LAKE AREA CORN PROCESSORS LLC - Quarter Report: 2015 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q



x	Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

For the fiscal quarter ended September 30, 2015

o	Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Commission file number 000-50254



LAKE AREA CORN PROCESSORS, LLC
(Exact name of registrant as specified in its charter)

South Dakota		46-0460790
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

46269 SD Highway 34 P.O. Box 100 Wentworth, South Dakota		57075
(Address of principal executive offices)		(Zip Code)

(605) 483-2676
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Membership Units

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).

x Yes o No

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



Large accelerated filer o		Accelerated filer o
Non-accelerated filer x		Smaller Reporting Company o
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). o Yes x No

As of November 13, 2015, there are 29,620,000 membership units of the registrant outstanding.

Table of Contents

INDEX



	Page No.
Part I FINANCIAL INFORMATION	3
Item 1. Financial Statements (Unaudited)	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
Item 4. Controls and Procedures	26

Part II OTHER INFORMATION	26
Item 1. Legal Proceedings	26
Item 1A. Risk Factors	26
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	27
Signatures	28

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LAKE AREA CORN PROCESSORS, LLC

Consolidated Balance Sheets



	September 30, 2015			December 31, 2014*
ASSETS	(unaudited)

CURRENT ASSETS
Cash and cash equivalents	$	9,569,321		$	6,104,383
Accounts receivable	2,946,752			1,025,685
Other receivables	21,197			1,381,468
Inventory	4,103,611			6,106,646
Derivative financial instruments	1,004,878			1,457,459
Prepaid expenses	115,227			306,351
Total current assets	17,760,986			16,381,992

PROPERTY AND EQUIPMENT
Land	874,473			676,097
Land improvements	3,829,656			2,739,818
Buildings	8,881,297			9,655,192
Equipment	49,987,541			46,138,840
Construction in progress	3,602,612			626,085
	67,175,579			59,836,032
Less accumulated depreciation	(33,131,771		)	(31,486,760		)
Net property and equipment	34,043,808			28,349,272

OTHER ASSETS
Goodwill	10,395,766			10,395,766
Investments	16,106,941			23,214,456
Other	148,097			233,489
Total other assets	26,650,804			33,843,711

TOTAL ASSETS	$	78,455,598		$	78,574,975

* Derived from audited financial statements.

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

Consolidated Balance Sheets




	September 30, 2015		December 31, 2014*
LIABILITIES AND MEMBERS’ EQUITY	(unaudited)

CURRENT LIABILITIES
Outstanding checks in excess of bank balance	$	4,410,088	$	246,847
Accounts payable	3,537,420		7,407,491
Accrued liabilities	519,806		511,613
Derivative financial instruments	407,771		1,447,513
Current maturities of notes payable	—		13,708
Other	120,635		120,635
Total current liabilities	8,995,720		9,747,807

LONG-TERM LIABILITIES
Notes payable, net of current maturities	1,000		1,000
Other	223,940		225,940
Total long-term liabilities	224,940		226,940

COMMITMENTS AND CONTINGENCIES

MEMBERS' EQUITY (29,620,000 units issued and outstanding)	69,234,938		68,600,228

TOTAL LIABILITIES AND MEMBERS' EQUITY	$	78,455,598	$	78,574,975

* Derived from audited financial statements.

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

Consolidated Statements of Income (Unaudited)



	Three Months Ended September 30, 2015			Three Months Ended September 30, 2014			Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014

REVENUES	$	22,038,423		$	28,961,413		$	66,433,906		$	97,721,057

COSTS OF REVENUES	19,817,321			21,309,028			60,642,843			70,069,939

GROSS PROFIT	2,221,102			7,652,385			5,791,063			27,651,118

OPERATING EXPENSES	772,964			843,870			1,894,522			2,760,821

INCOME FROM OPERATIONS	1,448,138			6,808,515			3,896,541			24,890,297

OTHER INCOME (EXPENSE)
Interest and other income	12,014			14,532			94,284			41,410
Business interruption claims recovery	—			—			500,000			—
Equity in net income of investments	392,686			2,213,776			2,177,486			6,501,663
Interest expense	(1,954		)	(77,133		)	(6,089		)	(247,017		)
Total other income	402,746			2,151,175			2,765,681			6,296,056

NET INCOME	$	1,850,884		$	8,959,690		$	6,662,222		$	31,186,353

BASIC AND DILUTED EARNINGS PER UNIT	$	0.06		$	0.30		$	0.22		$	1.05

WEIGHTED AVERAGE NUMBER OF UNITS OUTSTANDING FOR THE CALCULATION OF BASIC & DILUTED EARNINGS PER UNIT	29,620,000			29,620,000			29,620,000			29,620,000

DISTRIBUTIONS DECLARED PER UNIT	$	0.10		$	0.35		$	0.20		$	0.80

See Notes to Unaudited Consolidated Financial Statements.

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

Consolidated Statements of Cash Flows (Unaudited)



	Nine Months Ended September 30, 2015			Nine Months Ended September 30, 2014

OPERATING ACTIVITIES
Net income	$	6,662,222		$	31,186,353
Changes to net income affecting cash and cash equivalents
Depreciation and amortization	2,440,041			2,111,759
Distributions in excess of earnings (earnings in excess of distributions) from investments	7,127,600			(6,501,663		)
Gain on involuntary conversion property and equipment	(825,709		)	—
(Increase) decrease in
Receivables	(560,796		)	237,982
Inventory	2,003,035			4,020,229
Prepaid expenses	191,124			66,270
Derivative financial instruments	(587,161		)	1,508,959
Increase (decrease) in
Accounts payable	(4,494,851		)	(9,161,420		)
Accrued and other liabilities	6,193			(67,515		)
NET CASH PROVIDED BY OPERATING ACTIVITIES	11,961,698			23,400,954

INVESTING ACTIVITIES
Insurance proceeds	1,500,000			—
Purchase of property and equipment	(8,103,781		)	(5,322,208		)
Purchase of investments	(15,000		)	(455,000		)
NET CASH (USED IN) INVESTING ACTIVITIES	(6,618,781		)	(5,777,208		)

FINANCING ACTIVITIES
Increase in outstanding checks in excess of bank balance	4,163,241			1,436,470
Principal payments on long-term notes payable	(13,708		)	(2,461,171		)
Distributions paid to members	(6,027,512		)	(23,738,272		)
NET CASH (USED IN) FINANCING ACTIVITIES	(1,877,979		)	(24,762,973		)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	3,464,938			(7,139,227		)

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD	6,104,383			20,706,458

CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	9,569,321		$	13,567,231

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the period for interest	$	6,790		$	249,937
Capital expenditures in accounts payable	624,780			1,832,762

See Notes to Unaudited Consolidated Financial Statements

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

NOTE 1 . NATURE OF OPERATIONS

Principal Business Activity

Lake Area Corn Processors, LLC and subsidiary (the Company) is a South Dakota limited liability company.

The Company owns and manages Dakota Ethanol, LLC (Dakota Ethanol), a 40 million-gallon (annual nameplate capacity) ethanol plant, located near Wentworth, South Dakota. Dakota Ethanol sells ethanol and related products to customers located in North America.

In addition, the Company has investment interests in five companies in ethanol-related industries. See note 4 for further details.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The unaudited financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by accounting principles generally accepted in the United States of America although the Company believes that the disclosures are adequate to make the information not misleading.

In the opinion of management, all adjustments considered necessary for a fair presentation have been included in the accompanying financial statements. The results of operations for the three and nine months ended September 30, 2015 are not necessarily indicative of the results to be expected for a full year.

These financial statements should be read in conjunction with the financial statements and notes included in the Company’s audited financial statements for the year ended December 31, 2014, contained in the annual report on Form 10-K for 2014.

Principles of Consolidation

The consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Dakota Ethanol. All significant inter-company transactions and balances have been eliminated in consolidation.

Revenue Recognition

Revenue from the production of ethanol and related products is recorded when title transfers to customers. Generally, ethanol and related products are shipped FOB shipping point, based on written contract terms between Dakota Ethanol and its customers. Collectability of revenue is reasonably assured based on historical evidence of collectability between Dakota Ethanol and its customers. Interest income is recognized as earned.

Shipping costs incurred by the Company in the sale of ethanol, dried distiller's grains and corn oil are not specifically identifiable and as a result, revenue from the sale of those products is recorded based on the net selling price reported to the Company from the marketer.

Cost of Revenues

The primary components of cost of revenues from the production of ethanol and related co-product are corn expense, energy expense (natural gas and electricity), raw materials expense (chemicals and denaturant), and direct labor costs.

Shipping costs on modified and wet distiller’s grains are included in cost of revenues.

Inventory Valuation

Ethanol inventory, raw materials, work-in-process, and parts inventory are valued using methods which approximate the lower of cost (first-in, first-out) or market. Distillers grains and related products are stated at net realizable value. In the valuation of inventories and purchase and sale commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

Investment in commodities contracts, derivative instruments and hedging activities

The Company is exposed to certain risks related to its ongoing business operations. The primary risks that the Company manages by using forward or derivative instruments are price risk on inventories and anticipated purchases of corn and natural gas and the sale of ethanol, distillers grains and distillers corn oil.

As part of its trading activity, the Company uses futures and option contracts offered through regulated commodity exchanges to reduce risk of loss in the market value of inventories and forward contracts.

The Company is subject to market risk with respect to the price and availability of corn, the principal raw material the Company uses to produce ethanol and ethanol by-products. In general, rising corn prices result in lower profit margins and, therefore, represent unfavorable market conditions. This is especially true when market conditions do not allow the Company to pass along increased corn costs to its customers. The availability and price of corn is subject to wide fluctuations due to unpredictable factors such as weather conditions, farmer planting decisions, governmental policies with respect to agriculture and international trade and global demand and supply.

Certain contracts that literally meet the definition of a derivative may be exempted from derivative accounting as normal purchases or normal sales. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business. Contracts that meet the requirements of normal purchases or sales are documented as normal and exempted from the accounting and reporting requirements of derivative accounting.

The Company does not apply the normal purchase and sales exemption for forward corn purchase contracts. As of September 30, 2015, the Company is committed to purchasing approximately 1.3 million bushels of corn on a forward contract basis with an average price of $3.70 per bushel. The total corn purchase contracts represent 7% of the annual plant corn usage.

The Company enters into firm-price purchase commitments with some of our natural gas suppliers under which we agree to buy natural gas at a price set in advance of the actual delivery of that natural gas. Under these arrangements, the Company assumes the risk of a price decrease in the market price of natural gas between the time this price is fixed and the time the natural gas is delivered. At September 30, 2015, the Company is committed to purchasing approximately 60,000 MMBtu’s of natural gas with an average price of $3.02 per MMBtu. The Company accounts for these transactions as normal purchases, and accordingly, does not mark these commitments to market. The natural gas purchases represent approximately 5% of the projected annual plant requirements.

The Company enters into firm-price sales commitments with distillers grains customers under which the Company agrees to sell distillers grains at a price set in advance of the actual delivery of the distillers grains. Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers grain between the time this price is fixed and the time the distillers grains are delivered. At September 30, 2015, the Company is committed to selling approximately 43,000 dry equivalent tons of distillers grains with an average price of $119 per ton. The Company accounts for these transactions as normal sales, and accordingly, does not mark these commitments to market. The distillers grains sales represent approximately 28% of the projected annual plant production.

The Company enters into firm-price sales commitments with distillers corn oil customers under which the Company agrees to sell distillers corn oil at a price set in advance of the actual delivery of the distillers corn oil. Under these arrangements, the Company assumes the risk of a price increase in the market price of distillers corn oil between the time this price is fixed and the time the distillers corn oil is delivered. At September 30, 2015, the Company is committed to selling approximately 768,000 pounds of distillers corn oil with an average price of $0.23 per pound. The Company accounts for these transactions as normal sales, and accordingly, does not mark these commitments to market. The distillers corn oil sales represent approximately 7% of the projected annual plant production.

The Company does not have any firm-priced sales commitments for ethanol as of September 30, 2015.

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

The Company enters into short-term forward, option and futures contracts for corn and natural gas as a means of managing exposure to changes in commodity and energy prices. The Company enters into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in energy prices. All of the Company's derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

Derivatives not designated as hedging instruments at September 30, 2015 and December 31, 2014 were as follows:



	Balance Sheet Classification	September 30, 2015			December 31, 2014*

Forward contracts in gain position		$	19,661		$	105,813
Futures contracts in gain position		85,688			9,112
Futures contracts in loss position		(450		)	(109,200		)
Total forward and futures contracts		104,899			5,725
Cash held by broker		899,979			1,451,734
	Current Assets	$	1,004,878		$	1,457,459

Forward contracts in loss position	(Current Liabilities)	$	(407,771	)	$	(1,447,513	)

*Derived from audited financial statements.

Futures contracts and cash held by broker are all with one party and the right of offset exists. Therefore, on the balance sheet, these items are netted in one balance regardless of position.

Forward contracts are with multiple parties and the right of offset does not exist. Therefore, these contracts are reported at the gross amounts on the balance sheet.

Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements.



	Statement of Operations	Three Months Ended September 30,
	Classification	2015			2014
Net realized and unrealized gains (losses) related to purchase contracts:
Futures contracts	Cost of Revenues	$	1,067,934		$	2,413,385
Forward contracts	Cost of Revenues	(826,316		)	(2,551,374		)



	Statement of Operations	Nine Months Ended September 30,
	Classification	2015			2014
Net realized and unrealized gains (losses) related to purchase contracts:
Futures contracts	Cost of Revenues	$	1,133,731		$	2,243,407
Forward contracts	Cost of Revenues	(524,216		)	(4,539,397		)

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

Investments

The Company has investment interests in five companies in related industries. All of these interests are at ownership shares less than 20%. These investments are flow-through entities and are being accounted for by the equity method of accounting under which the Company’s share of net income is recognized as income in the Company’s statements of income and added to the investment account. Distributions or dividends received from the investments are treated as a reduction of the investment account. The Company consistently follows the practice of recognizing the net income from investments based on the most recent reliable data.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include the fair value of derivative financial instruments, lower of cost or market accounting for inventory and forward purchase contracts and goodwill impairment evaluation.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. Early adoption is not permitted. The updated standard becomes effective for the Company in the first quarter of fiscal year 2018. The Company has not yet selected a transition method and is currently evaluating the effect that the updated standard will have on the consolidated financial statements.

In January 2015, the FASB issued ASU 2015-01, Income Statement-Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. The guidance eliminates from GAAP the concept of extraordinary items. ASU 2015-01 eliminates the separate presentation of extraordinary items but does not change the requirement to disclose material items that are unusual or infrequent in nature. Eliminating the concept of extraordinary items will allow the entity to no longer have to assess whether a particular event or transaction is both unusual in nature and infrequent in occurrence. This update will be effective for interim and annual periods beginning after December 15, 2015. The Company is currently assessing the impact that this guidance will have on its consolidated financial statements, but does not expect the guidance to have a material impact on the Company's consolidated financial statements.

Reclassification

Certain items in the Consolidated Statements of Income have been reclassified to conform to the current classification. The changes have no effect to net income, but were changed to agree with the classifications used in the September 30, 2015 financial statements.

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

NOTE 3. INVENTORY

Inventory consisted of the following as of September 30, 2015 and December 31, 2014:



	September 30, 2015		December 31, 2014*
Raw materials	$	1,689,130	$	3,815,780
Finished goods	820,148		689,276
Work in process	483,088		571,521
Parts inventory	1,111,245		1,030,069
	$	4,103,611	$	6,106,646

*Derived from audited financial statements.

NOTE 4. INVESTMENTS

Dakota Ethanol has a 7% investment interest in the company’s ethanol marketer, Renewable Products Marketing Group, LLC (RPMG). The net income which is reported in the Company’s income statement for RPMG is based on RPMG’s June 30, 2015 unaudited interim results. The carrying amount of the Company’s investment was approximately $2,022,000 and $1,748,000 as of September 30, 2015 and December 31, 2014, respectively.

Dakota Ethanol has a 9% investment interest in Prairie Gold Venture Partnership, LLC (PGVP), a venture capital fund investing in cellulosic ethanol production. The net income which is reported in the Company’s income statement for PGVP is based on PGVP’s June 30, 2015 unaudited interim financials. The carrying amount of the Company’s investment was approximately $1,174,000 as of September 30, 2015 and December 31, 2014.

Dakota Ethanol has a 10% investment interest in Lawrenceville Tanks, LLC (LT), a partnership which owns and operates an ethanol storage terminal in Georgia. The net income which is reported in the Company’s income statement for LT is based on LT’s September 30, 2015 unaudited interim results. The carrying amount of the Company’s investment was approximately $636,000 and $540,000 as of September 30, 2015 and December 31, 2014, respectively.

Lake Area Corn Processors has a 10% investment interest in Guardian Hankinson, LLC (GH), a partnership to operate an ethanol plant in North Dakota. The net income which is reported in the Company’s income statement for GH is based on GH’s September 30, 2015 unaudited interim results. The carrying amount of the Company’s investment was approximately $12,233,000 and $19,720,000 as of September 30, 2015 and December 31, 2014, respectively.

Lake Area Corn Processors has a 17% investment interest in Guardian Energy Management, LLC (GEM), a partnership to provide management services to ethanol plants. The net income which is reported in the Company’s income statement for GEM is based on GEM’s September 30, 2015 unaudited interim results. The carrying amount of the Company’s investment was approximately $42,000 and $33,000 as of September 30, 2015 and December 31, 2014.

Condensed, combined unaudited financial information of the Company’s investments in RPMG, PGVP, LT, GH and GEM is as follows:

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014



Balance Sheet	September 30, 2015		December 31, 2014
Current Assets	$	144,382,173	$	209,600,962
Other Assets	163,655,976		176,468,346
Current Liabilities	109,657,877		95,234,540
Long-term Liabilities	23,509,649		34,280,219
Members' Equity	174,870,626		256,554,549

	Three Months Ended
Income Statement	September 30, 2015		September 30, 2014
Revenue	$	57,924,872	$	79,417,635
Gross Profit	10,058,230		28,467,567
Net Income	4,118,713		22,526,056

	Nine Months Ended
Income Statement	September 30, 2015		September 30, 2014
Revenue	$	192,106,193	$	249,195,600
Gross Profit	40,502,166		82,863,893
Net Income	22,989,997		63,860,622

The following table shows the condensed financial information of GH, which represents greater than 10% of the Company's net income as of September 30, 2015:



Balance Sheet	September 30, 2015		December 31, 2014
Current Assets	$	17,416,053	$	90,121,911
Other Assets	144,781,780		157,660,672
Current Liabilities	16,359,962		16,384,133
Long-term Liabilities	23,509,649		34,264,219
Members' Equity	122,328,222		197,134,231

	Three Months Ended
Income Statement	September 30, 2015		September 30, 2014
Revenue	$	54,012,760	$	77,084,462
Gross Profit	7,230,931		26,460,442
Net Income	2,847,066		21,211,509

	Nine Months Ended
Income Statement	September 30, 2015		September 30, 2014
Revenue	$	180,069,527	$	241,880,650
Gross Profit	31,794,870		76,563,381
Net Income	18,193,991		60,388,125

The Company recorded equity in net income of approximately $285,000 and $1,819,000 from GH for the three and nine months ended September 30, 2015, respectively. The Company recorded equity in net income of approximately $2,121,000 and $6,244,000 from GH for the three and nine months ended September 30, 2014, respectively. The Company recorded equity in net income of approximately $108,000 and $358,000 from its other investments for the three and nine months ended September 30, 2015, respectively. The Company recorded equity in net income of approximately $93,000 and $257,000 from our other investments

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

for the three and nine months ended September 30, 2014 respectively. The Company has undistributed net earnings in investees of approximately $1,762,000 and $8,880,000 as of September 30, 2015 and December 31, 2014, respectively.

NOTE 5. REVOLVING OPERATING NOTE

On November 11, 2014, Dakota Ethanol executed a revolving promissory note from Farm Credit Services of America (FCSA) in on amount up to $10,000,000 or the amount available in accordance with the borrowing base calculation. Interest on the outstanding principal balances will accrue at 300 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 3.20% at September 30, 2015. There is a non-use fee of 0.25% on the unused portion of the $10,000,000 availability. The note is collateralized by the ethanol plant and equipment, its accounts receivable and inventory. The note expires on November 1, 2016. On September 30, 2015, Dakota Ethanol had $0 outstanding and $3,587,000 available to be drawn on the revolving promissory note under the borrowing base.

NOTE 6. LONG-TERM NOTES PAYABLE

Dakota Ethanol has a long-term note payable with FCSA. As part of the note payable agreement, Dakota Ethanol is subject to certain restrictive covenants establishing financial reporting requirements, distribution and capital expenditure limits, debt service coverage ratios and minimum working capital requirements. The note is collateralized by the ethanol plant and equipment, its accounts receivable and inventory.

On November 11, 2014, Dakota Ethanol executed a revolving promissory note from FCSA in the amount of $15,000,000. The amount Dakota Ethanol can borrow on the note decreases by $750,000 semi-annually starting on April 1, 2015 until the maximum balance reaches $7.5 million on October 1, 2019. The note matures on October 1, 2024. Interest on the outstanding principal balance will accrue at 325 basis points above the 1 month LIBOR rate and is not subject to a floor. The rate was 3.45% at September 30, 2015. The note contains a non-use fee of 0.5% on the unused portion of the note. On September 30, 2015, Dakota Ethanol had $1,000 outstanding and $14,249,000 available to be drawn on the note.

The balances of the notes payable are as follows:



	September 30, 2015		December 31, 2014*

Notes payable - FCSA	$	1,000	$	1,000
Note payable - Other	—		13,708
	1,000		14,708
Less current portion	—		(13,708		)
	$	1,000	$	1,000

*Derived from audited financial statements

Minimum principal payments for the next five years are estimated as follows:



Years Ending September 30,	Amount
2016	$	—
2017	—
2018	—
2019	—
2020	—
Thereafter	1,000

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014

NOTE 7. FAIR VALUE MEASUREMENTS

The Company complies with the fair value measurements and disclosures standard which defines fair value, establishes a framework for measuring fair value, and expands disclosure for those assets and liabilities carried on the balance sheet on a fair value basis.

The Company’s balance sheet contains derivative financial instruments that are recorded at fair value on a recurring basis. Fair value measurements and disclosures require that assets and liabilities carried at fair value be classified and disclosed according to the process for determining fair value. There are three levels of determining fair value.

Level 1 uses quoted market prices in active markets for identical assets or liabilities.

Level 2 uses observable market based inputs or unobservable inputs that are corroborated by market data.

Level 3 uses unobservable inputs that are not corroborated by market data.

A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Derivative financial instruments. Commodity futures and options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the CBOT and NYMEX markets. Over-the-counter commodity options contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from the over-the-counter markets. Forward purchase contracts are reported at fair value utilizing Level 2 inputs. For these contracts, the Company obtains fair value measurements from local grain terminal bid values. The fair value measurements consider observable data that may include live trading bids from local elevators and processing plants which are based off the CBOT markets.

The following table summarizes financial assets and financial liabilities measured at fair value on a recurring basis as of September 30, 2015 and December 31, 2014 segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014



	Total			Level 1			Level 2			Level 3
September 30, 2015

Assets:
Derivative financial instruments,
futures contracts	$	85,688		$	85,688		$	—		$	—
forward contracts	19,661			—			19,661			—

Liabilities:
Derivative financial instruments,
futures contracts	$	(450	)	$	(450	)	$	—		$	—
forward contracts	(407,771		)	—			(407,771		)	—

December 31, 2014*

Assets:
Derivative financial instruments,
futures contracts	$	9,112		$	9,112		$	—		$	—
forward contracts	105,813			—			105,813			—

Liabilities:
Derivative financial instruments,
futures contracts	$	(109,200	)	$	(109,200	)	$	—		$	—
forward contracts	(1,447,513		)	—			(1,447,513		)	—

*Derived from audited financial statements.

During the three and nine months ended September 30, 2015, the Company did not make any changes between Level 1 and Level 2 assets and liabilities. As of September 30, 2015 and December 31, 2014, the Company did not have any Level 3 assets or liabilities.

NOTE 8. RELATED PARTY TRANSACTIONS

Dakota Ethanol has a 7% interest in RPMG, and Dakota Ethanol has entered into marketing agreements with RPMG for the exclusive rights to market, sell and distribute the entire ethanol, dried distiller's grains and corn oil inventories produced by Dakota Ethanol. The marketing fees are included in net revenues.

Sales and marketing fees related to the agreements are as follows:

Table of Contents

LAKE AREA CORN PROCESSORS, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

September 30, 2015 and 2014



	Three Months Ended September 30				Nine Months Ended September 30
	2015		2014		2015		2014

Revenues ethanol	$	17,023,820	$	23,770,949	$	50,642,929	$	78,478,697
Revenues distiller's dried grains and corn oil	2,801,540		3,196,584		7,026,972		8,780,414

Marketing fees ethanol	42,246		32,903		126,739		98,708
Marketing fees distiller's dried grains and corn oil	19,977		22,374		52,182		53,248

	September 30, 2015		December 31, 2014*
Amounts due included in accounts receivable	$	2,417,617	$	246,560

*Derived from audited financial statements.

NOTE 9. COMMITMENTS

Dakota Ethanol has started a project to expand the railroad track siding. The estimated cost of the total project is approximately $7 million. The total value of the contracts to date is approximately $4.5 million. There is approximately $3.5 million remaining on the contracts as of September 30, 2015. The project is expected to be completed in the third quarter of 2016. Dakota Ethanol will pay for the upgrades with cash flows from operations and the long-term revolving debt currently in place.

NOTE 10. INSURANCE CLAIMS

Dakota Ethanol experienced property damage to grain handling equipment in June 2014. The damages were covered by property and business interruption insurance policies. The Company continued to use the equipment through May 2015, at which time the equipment was disposed of resulting in a loss of approximately $674,000. Insurance proceeds of $2,000,000, consisting of $1,500,000 from the property insurance claim and $500,000 from the business interruption claim, were received in the second quarter of 2015. The loss on disposal of damaged assets and property insurance proceeds are both recorded in operating expenses in the statements of income.

Table of Contents

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We prepared the following discussion and analysis to help you better understand our financial condition, changes in our financial condition, and results of operations for the three and nine month periods ended September 30, 2015, compared to the same periods of the prior year. This discussion should be read in conjunction with the consolidated financial statements and the Management's Discussion and Analysis section for the fiscal year ended December 31, 2014, included in the Company's Annual Report on Form 10-K for 2014.

Disclosure Regarding Forward-Looking Statements

This report 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 terms such as "may," "will," "should," "expect," "plan," "anticipate," "believe," "estimate," "future," "intend," "could," "hope," "predict," "target," "potential," "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 and our annual report on Form 10-K for the fiscal year ended December 31, 2014.

The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. We undertake no duty to update these forward-looking statements, even though our situation may change in the future. Furthermore, we cannot guarantee future results, events, levels of activity, performance, or achievements. We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report. You should read this report and the documents that we reference in this report and have filed as exhibits completely and with the understanding that our actual future results may be materially different from what we currently expect. We qualify all of our forward-looking statements by these cautionary statements.

Overview

Lake Area Corn Processors, LLC is a South Dakota limited liability company that owns and manages its wholly-owned subsidiary, Dakota Ethanol, LLC. Dakota Ethanol, LLC owns and operates an ethanol plant located near Wentworth, South Dakota that has a nameplate production capacity of 40 million gallons of ethanol per year. Lake Area Corn Processors, LLC is referred to in this report as "LACP," the "company," "we," or "us." Dakota Ethanol, LLC is referred to in this report as "Dakota Ethanol" "we" "us" or the "ethanol plant."

Our revenue is derived from the sale and distribution of our ethanol, distillers grains and corn oil. The ethanol plant currently operates in excess of its nameplate capacity, producing approximately 50 million gallons of ethanol per year. Corn is supplied to us primarily from our members who are local agricultural producers and from purchases of corn on the open market. We have engaged Renewable Products Marketing Group, Inc. ("RPMG, Inc.") to market all of the ethanol and corn oil that we produce at the ethanol plant. Further, RPMG, Inc. markets all of the distillers grains that we produce that we do not market internally to local customers.

We recently completed approximately $7 million in capital improvements to the ethanol plant related to various equipment upgrades designed to improve our energy efficiency and increase our total production by eliminating bottlenecks in our production process. We financed the plant upgrades using cash from our operations.

We recently completed expanding our ethanol tank farm and our shipping equipment. We used cash from our continuing operations to finance this capital project which cost approximately $4 million.

We are in the process of expanding our railroad siding to accommodate shipping unit trains. We anticipate this project will be completed during our third quarter of 2016. We are using cash from our continuing operations and amounts we have available to borrow on our long-term revolving debt to finance this capital project which is expected to cost approximately $7 million.

During the first quarter of 2015, we declared and paid a distribution in the amount of $0.10 per membership unit, in addition to composite tax payments made on our members' behalf, for a total distribution of $3,065,512. During the third quarter of 2015, we declared and paid another distribution in the amount of $0.10 per membership unit for a total distribution of $2,962,000.

Table of Contents

Results of Operations

Comparison of the Fiscal Quarters Ended September 30, 2015 and 2014

The following table shows the results of our operations and the percentage of revenues, cost of revenues, operating expenses and other items to total revenues in our consolidated statements of income for the fiscal quarters ended September 30, 2015 and 2014:



	2015			2014
Income Statement Data	Amount		%	Amount		%
Revenues	$	22,038,423	100.0	$	28,961,413	100.0

Cost of Revenues	19,817,321		89.9	21,309,028		73.6

Gross Profit	2,221,102		10.1	7,652,385		26.4

Operating Expense	772,964		3.5	843,870		2.9

Income from Operations	1,448,138		6.6	6,808,515		23.5

Other Income	402,746		1.8	2,151,175		7.4

Net Income	$	1,850,884	8.4	$	8,959,690	30.9

Revenues

Revenue from ethanol sales decreased by approximately 28% during our third quarter of 2015 compared to the same period of 2014. Revenue from distillers grains sales decreased by approximately 3% during our third quarter of 2015 compared to the same period of 2014. Revenue from corn oil sales decreased by approximately 3% during our third quarter of 2015 compared to the same period of 2014. Operating margins were reduced during our third quarter of 2015 compared to the same period of 2014, primarily due to lower prices for our products which were not offset by comparable reductions in corn prices.

Ethanol

Our ethanol revenue was approximately $6.8 million less during our third quarter of 2015 compared to our third quarter of 2014, a decrease of approximately 28%. This decrease in ethanol revenue was due to a decrease in the average price we received for the ethanol we sold during our third quarter of 2015 compared to our third quarter of 2014, in addition to a decrease in the volume of ethanol we sold during the 2015 period. We sold approximately 3% fewer gallons of ethanol during our third quarter of 2015 compared to the same period of 2014, a decrease of approximately 426,000 gallons, due to more plant downtime during the 2015 period partially offset by increased production capacity during the 2015 period due to our capital improvement project.

The average price we received for our ethanol was approximately $0.48 per gallon less during our third quarter of 2015 compared to our third quarter of 2014, a decrease of approximately 26%. Management attributes this decrease in ethanol prices with excess ethanol supply in the market and lower gasoline prices which both impacted ethanol demand and prices during our third quarter of 2015. In addition, management believes the price of ethanol was negatively impacted by the United States Environmental Protection Agency's (EPA) proposed ethanol use requirement under the Federal Renewable Fuels Standard (RFS) which was released in May 2015, discussed below.

Operating margins were reduced during our third quarter of 2015 compared to our third quarter of 2014 as a result of lower prices for our products which was not offset by comparable decreases in our raw material costs. During our 2014 fiscal year, operating margins were considerably higher primarily due to increased ethanol prices and relatively lower corn costs. The higher ethanol prices during our second quarter of 2014 related to ethanol supply disruptions from delayed rail shipments across the industry. These rail shipping delays were alleviated by our third quarter of 2014 and were not as pronounced during our 2015 fiscal year. Management believes that operating margins will remain tight for the rest of our 2015 fiscal year and into our 2016 fiscal year. Recently, the EPA released the renewable volume obligations for 2014, 2015 and 2016 under the RFS. The renewable volume obligations establish the amount of various renewable fuels which must be used each year in the United States. The EPA has been late establishing the renewable volume obligations for previous years so the EPA released three years' of the requirement at once. The renewable volume obligations established by the EPA decreased the corn-based ethanol use requirements for 2014, 2015 and 2016 below the statutory requirements in the RFS. Management believes the decreases in the renewable volume

Table of Contents

obligations has negatively impacted ethanol demand and prices which has negatively impacted profitability in the ethanol industry. This decrease in ethanol demand and prices may continue to impact profitability in the ethanol industry going forward, especially if gasoline prices remain lower. Lower gasoline prices have traditionally negatively impacted ethanol prices. In the past, more ethanol was used than was required by the RFS because ethanol is usually less expensive than gasoline. This price difference increased demand for ethanol. However, due to current lower gasoline prices, the price difference between ethanol and gasoline is small resulting in lower ethanol demand. During 2015, the ethanol industry experienced increased export demand for ethanol due to lower market ethanol prices. These exports have provided some support for ethanol prices in the United States.

Distillers Grains

Our total distillers grains revenue was approximately 3% less during our third quarter of 2015 compared to the same period of 2014 due to decreased total tons of distillers grains we sold partially offset by increased distillers grains prices. For our third quarter of 2015, we sold approximately 47% of our total distillers grains in the dried form and approximately 53% of our total distillers grains in the modified/wet form. By comparison, for our third quarter of 2014, we sold approximately 52% of our total distillers grains in the dried form and approximately 48% of our total distillers grains in the modified/wet form. We determine the mix between dried distillers grains and modified/wet distillers grains we sell based on market conditions and the relative profitability of selling the different forms of distillers grains. We consume additional natural gas when we produce dried distillers grains as compared to modified/wet distillers grains which can impact the profit we generate from sales of dried distillers grains. Management anticipates that we will maintain the current mix between dried distillers grains and modified/wet distillers grains going forward unless market conditions change in a way that favors one product over the other.

The average price we received for our dried distillers grains was approximately 6% more during our third quarter of 2015 compared to the same period of 2014, an increase of approximately $7 per ton. The average price we received for our modified/wet distillers grains was approximately 13% more for our third quarter of 2015 compared to the same period of 2014, an increase of approximately $15 per ton. Management attributes the increase in the selling price of our distillers grains with a stronger distillers grains market during our 2015 fiscal year since China re-entered the market in early 2015 along with more favorable forward distillers grains sales contracts we had during our 2015 fiscal year. Distillers grains prices typically fluctuate based on the price of corn, soy bean meal and other competing feed products. Management expects distillers grains prices to continue to trade relative to the value of corn. Due to an anticipated large corn crop during the fall of 2015 and China recently leaving the market, we expect that distillers grains prices will be lower compared to previous years.

Corn Oil

Our total pounds of corn oil sold increased by approximately 18% during our third quarter of 2015 compared to the same period of 2014, an increase of approximately 439,000 pounds, primarily due to improved oil extraction efficiencies. Management anticipates that corn oil production will continue to be variable based on the total production of ethanol at our plant and by operating efficiencies we achieve at the ethanol plant. Partially offsetting the increase in corn oil sales was a decrease in the average price we received for our corn oil of approximately 16% for our third quarter of 2015 compared to the same period of 2014, a decrease of approximately $0.05 per pound. This decrease in market corn oil prices was primarily due to lower corn oil demand and increased corn oil supplies in the market. The biodiesel industry has been impacted by legislative changes, including the expiration of the biodiesel blenders' tax credit. However, since the biodiesel use requirement in the RFS was maintained, it has positively impacted corn oil prices during our third quarter of 2015. Further, management expects that the biodiesel blenders' tax credit will be renewed which may have a positive impact on biodiesel production which could positively impact corn oil demand. Management anticipates relatively stable corn oil prices for the rest of our 2015 fiscal year and into our 2016 fiscal year.

Cost of Revenues

Our cost of revenues for our third quarter of 2015 was lower compared to the same period of 2014 due to reduced natural gas costs. Natural gas costs were unusually high during our 2014 fiscal year due to reduced market natural gas supplies.

Our cost of revenues relating to corn was approximately 1% greater for our third quarter of 2015 compared to the same period of 2014 due to slightly higher corn costs per bushel, partially offset by decreased corn consumption during the 2015 period. Our average cost per bushel of corn increased by approximately 2% for our third quarter of 2015 compared to our third quarter of 2014. Management attributes the increase in corn prices with exceptionally low corn prices during our 2014 fiscal year which have increased slightly during our 2015 fiscal year. Corn prices in recent years have been low due to favorable corn supplies and relatively stable corn demand. Management anticipates that corn prices will remain lower into the foreseeable future as the corn crop harvested in the fall of 2015 is expected to be another record crop.

Table of Contents

We consumed approximately 1% less corn during our third quarter of 2015 compared to the same period of 2014 due to decreased production from more plant downtime during the 2015 period. Management anticipates that our corn consumption will be slightly higher during our 2015 fiscal year compared to our 2014 fiscal year due to our plant upgrade project which was completed at the end of our 2014 fiscal year which has increased our ethanol production rates.

Our cost of revenues related to natural gas decreased by approximately $510,000, a decrease of approximately 32%, for our third quarter of 2015 compared to our third quarter of 2014. This decrease was due to a significant decrease in market natural gas prices during our third quarter of 2015 compared to the same period of 2014 along with decreased natural gas usage due to our plant improvement project. During 2014, we experienced unusually high natural gas prices during our first quarter due to the colder winter which resulted in natural gas price spikes. These higher natural gas prices continued as natural gas supplies were replenished during 2014. Market natural gas prices were lower during our third quarter of 2015 due to improved natural gas supply and demand relationships. Our average cost per MMBtu of natural gas during our third quarter of 2015 was approximately 24% lower compared to the price for our third quarter of 2014. Management anticipates that natural gas prices will remain relatively stable as the market supply of natural gas has returned to more traditional levels. However, if natural gas production problems occur during 2015 or 2016, it could result in higher natural gas prices which could negatively impact our profitability.

We used approximately 11% fewer MMBtus of natural gas during our third quarter of 2015 compared to the same period of 2014 due to energy efficiency improvements in the plant and a shift in distillers grains production from dried to modified/wet. Management anticipates that our natural gas consumption will remain at current levels despite anticipated increases in production due to our plant improvement projects.

Operating Expenses

Our operating expenses were less for our third quarter of 2015 compared to the same period of 2014 due to decreased wages and bonuses due to our decreased profitability.

Other Income and Expense

Our interest and other income was less for our third quarter of 2015 compared to the same period of 2014 due to having less cash on hand. Our income related to our investments was less during our third quarter of 2015 compared to the same period of 2014 due to reduced profitability in the ethanol industry which impacts our portion of the net income generated by our investments, including Guardian Hankinson, LLC and RPMG, because both are involved in the ethanol industry. Our interest expense was lower during our third quarter of 2015 compared to the same period of 2014 due to having less borrowings outstanding on our loans during the 2015 period.

Comparison of the Nine Months Ended September 30, 2015 and 2014



	2015			2014
Income Statement Data	Amount		%	Amount		%
Revenues	$	66,433,906	100.0	$	97,721,057	100.0

Cost of Revenues	60,642,843		91.3	70,069,939		71.7

Gross Profit	5,791,063		8.7	27,651,118		28.3

Operating Expense	1,894,522		2.9	2,760,821		2.8

Income from Operations	3,896,541		5.9	24,890,297		25.5

Other Income	2,765,681		4.2	6,296,056		6.4

Net Income	$	6,662,222	10.0	$	31,186,353	31.9

Table of Contents

Revenues

Revenue from ethanol sales decreased by approximately 36% during the nine months ended September 30, 2015 compared to the same period of 2014. Revenue from distillers grains decreased by approximately 20% during the nine months ended September 30, 2015 compared to the same period of 2014. Revenue from corn oil decreased by approximately 3% during the nine months ended September 30, 2015 compared to the same period of 2014.

Ethanol

Our ethanol revenue was approximately $27.9 million less during the nine months ended September 30, 2015 compared to the same period of 2014, a decrease of approximately 36%. The average price we received for our ethanol decreased by approximately 38% for the nine months ended September 30, 2015 compared to the same period of 2014, a decrease of approximately $0.82 per gallon of ethanol sold. Our total gallons of ethanol sold during the nine months ended September 30, 2015 was approximately 3% more than during the same period of 2014, an increase of approximately 1,255,000 gallons due to improved ethanol production capacity which resulted from our capital improvement project.

Distillers Grains

Our total distillers grains revenue decreased by approximately $3,339,000 for the nine months ended September 30, 2015 compared to the same period of 2014. We sold approximately 4,000 less total tons of distillers grains, a decrease of approximately 4%, for the nine months ended September 30, 2015 compared to the same period of 2014. The decrease in production is due to improved ethanol and corn oil yields. The average price we received for our dried distillers grains decreased by approximately $25 per ton, a decrease of approximately 16%, for the nine months ended September 30, 2015 compared to the same period of 2014. The average price we received for our modified/wet distillers grains decreased by approximately $27 per ton, a decrease of approximately 17%, for the nine months ended September 30, 2015 compared to the same period of 2014. For the nine months ended September 30, 2015, we sold approximately 36% of our distillers grains in the dried form and approximately 64% in the modified/wet form. During the nine months ended September 30, 2014, we sold approximately 40% of our distillers grains in the dried form and approximately 60% in the modified/wet form. We experienced stronger demand for the modified/wet distillers grains during the 2015 period which resulted in increased sales of modified/wet distillers grains during that period.

Corn Oil

Our total pounds of corn oil sold increased by approximately 15% during the nine months ended September 30, 2015 compared to the same period of 2014 due to improved efficiency in operating our corn oil extraction equipment and increased total production at the ethanol plant. This increase in corn oil production results in less tons of total distillers grains produced which is the reason distillers grains production was lower during the nine months ended September 30, 2015 compared to the same period of 2014 while ethanol production was higher. Offsetting this increase in production, the average price we received for our corn oil decreased by approximately 16% for the nine months ended September 30, 2015 compared to the same period of 2014 due to lower commodity prices and decreased corn oil demand.

Cost of Revenues

Our cost of revenues decreased primarily due to the reduction in corn and natural gas costs, the primary raw materials we use to produce our products.

Our cost of revenues related to corn was approximately 12% less for the nine months ended September 30, 2015 compared to the same period of 2014. Our average cost per bushel of corn decreased by approximately 14% for the nine months ended September 30, 2015 compared to the same period of 2014, a decrease of approximately $0.56 per bushel of corn. We used approximately 3% more bushels of corn during the nine months ended September 30, 2015 compared to the same period of 2014. Our cost of revenues related to natural gas decreased by approximately $2,814,000, a decrease of approximately 43%, for the nine months ended September 30, 2015 compared to the same period of 2014. Our average cost per MMBtu of natural gas during the nine months ended September 30, 2015 was approximately 38% lower compared to the same period of 2014, a decrease of approximately $2.35 per MMBtu of natural gas. We used approximately 9% less natural gas during the nine months ended September 30, 2015 compared to the same period of 2014. This decrease was due to energy efficiency improvements in the plant and a shift in distillers grains production from dried to modified/wet.

Table of Contents

Operating Expense

Our operating expenses decreased for the nine months ended September 30, 2015 compared to the same period of 2014 due primarily to decreased wages and bonuses which resulted from our reduced profitability. Additionally, we received insurance proceeds during our second quarter 2015 related to storm damage at our plant which reduced our operating expenses during the 2015 period.

Other Income and Expense

Our interest and other income was greater during our nine months ended September 30, 2015 compared to the same period of 2014 due to increased dividends received. The insurance proceeds are related to business interruption insurance coverage from storm damage incurred during our second quarter of 2014. Our income related to our investments was less during our nine months ended September 30, 2015 compared to the same period of 2014 due to reduced profitability in the ethanol industry which impacts our portion of the net income generated by our investments. Our interest expense was lower during our nine months ended September 30, 2015 compared to the same period of 2014 due to having less borrowings outstanding on our loans during the 2015 period.

Changes in Financial Condition for the Nine Months Ended September 30, 2015

Current Assets

We had more cash on hand at September 30, 2015 compared to December 31, 2014, primarily due to income we generated from our operations and distributions we received from our investments during our 2015 fiscal year. We had more accounts receivable at September 30, 2015 compared to December 31, 2014 due to the timing of the end of our quarter. We were awaiting payment for a larger quantity of our products at September 30, 2015 compared to December 31, 2014. We had less other receivables at September 30, 2015 compared to December 31, 2014 due to distributions we received from our investments in the first quarter of 2015. The decrease in our inventory is due primarily to lower corn inventory due to lower stocks and lower market corn prices which are used to value our inventory at September 30, 2015 compared to market prices at December 31, 2014. We had less cash held by our commodities broker as of September 30, 2015 compared to December 31, 2014 which decreased the value of our derivative instruments at September 30, 2015.

Property and Equipment

The value of our property and equipment was greater at September 30, 2015 compared to December 31, 2014 as a result of the capital improvements we made, partially offset by regular depreciation of our equipment and disposal of damaged equipment.

Other Assets

The value of our investments were lower at September 30, 2015 compared to December 31, 2014 primarily due to the reduction in the value of our investment in Guardian Hankinson, LLC as a result of distributions we received from Guardian Hankinson, LLC during our 2015 fiscal year, offset by income generated by our investments since that time.

Current Liabilities

We had more outstanding checks in excess of bank balances at September 30, 2015 compared to December 31, 2014 due to the timing of transfers between our accounts. We use our revolving loan to pay any checks which are presented for payment which exceed the cash we have available in our accounts. Our accounts payable was significantly lower at September 30, 2015 compared to December 31, 2014 because our corn suppliers typically seek to defer payments for corn that is delivered at the end of the year for tax purposes, which increases our accounts payable at that time. These deferred payments were made early in our first quarter of 2015. We had a smaller liability associated with our derivative financial instruments at September 30, 2015 compared to December 31, 2014 due to having less unrealized losses on our risk management positions at September 30, 2015 related to our forward contracts.

Long-Term Liabilities

Our long-term liabilities were comparable at September 30, 2015 and December 31, 2014.

Table of Contents

Liquidity and Capital Resources

Our main sources of liquidity are cash generated from our continuing operations and amounts we have available to draw on our revolving lines of credit. Management does not anticipate that we will need to raise additional debt or equity financing in the next twelve months and management believes that our current sources of liquidity will be sufficient to continue our operations during that time period.

Currently, we have two revolving loans which allow us to borrow funds for working capital. These two revolving loans are described in greater detail below in the section entitled "Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations - Indebtedness." As of September 30, 2015, we had $1,000 outstanding and $17,836,000 available to be drawn on these revolving loans, after taking into account the borrowing base calculation. Management anticipates that this is sufficient to maintain our liquidity and continue our operations.

The following table shows cash flows for the nine months ended September 30, 2015 and 2014:



	Nine Months Ended September 30,
	2015			2014
Net cash provided by operating activities	$	11,961,698		$	23,400,954
Net cash (used in) investing activities	(6,618,781		)	(5,777,208		)
Net cash (used in) financing activities	(1,877,979		)	(24,762,973		)

Cash Flow From Operations. Our operating activities provided less cash during the nine months ended September 30, 2015 compared to the same period of 2014, primarily due to decreased profitability during the 2015 period. We had significantly less net income during the 2015 period compared to the 2014 period which negatively impacted our cash flow for our first nine months of 2015.

Cash Flow From Investing Activities. Our investing activities used more cash during the nine months ended September 30, 2015 compared to the same period of 2014 due to increased capital expenditures compared to the 2014 period partially offset by insurance proceeds we received during the 2015 period. We also used less cash to purchase investments during the 2015 period compared to the 2014 period.

Cash Flow From Financing Activities. Our financing activities used less cash during the nine months ended September 30, 2015 compared to the same period of 2014 due to decreased payments on our long-term debt along with decreased distributions during the 2015 period.

Indebtedness

Effective May 15, 2013, we entered into a comprehensive credit facility with Farm Credit Services of America, PCA and Farm Credit Services of America, FLCA (collectively "FCSA"). Our FCSA credit facility replaced our prior loans with First National Bank of Omaha. Our FCSA credit facility was originally comprised of a $10 million revolving operating line of credit (the "Operating Line") and a $5 million revolving term commitment (the "Term Revolver"). Our FCSA credit facility was amended in December 2013 to add an additional $10 million term loan (the "Term Loan"). We amended our FCSA loans on November 11, 2014, the primary purpose of which was to replace our $5 million Term Revolver and our $10 million Term Loan with a new $15 million reducing revolving loan (the "Reducing Revolving Loan"). All of our assets, including the ethanol plant and equipment, its accounts receivable and inventory, serve as collateral for our loans with FCSA.

Operating Line

The Operating Line's term was extended in our November 11, 2014 amendment to November 1, 2016. The total amount that we can draw on the Operating Line is restricted by a formula based on the amount of inventory, receivables and equity we have in certain CBOT futures positions. Interest on the Operating Line accrued at the one month London Interbank Offered Rate ("LIBOR") plus 300 basis points. There is a fee of 0.25% on the portion of the Operating Line that we are not using, which is billed quarterly. The interest rate for this loan at September 30, 2015 was 3.20%. As of September 30, 2015, we had $0 outstanding on the Operating Line and $3,587,000 available to be drawn, taking into account the borrowing base calculation.

Reducing Revolving Loan

Table of Contents

On November 11, 2014, we executed a loan amendment with FCSA which eliminated our prior Term Loan and Term Revolver and replaced them with a new $15 million Reducing Revolving Loan. Interest accrues on the Reducing Revolving Loan at a rate of 325 basis points in excess of the one-month LIBOR and we agreed to pay a fee of 0.50% for any unused amount of the Reducing Revolving Loan. The amount we can borrow on the Reducing Revolving Loan decreases by $750,000 semi-annually starting on April 1, 2015 until the maximum balance reaches $7.5 million on October 1, 2019. The Reducing Revolving Loan matures on October 1, 2024. The interest rate for this loan at September 30, 2015 was 3.45%. As of September 30, 2015, we had $1,000 outstanding on the Reducing Revolving Loan and $14,249,000 available to be drawn.

Covenants

Our credit facilities with FCSA are subject to various loan covenants. If we fail to comply with these loan covenants, FCSA can declare us to be in default of our loans. The material loan covenants applicable to our credit facilities are our working capital covenant, local net worth covenant and our debt service coverage ratio. We are required to maintain working capital (current assets minus current liabilities) of at least $6 million. We are required to maintain local net worth (total assets minus total liabilities minus the value of certain investments) of at least $18 million. We are required to maintain a debt service coverage ratio of at least 1.25:1.00.

As of September 30, 2015, we were in compliance with all of our loan covenants. Management's current financial projections indicate that we will be in compliance with our financial covenants for the next 12 months and we expect to remain in compliance thereafter. Management does not believe that it is reasonably likely that we will fall out of compliance with our material loan covenants in the next 12 months. If we fail to comply with the terms of our credit agreements with FCSA, and FCSA refuses to waive the non-compliance, FCSA may require us to immediately repay all amounts outstanding on our loans.

Application of Critical Accounting Policies

Management uses estimates and assumptions in preparing our consolidated financial statements in accordance with generally accepted accounting principles. These estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Of the significant accounting policies described in the notes to our consolidated financial statements, we believe that the following are the most critical:

Derivative Instruments

We enter into short-term forward grain, option and futures contracts as a means of securing corn and natural gas for the ethanol plant and managing exposure to changes in commodity and energy prices. We enter into short-term forward, option and futures contracts for sales of ethanol to manage exposure to changes in energy prices. All of our derivatives are designated as non-hedge derivatives, and accordingly are recorded at fair value with changes in fair value recognized in net income. Although the contracts are considered economic hedges of specified risks, they are not designated as and accounted for as hedging instruments.

As part of our trading activity, we use futures and option contracts offered through regulated commodity exchanges to reduce our risk and we are exposed to risk of loss in the market value of inventories. To reduce that risk, we generally take positions using cash and futures contracts and options.

Unrealized gains and losses related to derivative contracts for corn and natural gas purchases are included as a component of cost of revenues and derivative contracts related to ethanol sales are included as a component of revenues in the accompanying financial statements. The fair values of derivative contracts are presented on the accompanying balance sheet as derivative financial instruments.

Goodwill

We record as goodwill the excess of purchase price over the fair value of the identifiable net assets acquired. Annually, as well as when an event triggering impairment may have occurred, the Company is required to perform an impairment test on goodwill. The first step tests for impairment, while the second step, if necessary, measures the impairment. We perform our annual analysis on December 31 of each fiscal year.

Lower of cost or market accounting for inventory

With the significant change in the prices of our main inputs and outputs, the lower of cost or market analysis of inventory can have a significant impact on our financial performance.

Table of Contents

The impact of market activity related to pricing of corn and ethanol will require us to continuously evaluate the pricing of our inventory under a lower of cost or market analysis.

Revenue Recognition

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to the impact of market fluctuations associated with commodity prices and interest rates as discussed below. We have no exposure to foreign currency risk as all of our business is conducted in U.S. Dollars. We have loans that are subject to variable interest rates. We use derivative financial instruments as part of an overall strategy to manage market risk. We use cash, futures and option contracts to hedge changes to the commodity prices of corn and natural gas. We do not enter into these derivative financial instruments for trading or speculative purposes, nor do we designate these contracts as hedges for accounting purposes.

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding loans which bear variable interest rates. As of September 30, 2015, we had $1,000 outstanding on our variable interest rate loans with interest accruing at a rate of 3.45%. Our variable interest rates are calculated by adding a set basis to LIBOR. If we were to experience a 10% increase in LIBOR, the annual effect such change would have on our income statement, based on the amount we had outstanding on our variable interest rate loans as of September 30, 2015, would be less than $1.

Commodity Price Risk

We are exposed to market risk from changes in commodity prices. Exposure to commodity price risk results from our dependence on corn and natural gas in the ethanol production process. We seek to minimize the risks from fluctuations in the prices of corn and natural gas through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases, they are not designated as such for hedge accounting purposes, which would match the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are marking to market our hedge positions, which means as the current market price of our hedge positions changes, the gains and losses are immediately recognized in our cost of revenues.

The immediate recognition of hedging gains and losses can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged. We recorded a decrease to our cost of revenues of approximately $242,000 related to derivative instruments for the quarter ended September 30, 2015. We recorded an increase to our cost of revenues of approximately $138,000 related to derivative instruments for the quarter ended September 30, 2014. There are several variables that could affect the extent to which our derivative instruments are impacted by price fluctuations in the cost of corn or natural gas. However, it is likely that commodity cash prices will have the greatest impact on the derivatives instruments with delivery dates nearest the current cash price.

As of September 30, 2015, we were committed to purchasing approximately 1.3 million bushels of corn with an average price of $3.70 per bushel. These corn purchases represent approximately 7% of our expected corn usage for the next 12 months. As of September 30, 2015, we were committed to purchasing approximately 60,000 MMBtu of natural gas with an average price of $3.02 per MMBtu. These natural gas purchases represent approximately 5% of our expected corn usage for the next 12 months. As corn and natural gas 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

Table of Contents

prospects and weather, these price protection positions may cause immediate adverse effects to our financial results, but are designed to produce long-term positive growth for us.

A sensitivity analysis has been prepared to estimate our exposure to corn, natural gas and ethanol price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol price as of September 30, 2015, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from September 30, 2015. The results of this analysis, which may differ from actual results, are as follows:



	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price		Approximate Adverse Change to Income
Ethanol	55,000,000	Gallons	10	%	$	7,700,000
Corn	18,107,080	Bushels	10	%	$	6,083,979
Natural Gas	1,177,500	MMBTU	10	%	$	315,570

For comparison purposes, our sensitivity analysis for our third quarter of 2014 is set forth below.



	Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)	Unit of Measure	Hypothetical Adverse Change in Price		Approximate Adverse Change to Income
Ethanol	50,000,000	Gallons	10	%	$	7,350,000
Corn	15,644,750	Bushels	10	%	$	4,615,201
Natural Gas	1,400,000	MMBTU	10	%	$	544,600

ITEM 4. CONTROLS AND PROCEDURES.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

Our management, including our Chief Executive Officer (the principal executive officer), Scott Mundt, along with our Chief Financial Officer (the principal financial officer), Rob Buchholtz, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2015. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended September 30, 2015, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time in the ordinary course of business, Dakota Ethanol or Lake Area Corn Processors may be named as a defendant in legal proceedings related to various issues, including, worker's compensation claims, tort claims, or contractual disputes. We are not currently involved in any material legal proceedings, directly or indirectly, and we are not aware of any claims pending or threatened against us or any of the managers that could result in the commencement of material legal proceedings.

ITEM 1A. RISK FACTORS.

Table of Contents

The following risk factor is provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factor set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended December 31, 2014, included in our annual report on Form 10-K.

On May 29, 2015 the EPA released its proposed renewable volume obligations for corn-based ethanol under the RFS which is lower than the statutory requirements which has negatively impacted the market price of ethanol.

On May 29, 2015, the EPA released its proposed renewable volume obligations under the RFS for 2014, 2015 and 2016. The renewable volume obligations for conventional biofuels, including the corn-based ethanol we produce, is significantly lower than the statutory standard set in the RFS. The RFS requires the use of 14.40 billion gallons of conventional biofuels in 2014, 15 billion gallons in 2015 and 15 billion gallons in 2016. Pursuant to the EPA proposal, the requirement for conventional biofuels in 2014 is 13.25 billion gallons, 13.40 billion gallons in 2015 and 14 billion gallons in 2016. This is a one billion gallon or more reduction in each of these years compared to the requirements in the RFS. Further, due to the lower price of gasoline, we do not anticipate that renewable fuels blenders will use more ethanol than is required by the RFS which may result in a significant decrease in ethanol demand. This departure by the EPA from the statutory requirements in the RFS is expected to have a negative impact on ethanol prices and demand in 2015 and 2016 and potentially beyond and is expected to result in reduced operating margins in the future. This reduction in ethanol demand is expected to have a material negative impact on our operating performance and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

None.

ITEM 5. OTHER INFORMATION.

None.

ITEM 6. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

The following exhibits are filed as part of this report.



Exhibit No.		Exhibit
31.1		Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2		Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1		Certificate Pursuant to 18 U.S.C. Section 1350*
32.2		Certificate Pursuant to 18 U.S.C. Section 1350*
101		The following financial information from Lake Area Corn Processors, LLC's Quarterly Report on Form 10-Q for the quarter ended September 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014, (ii) Consolidated Statements of Income for the three and nine month periods ended September 30, 2015 and 2014, (iii) Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014, and (iv) the Notes to Unaudited Consolidated Financial Statements.**

* Filed herewith.

** Furnished herewith.

Table of Contents

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		LAKE AREA CORN PROCESSORS, LLC

Date:	November 13, 2015	/s/ Scott Mundt
		Scott Mundt
		President and Chief Executive Officer (Principal Executive Officer)

Date:	November 13, 2015	/s/ Rob Buchholtz
		Rob Buchholtz
		Chief Financial Officer (Principal Financial and Accounting Officer)