Attached files
| file | filename |
|---|---|
| 8-K - SOUTH DAKOTA SOYBEAN PROCESSORS LLC | v180634_8k.htm |
Exhibit
99.1
April 8,
2010
[Name and
Address of Member]
Dear
Member,
As
reported in our annual Form 10-K with the Securities Exchange Commission (SEC),
South Dakota Soybean Processors generated a consolidated net loss of $6.7
million in 2009. Prior to two unique events SDSP’s consolidated
losses included $45,000 from soy processing and $1.44 million from Urethane Soy
Systems Company (USSC). In addition to those losses SDSP experienced
two unique events. First, we recorded a $330,000 expense to settle
the lawsuit brought against SDSP and four other defendants. The
second unique event was the non-cash entry of $4.5 million to impair the value
of USSC’s patents carried on SDSP’s consolidated balance sheet.
On March
18th SDSP and our insurance provider reached a settlement with Transocean Group
Holdings PTY Ltd. and Transocean Global Biofuels PTY Ltd., of Sydney, Australia
(“Transocean”). The lawsuit, which was filed on January 31,
2007, concerned the potential development and operation of a biodiesel refinery
through a company called High Plains Biofuels, Inc. SDSP’s
financial statements for 2009 include an expense for $330,000, which represents
our contribution of the $530,000 payment to Transocean. Upon payment,
Transocean will release SDSP and other defendants from all prior multi-million
dollar claims. While we are not at all happy about the payment to
Transocean, we are pleased to have this lawsuit behind us.
South
Dakota Soybean Processors decided to increase the value of the oil it produces
by investing into Urethane Soy Systems Company (USSC), for the research,
marketing and development of soy-based polyol and soy-based polyurethane
systems. As a result of our purchase of shares and contribution of
working capital into USSC in 2003, SDSP recorded $7.5 million for the value of
their patents on SDSP’s consolidated balance sheet. These patents
were being amortized over the life of the patents, creating a non-cash,
non-taxable expense of $413,000 per year. Those patents were
scheduled to be written down to zero on SDSP’s balance sheet by
2021.
Following
Generally Accepted Accounting Principles (GAAP), every year management and our
auditors are required to evaluate the value of our intangible assets, which
include the patents of USSC. In short, management and our auditors
were left with the task of projecting future cash flows of a new, evolving,
green market segment. The economic meltdown beginning in late 2008 and the
uncertainty of the recovery had a negative impact on our impairment
evaluation. The key factors included:
ü Annual
new housing starts dropped from a historical level of 1.7 million units to under
600,000 units in 2009.
ü Annual
automotive sales in the U.S. dropped from over 17 million units in 2006 to just
over 10 million units in 2009.
ü Under
these market conditions, USSC only maintained its sales volume and was not able
to create growth in 2009.
Those key
factors, combined with the uncertainty of the recovery of the housing and auto
industries in the near future, forced us recognize an impairment of the value of
our patents for USSC. Our expenses increased in 2009 as a result of
this $4.5 million non-cash impairment charge.
The
impairment of the patents of USSC does not impact its future or our plans to
make it profitable. It is only a reflection of the current economic
environment and GAAP for valuing intangible assets on our balance
sheet. In fact, there are some exciting things happening in
USSC. In 2009, we made significant improvements on the attributes of
odor and reactivity of our molecules, which have been two main stumbling blocks
in terms of marketing our polyols. As a result of these improvements, customers
are now referring to our product as a ‘drop-in’ substitute and are also
beginning to ask how they can move the soy polyol into the international
markets. While we are disappointed that we have not made USSC
profitable yet, we are reminded that the creation and market acceptance of new
molecular products takes time.
In
regards to our soybean crushing operation, we had some very challenging
marketing conditions during 2009. The soybeans harvested locally in
the fall of 2008 were of poor quality. The higher moisture and lower
oil content of those beans meant that for every bushel we processed, we had one
pound less of product to sell. That one pound per bushel reduction
from an average yield translated to $4.5 million off the bottom
line. In addition, as a result of soybean prices dropping from over
$15 a bushel in June 2008 to under $9 in the fall of 2008, our soybean suppliers
became reluctant sellers – driving up our local basis adjustment during late
2008 through most of 2009. Our meal customers were unwilling to
accommodate this cost increase, thus reducing our margin
structure. This ‘hangover affect’ from the large decrease in soybean
prices accounted for approximately $1.9 million in reduced profits from
2008.
So far,
2010 has started out a lot better than 2009 for SDSP. Through February 28th, we
have recorded a consolidated profit of approximately $700,000, compared to a
loss of $2.4 million for the same period in 2009. Management and the
USSC Board budgeted for aggressive growth for 2010 and continue to review our
strategies to accomplish it. The challenge to USSC is to execute
these plans.
Sincerely,
 |
 |
|
Ronald
Gorder
|
Rodney
Christianson
|
|
President
|
Chief
Executive Officer
|