||
Modified Distillers Grains Sales | 2,110,556 | 4.63 | % | 1,753,488 | 3.71 | % | |||||||
Dried Distillers Grains Sales | 7,850,551 | 17.21 | % | 7,503,579 | 15.88 | % | |||||||
Corn Oil Sales | 1,384,330 | 3.03 | % | 1,388,190 | 2.94 | % | |||||||
Total Revenues | $ | 45,628,121 | 100.00 | % | $ | 47,242,624 | 100.00 | % |
April 30, 2019 | October 31, 2018 | ||||||
Current Assets | $ | 11,840,053 | $ | 10,850,002 | |||
Current Liabilities | 8,135,810 | 8,026,683 | |||||
Long-Term Debt | 9,735,698 | 7,222,371 |
2019 | 2018 | |||||
(unaudited) | (unaudited) | |||||
Net cash (used in) provided by operating activities | $ | (820,560 | ) | $ | 4,076,932 | |
Net cash used in investing activities | (810,754 | ) | (574,380 | ) | ||
Net cash provided by (used in) financing activities | 2,468,000 | (2,160,658 | ) |
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts) | Unit of Measure | Hypothetical Adverse Change in Price as of April 30, 2019 | Approximate Adverse Change to Income | ||||||
Natural Gas | 1,499,390 | MMBTU | 10 | % | $ | 387,000 | |||
Ethanol | 59,500,000 | Gallons | 10 | % | $ | 7,021,000 | |||
Corn | 20,376,712 | Bushels | 10 | % | $ | 6,847,000 | |||
DDGs | 141,312 | Tons | 10 | % | $ | 1,766,000 |
Period | Total Number of Units Purchased | Average Price Paid per Unit $ | Total Number of Units Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Units that May Yet Be Purchased Under the Plans or Programs | ||||
February 1, 2019 - February 28, 2019 | 1 | 8,000 | — | — | ||||
March 1, 2019 - March 31, 2019 | 3 | 8,000 | — | — | ||||
April 1, 2019 - April 30, 2019 | — | — | — | — | ||||
Total | 4 | 32,000 | — | — |
(a) | The following exhibits are filed as part of this report. |
Exhibit No. | Exhibit | ||
31.1 | |||
31.2 | |||
32.1 | |||
32.2 | |||
101 | The following financial information from Highwater Ethanol, LLC's Quarterly Report on Form 10-Q for the quarter ended April 30, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Balance Sheets as of April 30, 2019 and October 31, 2018, (ii) Condensed Statements of Operations for the three and six months ended April 30, 2019 and 2018, (iii) Statements of Cash Flows for the three and six months ended April 30, 2019 and 2018, (iv) the Notes to Condensed Financial Statements and (v) Condensed Statements of Changes in Members' Equity for the three and six months ended April 30, 2019 and 2018.** |
HIGHWATER ETHANOL, LLC | |||
Date: | June 7, 2019 | /s/ Brian Kletscher | |
Brian Kletscher | |||
Chief Executive Officer | |||
(Principal Executive Officer) | |||
Date: | June 7, 2019 | /s/ Lucas Schneider | |
Lucas Schneider | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) | |||
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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 |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | June 7, 2019 | /s/ Brian Kletscher | |
Brian Kletscher, Chief Executive Officer (Principal Executive Officer) |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant, as of, and for, the periods presented in this report; |
4. | The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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 |
5. | The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): |
a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and |
b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. |
Date: | June 7, 2019 | /s/ Lucas Schneider | |
Lucas Schneider, Chief Financial Officer (Principal Financial and Accounting 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. |
/s/ Brian Kletscher | ||
Brian Kletscher, Chief Executive Officer | ||
Dated: | June 7, 2019 |
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. |
/s/ Lucas Schneider | ||
Lucas Schneider, Chief Financial Officer | ||
Dated: | June 7, 2019 |
Document and Entity Information Document - shares |
6 Months Ended | |
---|---|---|
Apr. 30, 2019 |
Jun. 07, 2019 |
|
Entity Information [Line Items] | ||
Entity Registrant Name | HIGHWATER ETHANOL LLC | |
Entity Central Index Key | 0001371451 | |
Current Fiscal Year End Date | --10-31 | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | false | |
Entity Emerging Growth Company | false | |
Document Type | 10-Q | |
Document Period End Date | Apr. 30, 2019 | |
Document Fiscal Year Focus | 2019 | |
Document Fiscal Period Focus | Q2 | |
Amendment Flag | false | |
Entity Common Stock, Shares Outstanding | 4,808 |
Condensed Balance Sheets Parenthetical - shares |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Members' equity, units issued (in shares) | 4,808 | 4,812 |
Members' equity, units outstanding (in shares) | 4,808 | 4,812 |
Condensed Unaudited Statements of Operations - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 30, 2019 |
Apr. 30, 2018 |
Apr. 30, 2019 |
Apr. 30, 2018 |
|
Income Statement [Abstract] | ||||
Revenues | $ 22,939,711 | $ 24,262,577 | $ 45,628,121 | $ 47,242,624 |
Cost of Goods Sold | 24,556,335 | 21,979,252 | 49,043,632 | 45,010,995 |
Gross Profit (Loss) | (1,616,624) | 2,283,325 | (3,415,511) | 2,231,629 |
Operating Expenses | 811,557 | 790,744 | 1,572,888 | 1,533,693 |
Operating Profit (Loss) | (2,428,181) | 1,492,581 | (4,988,399) | 697,936 |
Other Income (Expense) | ||||
Interest income | 2,539 | 369 | 3,281 | 695 |
Other income | 46,019 | 14,987 | 52,917 | 25,909 |
Interest expense | (213,570) | (182,850) | (416,164) | (356,428) |
Income from equity method investments | 13,692 | 10,395 | 49,152 | 14,175 |
Total other income (expense), net | (151,320) | (157,099) | (310,814) | (315,649) |
Net Income (Loss) | $ (2,579,501) | $ 1,335,482 | $ (5,299,213) | $ 382,287 |
Weighted Average Units Outstanding (in shares) | 4,810 | 4,814 | 4,811 | 4,814 |
Net Loss Per Unit, Basic and Diluted (in dollars per share) | $ (536.28) | $ 277.42 | $ (1,101.48) | $ 79.41 |
Distributions Per Unit (in dollars per share) | $ 0 | $ 0 | $ 0 | $ 345 |
Summary of Significant Accounting Policies |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accompanying unaudited condensed interim financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations. The accompanying balance sheet and related notes as of October 31, 2018 are derived from the audited financial statements as of that date. These condensed financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company’s audited financial statements for the year ended October 31, 2018, contained in the Company’s Form 10-K. In the opinion of management, the interim condensed financial statements reflect all adjustments, consisting of only normal recurring adjustments, considered necessary for fair presentation of the Company's financial position as of April 30, 2019 and the results of operations and cash flows for all periods presented. Nature of Business Highwater Ethanol, LLC, (a Minnesota Limited Liability Company) operates a 59.5 million gallon per year ethanol plant in Lamberton, Minnesota. The Company produces and sells, primarily through third-party professional marketers, fuel ethanol and co-products of the fuel ethanol production process in the continental United States. Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made. Revenue Recognition Effective November 1, 2018, the Company adopted the new guidance required by ASU No. 2014-09 as issued by the FASB, using the modified retrospective approach. ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps were required as part of the new guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied. The adoption of this new guidance did not result in any material changes to our revenue recognition. The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. Upon adoption of ASC Topic 606, the Company recognizes revenue when control of goods is transferred, which is consistent with the Company's previous policy where revenues were recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales, control transfers when loaded into the rail car and for distiller’s grains when the loaded rail cars leave the plant facility. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. 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.
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 for the three and six months ended April 30, 2019 and 2018:
Contract assets and contract liabilities: The following table provides information about receivables and contract liabilities from contracts with customers:
*Derived from audited financial statements 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. Shipping Costs 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 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 fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. Operating Segment The Company uses the "management approach" for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the "management approach" model, the Company has determine that its business is comprised of a single operating segment. Derivative Instruments Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recognized currently in earnings. Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting as derivatives, therefore, are not marked to market in our financial statements. The Company enters into corn and ethanol commodity-based and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold. Fair Value of Financial Instruments The carrying value of accounts receivable, accounts payable, and other working capital items approximate fair value at April 30, 2019 due to the short maturity nature of these instruments. The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs. The Company believes the carrying amount of the long-term debt approximates the fair value due to a significant portion of total indebtedness containing variable interest rates and that rate is a market interest rate for these borrowings. Investments The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. 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 investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the period ended April 30, 2019 is based on the investee’s results of operations for the period ended March 31, 2019. Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements. |
Uncertainties |
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Risks and Uncertainties [Abstract] | |
Uncertainties | UNCERTAINTIES The Company derives substantially all of its revenues from the sale of ethanol and distillers grains. These products are commodities and the market prices for these products display substantial volatility and are subject to a number of factors which are beyond the control of the Company. The Company’s most significant manufacturing inputs are corn and natural gas. The price of these commodities is also subject to substantial volatility and uncontrollable market factors. In addition, these input costs do not necessarily fluctuate with the market prices for ethanol and distillers grains. As a result, the Company is subject to significant risk that its operating margins can be reduced or eliminated due to the relative movements in the market prices of its products and major manufacturing inputs. As a result, market fluctuations in the price of or demand for these commodities can have a significant adverse effect on the Company’s operations, profitability, and availability of cash flows to make loan payments and maintain compliance with the loan agreement. |
Inventories |
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Inventories | INVENTORIES Inventories consisted of the following at:
The Company recorded a lower of cost or net realizable value write-down on corn inventory of approximately $76,000 and write-down of ethanol inventory of approximately $166,000 at April 30, 2019. |
Derivative Instruments |
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Instruments | DERIVATIVE INSTRUMENTS As of April 30, 2019, the Company had entered into corn, ethanol and natural gas derivative instruments, which are required to be recorded as either assets or liabilities at fair value in the balance sheet. The Company uses these instruments to manage risks from changes in market rates and prices. Derivatives qualify for treatment as hedges when there is a high correlation between the change in fair value of the derivative instrument and the related change in value of the underlying hedged item. The Company may designate the hedging instruments based upon the exposure being hedged as a fair value hedge or a cash flow hedge. The derivative instruments outstanding at April 30, 2019 are not designated as effective hedges for accounting purposes. Commodity Contracts As of April 30, 2019, the Company has open futures and option positions for 1,150,000 bushels of corn and 420,000 gallons of ethanol. Management expects all open positions outstanding as of April 30, 2019 to be realized within the next twelve months. The following tables provide details regarding the Company's derivative instruments at April 30, 2019 and October 31, 2018:
The following tables provide details regarding the gains (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments:
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Fair Value Measurements |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements | FAIR VALUE MEASUREMENTS The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.
The Company determines the fair values of commodities by obtaining the fair value measurements from an independent pricing service based on dealer quotes and live trading levels from the Chicago Board of Trade. |
Debt Financing |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Financing | DEBT FINANCING Long-term debt consists of the following at:
Bank Financing On January 22, 2016, the Company entered into a Second Amended and Restated Credit Agreement with Compeer Financial PCA f/k/a AgStar Financial Services, PCA, as administrative agent for several financial institutions ("Compeer") which amended the Amended and Restated Credit Agreement dated September 22, 2014. The Second Amended and Restated Credit Agreement decreased the Term Loan to $15,000,000, increased the Term Revolving Loan to $15,000,000 and eliminated the Revolving Line of Credit. Effective April 20, 2018, the Company executed a First Amendment to the Second Amended and Restated Credit Agreement with Compeer Financial which increased the availability under the Term Revolving Loan to $20,000,000. In connection therewith, as of the same date, the Company executed a Third Amended and Restated Term Revolving Note and a Third Amended and Restated Mortgage, Security Agreement, Assignment of Leases and Fixture Financing Statement. Term Loan The Term Loan is for $15,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at April 30, 2019 was 5.74%. Monthly principal payments are due on the Term Loan of approximately $250,000 plus accrued interest. Payments of all amounts outstanding are due on January 22, 2021. The outstanding balance on this note was $5,000,000 at April 30, 2019. The Company may convert the Term Loan to a fixed rate loan, subject to certain conditions as described in the Second Amended and Restated Credit Agreement and with the consent of Compeer. Term Revolving Loan The Term Revolving Loan is for $20,000,000 with a variable interest rate based on the 30-day LIBOR rate plus 325 basis points with no minimum interest rate. The applicable interest rate at April 30, 2019 was 5.74%. The Term Revolving Loan may be advanced, repaid and re-borrowed during the term. Monthly interest payments are due on the Term Revolving Loan. Payment of all amounts outstanding are due on January 22, 2023. The outstanding balance on this note was $7,500,000 at April 30, 2019. The Company pays interest at a rate of 1.50% on amounts outstanding for letters of credit which also reduce the amount available under the Term Revolving Loan. The Company has no letters of credit outstanding at April 30, 2019. The Company is also required to pay unused commitment fees for the Term Revolving Loan as defined in the Second Amended and Restated Credit Agreement. Covenants and other Miscellaneous Terms The loan facility with Compeer is secured by substantially all business assets. The Company executed a mortgage creating a first lien on its real estate and plant and a security interest in all personal property located on the premises and assigned all rents and leases to property, marketing contracts, risk management services contract, and natural gas, electricity, water service and grain procurement agreements. The Company is also subject to various financial and non-financial covenants that limit distributions and debt and require minimum debt service coverage, tangible net worth, and working capital requirements. The debt service coverage ratio is no less than 1.25:1.00 measured annually by comparing adjusted EBITDA to scheduled payments of principal and interest. The minimum working capital is $8,250,000, which is calculated as current assets plus the amount available for drawing under the Term Revolving Loan and undrawn amounts on outstanding letters of credit, less current liabilities, and is measured quarterly. The Company is limited to annual capital expenditures of $5,000,000 without prior approval, incurring additional debt over certain amounts without prior approval, and making additional investments as described in the Second Amended and Restated Credit Agreement without prior approval of Compeer. The Company is allowed to make cash distributions to members as frequently as monthly in an amount equal to 75% of net income if working capital is greater than or equal to $8,250,000, or 100% of net income if working capital is greater than or equal to $11,000,000, or an unlimited amount if working capital is greater than or equal to $11,000,000 and the outstanding balance on the Term Loan is $0. The estimated maturities of the long-term debt at April 30, 2019 are as follows:
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Commitments and Contingencies |
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Commitments and Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | COMMITMENTS AND CONTINGENCIES Marketing Agreements The Company has an ethanol marketing agreement with a marketer (RPMG) to purchase, market, and distribute all the ethanol produced by the Company. The Company also entered into a member control agreement with the marketer whereby the Company made capital contributions and became a minority owner of the marketer. The member control agreement became effective on February 1, 2011 and provides the Company a membership interest with voting rights. The marketing agreement will terminate if the Company ceases to be a member. The Company will assume certain of the member’s rail car leases if the agreement is terminated. The Company can sell its ethanol either through an index arrangement or at an agreed upon fixed price. The marketing agreement is perpetual until terminated according to the agreement. The Company may be obligated to continue to market its ethanol through the marketer for a period of time. The amended agreement requires minimum capital amounts invested as required under the agreement. The Company has a distillers grains marketing agreement with a marketer to market all the dried distillers grains produced at the plant. Under the agreement the marketer charges a maximum of $2.00 per ton and a minimum of $1.50 per ton using 2% of the FOB plant price actually received by them for all dried distillers grains removed. The agreement will remain in effect unless otherwise terminated by either party with 120 days notice. Under the agreement, the marketer is responsible for all transportation arrangements for the distribution of the dried distillers grains. The Company markets and sells its modified and wet distillers grains. The Company has a corn oil marketing agreement with a marketer (RPMG) which became effective November 15, 2018. The agreement provides for an exclusive marketing arrangement with RPMG for the purposes of marketing and distributing our corn oil in exchange for payment of a marketing fee to RPMG. We may immediately terminate the agreement upon written notice to RPMG if: (1) RPMG fails on three separate occasions within a 12-month period to purchase corn oil or market corn oil, as not otherwise excused under the Agreement; or (2) upon RPMG's insolvency. RPMG may immediately terminate the agreement upon written notice if: (A) during any consecutive three (3) months the actual production or inventory of any corn oil product at the plant varies by twenty (20%) or more from the monthly production and inventory estimates provided to RPMG (other than for reasons permitted under the RPMG Agreement); or (B) upon our insolvency. Regulatory Agencies The Company is subject to oversight from regulatory agencies regarding environmental concerns which arise in the ordinary course of its business. Forward Contracts At April 30, 2019, the Company had purchase commitments of approximately 2,865,000 bushels of forward fixed basis corn contracts and 4,442,000 bushels of forward fixed price corn contracts totaling approximately $15,247,000. The Company recorded a lower of cost or net realizable value write-down on the forward fixed price contracts of approximately $753,000 at April 30, 2019. These purchase contracts are for various delivery periods through November 2020. At April 30, 2019, the Company had approximately 3,643,000 MMBTUs of forward fixed price natural gas purchase contracts totaling approximately $8,987,000 for various delivery periods through March 2022. In addition, at April 30, 2019, the Company had approximately 772,800 gallons of forward fixed price denaturant purchase contracts totaling approximately $1,043,000 for various delivery periods through December 2019. At April 30, 2019, the Company had approximately 5,680 tons of forward fixed price dried distillers grains sales contracts totaling approximately $776,000 for various delivery periods through June 2019. At April 30, 2019, the Company had approximately 11,300 tons of forward fixed price modified distillers grains sales contracts totaling approximately $768,000 for delivery periods through August 2019. In addition, at April 30, 2019, the Company had approximately 580,000 pounds of forward fixed price corn oil sales contracts totaling approximately $143,000 for delivery periods through May 2019. |
Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Estimates | Accounting Estimates Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The Company uses estimates and assumptions in accounting for significant matters, among others, the carrying value of property and equipment and related impairment testing, inventory valuation, and derivative instruments. Actual results could differ from those estimates and such differences may be material to the financial statements. The Company periodically reviews estimates and assumptions and the effects of revisions are reflected in the period in which the revision is made. |
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Revenue Recognition | Revenue Recognition Effective November 1, 2018, the Company adopted the new guidance required by ASU No. 2014-09 as issued by the FASB, using the modified retrospective approach. ASC Topic 606, Revenue from Contracts with Customers, further details the Company’s requirement to recognize revenue of transferred goods or services to customers in an amount which is expected to be received in exchange for those goods or services. Five steps were required as part of the new guidance: 1. Identify the contract 2. Identify the performance obligations 3. Determine the transaction price 4. Allocate the transaction price to the performance obligation 5. Recognize revenue when each performance obligation is satisfied. The adoption of this new guidance did not result in any material changes to our revenue recognition. The Company generally sells ethanol and related products pursuant to marketing agreements. The Company’s products are shipped FOB shipping point. Upon adoption of ASC Topic 606, the Company recognizes revenue when control of goods is transferred, which is consistent with the Company's previous policy where revenues were recognized when the customer has taken title and has assumed the risks and rewards of ownership, prices are fixed or determinable and collectability is reasonably assured. For ethanol sales, control transfers when loaded into the rail car and for distiller’s grains when the loaded rail cars leave the plant facility. In accordance with the Company’s agreements for the marketing and sale of ethanol and related products, marketing fees and freight due to the marketers are deducted from the gross sales price at the time incurred. Revenue is recorded net of these marketing fees and freight as they do not provide an identifiable benefit that is sufficiently separable from the sale of ethanol and related products. 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.
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 for the three and six months ended April 30, 2019 and 2018:
Contract assets and contract liabilities: The following table provides information about receivables and contract liabilities from contracts with customers:
*Derived from audited financial statements 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. |
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Shipping Costs | Shipping Costs 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 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 fulfillment activities, and accordingly, the costs are accrued for when the related revenue is recognized. |
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Operating Segment | Operating Segment The Company uses the "management approach" for reporting information about segments in annual and interim financial statements. The management approach is based on the way the chief operating decision-maker organizes segments within a company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure and any other manner in which management disaggregates a company. Based on the "management approach" model, the Company has determine that its business is comprised of a single operating segment. |
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Derivative Instruments | Derivative Instruments Derivatives are recognized in the balance sheet and the measurement of these instruments is at fair value. Margin amounts required by the broker are classified as deposits with broker within derivative instruments and any excess is classified as cash equivalents in the balance sheets. In order for a derivative to qualify as a hedge, specific criteria must be met and appropriate documentation maintained. Gains and losses from derivatives that do not qualify as hedges, or are undesignated, must be recognized immediately in earnings. If the derivative does qualify as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. Changes in the fair value of undesignated derivatives are recognized currently in earnings. Contracts are evaluated to determine whether the contracts are derivatives. Certain contracts that meet the definition of a derivative may be exempted as “normal purchases or normal sales”. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from accounting as derivatives, therefore, are not marked to market in our financial statements. The Company enters into corn and ethanol commodity-based and natural gas derivatives in order to protect cash flows from fluctuations caused by volatility in prices. These derivatives are not designated as effective hedges for accounting purposes. For derivative instruments that are not accounted for as hedges, or for the ineffective portions of qualifying hedges, the change in fair value is recorded through earnings in the period of change. Changes in fair market value of ethanol derivatives are included in revenues. Changes in fair market value of corn and natural gas derivatives are included in costs of goods sold. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments The carrying value of accounts receivable, accounts payable, and other working capital items approximate fair value at April 30, 2019 due to the short maturity nature of these instruments. The Company believes the carrying value of the derivative instruments approximates fair value based on quoted market prices or widely accepted valuation techniques including discounted cash flow analysis which includes observable market-based inputs. The Company believes the carrying amount of the long-term debt approximates the fair value due to a significant portion of total indebtedness containing variable interest rates and that rate is a market interest rate for these borrowings. |
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Investments | Investments The Company has a 6% investment interest in an unlisted company, Renewable Products Marketing Group, LLC (RPMG), who markets the Company’s ethanol. The Company also has a 7% ownership interest in Lawrenceville Tank, LLC (LT), which owns and operates a trans load/tank facility near Atlanta, Georgia. 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 investment are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from equity method investments based on the most recent reliable data. Therefore, the net income which is reported in the Company's statement of operations for the period ended April 30, 2019 is based on the investee’s results of operations for the period ended March 31, 2019. |
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Recent Accounting Pronouncements | Recent Accounting Pronouncements In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU requires lessees to recognize a lease liability and a right-to-use asset for all leases, including operating leases, with a term greater than twelve months on its balance sheet. This ASU is effective in annual and interim periods in fiscal years beginning after December 15, 2018, with early adoption permitted, and requires a modified retrospective transition method. The Company is currently in the process of evaluating the impact that this new guidance will have on the financial statements. |
Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Disaggregation of revenue | The following table depicts the disaggregation of revenue according to product line for the three and six months ended April 30, 2019 and 2018:
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Summary of contract assets and liabilities | The following table provides information about receivables and contract liabilities from contracts with customers:
*Derived from audited financial statements |
Inventories (Tables) |
6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Inventory Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of inventory | Inventories consisted of the following at:
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Derivative Instruments (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of derivatives instruments | The following tables provide details regarding the Company's derivative instruments at April 30, 2019 and October 31, 2018:
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Schedule of gains (losses) from derivative instruments | The following tables provide details regarding the gains (losses) from the Company's derivative instruments in the statements of operations, none of which are designated as hedging instruments:
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Fair Value Measurements (Tables) |
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of assets and liabilities measured at fair value | The following table provides information on those assets (liabilities) measured at fair value on a recurring basis.
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Debt Financing (Tables) |
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Apr. 30, 2019 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of long-term debt | Long-term debt consists of the following at:
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Schedule of maturities of long-term debt | The estimated maturities of the long-term debt at April 30, 2019 are as follows:
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Summary of Significant Accounting Policies -Narrative (Details) gal in Millions |
6 Months Ended |
---|---|
Apr. 30, 2019
segment
gal
| |
Product Information [Line Items] | |
Number of operating segments | segment | 1 |
Ethanol | |
Product Information [Line Items] | |
Annual production capacity (in gallons) | gal | 59.5 |
Renewable Fuels Marketing Group (RPMG) | |
Product Information [Line Items] | |
Ownership percentage | 6.00% |
Lawrenceville Tank, LLC | |
Product Information [Line Items] | |
Ownership percentage | 7.00% |
Summary of Significant Accounting Policies -Disaggregation of revenue (Details) - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 30, 2019 |
Apr. 30, 2018 |
Apr. 30, 2019 |
Apr. 30, 2018 |
|
Disaggregation of Revenue [Line Items] | ||||
Revenues | $ 22,939,711 | $ 24,262,577 | $ 45,628,121 | $ 47,242,624 |
Ethanol | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 17,333,479 | 18,737,309 | 34,282,684 | 36,597,367 |
Modified Distillers Grains Sales | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 953,103 | 1,048,830 | 2,110,556 | 1,753,488 |
Dried Distillers Grains Sales | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | 4,000,185 | 3,891,497 | 7,850,551 | 7,503,579 |
Corn | ||||
Disaggregation of Revenue [Line Items] | ||||
Revenues | $ 652,944 | $ 584,941 | $ 1,384,330 | $ 1,388,190 |
Summary of Significant Accounting Policies -Summary of contract assets and liabilities (Details) - USD ($) |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Accounting Policies [Abstract] | ||
Accounts receivable | $ 2,554,011 | $ 1,316,129 |
Short term contract liabilities | $ 13,265 | $ 0 |
Inventories -Schedule of Inventory (Details) - USD ($) |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Inventory Disclosure [Abstract] | ||
Raw materials | $ 1,211,002 | $ 2,339,767 |
Spare parts and supplies | 3,593,560 | 3,118,195 |
Work in process | 762,102 | 752,454 |
Finished goods | 1,718,558 | 1,858,275 |
Total | $ 7,285,222 | $ 8,068,691 |
Inventories -Narrative (Details) $ in Thousands |
6 Months Ended |
---|---|
Apr. 30, 2019
USD ($)
| |
Corn | |
Inventory [Line Items] | |
Inventory write-down | $ 76 |
Ethanol | |
Inventory [Line Items] | |
Inventory write-down | $ 166 |
Derivative Instruments -Narrative (Details) |
Apr. 30, 2019
bu
|
---|---|
Corn | |
Derivatives, Fair Value [Line Items] | |
Nonmonetary notional amount of price risk derivative (in bushels) | 1,150,000 |
Ethanol | |
Derivatives, Fair Value [Line Items] | |
Nonmonetary notional amount of price risk derivative (in bushels) | 420,000 |
Derivative Instruments -Schedule of derivatives instruments (Details) - USD ($) |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Derivatives, Fair Value [Line Items] | ||
Derivative asset, fair value | $ 513,804 | $ 942,885 |
Not designated as hedging instrument | Commodity contract | ||
Derivatives, Fair Value [Line Items] | ||
In gain position | 259,000 | 0 |
In loss position | (1,324,235) | (2,280,280) |
Deposits with broker | $ 1,579,039 | $ 3,223,165 |
Derivative Instruments -Schedule of gains (losses) from derivative instruments (Details) - Not designated as hedging instrument - USD ($) |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Apr. 30, 2019 |
Apr. 30, 2018 |
Apr. 30, 2019 |
Apr. 30, 2018 |
|
Ethanol contracts | Revenues | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Gain (loss) on derivative | $ 40,738 | $ 61,138 | $ (95,059) | $ (36,188) |
Corn contracts | Cost of goods sold | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Gain (loss) on derivative | (767,484) | 1,160,553 | (92,119) | 1,658,343 |
Natural gas contracts | Cost of goods sold | ||||
Derivative Instruments, Gain (Loss) [Line Items] | ||||
Gain (loss) on derivative | $ 0 | $ 4,480 | $ 19,806 | $ 35,332 |
Fair Value Measurements (Details) - Commodity contract - Fair Value, measurements, recurring - USD ($) |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Derivative instruments - commodities | ||
In gain position | $ 259,000 | $ 0 |
In loss position | (1,324,235) | (2,280,280) |
Level 1 | ||
Derivative instruments - commodities | ||
In gain position | 15,250 | 0 |
In loss position | (2,037) | (37,485) |
Level 2 | ||
Derivative instruments - commodities | ||
In gain position | 243,750 | 0 |
In loss position | (1,322,198) | (2,242,795) |
Level 3 | ||
Derivative instruments - commodities | ||
In gain position | 0 | 0 |
In loss position | $ 0 | $ 0 |
Debt Financing -Schedule of long-term debt (Details) - USD ($) |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Debt Instrument [Line Items] | ||
Long-term debt, gross | $ 12,500,000 | $ 10,000,000 |
Less Debt Issuance Costs | (41,715) | (62,193) |
Less amounts due within one year | (2,722,587) | (2,715,436) |
Net long-term debt | 9,735,698 | 7,222,371 |
AgStar Financial Services, PCA | Notes payable to banks | Variable Rate Term Loan | ||
Debt Instrument [Line Items] | ||
Long-term debt, gross | 5,000,000 | 6,500,000 |
AgStar Financial Services, PCA | Notes payable to banks | Term Revolving Loan | ||
Debt Instrument [Line Items] | ||
Long-term debt, gross | $ 7,500,000 | $ 3,500,000 |
Debt Financing -Schedule of maturities of long-term debt (Details) - USD ($) |
Apr. 30, 2019 |
Oct. 31, 2018 |
---|---|---|
Principal | ||
April 2020 | $ 2,750,000 | |
April 2021 | 2,250,000 | |
April 2022 | 0 | |
April 2023 | 7,500,000 | |
Long-term debt, principal | 12,500,000 | $ 10,000,000 |
Debt Issuance Costs | ||
April 2020 | (27,413) | |
April 2021 | (14,302) | |
April 2022 | 0 | |
April 2023 | 0 | |
Long-term debt, debt issuance costs | (41,715) | $ (62,193) |
Total | ||
April 2020 | 2,722,587 | |
April 2021 | 2,235,698 | |
April 2022 | 0 | |
April 2023 | 7,500,000 | |
Long-term debt, total | $ 12,458,285 |
Commitments and Contingencies -Marketing Agreements (Details) |
6 Months Ended |
---|---|
Apr. 30, 2019
USD ($)
failure
| |
Related Party Transaction [Line Items] | |
Related party contract termination notice | 120 days |
Affiliated Entity | |
Related Party Transaction [Line Items] | |
Related party transaction, fees, percentage of total | 2.00% |
Number of corn oil purchase failures | failure | 3 |
Affiliated Entity | Maximum | |
Related Party Transaction [Line Items] | |
Related party transaction, marketing expense (in dollars per ton) | $ 2.00 |
Percentage of variation | 20.00% |
Affiliated Entity | Minimum | |
Related Party Transaction [Line Items] | |
Related party transaction, marketing expense (in dollars per ton) | $ 1.50 |
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