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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark one)

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

   

quarterly period ending 

June 30, 2022

   

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to __________

 

Commission file number

 000-53041

  

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

(Exact name of registrant as specified in its charter)

  

Iowa

20-2735046

(State or other jurisdiction of incorporation or organization)

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

  

10868 189th Street, Council Bluffs, Iowa

51503

(Address of principal executive offices)

(Zip Code)

  

Registrant’s telephone number (712) 366-0392

  

Securities registered under Section 12(b) of the Exchange Act:

None.

  

Title of each class

Name of each exchange on which registered

  

Securities registered under Section 12(g) of the Exchange Act:

Series A Membership Units

(Title of class)

 

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

    

Yes 

No 

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

Yes 

No 

 

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

Large accelerated filer 

Accelerated filer 

Non-accelerated filer 

Emerging growth company 

Smaller reporting company 

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

 

Yes
No

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

 

Yes 

No 

  

 

As of July 25, 2022, the Company had 8,975 Series A Membership Units outstanding.

 

 

 

 

TABLE OF CONTENTS

 

 

Item No.

Item Matter

PAGE NO.

PART 1  FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

3

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

16

Item 3.

QUALITATIVE AND QUANTITATIVE DISCLOSURE ABOUT MARKET RISKS

25

Item 4.

CONTROLS AND PROCEDURES

26

PART II  OTHER INFORMATION

Item 1.

LEGAL PROCEEDINGS

27

Item 1A.

RISK FACTORS

27

Item 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

27

Item 3.

DEFAULTS UPON SENIOR SECURITIES

27

Item 4.

MINE SAFETY DISCLOSURES

27

Item 5.

OTHER INFORMATION

27

Item 6. 

Exhibits

28

 

SIGNATURES 

29

 

CERTIFICATIONS

SEE EXHIBITS 31 AND 32 

 

 

 

PART I FINANCIAL STATEMENTS

 

Item 1. Financial Statements

 

 

 

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Balance Sheets

(Dollars in thousands)

 

ASSETS

 

June 30, 2022

  

September 30, 2021

 
  

(Unaudited)

     

Current Assets

        

Cash and cash equivalents

 $15  $1,945 

Accounts receivable, net of allowance for doubtful accounts

  18,046   12,766 

Derivative financial instruments

  3,007   1,556 

Inventory

  49,339   28,677 

Prepaid expenses and other

  601   443 

Total current assets

  71,008   45,387 
         

Property, Plant and Equipment

        

Land

  2,064   2,064 

Plant, building and equipment

  259,207   255,623 

Office and other equipment

  1,941   1,892 
   263,212   259,579 

Accumulated depreciation

  (162,048)  (153,546)

Net property, plant and equipment

  101,164   106,033 
         

Other Assets

        

Right of use asset operating leases, net

  3,932   3,937 

Other assets

  852   1,069 

Total Assets

 $176,956  $156,426 

 

Notes to Financial Statements are an integral part of this statement

 

3

 

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Balance Sheets

(Dollars in thousands)

 

LIABILITIES AND MEMBERS' EQUITY

 

June 30, 2022

  

September 30, 2021

 
  

(Unaudited)

     

Current Liabilities

        

Accounts payable

 $5,870  $7,695 

Accrued expenses

  5,944   4,556 

    Checks in excess of bank balance

  9,080    — 

Current maturities of notes payable

  7,608   10,019 

Current portion of operating lease liability

  2,564   2,922 

Total current liabilities

  31,066   25,192 
         

Long Term Liabilities

        

Notes payable, less current maturities

  24,328   51,677 

Other long-term liabilities

  4,022   4,154 

Long term portion of operating lease liability, less current portion

  1,368   1,015 

Total long term liabilities

  29,718   56,846 
         

Members' Equity

        

Members' capital, 8,975 units issued and outstanding

  64,106   64,106 

Retained earnings

  52,066   10,282 

Total members' equity

  116,172   74,388 
         

Total Liabilities and Members' Equity

 $176,956  $156,426 

 

Notes to Financial Statements are an integral part of this statement

 

4

 

 

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Operations

(Dollars in thousands except for net income per unit)

(Unaudited)

 

  

Three Months

  

Three Months

  

Nine Months

  

Nine Months

 
  

Ended

  

Ended

  

Ended

  

Ended

 
  

June 30, 2022

  

June 30, 2021

  

June 30, 2022

  

June 30, 2021

 
                 

Revenues

 $87,530  $87,869  $285,132  $213,280 

Cost of Goods Sold

                

Cost of goods sold-non hedging

  76,851   80,349   232,201   199,412 

Realized & unrealized hedging losses (gains)

  1,050   (1,048)  (773)  4,707 
   77,901   79,301   231,428   204,119 
                 

Gross Margin

  9,629   8,568   53,704   9,161 
                 

General and administrative expenses

  1,765   1,305   5,206   3,940 
                 

Operating Income (Loss)

  7,864   7,263   48,498   5,221 
                 

Interest expense

  415   524   1,194   1,522 

Other (income) expense, net

  (3,063)  (15)   (5,698)  (1,020)
Interest and other (income) expense, net  (2,648)  509   (4,504)  502 
                 

Net Income (Loss)

 $10,512  $6,754  $53,002  $4,719 
                 

Weighted average units outstanding - basic and diluted

  8,975   8,975   8,975   8,975 

Net Income (Loss) per unit - basic and diluted

 $1,171.25  $752.53  $5,905.52  $525.79 

 

Notes to Financial Statements are an integral part of this statement

 

5

 

 

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Members' Equity

(Dollars in thousands)

 

      

Retained Earnings

     
  

Members' Capital

  

(Deficit)

  

Total

 
             

Balance, September 30, 2020

 $64,106  $1,698  $65,804 

Net Income (Loss)

     1,111   1,111 

Balance, December 31, 2020

  64,106   2,809   66,915 

Net Income (Loss)

     (3,146)  (3,146)

Balance, March 31, 2021

  64,106   (337)  63,769 

Net Income (Loss)

     6,754   6,754 

Balance, June 30, 2021

 $64,106  $6,417  $70,523 
             

Balance, September 30, 2021

 $64,106  $10,282  $74,388 

Net Income (Loss)

     28,828   28,828 

Balance, December 31, 2021

  64,106   39,110   103,216 

    Distributions

     

(11,218

)  (11,218)

Net Income (Loss)

     13,662   13,662 

Balance, March 31, 2022

  64,106   41,554   105,660 

Net Income (Loss)

     10,512   10,512 

Balance, June 30, 2022

 $64,106  $52,066  $116,172 

 

Notes to Financial Statements are an integral part of this statement

 

6

 

 

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

 

  

Nine Months Ended

  

Nine Months Ended

 
  

June 30, 2022

  

June 30, 2021

 

CASH FLOWS FROM OPERATING ACTIVITIES

        

Net Income (Loss)

 $53,002  $4,719 

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

        

Depreciation

  

8,521

   8,290 

Amortization

  33   54 

   Gain on Debt Extinguishment

  (2,177)   

        Bad Debt Expense

     79 

Change in other assets, net

  217   240 

(Increase) decrease in current assets:

        

Accounts receivable

  (5,280)  (8,790)

Inventory

  (20,662)  (10,790)

Prepaid expenses and other

  (158)  (647)

   Derivative financial instruments

  

(1,451

)  

(1,139)

 

Increase (decrease) in current liabilities:

        

Accounts payable

  (1,825)  584 

Accrued expenses

  1,388   407 

Increase (decrease) in other long-term liabilities

  (131)  (95)

Net cash provided by (used in) by operating activities

  31,477   (7,088)

CASH FLOWS FROM INVESTING ACTIVITIES

        

Purchase of property and equipment

  (3,652)  (6,180)

Net cash (used in) investing activities

  (3,652)  (6,180)

CASH FLOWS FROM FINANCING ACTIVITIES

        

Payments for financing costs

     (33)

   Distributions paid to Members

  (11,218)   

Proceeds from debt

  190,246   186,605 

Payments on debt

  (217,863)  (172,956)
   Checks in excess of bank balance  9,080    

Net cash provided by (used in) financing activities

  (29,755)  13,616 

Net increase (decrease) in cash and cash equivalents

  (1,930)   348 

CASH AND CASH EQUIVALENTS

        

Beginning

  1,945   1,116 

Ending

 $15  $1,464 

SUPPLEMENTAL CASH FLOW INFORMATION

        

Cash paid for interest

 $1,227  $1,491 

 

Notes to Financial Statements are an integral part of this statement

 

7

 

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

Notes to Financial Statements

(Dollars in thousands)

 

 

 

Note 1:  Nature of Business

 

Southwest Iowa Renewable Energy, LLC (the “Company”), located in Council Bluffs, Iowa, was formed in March 2005, and began producing ethanol in February 2009.   The Company is permitted to produce up to 140 million gallons of ethanol per year. The Company sells its ethanol, distillers grains, corn condensed distillers solubles or "syrup", distillers corn oil and carbon dioxide in the continental United States, Mexico, and the Pacific Rim.

 

 

Note 2:  Summary of Significant Accounting Policies

 

Basis of Presentation and Other Information

 

The accompanying financial statements are for the three and nine months ended June 30, 2022, and 2021, and are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim periods. These unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto, for the fiscal year ended  September 30, 2021 ("Fiscal 2021") contained in the Company’s Annual Report on Form 10-K. The results of operations for the interim periods presented are not necessarily indicative of the results for the entire year.

 

Use of Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from these estimates.

 

Revenue Recognition

 

In accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), the Company recognizes revenue when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The Company applies the five-step method required by ASC 606 to all contracts with customers.

 

The Company sells ethanol and related products pursuant to marketing agreements.  Revenues are recognized when the risk of loss has been transferred to the marketing company and the marketing company has taken title to the product, prices are fixed or determinable and collectability is reasonably assured.  

 

The Company’s products are generally shipped Free on Board ("FOB") shipping point, and recorded as a sale upon delivery of the applicable bill of lading and transfer of risk of loss.  The Company’s ethanol sales are handled through an ethanol purchase agreement (the “Ethanol Agreement”) with Bunge North America, Inc. (“Bunge”) which was restated effective January 1, 2020 in connection with the Company's repurchase of the Series B Units from Bunge under the Bunge Membership Interest Purchase Agreement (the "Bunge Repurchase Agreement").  Syrup and distillers grains (co-products) are sold directly by the Company. The Company markets and distributes all of the distillers corn oil it produces directly to end users at market prices.  Carbon dioxide is sold through a Carbon Dioxide Purchase and Sale Agreement (the “CO2 Agreement”) with Air Products and Chemicals, Inc. Marketing fees, agency fees, and commissions due to the marketer are calculated separately from the settlement for the sale of the ethanol products and co-products and are included as a component of cost of goods sold.

 

Accounts Receivable

 

Accounts receivable are recorded at original invoice amounts less an estimate made for doubtful receivables based on a review of all outstanding amounts on a quarterly basis. Management determines the allowance for doubtful accounts by regularly evaluating customer receivables and considering the customer’s financial condition, credit history and current economic conditions.  As of both  June 30, 2022, and September 30, 2021, management had determined an allowance of $206,000 was necessary.  Receivables are written off when deemed uncollectible and recoveries of receivables written off are recorded when received.

8

 

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

 

The Company’s operations and cash flows are subject to fluctuations due to changes in commodity prices.  The Company is subject to significant market risk with respect to the price and availability of corn, the principal raw material used to produce ethanol and ethanol co-products.  Exposure to commodity price risk results from its dependence on corn in the ethanol production process.  Rising corn prices may result in lower profit margins and, therefore, represent unfavorable market conditions.  This is especially true when market conditions do not allow the Company to pass along increased corn costs to 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.

 

To minimize the risk and the volatility of commodity prices, primarily related to corn and ethanol, the Company uses various derivative instruments, including forward corn, ethanol, and distillers grains purchase and sales contracts, over-the-counter and exchange-traded futures and option contracts. 

 

Management has evaluated the Company’s contracts to determine whether the contracts are derivative instruments. 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.  Gains and losses on contracts that are designated as normal purchases or normal sales contracts are not recognized until quantities are delivered or utilized in production.

 

The Company applies the normal sale exemption to forward contracts relating to ethanol, distillers grains, and distillers corn oil and therefore these forward contracts are not marked to market. As of June 30, 2022, the Company had 3.6 million gallons of open contracts for ethanol, 0.1 million tons of wet and dried distillers grains and 2.4 million pounds of distillers corn oil.

 

Corn purchase contracts are treated as derivative financial instruments. Changes in market value of forward corn contracts, which are marked to market each period, are included in costs of goods sold.  As of June 30, 2022, the Company was committed to purchasing 5.1 million bushels of corn on a forward contract basis resulting in a total commitment of $32.7 million. In addition, the Company was committed to purchase 1.2 million bushels of corn on basis contracts. Additionally, we have entered into purchase agreements that locks in a percentage of our natural gas pricing.

 

The Company also enters into short-term cash, options and futures contracts as a means of managing exposure to changes in commodity prices.  The Company enters into derivative contracts to hedge the exposure to volatile commodity price fluctuations.  The Company maintains a risk management strategy that uses derivative instruments to minimize significant, unanticipated earnings fluctuations caused by market volatility.  The Company’s specific goal is to protect itself from large moves in commodity costs.  All derivatives are designated as non-hedge derivatives and the contracts will be accounted for at fair value.  Although the contracts will be effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

 

9

 

Derivatives not designated as hedging instruments along with cash held by brokers at June 30, 2022 and  September 30, 2021 at market value are as follows:

 

 

Balance Sheet Classification

 

June 30, 2022

  

September 30, 2021

 
   

in 000's

  

in 000's

 

Futures and option contracts

         

In gain position

 $3,622  $196 

In loss position

  (1,819)  (1,386)

Cash held by broker

  1,708   2,012 

Forward contracts, corn

  (504)   734 

Net futures, options, and forward contracts

Current Asset $3,007  $1,556 

 

The net realized and unrealized gains and losses on the Company’s derivative contracts for the three and nine months ended June 30, 2022 and 2021 consist of the following:

 

   

Three Months Ended

  

Nine Months Ended

 
 

Statement of

                
 

Operations

                
 

Classification

 

June 30, 2022

  

June 30, 2021

  

June 30, 2022

  

June 30, 2021

 
   

in 000's

  

in 000's

  

in 000's

  

in 000's

 

Net realized and unrealized (gains) losses related to:

                 
                  

Forward purchase corn contracts

Cost of Goods Sold

 $(1,775) $(98) $982  $(1,248)

Futures and option corn contracts

Cost of Goods Sold

  2,825   (950)  (1,755)  5,955 

 

Inventory

 

Inventory is stated at the lower of weighted average cost or net realizable value. In the valuation of inventories and purchase commitments, net realizable value is defined as estimated selling price in the ordinary course of business less reasonable predictable costs of completion, disposal and transportation.  For the three and nine months ended June 30, 2022, and 2021, the Company had no lower of cost or net realizable value adjustment.

 

10

 

Income Per Unit

 

Basic income per unit is calculated by dividing net income by the weighted average units outstanding for each period. Basic earnings and diluted per unit data were computed as follows (in thousands except per unit data):

 

  

Three Months Ended

  

Nine Months Ended

 
  

June 30, 2022

  

June 30, 2021

  

June 30, 2022

  

June 30, 2021

 

Numerator:

                

Net Income (Loss) for basic earnings per unit

 $10,512  $6,754  $53,002  $4,719 

Net Income (Loss) for diluted earnings per unit

 $10,512  $6,754  $53,002  $4,719 
                 

Denominator:

                

Weighted average units outstanding - basic and diluted

  8,975   8,975   8,975   8,975 

Income (Loss) per unit - basic and diluted

 $1,171.25  $752.53  $5,905.52  $525.79 

 

 

Note 3:  Inventory

 

Inventory is comprised of the following:

 

  

June 30, 2022

  

September 30, 2021

 
  

in 000's

  

in 000's

 

Raw Materials - corn

 $25,117  $9,275 

Supplies and Chemicals

  6,802   5,589 

Work in Process

  3,357   2,762 

Finished Goods

  14,063   11,051 

Total

 $49,339  $28,677 

 

 

Note 4:   Revolving Loan/Credit Agreements and Government Assistance

 

FCSA/CoBank

 

The Company is a party to a credit agreement (the "FSCA Credit Facility") with Farm Credit Services of America, FLCA (“FCSA”), Farm Credit Services of America, PCA and CoBank, ACB, as cash management provider and agent (“CoBank”) which provides the Company with a term loan in the amount of $30.0 million (the “Term Loan”), a revolving term loan in the amount of up to $40.0 million (the “Revolving Term Loan”) and a $10 million revolving line of credit (the "Revolving Credit Loan"). The FCSA Credit Facility is secured by a security interest on all of the Company’s assets.

 

The Term Loan provides for semi-annual payments by the Company to FCSA of $3.75 million beginning September 1, 2020 and a maturity date of November 15, 2024. In  February 2021, the parties amended the credit agreement to modify the Term Loan (the "Restated Term Note") to (i) only require the Company to make one principal payment of $3.75 million during 2021, which payment was made on March 1, 2021, and (ii) thereafter, require the Company to make four equal semi-annual payments of $3.75 million on each March 1 and September 1, through September 1, 2023. All remaining amounts due under the Restated Term Note are due and payable on the maturity date of November 15, 2024. As of June 30, 2022, there was an outstanding balance of $18.75 million on the Term Loan. 

 

As of June 30, 2022, there was an outstanding balance of $ 12.6 million on the Revolving Term Loan and $27.4 million available under the Revolving Term Loan. Any outstanding amounts due under the Revolving Term Loan are due and payable on the maturity date of November 15, 2024.  

 

As of June 30, 2022, there was no outstanding balance under the Revolving Credit Loan and there was $10 million available under the Revolving Credit Loan. Effective February 25, 2022, we amended the terms of the Revolving Credit Loan to extend the maturity date from March 1, 2022 to February 1, 2023. 

 

Under the FCSA Credit Facility, the interest rates utilize the Daily Simple Secured Overnight Financing Rate (SOFR) with a Daily Simple SOFR Rate Spread of 3.45% per annum.  The interest rate at June 30, 2022 applicable to each of the loans under the FSCA Credit Facility was 5.06%.

 

Effective July 18, 2022, the Company, FLCA, PCA and CoBank entered into the First Amended and Restated Credit Agreement (the "Restated Credit Agreement") which amended and restated the Company's Credit Agreement dated as of June 24, 2014, as amended by Amendment No. 1 dated as of February 11, 2015, Amendment No. 2 dated as of February 11, 2015, Amendment No. 3 dated as of January 25, 2016, Amendment No. 4 dated as of November 14, 2019, Amendment No. 5 dated as of February 26, 2021, Amendment No. 6 dated as of July 30, 2021, Amendment No. 7 dated as of October 29, 2021 and Amendment No 8. dated February 25, 2022 (collectively the "Original Credit Agreement"). The credit facility continues to be secured by substantially all of the Company's assets.

 

The Restated Credit Agreement amended and restated the Original Credit Agreement to incorporate all of the prior amendments to the Original Credit Agreement into the Restated Credit Agreement. The Restated Credit Agreement also made the following key modifications:

 

- The Second Amended and Restated Term Note dated February 26, 2021 (the "Existing Term Note") was replaced in its entirety by the Third Amended and Restated Term Note dated July 18, 2022 (the "Restated Term Note"). The Restated Term Note provides for a maximum principal amount of $18,750,000 and for

all borrowings thereunder to bear interest at a rate selected by the Company equal to either (a) the Daily Simple SOFR Rate plus a spread equal to 3.25% per annum, or (b) a Quoted Rate Option (a fixed rate per annum quoted to the Company by Agent to be applicable for a period determined by CoBank), the Quoted

Rate with such Quoted Rate to remain fixed for such period as is confirmed to the Company by CoBank. The Daily Simple SOFR Rate itself is calculated, in part, based upon the greater of (a) a floor of 0.00% and (b) the Secured Overnight Financing Rate, as established by the Federal Reserve Bank of New York (or a

successor establisher of such rate) from time to time ("SOFR"). All other terms of the Existing Term Note Remain in full force and effect including the maturity date of November 15, 2024.

 

11

- The First Amended and Restated Revolving Term Note dated November 8, 2019 (the "Existing Revolving Term Note") was replaced in its entirety by the Second Amended and Restated Revolving Term Note dated July 18, 2022 (the "Restated Revolving Term Note"). The Restated Revolving Term Note continues to

provide for a maximum principal amount of $40,000,000 but amended the Existing Revolving Term Note to provide for all borrowings thereunder to bear interest at a rate selected by the Company equal to or either (a) the Daily Simple SOFR Rate plus a spread equal to 3.25% per annum, or (b) a Quoted Rate Option

(the fixed rate per annum quoted to the Company by Agent to be applicable for a period determined by CoBank), the Quoted Rate with such Quoted Rate to remain fixed for such period as is confirmed to the Company by CoBank. The Daily Simple SOFR Rate itself is calculated as set forth in the paragraph above. The

full amount of the Restated Revolving Term Note continues to remain available on a revolving basis from time to time through maturity which maturity date remains November 15, 2024. All other terms of the Existing Revolving Term Note remain in full force and effect. 

 

- The Third Amended and Restated Revolving Credit Note dated February 25, 2022 (the "Existing Revolving Credit Note") was replaced in its entirety by the Fourth Amended and Restated Revolving Term Note dated July 18, 2022 (the "Restated Revolving Credit Note"). The Restated Revolving Credit Note continues

to provide for a maximum principal amount of $10,000,000 and that all borrowings thereunder bear interest at a rate equal to the Daily Simple SOFR Rate plus a spread, however, the spread was decreased from 3.45% per annum to 3.10% per annum. All other terms of the Existing Revolving Credit Note remain in full

force and effect including the maturity date of February 1, 2023. 

 

 

Government Programs

 

On April 14, 2020, the Company received $1.1 million under the Paycheck Protection Program ("PPP loan") legislation. A PPP loan may be forgiven based upon various factors, including, without limitation, the borrower's payroll cost over an eight-to-twenty-four-week period starting upon the receipt of the funds. Expenses for approved payroll costs, lease payments on agreements before February 15, 2020, and utility payments under agreements before February 1, 2020, and certain other specified costs can be paid with these funds are eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs and no more than 40% for non-payroll expenses. PPP loan proceeds used by a borrower for the approved expense categories will generally be fully forgiven by the lender if the borrower satisfies certain employee headcount and compensation requirements. The Company applied for forgiveness on the PPP loan from the Small Business Administration ("SBA") and was notified on December 24, 2021 that the loan had been forgiven in full.  As the Company was legally released as the primary obligor, the Company recorded a gain on debt extinguishment, included as interest and other (income) expense, net for approximately $1.1 million.

 

On January 28, 2021, the Company received an additional $1.1 million under Phase II of the PPP legislation. As in the original PPP loan, expenses for approved payroll costs, lease payments on agreements and utility payments under agreements and certain other specified costs can be paid with these funds are eligible for payment forgiveness by the federal government. At least 60% of the proceeds must be used for approved payroll costs and no more than 40% for non-payroll expenses. PPP loan proceeds used by a borrower for the approved expense categories will generally be fully forgiven by the lender if the borrower satisfies certain employee headcount and compensation requirements. The Company applied for forgiveness on the PPP loan from the SBA and was notified on December 24, 2021 that the loan had been forgiven in full. As the Company was legally released as the primary obligor, the Company recorded a gain on debt extinguishment, included as interest and other (income) expense, net for approximately $1.1 million.

 

           On May 23, 2022, the Company received $3.1 million from the USDA's Biofuel Producer Program. This amount was deemed "other income" to the Company and there are no additional requirements the Company must fulfill to keep the funds. 

 

12

 

Notes payable

 

Notes payable consists of the following:

 

  

June 30, 2022

  

September 30, 2021

 
  

(000's)

  

(000's)

 

Term Loan bearing interest at SOFR plus 3.45% (5.06% at June 30, 2022)

 $18,750  $22,500 

Revolving Term Loan bearing interest at SOFR plus 3.45% (5.06% at June 30, 2022)

  12,596   34,999 

Note payable, PPP Loan bearing interest at 1.00% maturing April 28, 2022

     1,063 

Note payable, PPP Loan bearing interest at 1.00% maturing January 4, 2026

     1,114 

Other with interest rates from 3.50% to 4.15% and maturities through 2027

  694   2,157 
   32,040   61,833 

Less Current Maturities

  7,608   10,019 

Less Financing Costs, net of amortization

  104   137 

Total Long Term Debt

 $24,328  $51,677 

 

The Company had the following approximate aggregate maturities of notes payable for the twelve month period ended  June 30, 2022

 

2023

 $7,608 
     

2024

  7,716 
     

2025

  16,462 
     

2026

  120 
     

2027

  124 
     

2028 and thereafter

  10 
     

Total

 $32,040 

 

 

 

Note 5:  Fair Value Measurement

 

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  In determining fair value, the Company used various methods including market, income and cost approaches.  Based on these approaches, the Company often utilized certain assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and/or the risks inherent in the inputs to the valuation technique.  These inputs can be readily observable, market corroborated, or generally unobservable inputs.  The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs.  Based on the observable inputs used in the valuation techniques, the Company is required to provide the following information according to the fair value hierarchy.

 

The fair value hierarchy ranks the quality and reliability of the information used to determine fair values.  Financial assets and liabilities carried at fair value will be classified and disclosed in one of the following three categories:

 

 Level 1 -Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.
   
 Level 2 -Valuations for assets and liabilities traded in less active dealer or broker markets.  Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.
   
 Level 3 -Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

 

A description of the valuation methodologies used for instruments measured at fair value, including the general classifications of such instruments pursuant to the valuation hierarchy, is set below.

 

13

 

Derivative financial instruments.  Commodity futures and exchange traded options 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 Chicago Mercantile Exchange (“CME”) market.  Ethanol contracts are reported at fair value utilizing Level 2 inputs from third-party pricing services.  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 values.  The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based on the CME market.

 

The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of June 30, 2022, and September 30, 2021, categorized by the level of the valuation inputs within the fair value hierarchy (in '000s):

 

  

June 30, 2022

 
  

Level 1

  

Level 2

  

Level 3

 

Assets:

            

Derivative financial instruments

 $3,662  $  $ 
             

Liabilities:

            

Derivative financial instruments

  1,819   504    

 

  

September 30, 2021

 
  

Level 1

  

Level 2

  

Level 3

 

Assets:

            

Derivative financial instruments

 $196  $734  $ 
             

Liabilities:

            

Derivative financial instruments

  1,386       

 

 

 

Note 6: Major Customer

 

The Company is party to the Restated Ethanol Agreement with Bunge for the exclusive marketing, selling, and distributing of all the ethanol produced by the Company through December 31, 2026. Revenues from Bunge were $54.8 million and $67.6 million for the three months ended June 30, 2022, and 2021, respectively. Revenues from Bunge were $202.7 million and $159.6 million for the nine months ended June 30, 2022 and 2021, respectively. The revenue is for ethanol only. Under the original Ethanol Agreement between the Company and Bunge, the Company sold Bunge all of the ethanol produced by the Company and the Company paid Bunge a percentage fee for ethanol sold by Bunge, subject to a minimum and maximum annual fee. As part of the Bunge Repurchase Agreement, the parties entered into a restated Ethanol Agreement effective January 1, 2020 (the "Restated Ethanol Agreement"), which provides that the Company will pay Bunge a flat monthly marketing fee. The term of the Restated Ethanol Agreement expires on December 31, 2026.  The Company paid Bunge ethanol marketing fees of $0.4 million for the three month periods ended  June 30, 2022  and June 30, 2021, respectively, and $1.1 million for the nine month periods ended  June 30, 2022 and June 30, 2021, respectively.

 

 

Note 7: Lease Obligations

 

The Company follows ASU 2016-12, Leases (Topic 842) to account for all lease obligations. The Company elected the option to apply the transition provisions at the adoption date instead of the earliest comparative period presented in the financial statements. The Company elected the short-term lease exception provided for in the standard and therefore only recognized right-of-use assets and lease liabilities for leases with a term greater than one year. The Company elected the package of practical expedients to not re-evaluate existing contracts as containing a lease or the lease classification unless it was not previously assessed against the lease criteria. In addition, the Company did not reassess initial direct costs for any existing leases.

 

A lease exists when a contract conveys to a party the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The Company recognized a lease liability at the lease commencement date, as the present value of future lease payments, using an estimated rate of interest that the Company would pay to borrow equivalent funds on a collateralized basis. A lease asset is recognized based on the lease liability value and adjusted for any prepaid lease payments, initial direct costs, or lease incentive amounts. The lease term at the commencement date includes any renewal options or termination options when it is reasonably certain that the Company will exercise or not exercise those options, respectively.

 

The Company leases rail cars and rail moving equipment with original terms up to 3 years for hopper cars and 4 years for tanker cars from Bunge and Trinity Leasing. An additional 60 cars are leased from a third party under two separate leases for 3 years for half of the cars and 4 years for the second half of the cars. The Company is obligated to pay costs of insurance, taxes, repairs and maintenance pursuant to the terms of the leases. These costs are in addition to regular lease payments and are not included in lease expense. The Company subleased 30 tanker cars and 44 hopper cars to two unrelated third parties, which subleases expired November 8, 2020, and December 31, 2020 and upon expiration, the leases converted to a month-to-month basis. As of  June 30, 2022, all subleases for hopper cars had been terminated and the hopper cars returned to Bunge and all subleases for tanker cars had been terminated and the tanker cars returned to the Company and are currently in use by the Company.  Expense incurred for the operating leases during the three months ended June 30, 2022 and 2021 was $0.8 million and $0.7 million, respectively, and $2.73 million and $2.3 million for the nine months ended  June 30, 2022 and June 30, 2021, respectively. Bunge has requested the return of all leased hopper cars by September 1, 2022, therefore the Company has entered into leases with third parties for other hopper cars which leases will become effective September 1, 2022.  The total lease agreements currently in effect have maturity dates ranging from August 1, 2022 to August 2027. The average remaining life of the lease term for these leases was 1.7 years as of June 30, 2022.

 

14

 

The discount rate used in determining the lease liability for each individual lease was the Company's estimated incremental borrowing rate of 5.06%. The right-of-use asset operating lease, included in other assets, and operating lease liability, included in current and long-term liabilities was $3.9 million as of June 30, 2022.

 

The Company had the following approximate minimum rental commitments under non-cancellable operating leases for the twelve-month period ended June 30, 2022:

 

2023

 $2,627 

2024

  407 

2025

  401 

2026

  380 

2027 and after

  393 

Total

 $4,208 
     

Undiscounted future payments

 $4,208 

Discount effect

  (276)
  $3,932 

 

15

 
 

Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operation.

 

General

 

The following management discussion and analysis provides information which management believes is relevant to an assessment and understanding of our financial condition and results of operations. This discussion should be read in conjunction with the financial statements included herewith and notes to the financial statements and our Annual Report on Form 10-K for the year ended September 30, 2021 ("Fiscal 2021"), including the financial statements, accompanying notes and the risk factors contained herein.

 

 

CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS

 

This quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC (the "Company," "SIRE," "we," or "us") contains historical information, as well as forward-looking statements that involve known and unknown risks and relate to future events, our future financial performance, or our expected future operations and actions.  In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “future,” “intend,” “could,” “hope,”  “predict,” “target,” “potential,” or “continue” or the negative of these terms or other similar expressions.  These forward-looking statements are only our predictions based on current information and involve numerous assumptions, risks and uncertainties.  Our actual results or actions may differ materially from these forward-looking statements for many reasons, including the reasons described in this report.  While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include, without limitation:

 

 

Changes in the availability and price of corn, natural gas, and steam;

 

Negative impacts resulting from reductions in, or other modifications to, the renewable fuel volume requirements under the Renewable Fuel Standard;

 

Our inability to comply with our credit agreements required to continue our operations;

 

Negative impacts that our hedging activities may have on our operations;

 

Decreases in the market prices of ethanol, distillers grains;

 

Ethanol supply exceeding demand and corresponding ethanol price reductions;

 

Changes in the environmental regulations that apply to our plant operations;

 

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;

 

Changes in other federal or state laws and regulations relating to the production and use of ethanol;

 

Changes and advances in ethanol production technology;

 

Competition from larger producers as well as competition from alternative fuel additives;

 

Changes in interest rates and lending conditions of our loan covenants;

 

Volatile commodity and financial markets;

 

Decreases in export demand due to the imposition of duties and tariffs by foreign governments on ethanol and distiller grains produced in the United States;

 

Disruptions, failures or security breaches relating to our information technology infrastructure;

 

Trade actions by the Biden Administration, particularly those affecting the biofuels and agricultural sectors and related industries; and

 

Disruption caused by health epidemics, such as the ongoing COVID-19 pandemic, and the adverse impact of such epidemics on global economic and business conditions.

 

These forward-looking statements are based on management’s estimates, projections and assumptions as of the date hereof and include various assumptions that underlie such statements.  Any expectations based on these forward-looking statements are subject to risks and uncertainties and other important factors, including those discussed in the management discussion and analysis, in our Annual Report on Form 10-K for Fiscal 2021 under the section entitled “Risk Factors” and in our other prior Securities and Exchange Commission filings. These and many other factors could affect our future financial condition and operating results and could cause actual results to differ materially from expectations set forth in the forward-looking statements made in this document or elsewhere by Company or on its behalf.  We undertake no obligation to revise or update any forward-looking statements.  The forward-looking statements contained in this quarterly report on Form 10-Q are included in the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act").

 

16

 

General Overview and Recent Developments

 

The Company is an Iowa limited liability company, located in Council Bluffs, Iowa, formed in March 2005. The Company is permitted to produce 140 million gallons of ethanol annually.  We began producing ethanol in February 2009 and sell our ethanol, distillers grains, distillers corn oil, corn condensed distillers solubles ("syrup") and carbon dioxide, in the continental United States, Mexico, and the Pacific Rim.

 

On November 26, 2019, the Environmental Protection Agency (the "EPA") approved the Company's petition as an "Efficient Producer" to increase the D-6 RINs generated by our facility to 147 million gallons of ethanol produced annually, provided the non-grandfathered ethanol produced satisfies the 20% lifecycle GHG, or greenhouse gas impacts reduction requirements specified in the Clean Air Act for renewable fuel. The Company must comply with all registration provisions in order to register for the production of non-grandfathered ethanol, and the registration application must be accepted by the EPA before the facility is eligible to generate RIN's for non-grandfathered ethanol produced. The Company completed the registration process before the end of the second quarter in the fiscal year ending September 30, 2022 ("Fiscal 2022").

 

On February 10, 2022, our Board of Directors declared a distribution of $1,250 per unit to its members. The distribution was paid on February 17, 2022 to members of record on February 10, 2022. With 8,975 shares outstanding at the time of the distribution declaration, the total cash paid for the distribution was $11.2 million. 

 

On May 23, 2022, the Company received $3.1 million from the USDA's Biofuel Producer Program. This amount was deemed "other income" to the Company and there are no additional requirements the Company must fulfill to keep the funds. 

 

Ongoing Impact of the COVID-19 Pandemic on our Business

 

At present, municipalities, regulators, and other government actors continue to deal with the COVID-19 pandemic and its effects. The situation surrounding COVID-19 continues to evolve rapidly and the ultimate duration and impact of the pandemic, including the spread of variants, remains highly uncertain and subject to change. We continue to monitor the impact of COVID-19 on our business, including how it will impact our employees, customers, vendors and business partners.

 

Although we continue to regularly monitor the financial health of companies in our supply chain, financial hardship on our suppliers or sub-suppliers caused by the COVID-19 pandemic could cause a disruption in our ability to obtain raw materials or components required to produce our products, adversely affecting our operations. Additionally, restrictions or disruptions of transportation, such as reduced availability of truck, rail or air transport, port closures and increased border controls or closures, may result in higher costs and delays, both on obtaining raw materials and shipping finished products to customers, which could harm our profitability, make our products less competitive, or cause our customers to seek alternative suppliers.

 

On April 14, 2020 and January 28, 2021, the Company received two $1.1 million loans under the PPP Loan legislation. These PPP loans were eligible for forgiveness based upon various factors, including, without limitation, our payroll cost over an eight-to-twenty-four-week period starting upon the receipt of the funds. As discussed in greater detail in Note 4 to our financial statements included herein, the Company applied for forgiveness of the PPP loans from the SBA and was notified on December 24, 2021 that the loans had been forgiven in full. Due to the PPP loans being forgiven in the first three months of Fiscal 2022, we recognized one-time income of $2.2 million, during the nine months ended June 30, 2022.

.

Market Factors Impacting Operations

 

For the nine months ended June 30, 2022  compared to the nine months ended June 30, 2021, the average price per gallon of ethanol sold increased by 50.6% due to reduced stocks and increasing demand. There have also been increased prices for crude oil and gasoline in the first nine months of Fiscal 2022 compared to the first nine months of 2021 due to reduced supply world-wide, and an increase in driving compared to the beginning of Fiscal 2021 when there were lockdown orders and restrictions on travel imposed by many authorities in response to the COVID pandemic.

 

Corn prices increased 20.7% when comparing the first nine months of Fiscal 2022 to the first nine months of Fiscal 2021 which is a continuation of the high price of corn we experienced during the latter half of Fiscal 2021. Weather, world supply and demand, current and anticipated stocks, agricultural policy and other factors can contribute to volatility in corn prices. Such changes have a material effect on our cost of goods sold with corn being one of our primary inputs.

 

Management anticipates that ethanol prices will continue to change in relation to changes in corn and energy prices. If corn, crude oil and gasoline prices remain high or further increase, that could have a significant impact on the market price of ethanol and our net income, particularly should ethanol stocks remain low.

 

During Fiscal 2021, the Company faced significant challenges with respect to transportation and logistics. Like many companies, the ongoing impacts of the COVID-19 pandemic on coastal ports, the trucking industry and more recently, rail transportation, had a material effect on our ability to timely, economically, and consistently ship products both domestically and abroad.  Management continues to explore various options to mitigate these challenges, but expects them to continue to be a factor through Fiscal 2022. Management does not know when these logistics challenges will dissipate.

 

The average market price per ton of distillers grains sold in the first nine months of Fiscal 2022 increased by 26% compared to the average price per ton of distillers grains sold for the same period in Fiscal 2021. This increase in the market price of distillers grains is primarily due to higher corn and soybean meal prices which resulted in end users seeking out distillers grains as the lower cost alternative. Management anticipates that distillers grains prices will continue to be affected by the price of corn and soybean meal. An increase in supply as certain ethanol plants return to higher production levels as operating conditions improve could have a negative effect on distillers grains prices.

 

17

 

Key Operating Measures

 

The following table provides comparative data relating to certain operating measures during the three and nine months ended June 30, 2022, and June 30, 2021.

 

Description

 

Three Months Ended June 30, 2022

   

Three Months Ended June 30, 2021

   

Nine Months Ended June 30, 2022

   

Nine Months Ended June 30, 2021

 

Production (Den gal) (in millions)

    26.09       32.09       91.89       96.78  

Ethanol Yield (den gal/bu)

    2.96       2.95       2.96       2.94  

Ethanol Price (per gal)

  $ 2.57     $ 2.06     $ 2.47     $ 1.64  

Corn Price (per bu)

  $ 7.39     $ 5.88     $ 6.12     $ 5.07  

Corn Oil Yield (lbs/bu)

    1.12       0.96       1.10       0.93  

BTU's/gallon

    21,716       21,637       21,788       22,697  

Steam/Nat Gas cost per MMBTU

  $ 3.56     $ 3.22     $ 3.81     $ 3.24  

kWh/gallon

    0.75       0.64       0.68       0.63  

Chemical Cost ($/gal)

  $ 0.16     $ 0.09     $ 0.13     $ 0.09  

 

As the table above indicates, during the three and nine months ended June 30, 2022 our performance against the operating measures improved in some categories, but was met with challenges in other categories. The price per gallon of ethanol increased significantly over the same period last year due to supply shortages and increased demand for both gasoline and ethanol. The yield we obtained for both ethanol and distillers corn oil increased in the first nine months of Fiscal 2022, with distillers corn oil having a significant increase and impact on revenue. We continue to focus on operating the plant more efficiently, and that can be seen in our continued reduction of BTU's per gallon in the year-to-date total. The three months ended June 30, 2022 BTU amount was impacted by the annual plant shutdown which decreased the amount of ethanol gallons produced. Inflation has impacted various components during the first nine months of Fiscal 2022, notably in the cost of chemicals. These changes directly increase our cost of goods sold, and we do not expect them to decrease in the near future. 

 

The impact of inflation on chemical costs, the price of labor and other durable goods, indicate that maintaining the achievement generated in Fiscal 2021 will prove to be a significant challenge. Our management team continues to explore opportunities to reduce costs and more efficient and effective means of operating the Company.

 

Cost Per Gallon

 

YTD 2022

   

FY 2021

   

FY 2020

   

FY 2019

 

Variable

    0.270       0.217       0.207       0.244  

Fixed

    0.160       0.107       0.129       0.121  

G&A

    0.060       0.044       0.043       0.038  

Total

    0.490       0.368       0.379       0.403  

 

Our management team also continues to evaluate opportunities to add value to our production process by diversifying into high protein feed along with measures to reduce the carbon index ("CI") of the ethanol we produce. We believe that consolidation and innovation within the ethanol industry, coupled with our location, good operating efficiencies and our solid team may provide new opportunities for our plant.

 

18

 

Regulatory Developments

 

Renewable Fuel Standard

 

The ethanol industry receives support through the Federal Renewable Fuels Standard (the "RFS") which has been, and continues to be, a driving factor in the growth of ethanol usage. The RFS requires that each year a certain amount of renewable fuels must be used in the United States. The RFS is a national program that allows refiners to use renewable fuel blends in those areas of the country where it is most cost-effective. The EPA is responsible for revising and implementing regulations to ensure that transportation fuel sold in the United States contains a minimum volume of renewable fuel. The RFS statutory volume requirement increases incrementally each year until the United States is statutorily required to use 36 billion gallons of renewable fuels by calendar year 2022. The EPA has the authority, however, to waive the RFS statutory volume requirements, in whole or in part, provided that there is either inadequate domestic renewable fuel supply or the implementation of the requirement would severely harm the economy or environment of a state, region or the United States. 

 

Annually, the EPA is required by statute to pass a rule that establishes the number of gallons of different types of renewable fuels that must be used in the United States which is called the renewable volume obligation. For 2020, 2021, and 2022 the statutory volume requirements for renewable fuels were 30 billion gallons, 33 billion gallons, and 36 billion gallons, respectively. On June 3, 2022, the EPA released the final rules for the renewable volume obligations ("RVOs") for 2020, 2021 and 2022 and set the RVOs at 17.13 billion gallons for 2020, 18.84 billion gallons for 2021 and 20.63 billion gallons for 2022. An additional 250 million supplemental gallons were added to the RVOs for 2022 in order to address the court-ordered remand of previously lowered RVOs for 2014-2016. 

 

 Federal regulations supporting the use of renewable fuels like the RFS are a significant driver of ethanol demand in the U.S. Under the RFS, the EPA assigns individual refiners, blenders, and importers the volume of renewable fuels they are obligated to use based on their percentage of total domestic transportation fuel sales. The mechanism that provides accountability in RFS compliance is the Renewable Identification Number ("RIN"). RINs are a tradeable commodity given that if refiners (obligated parties) need additional RINs to be compliant, they have to purchase them from those that have excess. Thus, there is an economic incentive to use renewable fuels like ethanol, or in the alternative, buy RINs. Obligated parties use RINs to show compliance with RFS-regulated volumes. RINs are attached to renewable fuels by ethanol producers and detached when the renewable fuel is blended with transportation fuel or traded in the open market. The market price of detached RINs affects the price of ethanol in certain markets and influences the purchasing decisions by obligated parties.

 

Although renewable volume obligations establish the number of gallons of renewable fuel that must be blended into the nation’s fuel supply, these obligations do not take into account waivers granted by the EPA to small refiners for "hardship."  The EPA can, in consultation with the Department of Energy, waive the obligation for individual smaller refineries that are suffering “disproportionate economic hardship” due to compliance with the RFS. To qualify for this “small refinery waiver,” the refineries must be under total throughput of 75,000 barrels per day and state their case for an exemption in an application to the EPA each year. On June 3, 2022, the EPA announced the denial of 69 petitions from small refineries seeking small refinery exemptions (SREs) from the RFS program for one or more of the compliance years between 2016 and 2021. Having a final conclusion to this issue that has been ongoing for many years will help provide more stability within the RIN's market. 

 

19

 

State Initiatives

 

In 2006, Iowa passed legislation promoting the use of renewable fuels in Iowa.  One of the most significant provisions of the Iowa renewable fuels legislation was a renewable fuels targeted set of tax credits encouraging an escalating percentage of the gasoline sold in Iowa to consist of, be blended with, or be replaced by, renewable fuels. To receive the tax credit, retailers of gasoline are required to reach escalating annual targets of the percentage of their gasoline sales that consist of, are blended with, or are replaced by, renewable fuels. This renewable fuel tax credit originally required 10% of the gasoline that retailers sold to fall within the renewable fuels definitions to receive the credit and has increased incrementally to 25% as of January 1, 2020. This tax credit automatically repealed itself on January 1, 2021 for tax years beginning on or after that date. 

 

Industry Factors Affecting our Results of Operations

 

Ethanol prices increased 50.6% during the nine months ended June 30, 2022, as compared to the same period in the previous fiscal year. This increase was partially offset by a decrease of 17.1% in ethanol shipments during the nine months ended June 30, 2022, as compared to the prior year. The reduction in shipments was due to our increased shipments of undenatured ethanol. Management believes the volume of undenatured ethanol sales will continue at similar rates in the future. 

 

The latest outlook of supply and demand provided by the United States Department of Agriculture (the "USDA") estimate for United States 2021/22 corn production is 15.115 billion bushels. The yield projection is 177 bushels per acre. Both were unchanged from the previous report. The projection for the 2022/23 crop year is 14.46 billion bushels and a 177 yield projection. The USDA did increase the corn used for ethanol for the 2021/2022 crop year to 5.375 billion bushels. Their previous estimate was 5.35 billion bushels. For the 2022/23 crop year, the estimated usage for ethanol is 5.375 billion bushels. The USDA increased their corn price estimates for fiscal 2022 to $5.95 per bushel, up from the previous estimate of $5.80. For the 2022/23 crop year, the USDA is anticipating the average corn price to be $6.75. The USDA estimated in their July World Agricultural Supply and Demand Estimates (WASDE) report that in 2021/22 there were 93.4 million acres of corn planted which is up slightly from their original projection of 90.7 million acres, but is unchanged from their April report. The USDA is estimating for 2022/23 there will be 89.5 million corn acres planted. Export projections have decreased from 2.5 million bushels to 2.45 million bushels for the 2021/22 crop year and is estimated to be 2.4 million bushels for the 2022/23 crop year. 

 

The US Energy Information Administration ("EIA") released its Short-Term Energy Outlook report in July 2022 and indicated that US ethanol production increased in 2021 from 2020, but still remained lower than 2019. Ethanol production was 8% higher in 2021 compared to 2020. The EIA estimates an increase of 4% over 2021 levels in 2022 and 2% in 2023. Ethanol consumption increased 10% in 2021 compared to 2020, and the EIA anticipates ethanol consumption will rise 1% in 2022 and 1.4% in 2023 compared to 2021. 

 

We currently believe that our margins will decrease to more normal levels after reaching historic highs during the first three months of Fiscal 2022.  As discussed in greater depth above, in December, 2021, the EPA issued a long-awaited biofuel blending proposal that cut the RVOs for 2020 and 2021, but restored 2022's RVO, allowing it to be satisfied with up to 15 billion gallons of ethanol and an additional 5.77 billion gallons of other advanced biofuels. In January 2022, rumors circulated in the market that this 15 billion gallon number for 2022 may be rolled back in the final rule. This market speculation reduced RIN prices after the rebound RIN prices experienced in response to the December EPA announcement. Uncertainty with biofuel regulations will continue to cause fluctuations in our margins. Lower supply and challenges with transportation and logistics resulting from the long-term impact of the COVID pandemic will also have a direct impact on our margins as we continue to face challenges with delays in shipment of our products to both domestic and international markets. 

 

Our distiller grain margins have been impacted positively in the short term due to the current high corn prices which has resulted in increased demand for our dried distiller grains ("DDG") and wet distiller grains ("WDG"). We experienced a price increase of 26% for the nine months ended June 30, 2022, as compared to the nine months ended June 30, 2021 on a 1.2% decrease in tons sold for those same periods. In 2019, the U.S. implemented tariffs on a cross section of Chinese products, and China did not order products from the U.S., including DDG. In January 2020, the U.S. and China signed a "Phase One Agreement" where the U.S. lowered tariffs in exchange for China reinstating orders for U.S. products, including agriculture products. We cannot forecast how much demand from China will come back into the marketplace, or if additional demand can be created from other foreign markets or domestically. In 2020, China re-entered the DDG import market, but did not reach the levels necessary to be included in the top 10 countries of DDG imports.

 

On December 18, 2019, Congress extended the biodiesel tax credit through 2022 with retroactive application to January 1, 2018. The extension of the tax credit has increased demand for distillers corn oil, which is a feedstock for renewable diesel, and could continue to have a positive impact on distillers corn oil prices for the remainder of Fiscal 2022

 

On July 27, 2022 the Inflation Reduction Act of 2022 (the "IRA") was introduced in the U.S. Senate. Although we are still evaluating the IRA, if enacted as proposed, it could have several potential impacts on our business operations. The proposed legislation includes tax incentives that support biofuel production and infrastructure as well as an extension of the biodiesel tax credit which could result in continued positive impact on the value of our distillers corn oil. 

 

20

 

Results of Operations

 

The following table shows our results of operations, stated as a percentage of revenue for the three months ended June 30, 2022, and 2021.

 

   

Three Months Ended June 30, 2022

   

Three Months Ended June 30, 2021

 
   

Amounts

   

% of Revenues

   

Amounts

   

% of Revenues

 
   

in 000's

           

in 000's

         

Income Statement Data

                               

Revenues

  $ 87,530       100.0 %   $ 87,869       100.0 %

Cost of Goods Sold

                               

Material Costs

    61,738       70.5 %     65,268       74.3 %

Variable Production Expense

    8,985       10.3 %     6,592       7.5 %

Fixed Production Expense

    7,178       8.2 %     7,441       8.5 %

Gross Margin

    9,629       11.00 %     8,568       9.8 %

General and Administrative Expenses

    1,765       2.02 %     1,305       1.5 %

Interest and other (income) expense, net

    (2,648 )     (3.03 )%     509       0.6 %

Net Income (Loss)

  $ 10,512       12.01 %   $ 6,754       7.7 %

 

The following table shows our results of operations, stated as a percentage of revenue for the nine months ended June 30, 2022, and 2021.

 

   

Nine Months Ended June 30, 2022

   

Nine Months Ended June 30, 2021

 
   

Amounts

   

% of Revenues

   

Amounts

   

% of Revenues

 
   

in 000's

           

in 000's

         

Income Statement Data

                               

Revenues

  $ 285,132       100 %     213,280       100.0 %

Cost of Goods Sold

                               

Material Costs

    201,825       70.8 %     164,699       77.2 %

Variable Production Expense

    16,087       5.6 %     19,958       9.4 %

Fixed Production Expense

    13,516       4.7 %     19,462       9.1 %

Gross Margin

    53,704       18.8 %     9,161       4.3 %

General and Administrative Expenses

    5,206       1.8 %     3,940       1.8 %

Interest and other (income) expense, net

    (4,504 )     (1.6 )%     502       0.2 %

Net Income (Loss)

  $ 53,002       18.6 %   $ 4,719       2.2 %

 

Revenues

 

Our revenue from operations is derived from three primary sources: sales of ethanol, distillers grains, and distillers corn oil.  The chart below displays statistical information regarding our revenues. During the three months ended June 30, 2022, the average price per gallon of ethanol increased by 24.8% as compared to the same period in 2021, offset by a 35.9% decrease in gallons of ethanol sold, primarily due an extended annual shutdown timeframe. The net effect was a 5.6% decrease in ethanol revenue for the three months ended June 30, 2022

 

An increase in the average price per ton of distillers grains of approximately 22% which was partially offset by a 5% decrease in volume sold resulted in an increase of 2.8% in revenue for this category in the three months ended June 30, 2022 as compared to the same three month period in Fiscal 2021.

 

Distillers corn oil revenue increased 56.1% in the three months ended June 30, 2022, compared to the three months ended June 30, 2021 with a 57.5% increase in price, offset by a lower volume of 0.3%. Distillers corn oil prices increased principally as a result of increased biodiesel production. Our market for distillers corn oil is primarily local middlemen that compete for our available supply.

 

21

 

   

Three Months Ended June 30, 2022

   

Three Months Ended June 30, 2021

 
   

Amounts in 000's

   

% of Revenues

   

Amounts in 000's

   

% of Revenues

 

Product Revenue Information

                               

Denatured and Undenatured Ethanol

  $ 63,858       73 %   $ 67,645       77.0 %

Distillers Grains

    15,031       17.2 %     14,615       16.6 %

Distillers Corn Oil

    8,284       9.5 %     5,307       6.0 %

Other

    357       0.4 %     302       0.3 %

 

   

Nine Months Ended June 30, 2022

   

Nine Months Ended June 30, 2021

 
   

Amounts in 000's

   

% of Revenues

   

Amounts in 000's

   

% of Revenues

 

Product Revenue Information

                               

Denatured and Undenatured Ethanol

  $ 212,977       74.7 %   $ 159,507       74.8 %

Distillers Grains

    47,030       16.5 %     40,452       19.0 %

Distillers Corn Oil

    23,698       8.3 %     12,431       5.8 %

Other

    1,427       0.5 %     890       0.4 %

 

Cost of Goods Sold

 

Our cost of goods sold as a percentage of our revenues was 89.0% and 90.2% for the three months ended June 30, 2022, and 2021, respectively.  Our two primary costs of producing ethanol and distillers grains are corn and energy, with steam and natural gas as our primary energy sources.   Cost of goods sold also includes net (gains) or losses from derivatives and hedging relating to corn.   The average price of corn used in ethanol production per bushel increased 25.7% in the three months ended June 30, 2022, compared to the three months ended June 30, 2021. Due to operational challenges, the volume of ethanol produced decreased by 18.7% for the three months ended June 30, 2022, as compared to the same period in Fiscal 2021

 

Realized and unrealized gains (losses) related to our derivatives and hedging related to corn resulted in a $1.05 million increase to our cost of goods sold for the three months ended June 30, 2022, compared to a decrease of 0.8 million for the three months ended June 30, 2021. We recognize the gains or losses that result from the changes in the value of our derivative instruments related to corn in cost of goods sold as the changes occur.  As corn prices fluctuate, the value of our derivative instruments is impacted, which affects our financial performance.  We anticipate continued volatility in our cost of goods sold due to the timing of the changes in value of the derivative instruments relative to the cost and use of the commodity being hedged.

 

Variable production expenses increased 36.3% when comparing the three months ended June 30, 2022, to the three months ended June 30, 2021due to an increase in the cost of chemicals and utilities. 

 

Fixed production expenses decreased 3.5% for the three months ended June 30, 2022, compared to the three months ended June 30, 2021,due to a decrease in our rail car maintenance expense year over year and ability to capitalize plant maintenance expenses incurred during the third quarter of Fiscal 2022 based on the nature of the repairs. 

 

General and administrative expenses include salaries and benefits of administrative employees, professional fees and other general administrative costs.  Our general and administrative expenses for the three months ended June 30, 2022, increased 35.2% compared to the three months ended June 30, 2021,primarily due to increased payroll expenses, insurance expenses and legal and accounting fees associated with being registered with the Securities and Exchange Commission. 

 

Interest and Other (Income) Expense, Net

 

Our interest and other (income) expenses, net, were $ (2.6)  million for three months ended June 30, 2022, and $509 thousand for the three months ended June 30, 2021. The difference was the receipt of the USDA Biofuels Producer grant received in May of 2022.    

 

22

 

 

Selected Financial Data

 

Modified EBITDA is defined as net income plus interest expense net of interest income, plus depreciation and amortization, or EBITDA, as adjusted for unrealized hedging (gains) losses.  Modified EBITDA is not required by or presented in accordance with generally accepted accounting principles in the United States of America ("GAAP") and should not be considered as an alternative to net income, operating income or any other performance measure derived in accordance with GAAP, or as an alternative to cash flow from operating activities or as a measure of our liquidity.

 

We present modified EBITDA because we consider it to be an important supplemental measure of our operating performance and it is considered by our management and Board of Directors as an important operating metric in their assessment of our performance.

 

We believe modified EBITDA allows us to better compare our current operating results with corresponding historical periods and with the operational performance of other companies in our industry because it does not give effect to potential differences caused by variations in capital structures (affecting relative interest expense, including the impact of write-offs of deferred financing costs when companies refinance their indebtedness), the amortization of intangibles (affecting relative amortization expense), unrealized hedging (gains) losses and other items that are unrelated to underlying operating performance.  We also present modified EBITDA because we believe it is frequently used by securities analysts and investors as a measure of performance.   There are a number of material limitations to the use of modified EBITDA as an analytical tool, including the following:

 

 

Modified EBITDA does not reflect our interest expense or the cash requirements to pay our principal and interest.  Because we have borrowed money to finance our operations, interest expense is a necessary element of our costs and our ability to generate profits and cash flows.  Therefore, any measure that excludes interest expense may have limitations.

 

 

 

Although depreciation and amortization are non-cash expenses in the period recorded, the assets being depreciated and amortized may have to be replaced in the future, and modified EBITDA does not reflect the cash requirements for such replacement.   Because we use capital assets, depreciation and amortization expense is a necessary element of our costs and ability to generate profits.  Therefore, any measure that excludes depreciation and amortization expense may have limitations.

 

We compensate for these limitations by relying heavily on our GAAP financial measures and by using modified EBITDA as supplemental information.  We believe that consideration of modified EBITDA, together with a careful review of our GAAP financial measures, is the most informed method of analyzing our operations.  Because modified EBITDA is not a measurement determined in accordance with GAAP and is susceptible to varying calculations, modified EBITDA, as presented, may not be comparable to other similarly titled measures of other companies.  The following table provides a reconciliation of modified EBITDA to net income (in thousands except per unit data):

 

   

Three Months Ended

   

Three Months Ended

   

Nine Months Ended

   

Nine Months Ended

 
   

June 30, 2022

   

June 30, 2021

   

June 30, 2022

   

June 30, 2021

 
                                 

EBITDA

                               

Net Income (Loss)

  $ 10,512     $ 6,754     $ 53,002     $ 4,719  

Interest Expense

    415       524       1,194       1,522  

Depreciation

    2,842       2,764       8,521       8,290  

EBITDA

    13,769       10,042       62,717       14,531  
                                 

Unrealized Hedging (Gain) Loss

    2,826       (1,578 )     (1,754 )     (1,302 )
                                 

Modified EBITDA

  $ 16,595     $ 8,464     $ 60,963     $ 13,229  

 

23

 

Liquidity and Capital Resources

 

The Company has certain loan agreements with Farm Credit Services of America, FLCA, ("FLCA"), Farm Credit Services of America, PCA ("PCA") and CoBank, ACB ("CoBank") (collectively, the "FCSA Credit Facility"), which provide the Company with a term loan in the amount of $30 million (the "Term Loan"), a revolving term loan in the amount of $40 million (the "Revolving Term Loan") and a $10 million revolving line of credit (the "Revolving Credit Loan"). The FCSA Credit Facility is secured by a security interest on all of the Company's assets. 

 

The Term Loan provides for semi-annual payments by the Company to FCSA of $3.75 million, on March 1 and September 1, beginning September 1, 2020. The Term Loan was amended in February 2021 to only require a single principal payment of $3.75 during 2021. All remaining amounts due under the Term Note are due and payable on the maturity date of November 15, 2024. As of June 30, 2022, there was an outstanding balance of $18.75 million on the Term Loan. 

 

As of June 30, 2022, there was an outstanding balance of $12.6 million on the Revolving Term Loan. Any outstanding amounts due under the Revolving Term Loan are due and payable on the maturity date of November 15, 2024.

 

As of June 30, 2022, there was no outstanding balance under the Revolving Credit Loan. Effective February 25, 2022, we amended the terms of the Revolving Credit Loan to extend the maturity date from March 1, 2022 to February 1, 2023. 

 

           Under the FCSA Credit Facility, the interest rates utilize the Daily Simple SOFR Rate with a Daily Simple SOFR Rate Spread of 3.45% per annum.  The interest rate at June 30, 2022 applicable to each of the loans under the FSCA Credit Facility was 5.06%.

 

As of June 30, 2022, we had a cash balance of $0.01 million, $27.4 million available under the Revolving Term Loan and $10 million available under the Revolving Credit Loan.

 

As stated in Note 4 to the financial statements, the loan agreements were amended as of July 18, 2022. 

 

Primary Working Capital Needs

 

During the fourth quarter of Fiscal 2022, we estimate that we will require cash of approximately $68 million for our primary input of corn and $4 million for our energy sources of electricity, steam, and natural gas. Capital expenditure requirements for the fourth quarter are expected to be $2 million.

 

Although there is uncertainty related to the impact of the COVID-19 pandemic on our future results, management believes that the Company has sufficient cash available to fund operations for the next twelve months generated by cash from our continuing operations and available cash under our Revolving Term Loan. We cannot estimate the availability of funds for hedging in the future.

 

Commodity Price Risk 

 

Our operations are highly dependent on commodity prices, especially prices for corn, ethanol and distillers grains and the spread between them (the "crush margin"). As a result of price volatility for these commodities, our operating results may fluctuate substantially. The price and availability of corn are subject to significant fluctuations depending upon a number of factors that affect commodity prices in general, including crop conditions, weather, governmental programs and foreign purchases. We may experience increasing costs for corn and natural gas and decreasing prices for ethanol and distillers grains which could significantly impact our operating results. Because the market price of ethanol is not directly related to corn prices, ethanol producers are generally not able to compensate for increases in the cost of corn through adjustments in prices for ethanol.  We continue to monitor corn and ethanol prices and manage the "crush margin" to affect our longer-term profitability.

 

We enter into various derivative contracts with the primary objective of managing our exposure to adverse price movements in the commodities used for, and produced in, our business operations and, to the extent we have working capital available and available market conditions are appropriate, we engage in hedging transactions which involve risks that could harm our business. We measure and review our net commodity positions on a daily basis.  Our daily net agricultural commodity position consists of inventory, forward purchase and sale contracts, over-the-counter and exchange traded derivative instruments.  The effectiveness of our hedging strategies is dependent upon the cost of commodities and our ability to sell sufficient products to use all of the commodities for which we have futures contracts.  Although we actively manage our risk and adjust hedging strategies as appropriate, there is no assurance that our hedging activities will successfully reduce the risk caused by market volatility which may leave us vulnerable to high commodity prices. Alternatively, we may choose not to engage in hedging transactions in the future. As a result, our future results of operations and financial conditions may also be adversely affected during periods in which price changes in corn, ethanol and distillers grain do not work in our favor.

 

In addition, as described above, hedging transactions expose us to the risk of counterparty non-performance where the counterparty to the hedging contract defaults on its contract or, in the case of over-the-counter or exchange-traded contracts, where there is a change in the expected differential between the price of the commodity underlying the hedging agreement and the actual prices paid or received by us for the physical commodity bought or sold.  We have, from time to time, experienced instances of counterparty non-performance but losses incurred in these situations were not significant.

 

24

 

 

Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match any gain or loss on our hedge positions to the specific commodity purchase being hedged.  We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in the current period (commonly referred to as the “mark to market” method). The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in the value of the derivative instruments relative to the cost and use of the commodity being hedged.  As corn prices move in reaction to market trends and information, our income statement will be affected depending on the impact such market movements have on the value of our derivative instruments.  Depending on market movements, crop prospects and weather, our hedging strategies may cause immediate adverse effects, but are expected to produce long-term positive impact.

 

In the event we do not have sufficient working capital to enter into hedging strategies to manage our commodities price risk, we may be forced to purchase our corn and market our ethanol at spot prices and as a result, we could be further exposed to market volatility and risk. However, during the past year, the spot market has been advantageous.

 

Credit and Counterparty Risks

 

Through our normal business activities, we are subject to significant credit and counterparty risks that arise through normal commercial sales and purchases, including forward commitments to buy and sell, and through various other over-the-counter (OTC) derivative instruments that we utilize to manage risks inherent in our business activities.  We define credit and counterparty risk as a potential financial loss due to the failure of a counterparty to honor its obligations.  The exposure is measured based upon several factors, including unpaid accounts receivable from counterparties and unrealized gains (losses) from OTC derivative instruments (including forward purchase and sale contracts).  We actively monitor credit and counterparty risk through credit analysis (by our marketing agent). 

 

Impact of Hedging Transactions on Liquidity

 

Our operations and cash flows are highly impacted by commodity prices, including prices for corn, ethanol, distillers grains and natural gas. We attempt to reduce the market risk associated with fluctuations in commodity prices through the use of derivative instruments, including forward corn contracts and over-the-counter exchange-traded futures and option contracts. Our liquidity position may be positively or negatively affected by changes in the underlying value of our derivative instruments. When the value of our open derivative positions decrease, we may be required to post margin deposits with our brokers to cover a portion of the decrease or we may require significant liquidity with little advanced notice to meet margin calls. Conversely, when the value of our open derivative positions increase, our brokers may be required to deliver margin deposits to us for a portion of the increase.  We continuously monitor and manage our derivative instruments portfolio and our exposure to margin calls and while we believe we will continue to maintain adequate liquidity to cover such margin calls from operating results and borrowings, we cannot estimate the actual availability of funds from operations or borrowings for hedging transactions in the future.

 

The effects, positive or negative, on liquidity resulting from our hedging activities tend to be mitigated by offsetting changes in cash prices in our business. For example, in a period of rising corn prices, gains resulting from long grain derivative positions would generally be offset by higher cash prices paid to farmers and other suppliers in local corn markets. These offsetting changes do not always occur, however, in the same amounts or in the same period.

 

We expect that a $1.00 per bushel fluctuation in market prices for corn would impact our cost of goods sold by approximately $45 million, or $0.34 per gallon, assuming our plant operates at 100% of our capacity.  We expect the annual impact to our results of operations due to a $0.50 decrease in ethanol prices will result in approximately a $65 million decrease in revenue.

 

Critical Accounting Estimates

 

For a discussion of the Critical Accounting Estimates material to an understanding of our business and financial results, members should carefully review the discussion of such estimates in our annual report on Form 10-K for the year ended September 30, 2021, in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under "Summary of Critical Accounting Policies and Estimates." At this time, there have been no material changes to the estimates disclosed in our annual report on Form 10-K for the year ended September 30, 2021, nor have the material facts underlying those estimates changed in any manner. 

 

Item 3.   Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

25

 

Item 4.   Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

SIRE's  management,  under the supervision and with  the  participation  of  SIRE's president and chief executive officer and SIRE's chief financial officer,  is responsible for establishing and maintaining adequate disclosure  controls  and  procedures  (as defined in Rule  13a-15(e) under the Securities  Exchange  Act of 1934, as amended) that are designed to insure that information required to be disclosed in the reports that the Company files is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and performed an evaluation of the effectiveness of SIRE's disclosures controls and procedures as of the end of the  period covered by this quarterly report. 

 

Based on that evaluation,  SIRE's president and chief executive officer and SIRE's chief financial officer have concluded  that, as of the end of the period covered by this quarterly report, SIRE's disclosure controls and procedures are effective to provide  reasonable  assurance that the information required to be disclosed in the reports SIRE  files or submits under the Securities Exchange  Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and (ii) accumulated and communicated to management, including SIRE's principal executive and principal financial officers or persons performing such functions, as appropriate, to allow timely decisions regarding  disclosure.  SIRE believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.

 

No Changes in Internal Control Over Financial Reporting

 

No change in SIRE's internal control over financial reporting occurred during the period covered by this quarterly report that has materially affected, or is reasonably likely to materially affect, SIRE's internal control over financial reporting.

 

 

26

 

 

PART II OTHER INFORMATION

 

Item 1.   Legal Proceedings.

 

From time to time the Company is involved in various litigation matters arising in the ordinary course of its business. None of these matters, either individually or in the aggregate, currently is material to the Company except as reported in the Company’s annual report on Form 10-K for the year ended September 30, 2021, and there were no material developments to such matters.

 

 

Item 1A.   Risk Factors.

 

Members should carefully consider the discussion of risks and the other information in our annual report on Form 10-K for the year ended September 30, 2021, in Part I, Item 1A, “Risk Factors” along with the discussion of risks and other information in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” under “Cautionary Information Regarding Forward-Looking Statements,” of this report. Although we have attempted to discuss key factors, our members need to be aware that other risks may prove to be important in the future. New risks may emerge at any time, and we cannot predict such risks or estimate the extent to which they may affect our financial performance.

 

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds.

 

None

 

 

Item 3.   Defaults Upon Senior Securities.

 

None

 

 

Item 4.   Mine Safety Disclosures.

 

Not applicable.

 

 

Item 5.   Other Information.

 

None

 

27

 

Item 6.   Exhibits

 

10.1

First Amended and Restated Credit Agreement dated July 18, 2022 by and among Southwest Iowa Renewable Energy, LLC, Farm Credit Services of America, FLCA, Farm Credit Services of America, PCA and CoBank, ABC (incorporated reference to Exhibit 10.1 on Form 8-K filed by the Company with the Securities and Exchange Commission on July 22, 2022). 

   

10.2

Third Amended and Restated Term Note dated July 18, 2022 (incorporated by reference to Exhibit 10.2 on Form 8-K filed by the Company with the Securities and Exchange Commission on July 22, 2022). 
   
10.3 Second Amended and Restated Revolving Term Note dated July 18, 2022 (incorporated by reference to Exhibit 10.3 on Form 8-K filed by the Company with the Securities and Exchange Commission on July 22, 2022). 
   
10.4 Fourth Amended and Restated Revolving Credit Note dated July 18, 2022 (incorporated by reference to Exhibit 10.4 on Form 8-K filed by the Company with the Securities and Exchange Commission on July 22, 2022). 
   

31.1

Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

   

31.2

Rule 13a-14(a)/15d-14(a) Certification (pursuant to Section 302 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

   

32.1***

Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Executive Officer.

   

32.2***

Rule 15d-14(b) Certifications (pursuant to Section 906 of the Sarbanes-Oxley Act of 2002) executed by the Principal Financial Officer.

   

101.XML*

Inline XBRL Instance Document

   

101.BSD*

Inline XBRL Taxonomy Schema

   

101.CAL*

Inline XBRL Taxonomy Calculation Database

   

101.LAB*

Inline XBRL Taxonomy Label Linkbase

   

101.PRE*

Inline XBRL Taxonomy Presentation Linkbase

   
104 Cover Page Interactive Data File (embedded within the Inline XBRL Document and include in Exhibit 101)
   

***

This certification is not deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference.

*

Furnished, not filed.

 

28

 

SIGNATURES

 

 

In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

   

SOUTHWEST IOWA RENEWABLE ENERGY, LLC

     

Date:

August 12, 2022

/s/ Michael D. Jerke

   

Michael D. Jerke, President and Chief Executive Officer

     

Date:

August 12, 2022

/s/ Ann M. Reis

   

Ann M. Reis, Chief Financial Officer

 

29

ex_392406.htm

Exhibit 31.1

 

CERTIFICATION PURSUANT TO 17 CFR 240.13(A)-14(A)

(SECTION 302 CERTIFICATION)

 

 

I, Michael D Jerke, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC;

 

 

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-(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 changes 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 officers 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 controls over financial reporting.

 

 

Date:

August 12, 2022

 

/s/ Michael D. Jerke

     

Michael D. Jerke, President and Chief Executive Officer

     

(Principal Executive Officer)

 

 

ex_392407.htm

Exhibit 31.2

 

CERTIFICATION PURSUANT TO 17 CFR 240.13(A)-14(A)

(SECTION 302 CERTIFICATION)

 

I, Ann M. Reis, certify that:

 

 

1.

I have reviewed this quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC;

 

 

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-(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 changes 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 officers 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 controls over financial reporting.

 

 

Date:

August 12, 2022

 

/s/ Ann M. Reis

     

Ann M. Reis, Chief Financial Officer

     

(Principal Financial Officer)

 

 

ex_392408.htm

Exhibit 32.1

 

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC (the “Company”) for the period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael D. Jerke, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

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.

 

Date:

August 12, 2022

 

/s/ Michael D Jerke

     

Michael D. Jerke, President and Chief Executive Officer

     

(Principal Executive Officer)

 

 

ex_392409.htm

Exhibit 32.2

 

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the quarterly report on Form 10-Q of Southwest Iowa Renewable Energy, LLC (the “Company”) for the period ended June 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Ann M. Reis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 

 

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.

 

Date:

August 12, 2022

 

/s/ Ann M. Reis

     

Ann M. Reis, Chief Financial Officer

     

(Principal Financial Officer)

 

 

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