Golden Growers Cooperative - Quarter Report: 2010 September (Form 10-Q)

Table of Contents

 

 

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 quarterly period ended September 30, 2010

 

Commission file number:  000-53957

 

Golden Growers Cooperative

(Exact name of registrant as specified in its charter)

 

 

112 Roberts Street North, Suite 111

Fargo, ND 58102

(Address of principal executive offices)

 

Telephone Number 701-281-0468

(Registrant’s telephone number, including area code)

 

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, and (2) has been subject to such filing requirements for the past 90 days. YES x  NO o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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).  YES o  NO o

 

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 definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

 

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

 

Indicate the number of units outstanding of each of the issuer’s classes of units, as of the latest practicable date.

 

As of November 12, 2010 the Cooperative had 15,490,480 Units issued and outstanding.

 

 

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GOLDEN GROWERS COOPERATIVE

 

FORM 10-Q

 

INDEX

 

PART I. FINANCIAL INFORMATION	1
Item 1. Financial Statements	1
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3. Quantitative and Qualitative Disclosures about Market Risk	20
Item 4T. Controls and Procedures	20
PART II. OTHER INFORMATION	20
Item 1. Legal Proceedings	20
Item 1A. Risk Factors	20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3. Defaults Upon Senior Securities	21
Item 4. Removed and Reserved	21
Item 5. Other Information	21
Item 6. Exhibits	22
SIGNATURES	24

 

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GOLDEN GROWERS COOPERATIVE

 

BALANCE SHEETS

SEPTEMBER 30, 2010 AND 2009 AND DECEMBER 31, 2009

 

(In Thousands)

 

		SEPTEMBER 30,						DECEMBER 31,
		2010			2009			2009
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents		$	3,073		$	46		3,293
Short-Term Investments		214			1,113			314
Accounts Receivable		—			—			22
Prepaid Expenses		1			1			—
Total Current Assets		3,288			1,160			3,629
PROPERTY AND EQUIPMENT, net		9			14			12
Investment in ProGold Limited Liability Company		50,354			54,635			53,646
Total Assets		$	53,651		$	55,809		$	57,287
LIABILITIES AND MEMBERS’ EQUITY
CURRENT LIABILITIES
Accounts Payable		$	24		$	23		2
Accrued Liabilities		4			85			106
Total Current Liabilities		28			108			108
NON-CURRENT LIABILITY		149			139			132
MEMBERS’ EQUITY
Members’ Equity
Membership Units, Authorized 60,000,000 Units, Issued and Outstanding 15,490,480 as of September 30, 2010, 15,458,987 as of September 30, 2009, and December 31, 2009		53,623			55,701			57,179
Accumulated Other Comprehensive Loss		(149		)	(139		)	(132		)
Total Members’ Equity		53,474			55,562			57,047
Total Liabilities and Members’ Equity		$	53,651		$	55,809		$	57,287

 

See Accountant’s Review Report and Notes to Financial Statements

 

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GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF OPERATIONS

FOR THE NINE MONTH PERIODS ENDED AND THE THREE MONTH PERIODS ENDED

SEPTEMBER 30, 2010 AND 2009

 

(In Thousands, Except Per Share Amounts)

 

		FOR THE 3 MONTHS  ENDED SEPTEMBER 30,						FOR THE 9 MONTHS  ENDED SEPTEMBER 30,
		2010			2009			2010			2009
Corn Revenue		$	11,477		$	14,585		$	41,255		$	27,209
Corn Expense		(11,478		)	(14,619		)	(41,333		)	(27,283		)
Net Income from ProGold Limited Liability Company		1,496			1,659			4,755			4,478
General & Administrative Expenses		(195		)	(390		)	(656		)	(874		)
Net Income from Operations		1,300			1,235			4,021			3,530
Interest Income		5			13			26			28
Net Income Before Income Tax		1,305			1,248			4,047			3,558
Income Tax Provision		—			44			—			44
Net Income		$	1,305		$	1,204		$	4,047		$	3,514
Weighted Average Number of Units Issued and Outstanding		15,490,480			15,458,987			15,482,607			15,458,987
Earnings per Share/Membership Unit Primary and Fully Diluted		$	0.08		$	0.08		$	0.26		$	0.23

 

See Accountant’s Review Report and Notes to Financial Statements

 

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GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF CHANGES IN MEMBERS’ EQUITY AND COMPREHENSIVE INCOME

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

 

(In Thousands)

 

														Accumulated
														Other						Total			Annual
		Class A			Class B			Additional			Retained			Comprehensive			Members’			Members’			Comprehensive
		Stock			Stock			Paid-in Capital			Earnings			Income			Equity			Equity			Income
BALANCE, DECEMBER 31, 2008		$	247		$	53,334		$	2,687		$	7,459		$	(160	)	$	—		$	63,567
Net income		—			—			—			—			—			3,514			3,514			$	3,514
Member distributions		—			—			—			—			—			(11,293		)	(11,293		)	—
Pension liability adjustment		—			—			—			—			21			—			21			21
Cooperative conversion		—			(53,334		)	(2,687		)	(7,459		)	—			63,480			—			—
Redemption of stock		(247		)	—			—			—			—			—			(247		)	—
BALANCE, SEPTEMBER 30, 2009		$	—		$	—		$	—		$	—		$	(139	)	$	55,701		$	55,562		$	3,535
BALANCE, DECEMBER 31, 2009		$	—		$	—		$	—		$	—		$	(132	)	$	57,179		$	57,047
Net income		—			—			—			—			—			4,047			4,047			$	4,047
Issuance of membership units		—			—			—			—			—			141			141			—
Pension liability adjustment		—			—			—			—			(17		)	—			(17		)	(17		)
Member distributions		—			—			—			—			—			(7,744		)	(7,744		)	—
BALANCE, SEPTEMBER 30, 2010		$	—		$	—		$	—		$	—		$	(149	)	$	53,623		$	53,474		$	4,030

 

See Accountant’s Review Report and Notes to Financial Statements

 

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GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF CASH FLOWS

FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2010 AND 2009

 

(In Thousands)

 

		FOR THE 9 MONTHS
		ENDED SEPEMBER 30,
		2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income		$	4,047		$	3,514
Net (Income) from ProGold Limited Liability Company		(4,755		)	(4,478		)
Depreciation		3			5
Changes in assets and liabilities
Accounts receivable		22			51
Prepaid expenses		(1		)	—
Accounts payable		22			(34		)
Accrued liabilities		39			(71		)
Net cash used in operating activities		(623		)	(1,013		)
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of short-term investments		100			4,902
Purchase of furniture and equipment		—			(15		)
Distribution received from ProGold LLC		8,047			7,712
Net cash provided by investing activities		8,147			12,599
CASH FLOWS FROM FINANCING ACTIVITIES
Net redemptions of stock		—			(247		)
Member distributions paid		(7,744		)	(11,293		)
Net cash used by financing activities		(7,744		)	(11,540		)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(220		)	46
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		3,293			—
CASH AND CASH EQUIVALENTS, END OF PERIOD		$	3,073		$	46
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid (refund received) for income taxes		$	(24	)	$	44
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY
Issuance of Membership Units in Satisfaction of Deferred Compensation Obligation		$	141		$	—

 

See Accountant’s Review Report and Notes to Financial Statements

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors

Golden Growers Cooperative

Fargo, North Dakota

 

We have reviewed the accompanying balance sheets of Golden Growers Cooperative as of September 30, 2010 and 2009, and the related statements of operations, changes in members’ equity and comprehensive income and cash flows for the periods then ended.  These financial statements are the responsibility of the company’s management.

 

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States).  A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters.  It is substantially less in scope than an audit conducted in accordance with standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole.  Accordingly, we do not express such an opinion.

 

Based on our reviews, we are not aware of any material modifications that should be made to the accompanying interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.

 

 

Fargo, North Dakota

November 5, 2010

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

NOTE 1 — NATURE OF OPERATIONS

 

Organization - Golden Growers Cooperative was initially organized as a North Dakota member-owned cooperative incorporated on January 19, 1994 (“GG-ND”).  GG-ND and two other partners, one of whom was American Crystal Sugar Company (“ACSC”) entered into a joint venture that formed ProGold Limited Liability Company, a Minnesota limited liability company (“ProGold”) which designed and constructed a corn wet-milling facility in Wahpeton, North Dakota (the “Facility”).  Under the joint venture, GG-ND (and indirectly its members) had the right and obligation to deliver corn to be processed at the Facility.  After it was constructed and operated briefly by its members, the Facility was leased to Cargill Incorporated (“Cargill”) who continues to operate the Facility under a lease that runs through December 31, 2017.  Golden Growers Cooperative and ACSC are the current members of ProGold, with Golden Growers Cooperative holding a 49% interest and ACSC holding the remaining 51% interest.

 

On July 29, 2009 GG-ND formed a wholly owned cooperative subsidiary in the state of Minnesota (GG-MN), organized under Minnesota Statutes chapter 308A, solely for the purpose of reincorporating into the state of Minnesota.  On September 1, 2009, GG-ND merged into GG-MN and reincorporated into the state of Minnesota.  Immediately after the merger, GG-MN statutorily converted into a cooperative association governed under Minnesota Statutes 308B.  As a result of its reincorporation and reorganization Golden Growers — North Dakota, a North Dakota cooperative association historically taxed as a tax-exempt cooperative under Subchapter T of the Internal Revenue Code, became a Golden Growers Cooperative, a Minnesota cooperative association governed by Minnesota Statutes chapter 308B as a cooperative for state law purposes but taxed as a partnership under Subchapter K of the Internal Review Code for tax purposes.  Golden Growers Cooperative succeeded to the business of Golden Growers — North Dakota and except for changes to the structure and operations as a result of the reincorporation and statutory conversion, continues to operate the business of Golden Growers — North Dakota.

 

As part of the Conversion, GG-ND’s members exchanged their shares of Class A Common Voting Membership Stock and Class B Non-Voting Equity Stock for identical and equal shares of such stock in GG-MN.  Each member’s single share of Class A Common Voting Membership Stock was redeemed for $150 and each member received membership units in GG-MN equal to the number of shares of Class B Non-Voting Equity Stock each member held in GG-ND prior to the Merger.

 

Prior to September 1, 2009, ownership of membership stock, which signified membership in the Cooperative, was restricted to producers of agricultural products.  The ownership of equity stock was restricted to members of the Cooperative.  Preferred stock could be held by persons who were not members of the Cooperative.  At August 31, 2009, 2008 and 2007, the Cooperative had 10,000 shares of non-voting, $1,000 par-value preferred stock authorized, of which none were issued or outstanding.  Equity requirements, as determined by the board of directors, could be retained from amounts due to patrons and credited to members’ equity in the form of unit retains or allocated patronage.

 

The Cooperative reserved the right to acquire any of its stock offered for sale and the right to recall the stock of any member.  In the event this right was exercised, the consideration paid for such stock was 25% of its book value.

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

Beginning September 1, 2009, ownership of membership units is available to any person or entity residing in the Unites States of America.  Net proceeds or losses will be allocated to members on the basis of their patronage of the Cooperative.

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

In connection with the Conversion, the Cooperative changed its fiscal year end to December 31.  The results of operations for the nine month periods ended September 30, 2010 and 2009 are not necessarily indicative of results that may be achieved in a twelve month period.

 

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation - In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  Operating results for the nine-month period ended September 30, 2010 are not necessarily indicative of the results that may be expected for the year ending December 31, 2010.  The information contained in the balance sheet as of December 31, 2009 was derived from the audited financial statements for Golden Growers Cooperative (the “Cooperative”) for the period then ended.

 

Investments — The Cooperative’s investment securities are held to maturity and recorded at amortized cost.  The Cooperative’s investment in ProGold is recorded at historical cost plus its pro-rata share of ProGold’s net income and additional paid-in capital less distributions received from ProGold.  Unrealized gains or losses are recorded in accumulated other comprehensive income within members’ equity.  Gains and losses are determined using the specific identification method.

 

Cash and Cash Equivalents — The Cooperative considers all demand accounts to be cash equivalents and overnight sweep accounts.  Cash equivalents do not include money market accounts maintained by the Cooperative’s investment managers.  Cash equivalents do not include any investment with a stated maturity date, regardless of the term to maturity.

 

Income Taxes — Beginning September 1, 2009, Golden Growers Cooperative is taxed as a limited liability company under Subchapter K of the Internal Revenue Code.  As such, the Cooperative will generally not be subject to income taxes.  Instead, net income will be reported by its members who will be responsible for any income taxes which may be due.  Prior to September 1, 2009, Golden Growers Cooperative was an exempt cooperative for federal income tax purposes.  As such, the cooperative was generally not subject to income taxes.  Instead, net proceeds were allocated to the Cooperative’s patrons who were responsible for any income taxes which may have been due.

 

Property and Equipment — Property and equipment are stated at cost.  Depreciation on assets placed in service is provided using the straight-line method over estimated useful lives ranging from 5 to 10 years.

 

Accounting Estimates — The preparation of the financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of 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 those estimates.

 

Revenue Recognition — Prior to 2010, the Cooperative recognized corn revenue in the amount equal to what Cargill, Incorporated paid Golden Growers Cooperative members for corn.  The Cooperative recognized corn expense based upon the amount determined by the Cooperative’s board of directors to be paid to its members.  During 2009, 2008 and 2007 the amount determined by the board as the corn expense was equal to the amount

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

paid by Cargill.  The Cooperative recognizes corn expense for costs incurred to Cargill in connection with corn procurement services.

 

Starting on January 1, 2010, the board will no longer determine the corn expense.  The Cooperative’s members are contractually obligated to annually deliver corn to the Cooperative by either Method A or Method B or a combination of both.  Under Method A, a member is required to physically deliver corn to the cooperative and under Method B a member appoints the cooperative as its agent to arrange for the acquisition and delivery of corn on the member’s behalf.  For an annual fee of $92,000 paid quarterly, the Cooperative contractually appoints Cargill as its agent to arrange for the delivery of the corn by its members who elect to deliver corn using Method A and to acquire corn on its behalf for its members who elect to deliver corn using Method B.  The price per bushel paid to the member who elects to deliver corn using Method B is equal to the price per bushel paid by Cargill to acquire the corn as the Cooperative’s agent.  Members who deliver corn under Method A are paid the market price or contracted price for their corn at the time of delivery.  The Cooperative pays members who deliver corn under Method A an incentive payment of $.05 per bushel while members who elect Method B to deliver corn pay the Cooperative a $.02 per bushel agency fee for the cost of having the Cooperative deliver corn on their behalf.  The board has the discretion to change the incentive fee and the agency fee based on the Cooperative’s corn delivery needs.  The incentive fee and agency fee are a component of Corn Expense.

 

With respect to all Method A corn that is delivered, Cargill pays the aggregate purchase price for corn purchased from the Cooperative’s members to the Cooperative and then, on the Cooperative’s behalf, makes individual payments for corn directly to its members.  If a Method A member fails to fully satisfy the corn delivery requirement, Cargill purchases replacement corn for which the Cooperative reimburses Cargill the amount by which the underlying contracted corn price is less than the price of buying the replacement corn that was due on the delivery date.  The Method A member who fails to deliver corn is then invoiced by the Cooperative for the price of the corn.

 

Based on what is to be delivered by its members using Method A, Cargill then purchases the remainder of the corn to be delivered by the Cooperative on behalf of its Method B delivering members.  Because Cargill purchases the corn on the Cooperative’s behalf of Method B delivering members, the purchase price for the corn that would be paid to the Cooperative’s members if they actually delivered the corn offsets against the payment to be made by the Cooperative to Cargill for the cost to purchase the corn, thus no payment is made from Cargill to the Cooperative for corn delivered using Method B.  The Cooperative has determined Corn Revenue and Expense for Method B deliveries based on the average quarterly cost per bushel paid by Cargill to the Cooperative’s members for Method A quarterly deliveries.

 

Concentrations - Several times during the year, the Cooperative maintained a cash balance in excess of the Federal Deposit Insurance Corporation (“FDIC”) limits.  At September 30, 2010, the Cooperative’s cash balance exceeded the FDIC insurance limits by approximately $2.8 million.

 

Fair Value Measurements - The Cooperative has determined the fair value of certain assets and liabilities in accordance with the provisions of Accounting Standards Codification (“ASC”) 820-10, which provides a framework for measuring fair value under generally accepted accounting principles

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

ASC 820-10 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  ASC 820-10 requires that valuation techniques maximize the use of observable inputs and minimize the use of unobservable inputs.  ASC 820-10 also establishes a fair value hierarchy, which prioritizes the valuation inputs into three broad levels.

 

Level 1 inputs consist of quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.  Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the related asset or liability.  Level 3 inputs are unobservable inputs related to the asset or liability.

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

NOTE 3 — PROGOLD LIMITED LIABILITY COMPANY

 

The Cooperative has a 49% ownership interest in ProGold Limited Liability Company.  Following is summary financial information for ProGold LLC is as follows (in thousands):

 

		September 30,						December 31,
		2010			2009			2009
Current Assets		$	153		$	162		$	146
Long-Term Assets		105,525			114,653			112,537
Total Assets		$	105,678		$	114,815		$	112,683
Current Liabilities		$	414		$	414		$	401
Long-Term Liabilities		2,500			2,900			2,800
Total Liabilities		2,914			3,314			3,201
Members’ Equity		102,764			111,501			109,482
Total Liabilities and Members’ Equity		$	105,678		$	114,815		$	112,683
Rent Revenue on Operating Lease		$	18,258		$	17,874		$	8,310
Expenses		8,554			8,734			3,821
Net Income		$	9,704		$	9,140		$	4,489

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

NOTE 4 — INVESTMENTS

 

The Cooperative has determined fair value of its investments held to maturity based on Level 1 inputs.

 

The Cooperative’s investments held to maturity are as follows as of September 30, 2010 and 2009 and December 31, 2009 (in thousands):

 

					Gross			Gross
		Amortized			Unrealized			Unrealized			Fair
		Cost			Gains			Losses			Value
September 30, 2010:
Money Market & CD’s		$	214		$	—		$	—		$	214
September 30, 2009:
Money Market & CD’s		$	1,113		$	—		$	—		$	1,113
December 31, 2009:
Mutual Funds		$	104		$	—		$	—		$	104
Money Market & CD’s		210			—			—			210
		$	314		$	—		$	—		$	314

 

NOTE 5 — LINE OF CREDIT

 

The Cooperative established a $1,000,000 line of credit with a variable interest rate based on the prime rate maturing July 16, 2011. The line of credit is secured by business assets.  At September 30, 2010 and 2009 the Cooperative had no outstanding balance on the line of credit.

 

NOTE 6 — INCOME TAXES

 

During the period ended December 31, 2009, the Cooperative adopted the provisions of ASC 740-10 related to accounting for uncertainty in income taxes.  The implementation of this standard had no impact on the financial statements.

 

The Cooperative had no unrecognized tax benefits on September 30, 2010.  No interest or penalties are recognized in the statements of operations or in the balance sheets.  The Cooperative is no longer subject to U.S. Federal and State income tax examinations by tax authorities for fiscal years 2005 and earlier.

 

The Cooperative recognized income tax expense totaling $44,000 and $-0- for the periods ended September 30, 2010 and 2009.  In connection with the Conversion, the Cooperative realized $35 million of regular tax net operating loss carryforwards, and has no regular tax net operating loss carryforwards as of September 30, 2010.

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

NOTE 7 — EMPLOYEE BENEFIT PLANS

 

Pension Plan — The Cooperative sponsors a defined benefit pension plan for employees that meet eligibility requirements of age and length of service.  Presently, two employees are eligible to participate in the plan.  The plan provides for vesting after 5 years of service with benefits for early retirement, normal retirement and disability or death.

 

As of September 30, 2010, the pension plans were funded as required by the funding standards set forth by the Employee Retirement Income Security Act (ERISA).

 

The Cooperative’s Compensation Committee has the responsibility of managing the operations and administration of the Cooperative’s retirement plans.  The Cooperative has an investment policy that establishes target asset allocations to reduce the risk of large losses.  Asset classes are diversified to reduce risk, and equity exposure is limited to 75% of the total portfolio value.  The stated goal is for each component of the plan to earn a rate of return greater than its corresponding benchmark.  The return objective of the Plan is to achieve a minimum average total rate of return of four percentage points (4.0%) above the rate of inflation as measured by the Consumer Price Index.  The real rate of return goal assumes a real rate of return for equities of 10.0% and a real rate of return for fixed income of 4.0%.

 

The assumptions used in the measurement of the Cooperative’s benefit obligations are shown below:

 

		2010		2009
Discount Rate		7.00	%	7.00	%
Expected Return on Plan Assets		8.50	%	8.50	%
Rate of Compensation Increase		4.67	%	4.67	%

 

The following schedule reflects the expected pension benefit payments during each of the next five years and the aggregate for the following five years (in thousands):

 

		Expected
		Benefit
		Payments
2010		$	—
2011		—
2012		—
2013		—
2014		—
2015-2019		439
Total		$	439

 

The Cooperative expects to make contributions of approximately $31,000 to the defined benefit pension plans during the next fiscal year.

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

The following schedules provide the components of the Net Periodic Pension Costs for the periods ended December 31, 2009, September 30, 2010 and 2009 (in thousands):

 

		December 31,			September 30,			September 30,
		2009			2010			2009
Service Cost		$	11		$	25		$	27
Interest Cost		9			21			20
Expected Return on Plan Assets		(7		)	(19		)	(18		)
Amortization of Net (Gain) Loss		4			7			7
Net Periodic Pension Cost		$	17		$	34		$	36

 

The following schedules set forth a reconciliation of the changes in the plan’s benefit obligation and fair value of assets for the periods ending December 31, 2009, September 30, 2010 and 2009 and a statement of the funded status and amounts recognized in the Balance Sheets and Accumulated Other Comprehensive Income (Loss) as of December 31, 2009, September 30, 2010 and 2009 (in thousands):

 

		December 31,			September 30,			September 30,
		2009			2010			2009
Change in Benefit Obligation
Obligation at the Beginning of the Period		$	390		$	409		$	359
Service Cost		11			25			27
Interest Cost		9			21			20
Actuarial (Gain) Loss		(1		)	—			(11		)
Benefits Paid		—			—			—
Obligation at the End of the Period		$	409		$	455		$	395
Change in Plan Assets
Fair Value at the Beginning of the Period		$	246		$	277		$	199
Actual Returns on Plan Assets		21			6			33
Employer Contributions		10			23			24
Benefits Paid		—			—			—
Fair Value at the End of the Period		$	277		$	306		$	256
Funded Status
Funded Status as of the Period Ended		$	(132	)	$	(149	)	$	(139	)
Net Amount Recognized		$	(132	)	$	(149	)	$	(139	)

 

See Accountant’s Review Report

 

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GOLDEN GROWERS COOPERATIVE

 

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2010 AND 2009

 

		December 31,			September 30,			September 30,
		2009			2010			2009
Amounts Recognized in the Balance Sheets
Noncurrent Assets		$	—		$	—		$	—
Current Liabilities		—			—			—
Noncurrent Liabilities		(132		)	(149		)	(139		)
Net Amount Recognized		$	(132	)	$	(149	)	$	(139	)
Accumulated Gain (Loss) Recognized in Accumulated Other Comprehensive Income
Accumulated Gain (Loss) Beginning of the Period		$	(144	)	$	(132	)	$	(160	)
Recognized in Periodic Cost		4			7			7
Amount Arising During the Period		8			(24		)	14
Accumulated Gain (Loss) End of the Period		$	(132	)	$	(149	)	$	(139	)

 

The estimated amount that will be amortized from Accumulated Other Comprehensive Income (Loss) at September 30, 2010 into net periodic benefit cost in fiscal 2010 is as follows (in thousands):

 

Prior Service (Cost)		$	—
Accumulated Gain (Loss)		(9		)
Total		$	(9	)

 

The accumulated pension benefit obligation was $132,000, $149,000 and $139,000 as of December 31, 2009, September 30, 2010 and 2009, respectively.

 

401(k) Plan - The Cooperative has a 401(k) plan that covers employees that meet eligibility requirements.  The Cooperative’s contributions to the plan totaled $5,000 and $5,000 for the periods ended September 30, 2010 and 2009 respectively.

 

Deferred Compensation Plan — The Cooperative terminated its non-qualified deferred compensation plan with a key employee during June 2010.  In connection therewith, the Cooperative issued 31,493 membership units to the key employee.  The Cooperative recognized expenses totaling $36,000 and $36,000 for the periods ended September 30, 2010 and 2009 respectively.

 

NOTE 8 — COMMITMENTS AND CONTINGENCIES

 

The Cooperative contracted with Cargill, Incorporated in connection with the procurement of corn which includes payments of $92,000 annually and terminates December 31, 2017.

 

NOTE 9 — SUBSEQUENT EVENTS

 

Management has reviewed subsequent events through November 5, 2010, the date to which the financial statements were available to be issued.

 

See Accountant’s Review Report

 

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Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

This report contains forward-looking statements that involve risks and uncertainties.  Such forward-looking statements include, among others, those statements including the words “expect”, “anticipate”, “believe”, “may” and similar expressions.  The Cooperative’s actual results could differ materially from those indicated.  See the discussion of “Risk Factors” in the Cooperative’s Registration Statement on Form 10.

 

Overview

 

Golden Growers Cooperative is a value added agricultural cooperative association governed under Minnesota Statutes Chapter 308B owned by 1,613 members in the business of providing value to our members by facilitating their delivery of corn to the corn wet-milling facility owned by ProGold, a Minnesota limited liability company in which the Cooperative owns a 49% membership interest.  ProGold leases its corn wet milling facility to Cargill Incorporated who uses the facility to process corn into high fructose corn syrup.  We accomplish our business on behalf of our members through our contract relationships with all of the parties involved in the ownership and operation of the facility.  From an income production perspective our membership interest in ProGold is our primary asset that, in addition to giving us the right to receive distributions from ProGold, also provides our members with additional value for the delivery of their corn for processing.  Annually we are required to deliver approximately 15,490,480 bushels of corn to Cargill for processing at the ProGold facility.

 

Ownership of our Membership units requires our members to deliver corn for processing in proportion to the number of units they hold.  A member is required to deliver one bushel of corn for each of our units held by the member.  Currently 15,490,480 of our units are issued and outstanding.  Income and losses are allocated to our members based on the volume of corn they deliver.  Subject to certain limitations, as long as a member patronizes the Cooperative by delivering corn equal to the number of units held by the member, the member will be allocated a corresponding portion of our income.  In this way, we continue to operate on a cooperative basis.

 

To hold our units a member is required to execute a Uniform Member Agreement that obligates the member to deliver corn to us and an Annual Delivery Agreement by which each member annually elects the method the member would like to use to deliver corn — either Method A or Method B, or a combination of both.  Under Method A, a member is required to physically deliver corn to us either at the facility or another location reasonably designated by us.  Under Method B, a member appoints us as its agent to arrange for the acquisition and delivery of corn on the member’s behalf.  We appoint Cargill as our agent to arrange for the delivery of the corn by our members who elect to deliver corn using Method A, and we appoint Cargill as our agent to acquire corn on our behalf for our members who elect to deliver corn using Method B.  If a member elects to deliver corn using Method B, the price per bushel paid to the member is equal to the price per bushel paid by Cargill to acquire the corn as our agent.  Members who deliver corn under Method A are paid the market price or contracted price for their corn at the time of delivery.  Members who deliver corn under Method A receive from the Cooperative an incentive payment of $.05 per bushel on the corn that they deliver while members who elect Method B to deliver corn pay to the Cooperative a $.02 per bushel agency fee for the cost of having us deliver corn on their behalf.  The incentive payment for Method A deliveries and the agency fee for Method B deliveries are subject to annual adjustment at the sole discretion of our Board of Directors.

 

Our Method A member directly contracts with Cargill for the contract price agreed upon for the corn or, in the absence of an agreed upon price, the market price per bushel for corn delivered on the day on which the corn is delivered and accepted at the facility.  With respect to all Method A corn that is delivered, Cargill pays the aggregate purchase price for corn purchased from our members to us, and then, on our behalf, makes individual payments for corn directly to our members.  In the event a Method A

 

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member delivers more than its delivery commitment to Cargill, any corn delivered in excess of that commitment is handled as a direct sale of corn to Cargill and is priced at the current closing delivery corn price established by Cargill at the facility on the day it is unloaded.  In the event a Method A member delivers less than its committed amount of corn to Cargill, the quantity of the shortfall is then purchased and delivered by Cargill on our behalf, but this purchased corn is not credited to the Method A member’s account.  If a Method A member fails to fully satisfy the corn delivery requirement, Cargill purchases replacement corn for which we reimburse Cargill the amount by which the underlying contracted corn price is less than the price of buying the replacement corn that was due on the delivery date.  The Method A member who fails to deliver corn is then invoiced for the price of the corn.  In addition, if a Method A member fails to deliver all of the corn it was obligated to deliver, that member’s allocation of our profit or losses and any cash distributions is proportionately reduced and we may terminate the member’s membership.

 

Results of Operations

 

Due to our change in domicile and conversion from a Minnesota 308A cooperative to a Minnesota 308B cooperative association, our fiscal year end changed from August 31 to December 31 resulting in a four-month fiscal year period ended December 31, 2009.  Comparisons to our current quarterly information are derived from our historic financial information from our fiscal years that ended on August 31.

 

Comparison of the Nine Months Ended September 30, 2010 and September 30, 2009

 

Revenues.  The Cooperative derives revenue from two sources:  our operations related to facilitating the delivery of our members’ corn, and from the income derived from our ownership interest in ProGold.  Our corn delivery operations generate revenue to the Cooperative equal to the value of the corn that is delivered to Cargill by our members.  The Cooperative recognizes expense equal to this same amount which results in our corn delivery operations being revenue neutral to the Cooperative, except for revenue from our Method B agency fee and expenses related to our Method A incentive payments, required licensing and bonding expenses, and our service fee paid to Cargill.  During the nine months ended September 30, 2010, the Cooperative sold approximately 11.7 million bushels of corn compared to 4.4 million bushels of corn sold during the nine months ended September 30, 2009.  During the nine months ended September 30, 2010 and 2009, the Cooperative recognized corn revenue of $41,255,000 and $27,209,000 respectively, an increase of 52% due primarily to an increase in the number of bushels of corn sold in 2010 compared to 2009 offset by a decrease in the selling price per bushel in 2010 compared to 2009.  The Cooperative recognized corn expense of $41,333,000 and $27,283,000 in 2010 and 2009 respectively, a increase of 52% due primarily to an increase in the number of bushels purchased offset by a decrease in the cost per bushel of corn.  During the nine month period ended September 30 2010, our members delivered to Cargill for processing at the facility 3,459,482 bushels of corn using Method A and 8,294,643 bushels of corn using Method B resulting in incentive fee expense of $172,974 and agency fee income of $165,892 for this period.  The Cooperative did not pay an incentive fee for Method A delivery prior to its reorganization into a 308B cooperative association effective September 1, 2009 and all deliveries between September 1, 2009 and December 31, 2009 were deemed to be delivered via Method B with the agency fee waived.  During the nine month periods ended September 30, 2010 and 2009, we recognized expense of $69,000 and $72,000, respectively, in connection with costs incurred to Cargill in connection with our corn delivery operation.

 

The Cooperative derived income from ProGold for the nine month period ended September 30, 2010, of $4,755,000 an increase of $277,000 or 6% as compared to the nine month period ended September 30, 2009.

 

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General and Administrative Expenses. The Cooperative’s general and administrative expenses include salaries and benefits, professional fees and fees paid to our board of directors.  Our general and administrative expenses for the nine month period year ended September 30, 2010, was $656,000 a decrease of $218,000 or 25% compared to the nine month period ended September 30, 2009, which was primarily the result of decreased  costs incurred in connection with the cooperative conversion.

 

Interest Income.  Interest income for the nine month period ended September 30, 2010, was $26,000 compared to $28,000 for the nine month period ended September 30, 2009 due primarily to decreased cash reserve and investment balances compared to 2009.

 

Comparison of the Three Months Ended September 30, 2010 and September 30, 2009

 

Revenues.  During the three months ended September 30, 2010 and 2009, the Cooperative sold approximately 3.4 million bushels of corn compared to 2.1 million bushels of corn sold during the three months ended September 30, 2009.  During the three months ended September 30, 2010 and 2009, the Cooperative recognized corn revenue of $11,477,000 and $14,585,000 respectively, with the decrease due to a decrease in the selling price per bushel of corn.  During the three month period ended September 30, 2010, our members delivered to Cargill for processing at the facility 649,999 bushels of corn using Method A and 2,764,881 bushels of corn using Method B resulting in incentive fee expense of $32,500 and agency fee income of $55,298 for this period.  The Cooperative did not pay an incentive fee for Method A delivery prior to its reorganization into a 308B cooperative association effective September 1, 2009 and all deliveries between September 1, 2009 and December 31, 2009 were deemed to be delivered via Method B with the agency fee waived.  During the three month periods ended September 30, 2010 and 2009, we recognized expense of $23,000 and $20,000, respectively, in connection with costs incurred to Cargill in connection with our corn delivery operation.  For the three month periods ended September 30, 2010 and September 30, 2009, we recognized corn expense of $11,478,000 and $14,619,000.

 

The Cooperative derived income from ProGold for the three month period ended September 30, 2010, of $1,496,000, a decrease of $163,000 as compared to the three month period ended September 30, 2009.

 

General and Administrative Expenses. The Cooperative’s general and administrative expenses include salaries and benefits, professional fees and fees paid to our board of directors.  Our general and administrative expenses for the three month period year ended September 30, 2010, was $195,000, a decrease of $195,000 or 50% compared to the three month period ended September 30, 2009, which was primarily the result of decreased costs incurred in connection with the cooperative conversion

 

Interest Income.  Interest income for the three month period ended September 30, 2010, was $5,000 compared to $13,000 for the three month period ended September 30, 2009.

 

Liquidity and Capital Resources

 

The Cooperative’s working capital at September 30, 2010 was $817,000 compared to $4,077,000 at September 30, 2009.

 

The Cooperative had no long-term debt as of September 30, 2010 or September 30, 2009.

 

The Cooperative used operating cash flows of $623,000 for the nine month period ended September 30, 2010 compared to $1,013,000 for the nine month period ended September 30, 2009.

 

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The Cooperative established a $1,000,000 line of credit with a variable interest rate based on the prime rate that terminates on July 16, 2011.  The line of credit is secured by all of the business assets of the Cooperative.  There is no outstanding balance as of September 30, 2010.

 

The Cooperative received cash distributions from ProGold totaling $8,047,000 for the nine month period ended September 30, 2010 compared to $7,712,000 for the nine month period ended September 30, 2009.

 

The Cooperative paid cash distributions to our members totaling $7,744,000 for the nine month period ended September 30, 2010 compared to $11,293,000 for the nine month period ended September 30, 2009.

 

The following table provides information regarding the Cooperative’s contractual obligations as of September 30, 2010:

 

Tabular Disclosure of Contractual Obligations

 

								One to
					Less than			Three			Four to			After Five
		Total			One Year			Years			Five Years			Years
Purchase Obligations(1)		805,000			69,000			276,000			184,000			276,000
Operating Lease Obligations-(2)		40,650			2,175			20,025			18,450			0
Total Contractual Obligations		$	845,650		$	71,175		$	296,025		$	202,450		$	276,000

 

(1) Includes payments due under Cargill Grain Services Agreement that terminates December 31, 2017.

(2) Lease terminates on June 30, 2015.

 

Management believes that non-cash working capital levels are appropriate in the current business environment and does not expect a significant increase or reduction of non-cash working capital in the next 12 months.

 

Critical Accounting Estimates

 

Management’s estimate of the carrying value of the investment in ProGold is based on historical cost plus its pro-rata share of ProGold’s net income and additional paid-in capital less distributions received from ProGold.

 

The Cooperative does not pay out Method A incentive payments or collect Method B agency fees until the end of its fiscal year.  These amounts are accrued quarterly and then confirmed at the end of the fiscal year.  The total annual Method B agency fee was determinable once the members completed their delivery method determination prior to January 1, 2010.  The quarterly Method B bushel delivery and agency fee revenue is calculated by allocating the portion of the total annual agency fee for that particular quarter or cumulating it for the particular period.  The Cooperative tracks Method A corn deliveries throughout the year so it can report the bushels of corn delivered by its members as well as the corresponding Method A incentive fees earned.  The final amounts owed by or due to Cargill and/or the Cooperative’s members who elect to deliver using Method A is not calculated until after December 31 in order to account for any failures to deliver or over-deliveries of corn.

 

The Cooperative has determined corn revenue and corn expense for Method B deliveries based on the average quarterly cost per bushel paid by Cargill to the Cooperative’s members for Method A quarterly deliveries.

 

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