Golden Growers Cooperative - Annual Report: 2017 (Form 10-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

☒Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2017

 

or

 

☐Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

 

Commission File No.:  000-53957

 

 

GOLDEN GROWERS COOPERATIVE

(Exact name of registrant as specified in its charter)

 

 

 

 

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

 

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

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes   ☐   No  ☒

 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes  ☐   No  ☒

 

 

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. Yes  ☒   No  ☐

 

 

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  ☒   No  ☐

 

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒

 

 

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

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extension transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) 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  ☐   No  ☒

 

 

As of March 08, 2018, the registrant had 15,490,480 Units issued and outstanding.  There is no established public market for the registrant’s Units.  Although there is a limited, private market for the registrant’s Units, the registrant does not obtain information regarding the transfer price in transactions between its members and therefore is unable to estimate the aggregate market value of the registrant’s Units held by non-affiliates.

 

DOCUMENTS INCORPORATED BY REFERENCE:  NONE

 

 

 

 

TABLE OF CONTENTS

 

 

 

 

PART I

This report contains forward-looking statements and information based upon assumptions by Golden Growers Cooperative (“we,” “us,” “our,” and the “Cooperative”), including assumptions about risks and uncertainties faced by the Cooperative.  These forward-looking statements can be identified by the use of forward-looking terminology such as “anticipates,” “expects,” “believes,” “will,” or the negative of these terms or similar verbs or expressions.  If any of management’s assumptions prove incorrect or should unanticipated circumstances arise, the Cooperative’s actual results could materially differ from those anticipated by such forward-looking statements.  The differences could be caused by a number of factors or combination of factors, including, but not limited to, those factors influencing the Cooperative and its business which are described in this report in the “Risk Factors” section below.  Readers are urged to consider these factors when evaluating any forward-looking statement and to read this report and the documents that referenced in this report and filed as exhibits completely.  The Cooperative undertakes no obligation to update any forward-looking statements in this report to reflect future events or developments.  The Cooperative qualifies all of its forward-looking statements by these cautionary statements.

Item 1.  BUSINESS

GENERAL

Golden Growers Cooperative is a value-added agricultural cooperative association owned by 1,546 members primarily from Minnesota, North Dakota and South Dakota, all of whom deliver corn to the Cooperative for processing into a value-added product.  The Cooperative was originally formed in 1994 as a North Dakota agricultural cooperative.  On September 1, 2009, by way of a series of mergers, the Cooperative changed its domicile and form of entity from a North Dakota cooperative to a Minnesota cooperative association governed under Minnesota Statutes Chapter 308B.  A Minnesota cooperative association formed under Minnesota Statutes 308B operates as a cooperative for state law purposes, but is taxed as a partnership under Subchapter K of the Internal Revenue Code for tax purposes.

History

The Cooperative was originally formed in 1994 as a North Dakota cooperative with the goal of allowing its members to receive additional value from the corn that they grow through the processing of that corn into value-added products, such as corn sweeteners.  The Cooperative accomplished this purpose by forming a joint venture with American Crystal Sugar Company (“American Crystal”) that formed ProGold Limited Liability Company (“ProGold”), a Minnesota limited liability company that designed and constructed a corn wet-milling facility in Wahpeton, North Dakota to process corn into high fructose corn syrup and related co-products.  The Cooperative’s membership in ProGold included a right and obligation for the Cooperative to deliver corn to the ProGold facility for processing.  The Cooperative’s members delivered corn to the ProGold facility on the Cooperative’s behalf to meet this delivery obligation.

On November 1, 1997, ProGold entered into an operating lease with Cargill Incorporated (“Cargill”) for the entire ProGold facility.  Cargill has operated the facility continually since this time.  On April 4, 2017, ProGold and Cargill entered into a Second Amended and Restated Facility Lease, which commenced on January 1, 2018 and continues through December 31, 2022. The lease will be automatically extended for one year in the event that either (i) Cargill has not, prior to December 31, 2021, exercised an option to purchase American Crystal’s 50% interest in ProGold pursuant to an Option Agreement between Cargill and American Crystal dated as of April 4, 2017 and effective as of January 1, 2018 or (ii) if the parties have not otherwise mutually agreed to extend or terminate the lease.  While ProGold no longer operates the wet-milling facility, the Cooperative, through its members, continues to have the obligation to deliver corn directly to Cargill at the wet-milling facility for processing into high fructose corn syrup and related co-products.  For more information regarding the Second Amended and Restated Facility Lease and the Option Agreement, see “Business Operations” and “Ownership in ProGold.”

The Cooperative’s ownership interest in ProGold creates a value-added relationship between the Cooperative’s members and the facility.  When members deliver corn to the Cooperative for processing at the facility, they are paid a market price for the corn that is delivered.  In addition, members have a right to receive added value for the efforts in the form of patronage based on each member’s proportionate share of the Cooperative’s income from ProGold that is derived primarily from Cargill’s lease of the facility.  For more details regarding the Cooperative’s ownership in ProGold, see “Ownership in ProGold.”

Business Operations

The Cooperative is in the business of providing value to its members by facilitating their delivery of corn to the corn wet-milling facility owned by ProGold.  We accomplish our business on behalf of our members not through the ownership of assets such as a plant and equipment, but 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 the Cooperative the right to receive distributions from ProGold, also provides our members with additional value for the delivery of their corn for processing.  Annually, the Cooperative is required to deliver approximately 15,490,480 bushels of corn to Cargill for processing at the ProGold facility.  We meet this delivery obligation by having our members deliver their corn to the ProGold facility.

Since November 1997, ProGold has leased its corn wet-milling facility to Cargill.  Throughout the term of the lease between Cargill and ProGold, our members, on the Cooperative’s behalf, have delivered corn to the facility for processing into high fructose corn syrup and related co-products.  It is our ownership interest in ProGold that creates a value-added relationship between our growers and the facility.  Notwithstanding this cooperative arrangement, Cargill is an integral part of our financial success.  Separate from the lease, Cargill also provides the Cooperative services that allow us to facilitate corn delivery at little or no expense.  In addition, the lease payments Cargill makes to ProGold that are in turn distributed to the Cooperative provide us with the cash to make distributions to our members. Under the terms of the Second Amended and Restated Facility Lease, Cargill will pay ProGold annual lease payments of $17 million in 2018 and 2019, $16 million in 2020, $15.5 million in 2021 and 2022, and $14 million if the lease is extended through 2023.  In turn, ProGold has agreed to pay at least $750,000 annually throughout the term of the lease for infrastructure maintenance and may also be required to pay additional sums in order to make certain capital improvements.  The payments will reduce any income available for ProGold’s members at the time of such expenses.  The Cooperative and American Crystal would experience any such reduction in ProGold’s income proportionately based on their percentage ownership of ProGold.

Any person residing in the United States can own our Units as long as that person delivers or provides for the delivery of corn for processing at the ProGold facility.  Ownership of our Units requires our members to deliver corn to the Cooperative in proportion to the number of Units each member holds.  Currently 15,490,480 Units are issued and outstanding.  The Cooperative’s income and losses are allocated to our members based on the volume of corn a member delivers or has delivered.  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 (or loss).  In this way, we 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 member’s method to deliver corn — either Method A or Method B, or a combination of both.  Under Method A, a member is required to physically deliver the required bushels of corn to us either at the ProGold facility or another location designated by the Cooperative.  Under Method B, a member appoints us as its agent to arrange for the acquisition and delivery of the required bushels of corn on the member’s behalf.  Separate from leasing the facility from ProGold, Cargill is in the grain services business.  In order to most cost effectively provide delivery services to our members, the Cooperative has entered into an agreement with Cargill whereby 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 the Cooperative pays to the member is equal to the price per bushel paid by Cargill to acquire the corn as our agent.  The Cooperative pays members who deliver corn under Method A 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. While the Cooperative is financially responsible for the various payments to the members for corn, Cargill, serving as the Cooperative’s administrative agent, issues payments to members for corn on the Cooperative’s behalf.

Annually, we notify Cargill of the number of bushels of Method A corn to be delivered by each member who has elected to deliver corn by Method A.  Once we provide notification to Cargill of the number of bushels of corn, Cargill then confirms the amount of corn with each member and notifies that member with respect to quality specifications, allowances, deductions and premiums to be applicable to that corn.  That Method A member then 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 corn that is delivered by Method A, Cargill pays to the Cooperative the aggregate purchase price for corn purchased from our members, and then, on our behalf, makes individual payments for corn directly to our members.  In the event a member who has elected to deliver corn by Method A delivers to Cargill more than its delivery commitment, 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 member who has elected to deliver corn by Method A delivers to Cargill less than its committed amount of corn, the quantity of the shortfall is then purchased and delivered by Cargill on our behalf.  Our reimbursement to Cargill for the purchased corn is calculated as the amount by which the underlying contracted corn price is less than the price of buying the corn that was due on the delivery date.  In addition, this purchased corn is not credited to such member’s account, meaning that member’s allocation of our profit or losses and any cash distributions are proportionately reduced and we may terminate the member’s membership.

Based on the corn to be delivered by our members using Method A, Cargill then purchases the remainder of the corn to be delivered by us on behalf of our Method B delivering members at such time and in such quantities and at such prices it deems appropriate and in the best interest of us and Cargill.  Because Cargill purchases the corn on our behalf for our members who elect to deliver using Method B, the purchase price for the corn that would be paid to our members if they actually delivered the corn is offset against the payment to be made by us to Cargill for the cost to purchase the corn, thus no payment is made from Cargill to us for corn delivered using Method B.

Our members can change their delivery method annually, so the mix of members delivering by Method A or Method B changes each year.

In exchange for the services set forth above with respect to handling our member’s delivery of corn to the wet-milling facility, we paid Cargill an annual fee of $70,000 in 2017. Commencing on January 1, 2018, we pay an annual fee of $60,000, which is paid in quarterly installments.  In addition, we also pay Cargill a per-bushel fee if a Method A member fails to deliver corn.  This amount is in addition to any reimbursement required by us to Cargill for a Method A member’s failure to deliver.

All of our agreements with Cargill terminate at the expiration of the lease between Cargill and ProGold.  We cannot predict if we will be able to continue on the same contract or economic terms with Cargill after December 31, 2022 if the lease is not extended or renewed.

Our Bylaws establish a Method A delivery pool and a Method B delivery pool.  Generally, our income and/or losses are allocated annually based on the percentage of bushels of corn our members elect to deliver using either Method A or Method B.  Regardless of the actual percentage allocation between our members who deliver bushels of corn using Method A or Method B, our Bylaws require us to annually allocate at least 25% of our income and/or losses to the Method A pool.  The amount of our income and/or losses actually allocated to the Method A pool is a percentage equal to the greater of 25% or the actual percentage of bushels of corn delivered by our members using Method A.

If less than 25% of the bushels of corn are delivered by members using Method A, the members who do use Method A will be allocated 25% of our income and/or losses even though they deliver less than 25% of the bushels of corn obligated to be delivered by us to Cargill.  As a result of this requirement, a Method A member may receive a greater proportionate allocation of our income and/or losses than a Method B member who contracted to have the same amount of corn delivered.

For the 2016 and 2017 fiscal years, our members elected to and delivered 28.7% and 28.6%, respectively, of the bushels of corn by Method A and 71.3% and 71.4%, respectively, of the bushels of corn by Method B.  This resulted in 28.7% and 28.6% of our income and/or losses and 28.7% and 28.6% of any cash distributions being allocated to the Method A pool, respectively, in fiscal years 2016 and 2017, which reflects the actual percentage of members who elected to deliver corn using Method A and does not result in reallocation to meet the 25% requirement set forth in our governing documents.

Ownership in ProGold

The Cooperative owns a 49% interest in ProGold, and American Crystal owns a 51% interest in ProGold.  American Crystal’s fiscal year ends on August 31 each year, so ProGold’s fiscal year aligns with American Crystal’s.

In connection with its membership interest in ProGold, the Cooperative has the right and obligation to deliver corn to be processed at the wet-milling facility.  The Cooperative is also allocated 49% of the profits and losses of ProGold and is entitled to receive 49% of any cash that is distributed to ProGold’s members.

Currently, there are eleven members of ProGold’s board of governors and the Cooperative has the right to appoint five of these governors.  Members of the Cooperative’s Board of Directors occupy these seats and provide active oversight of the management of ProGold.  Based on percentage ownership in ProGold and representation on the ProGold board of governors the Cooperative does not control the operations of ProGold.  Extraordinary transactions such as a sale of ProGold or its assets, dissolution, as well as amendments to its operating agreement, approval of its strategic plan, approval of new members and approval of loans to ProGold by its members can be approved by American Crystal over the Cooperative’s objections.

Even though the Cooperative does not control ProGold, American Crystal cannot sell or transfer its interest in ProGold to any other party without the Cooperative’s consent.  The Cooperative also has a right of first refusal to purchase American Crystal’s interest in ProGold if it receives an offer for or desires to sell its interests in ProGold.  Neither the Cooperative nor American Crystal can transfer its interests in ProGold without Cargill’s consent as long as the lease between Cargill and ProGold is in effect.  American Crystal may buy the Cooperative’s interests in ProGold if any one person acquires more than 10% of the Cooperative’s Units or if the Cooperative changes its voting structure to anything other than one member one vote.

On April 4, 2017, the Cooperative, Cargill, and American Crystal entered into a Consent Agreement, effective on January 1, 2018, relating to the lease of ProGold’s wet-milling facility to Cargill and the Cooperative’s interest in ProGold. On the same day, Cargill and American Crystal entered into an Option Agreement, effective on January 1, 2018, detailing the price, term and other conditions under which American Crystal grants to Cargill an exclusive option to purchase a 50% interest in ProGold from American Crystal during the first four years of the lease. Under the Consent Agreement, the Cooperative approves and consents to the transfer of the 50% interest in ProGold from American Crystal to Cargill in the event Cargill exercises its option.  The Cooperative also secures the right to purchase American Crystal’s remaining 1% interest in ProGold for a base price ranging from $1.7 million to $1.3  million, depending on when Cargill notifies American Crystal of its intention to exercise its option.  The Cooperative would also be required to pay to American Crystal a capital adjustment in an amount equal to 1% of the portion of costs that have not been paid by Cargill to ProGold through additional rent with respect to certain projects at the facility.  In the event Cargill intends to exercise its option, before exercising such option, Cargill and the Cooperative will expeditiously and in good faith work together to finalize agreements for the structure, governance and operation of ProGold according to certain operational principles and other guideline terms as provided in a Memorandum of Understanding attached to the Consent Agreement.

The wet-milling facility was built in 1995.  As processing facilities age, more extensive maintenance becomes necessary to keep the facility in good working order.  ProGold has agreed to pay at least $750,000 annually throughout the term of the lease for infrastructure maintenance and may also be required to pay additional sums in order to make certain capital improvements.   The payments will reduce any income available for ProGold’s members at the time of such expenses.  The Cooperative and American Crystal would experience any such reduction in ProGold’s income proportionately based on their percentage ownership of ProGold.

Seasonality

Cargill operates the ProGold processing plant year-around but the facility only has enough corn storage on-site for approximately five days of operations.  Corn deliveries to the facility are typically required four or five days each week of the year.  Farmers harvest corn in October and November, although weather conditions have occasionally delayed harvest for some farmers into winter or spring.  Corn can be stored in storage facilities for a long period of time after it is harvested.

The Cooperative does not control when members deliver corn to Cargill for processing at the facility.  Some of members may elect to deliver higher volumes of corn immediately following harvest in October and November, while others prefer to deliver at times when local market prices are higher, typically in the spring and late summer months.  Corn price contracts that members and Cargill enter into each year typically anticipate these delivery trends and incent members to store their corn on their farms until fewer farmers wish to deliver to the plant.  As a result, while there is some seasonality to corn deliveries, members deliver corn every week of the year, and the Cooperative monitors and makes payments for those deliveries every week.

Intellectual Property Rights

The Cooperative does not hold any patents.  To the extent it develops proprietary information or rights, the Cooperative will rely on a combination of trade secrets, trademarks, nondisclosure agreements and technical measures to establish and protect our proprietary rights.

Research and Development

As a commodity-based business, the Cooperative does not conduct any research and development activities associated with either the development of new products or the development of new technologies for use in producing those products.

Employees

As of December 31, 2017, the Cooperative had 1 full-time employee, Executive Vice President, Scott Stofferahn, who serves in the capacity of chief executive officer and chief financial officer.

Legal Proceedings

The Cooperative is not currently involved in any legal proceedings.  In addition, we are not aware of any potential claims that could result in the commencement of legal proceedings.  The Cooperative carries insurance that provides protection against certain types of claims, up to policy limits.

Competition

As a grower-owned cooperative whose members are contractually obligated to deliver corn, the Cooperative generally does not face competition in the market place for corn.  More importantly, its governing documents and contractual arrangements with Cargill contain contractual incentives for growers to deliver corn to the Cooperative and not to another processor.  Even if members do not fully satisfy their delivery commitments, there are sufficient supplies of corn to be purchased in the open market to meet any contract obligations to Cargill, with any costs to be charged to the defaulting member.

The Cooperative was formed in 1994 by a group of corn growers with a goal of adding value to the corn they delivered for processing.  Members invested in the Cooperative with the goal of creating a facility where they could not only find a certain market for their corn but where they could also benefit from a long term investment in a value added enterprise such as the ProGold facility.  There is no competition in attracting members to the Cooperative and its services.  Other grain shippers and corn processing facilities in the region provide competition for the purchase of corn from members, but most do not provide the opportunity for membership or partial ownership and any resulting additional profits from the operation or lease of their facilities.

Item 1A.  RISK FACTORS

The risks described below together with all of the other information included in this report should be considered carefully.  The risks and uncertainties described below and elsewhere in this Form 10-K are not the only ones we face.  If any of the following risks actually occur, our business’s financial condition or results of operations would likely suffer.  In that case, the distributions made to our members may decrease, the value of our Units could fall, and a member could lose all or part of his, her or its investment.

Risks Relating to the Units

There is no public market for our Units and no public market is expected to develop.

There is no established public trading market for our Units, and we do not expect one to develop in the foreseeable future.  To maintain our partnership tax status, we do not intend to list the Units on any stock exchange or automatic quotation system.  As a result, our Units may have to be held for an indefinite period of time because the Units are not readily re-sellable.

Our Units are subject to significant restrictions on transfer.

The ability to transfer our Units is restricted by our Bylaws.  A member must obtain the prior consent of our Board of Directors before making any transfer of Units.  Transferability of Units is restricted in part to ensure that we are not deemed a “publicly traded partnership” and thus taxed as a corporation.  The delivery obligations that accompany our Units also partially restrict the transferability of our Units.  As a result, a member may have to hold Units for an indefinite period of time because the Units may not be able to be readily resold.

Risks Related to Our Operations

We are required to allocate at least 25% of our income and/or losses to the Method A pool regardless of the percentage of bushels of corn actually delivered under Method A.

Our Bylaws require that our income and/or losses be allocated to the Method A pool in a percentage equal to the greater of 25% or the actual percentage of corn delivered under Method A.  If less than 25% of the corn is delivered by the members using Method A, the members who do use Method A will be allocated 25% of the income and/or losses even though they deliver less than 25% of the corn we are obligated to deliver.  As a result, the Method A member may receive a greater proportionate allocation of our income and/or losses than a Method B member who contracts to have the same amount of corn delivered.

A member electing to deliver corn under Method A who fails to deliver corn will not be allocated income and/or losses or receive cash distributions for that year in proportion to the shortfall.

If a member elects to deliver corn pursuant to Method A and then fails to deliver all of the bushels of corn he or she was obligated to deliver, his or her allocation of our income and/or losses and cash distributions will be proportionately reduced by the number of bushels of corn the member failed to deliver pursuant to the terms of our Bylaws and Annual Delivery Agreement.

Risk Factors Related to Our Ownership of ProGold

We do not own a controlling interest in ProGold.

Our primary source of income is from our ownership interest in ProGold.  ProGold’s primary asset is the facility that it leases to Cargill. We own only 49% of ProGold while American Crystal owns 51% of ProGold.  We do not have a controlling interest in ProGold and as a result, we have risks with respect to dealing with our minority interest in ProGold.  Generally, our business interests and American Crystal’s will be aligned with respect to decisions related to ProGold.  In the future, however, an issue could arise whereby we do not have the same interest and we would not have the ability to control ProGold.

In addition, if Cargill chooses to exercise its option to purchase a 50% interest in ProGold from American Crystal, and whether or not we purchased American Crystal’s remaining 1% interest in ProGold, we still would not own a controlling interest in ProGold. In the event Cargill intends to exercise its option, before exercising such option, Cargill and the Cooperative will expeditiously and in good faith work together to finalize agreements for the structure, governance and operation of ProGold according to certain operational principles and other guideline terms as provided in a Memorandum of Understanding attached to the Consent Agreement. Given our minority interest or potentially equal interest, we would not have the ability to control ProGold.

We may choose to exercise our right to purchase an additional interest in ProGold.

If Cargill exercises its exclusive option to purchase a 50% interest in ProGold from American Crystal during the first four years of the lease, the Cooperative has the right to purchase American Crystal’s remaining 1% interest in ProGold for a base price ranging from $1.7 million to $1.3 million, depending on when Cargill notifies American Crystal of its intention to exercise its option.  The Cooperative would also be required to pay to American Crystal a capital adjustment in an amount equal to 1% of the portion of costs that have not been paid by Cargill to ProGold through additional rent with respect to certain projects at the facility.  Although the Cooperative has considered the potential purchase in its determinations of member distributions and budgeting activities, the Cooperative may not have adequate capital to purchase the additional 1% interest in ProGold. In the event that the Cooperative is able to purchase the 1% interest, the expenditure may result in reduced distributions to our members.

The lease with Cargill for the facility expires in December 2022.

The corn wet-milling facility has been leased to Cargill since 1997.  The lease term runs through December 31, 2022, but the lease will be automatically extended for one year in the event that either (i) Cargill has not, prior to December 31, 2021, exercised an option to purchase American Crystal’s 50% interest in ProGold pursuant to an Option Agreement between Cargill and American Crystal dated as of April 4, 2017 and effective as of January 1, 2018 or (ii) if the parties have not otherwise mutually agreed to extend or terminate the lease.  If Cargill does not continue to lease the facility at the termination of the lease, ProGold’s options are to lease the facility to a third party, to run the facility itself or to sell the facility to another party.  There can be no assurances that a third party willing to operate or purchase the facility exists or that the value of the facility at the end of the lease will be such that it will be a profitable sale for ProGold, us or our members.

The Cooperative’s contracts with Cargill are connected to the term of the lease between ProGold and Cargill.

The Cooperative’s various agreements with Cargill, including the Grain Services Agreement and the Corn Supply Agreement, terminate at the conclusion of the lease between Cargill and ProGold.  The Cooperative substantially relies on Cargill through these agreements to perform material functions for the Cooperative.  If these agreements terminate because the lease between ProGold and Cargill terminates, or if we are unable to renew the contracts with favorable terms, the Cooperative may not be able to provide these services on its own or find a vendor to provide these services (including Cargill) on the same advantageous economic terms.

ProGold may need to pay for maintenance to the facility.

The facility has been operated by Cargill since 1997.  While the facility has been maintained by Cargill pursuant to the terms of the lease, ProGold is responsible for the cost of any extraordinary capital expenditures.  Beginning in 2018, ProGold, LLC has agreed to pay at least $750,000 annually for infrastructure maintenance and may also be required to pay additional sums in order to make certain capital improvements.  In the event ProGold has to pay for any such capital improvement, the amount of income available for distribution to its members would be reduced, which would in turn reduce amounts paid to our members.

Tax Risks Related to Our Operation

We could lose our partnership income tax status if the IRS determines to treat the Cooperative as a publicly traded partnership.

We have elected to be treated as a partnership for federal income tax purposes.  This means that we will pay no federal or state income tax at an entity level, but our members will pay tax on their allocated share of our net income.  However, we could become taxable as a C corporation if we are treated as a publicly traded partnership because of the manner in which our Units are transferred.

The tax liability a member may be responsible for as a result of an allocation of income may exceed any cash distributions the member receives.

As described above, we do not expect to pay any federal income tax, and all of our income and/or losses will “pass through” to our members.  Members must pay tax on that allocated share of our taxable income every year.  Although we are required to make cash distribution of at least 30% of the allocated income each year, a member may not receive cash distributions from us sufficient to satisfy all of the member’s tax liabilities.  This may occur because of various factors, including accounting methodology, or if we decide to retain cash generated by the business to fund its activities or other obligations.

A member may not be able to fully deduct its share of our losses or its interest expense.

It is likely that most of our members’ interests in the Cooperative will be treated as a “passive activity.”  In the case of members who are individuals or personal services corporations, this means that a member’s share of any loss incurred by us will be deductible only against the member’s income or gains from other passive activities (e.g., S corporations and partnerships that conduct a business in which the holder is not an active or material participant).  Some closely held C corporations have more favorable passive loss limitations.  Passive activity losses that are disallowed in any taxable year are suspended and may be carried forward and used as an offset against passive activity income in

future years.  Upon disposition of a taxpayer’s entire interest in a passive activity to an unrelated person in a taxable transaction, suspended losses with respect to that activity may then be deducted.

Any audit of our tax returns resulting in adjustments could cause the IRS to audit our members’ tax returns, which could result in additional tax liability to our members.

The IRS may audit our tax returns and may disagree with the positions taken on those returns.  The tax rules regarding organizations like us are complex.  If challenged by the IRS, the courts may not sustain positions we took on our tax returns.  An audit of our tax returns could lead to separate audits of our members’ tax returns, especially if adjustments are required.  This could result in adjustments on our members’ tax returns and additional tax liabilities, penalties and interest to our members.

Changes in U.S. tax laws may require future organizational and tax structure changes for the Cooperative in order to benefit its members and ensure adequate corn supply.

The Tax Cuts and Jobs Act was signed into law on December 22, 2017 (“the Act”). The Act introduced Internal Revenue Code (“IRC”) Section 199A. Subject to certain requirements and limitations, the provisions under IRC Section 199A can provide for a tax deduction equal to 20% of a producer’s gross sales to a cooperative taxable under Subchapter T of the IRC. Golden Growers Cooperative is currently taxable under IRC Subchapter K, and accordingly, sales by producers to Golden Growers Cooperative do not meet the definition of qualifying cooperative receipts for purposes of the IRC Section 199A deduction. Alternately, a producer that sells to non-qualifying cooperatives will generally qualify for a deduction of 20% of the net farming income after production expense. IRC Section 199A in its current form is perceived to provide a significant advantage for producers to sell to qualifying cooperative buyers vs non-qualifying buyers. Legislative changes are currently under consideration in Congress to modify the potential tax benefit of selling to qualifying cooperative buyers. Management will monitor the current tax law and proposed legislative changes that may require future organizational and tax structure changes for Golden Growers Cooperative in order to benefit its members and ensure adequate corn supply. Notwithstanding changes in tax law, members of Golden Growers Cooperative remain contractually obligated to deliver corn to the Cooperative.

Item 1B.  UNRESOLVED STAFF COMMENTS

None

Item 2.  PROPERTIES

We lease executive office space at 1002 Main Avenue West, Suite 5, West Fargo, ND 58078.  The Cooperative’s office space needs are limited and easily met by a market rate lease.

Item 3.  LEGAL PROCEEDINGS

None

Item 4.  MINE SAFETY DISCLOSURES

None

PART II

Item 5.  MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

There is no established trading market for our Units.  To maintain our partnership tax status, members may not trade their Units on an established securities market or readily trade Units on a secondary market (or the substantial equivalent thereof).  All transfers are subject to approval by the Board of Directors and a determination that the transfer

will not cause us to be deemed a publicly traded partnership.  In accordance with the publicly traded partnership rules, the Cooperative has made arrangements with Alerus Financial to serve as a qualified matching service for our members.

Our Bylaws restrict the ability of our members to transfer their Units.  To help ensure that a secondary market does not develop, our Bylaws prohibit transfers without the approval of our Board of Directors.  The Board of Directors will not approve transfers unless they fall within “safe harbors” contained in the publicly traded partnership rules under the Code and the related rules and regulations, as amended.  Any transfers of Units in violation of the publicly traded partnership rules or without the prior consent of the Board of Directors will be invalid.

There are no outstanding warrants or options to purchase, or securities convertible into, our Units.  As of the date hereof, there are 15,490,480 Units that are eligible for sale pursuant to Rule 144.  We have not agreed to register any Units under the Securities Act for sale by members.

Holders

As of the date hereof, there are 1,546 holders of the Cooperative’s Units determined by an examination of the Cooperative’s equity records that the Cooperative maintains.  Our Units are uncertificated.

Distributions

The Cooperative, to the extent cash is available, generally plans to make distributions to its members.  The Cooperative may make cash distributions at such time and in such amounts as determined from time to time by our Board of Directors in its sole discretion; provided that the we must annually, on or before March 1 of each year, make a cash distribution to our then current members equal to at least thirty percent (30%) of the income allocated to members for the prior year.  Any such cash distributions shall be made in a uniform and equitable basis among the members within a particular allocation pool on the basis of patronage.  Such cash distributions will be reduced by any tax withholding payments that are made on the member’s behalf.  For the fiscal year ended December 31, 2016, the Cooperative made aggregate cash distributions to members of $9,449,000.  For the fiscal year ended December 31, 2017, the Cooperative made aggregate cash distributions to members of $6,552,000. For more information regarding factors considered by the Board of Directors in determining the amount of cash distributions, see the section entitled “Liquidity and Capital Resources” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Securities Authorized for Issuance under Equity Compensation Plans

The Cooperative currently has no equity compensation plan.

Purchases of Equity Securities by Golden Growers Cooperative

None

Recent Sales of Unregistered Securities

None

Item 6.  SELECTED FINANCIAL DATA

 

The following table presents our selected historical financial data.  We derived the selected income statement data from our audited financial statements for the fiscal years ended December 31, 2013, 2014, 2015, 2016 and 2017, which have been audited by Widmer Roel P.C., independent auditors.  The historical results are not necessarily indicative of the results that may be expected in the future.  You should read this data together with our financial statements and related notes included elsewhere in this report and the information in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

INCOME STATEMENT DATA:

(in thousands, except share and per unit data)

 

 

Item 7.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with the Cooperative’s financial statements, the notes thereto and the other financial data included elsewhere in this Annual Report on Form 10-K.  The following discussion contains forward-looking statements.  Such statements are based on assumptions by the Cooperative’s management as of the date of this report and are subject to risks and uncertainties, including those under the heading entitled “Risk Factors,” that could cause actual results to differ materially from those anticipated.  Readers should not place undue reliance on such forward-looking statements.

Results of Operations

Revenues

The Cooperative derives revenue from two sources:  operations related to the marketing of members’ corn and income derived from the Cooperative’s membership interest in ProGold.  The corn marketing operations generate revenue for the Cooperative equal to the value of the corn that is delivered to Cargill.  The Cooperative recognizes expense equal to this same amount which results in the corn marketing operations being revenue neutral to the Cooperative, except for revenue from the Method B agency fee and expenses related to the Method A incentive payments, required licensing and bonding expenses, and the service fee paid to Cargill. 

Comparison of Fiscal Years Ended December 31, 2017 and December 31, 2016. For the fiscal year ended December 31, 2017, the Cooperative sold approximately 15.5 million bushels of corn compared to 15.5 million bushels of corn sold during the fiscal year ended December 31, 2016.  For the fiscal periods ended December 31, 2017 and 2016, the Cooperative recognized corn revenue of $49,890,000 and $52,135,000 respectively, a decrease of 4% due primarily to the decrease of the price of corn sold.  The Cooperative recognized corn expense of $49,960,000 and $52,240,000 in 2017 and 2016 respectively, a decrease of 4% due primarily to decrease in the price of corn purchased.  For the fiscal year ended December 31, 2017, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,425,235 bushels of corn using Method A and 11,065,246 bushels of corn using Method B resulting in incentive fee expense of $221,000 and agency fee income of $222,000 for this period while for the fiscal year ended December 31, 2016, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,447,298 bushels of corn using Method A and 11,043,182 bushels of corn using Method B resulting in incentive fee expense of $221,000 and agency fee income of $221,000 for this period.  For the fiscal periods ended December 31, 2017 and 2016, the Cooperative recognized expense of $70,000 and $92,000, respectively, in connection with costs incurred to Cargill in connection with the Cooperative’s corn marketing operation. 

The Cooperative derived income from ProGold for the fiscal year ended December 31, 2017, of $9,785,000, an increase of $4,410,000 or 82% as compared to $5,375,000 for the period ended December 31, 2016. The increase in ProGold income was due primarily to decreased depreciation expense at ProGold, LLC in 2017 compared to 2016.

Comparison of Fiscal Years Ended December 31, 2016 and December 31, 2015. For the fiscal year ended December 31, 2016, the Cooperative sold approximately 15.5 million bushels of corn compared to 15.5 million bushels of corn sold during the fiscal year ended December 31, 2015.  For the fiscal periods ended December 31, 2016 and 2015, the Cooperative recognized corn revenue of $52,135,000 and $56,370,000 respectively, a decrease of 8% due primarily to the decrease of the price of corn sold.  The Cooperative recognized corn expense of $52,240,000 and $56,475,000 in 2016 and 2015 respectively, a decrease of 7% due primarily to decrease in the price of corn purchased.  For the fiscal year ended December 31, 2016, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,447,298 bushels of corn using Method A and 11,043,182 bushels of corn using Method B resulting in incentive fee expense of $221,000 and agency fee income of $221,000 for this period while for the fiscal year ended December 31, 2015, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 4,453,298 bushels of corn using Method A and 11,037,184 bushels of corn using Method B resulting in incentive fee expense of $223,000 and agency fee income of $221,000 for this period.  For the fiscal periods ended December 31, 2016 and 2015, the Cooperative recognized expense of $92,000 and $92,000, respectively, in connection with costs incurred to Cargill in connection with the Cooperative’s corn marketing operation.

The Cooperative derived income from ProGold for the fiscal year ended December 31, 2016, of $5,375,000, an increase of $125,000 or 2% as compared to $5,250,000 for the period ended December 31, 2015.

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.  The general and administrative expenses for the fiscal year ended December 31, 2017, was $565,000 a decrease of $9,000 or 2% as compared to the fiscal year ended December 31, 2016.  The decrease was due primarily to decreased corn procurement expenses. The general and administrative expenses for the fiscal year ended December 31, 2016, was $574,000 a decrease of $46,000 or 7% as compared to the fiscal year ended December 31, 2015.  The decrease was due primarily to decreased legal and pension plan expenses.

Interest Income

Interest income for the fiscal year ended December 31, 2017, was $32,000 compared to $8,000 for the fiscal year ended December 31, 2016. The increase was due primarily to increased cash reserves. Interest income for the fiscal year ended December 31, 2016, was $8,000 compared to $8,000 for the fiscal year ended December 31, 2015.

Liquidity and Capital Resources

The Cooperative’s working capital at December 31, 2017, was $6,473,000, $3,131,000 at December 31, 2016, and $2,527,000 at December 31, 2015.  The increased working capital in 2017 as compared to 2016 and 2016 was a result of reduced distributions paid to the Cooperative’s members during 2017 as compared to 2016 and 2015.  

The Cooperative received cash distributions from ProGold totaling $10,496,000 for the fiscal year ended December 31, 2017, $10,721,000 for the fiscal year ended December 31, 2016 and $10,763,000 for the fiscal year ended December 31, 2015. The Cooperative paid cash distributions to its members totaling $6,552,000 for the fiscal year ended December 31, 2017, $9,449,000 for the fiscal year ended December 31, 2016 and $10,225,000 for the fiscal year ended December 31, 2015. Distributions in 2017 were reduced as compared to 2016 and 2015 as the Cooperative evaluated revenue and cash flows for the current year and through the end of the new lease, including the potential for reduced distributions from ProGold due to payments ProGold must make for infrastructure maintenance and certain capital improvements under the lease. The Cooperative also considered its potential purchase and payment obligations under the Consent Agreement.

The Cooperative had no long-term debt as of December 31, 2017, December 31, 2016, and December 31, 2015.

The Cooperative used operating cash flows of $474,000 for the fiscal year ended December 31, 2017, $753,000 for the fiscal year ended December 31, 2016, and $747,000 for the fiscal year ended December 31, 2015. The reduced use of operating cash flows is primarily due to the reduction of prepaid expenses related to the Cooperative’s evaluation of revenue and cash flows for the current year and through the end of the ProGold lease.

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.

Off-Balance Sheet Arrangements

The Cooperative is not a party to any off-balance sheet transactions, arrangements or obligations that have, or are reasonably likely to have, a current or future material effect on the Cooperative’s financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

The following table provides information regarding the Cooperative’s contractual obligations as of December 31, 2017:

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, 2018.  The quarterly Method B bushel delivery and agency fee revenue was calculated by allocating the portion of the total annual agency fee for a particular quarter or cumulating it for the particular period.  The annual Method B bushel delivery and agency fee revenue is confirmed at the conclusion of the fiscal year.  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 annual cost per bushel paid by Cargill to the Cooperative’s members for Method A quarterly deliveries.

Recent Accounting Pronouncements

On January 1, 2018, the Cooperative will adopt ASU 2014-09, Revenues from Contracts with Customers. The core principle of the revenue guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Cooperative has determined that the timing, pattern and amount of revenue recognized under the new standard will be substantially the same as previously recognized by the Cooperative.

In February 2016, the FASB issued a new standard related to leases to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. The standard will be effective for us beginning January 1, 2018. We anticipate that the standard will not have a significant impact on the Cooperative’s financial statements.

In January 2016, the FASB issued a new standard related to certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. The standard will be effective for us beginning January 1, 2019. We anticipate that the standard will not have a significant impact on the Cooperative’s financial statements.  

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument.  The value of a financial instrument may change as a result of changes in the interest rates, exchange rates, commodity prices, equity prices and other market changes.  Market risk is attributed to all market-risk sensitive financial instruments, including long term debt.

The Cooperative does not believe that it is subject to any material market risk exposure with respect to interest rates, exchange rates, commodity prices, equity prices and other market changes that would require disclosure under this item.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Cooperative’s financial statements for the fiscal years ended December 31, 2015, 2016 and 2017 have been audited to the extent indicated in this report by Widmer Roel PC, an independent registered public accounting firm.  The financial statements have been prepared in accordance with generally accepted accounting principles and are included in Appendix A of this report.

Item 9.  CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOCUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Exchange Act, the person serving as the Cooperative’s chief executive officer and chief financial officer has reviewed and evaluated, as of the end of the period covered by this report, the effectiveness of the Cooperative’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) promulgated under the Exchange Act).  Based on that review and evaluation,  the chief executive officer and chief financial officer has concluded that the Cooperative’s current disclosure controls and procedures, as designed and implemented, are effective in ensuring that information relating to the Cooperative required to be disclosed in the reports the Cooperative files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Security and Exchange Commission’s rules and forms, including ensuring that such information is accumulated and communicated to the Cooperative’s management, including the chief executive officer and the chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, because of changes in conditions, the effectiveness of internal control may vary over time.

Management assessed the effectiveness of the Cooperative’s internal control over financial reporting as of December 31, 2017, using criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (2013 framework) and concluded that the Company maintained effective internal control over financial reporting as of December 31, 2017 based on these criteria.

This annual report does not include an attestation report of the Cooperative’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Cooperative’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Cooperative to provide only management’s report in this annual report.

Changes in Internal Control over Financial Reporting

There were no changes in the Cooperative’s internal control over financial reporting that occurred during the Cooperative’s most recent fiscal quarter that may have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  OTHER INFORMATION

None

PART III

Item 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Cooperative’s Board of Directors consists of three directors from each of five districts.  Directors are elected to serve three-year terms.  A director cannot serve more than four consecutive three-year terms.  One director is elected each year from each district at district meetings held in March each year.  Directors must hold Units of the Cooperative or must be representatives of such members belonging to the district they represent and are elected by the members of that district.  In the case of a holder of Units who is other than a natural person, a duly appointed or elected representative of such member may serve as a director.

In accordance with our Bylaws, all directors of the Cooperative are required to be members of the Cooperative, residence of the United States of America, and elected by a majority of the members from their district present at a members’ meeting for that purpose.  Each person’s experience, qualifications, attributes or skills to serve as a director are determined by the members voting in the district meetings at which the election occurs and not reviewed or otherwise considered by the Cooperative before any election.  The Cooperative does not have a nominating committee.  A qualified member indicates his or her interest to serve in advance of the meeting or candidates are nominated from the floor at the meetings.  If a member from a particular district does not come forward indicating a desire to run for election to serve as a director then that seat on the Board of Directors for that district becomes or remains unfilled.

The Cooperative’s board officers consist of a Chairman, First Vice Chairman, Second Vice Chairman, Treasurer and Secretary of the Board.  These board offices are populated by members of the Board of Directors who are elected by and at the discretion of the Board of Directors.  Each of these individual’s experience, qualifications, attributes and skills to serve in their capacity as a board officer are determined by the members of the Board of Directors who are voting to place these individuals in these offices.

The name, age, position, district and term details of each of the Directors and the Named Executive Officer are as follows:

 

Below is the biographical information of each Director and our Executive Officer.

 

Shaun Beauclair.  Mr. Beauclair has been a director since 2008 and Second Vice-Chair since March 2015.  Mr. Beauclair farms in the Stephen, Minnesota area, and has been a Farm Operation instructor at Northland Community College in East Grand Forks, Minnesota.  He has served on the Stephen, Minnesota School Board and his church board.  Mr. Beauclair was a director of the Gold Energy ethanol project start-up board. Mr. Beauclair received his Bachelor of

Science Degree in Agronomy and completed graduate courses in Agricultural Economics from North Dakota State University.

David Benedict.    Mr. Benedict has been a director since 2010.  Mr. Benedict farmed in the Sabin, Minnesota area between 1987 to 2014.  Mr. Benedict is employed with Steffes Group Auction Service.  Mr. Benedict took accounting classes at Moorhead State University and later received a Farm Business Management Degree from Minnesota State Community and Technical College.

Richard Bot.    Mr. Bot has been a director since 2017. Mr. Bot farms in partnership with his brother near Minneota, MN where he raises feed grains and feeder lambs. From 1990 to 1996, Mr. Bot served on the Yellow Medicine Watershed board.  Mr. Bot has been a clerk of the Westerheim Township Board since 2002.  Mr. Bot is currently a member of the of the Minnesota Rotary Club where he has served as President and as Assistant District Governor.  Mr. Bot has a Bachelor of Science degree in Animal Science from South Dakota State University.

Mark L. Harless.  Mr. Harless has been a director since March of 2011 and Chairman since March 2015.  He previously served as Vice Chairman from March 2013 to March 2015. Mr. Harless has farmed near Moorhead, Minnesota, since 1985.  Mr. Harless serves as President of the Lee Bean and Seed, Inc., an edible bean elevator located in Borup, Minnesota, where he has been employed since 1985.  Mr. Harless received his Bachelor of Science degree in Communications from Concordia College.

Matt Hasbargen.  Mr. Hasbargen has been a director since March 2013 and Secretary since March 2015.  He farms near Breckenridge, Minnesota with his father and brother.  In the winter months he works for AgCountry Farm Credit Services as a Senior Insurance Specialist, Trainer.  Prior to returning home to farm in 1999, Mr. Hasbargen worked for Minnesota Life in St. Paul, Minnesota where he managed life insurance accounts for Farm Credit districts throughout the United States.  Mr. Hasbargen holds an Economics degree from Concordia College.

Scott Jetvig.  Mr. Jetvig has been a director since March 2015.  Mr. Jetvig has farmed near Hawley, Minnesota since 1989. In addition to his individual farming operation, Mr. Jetvig is President of SKJ Investments, Inc., an incorporated farming operation.  Mr. Jetvig served on Halstad Mutual Fire Insurance Company and Hawley Lutheran Church boards. Mr. Jetvig holds Business Administration and Economics degrees from Moorhead State University.

Gary L. Jirak.  Mr. Jirak has been a director since 2008.  Mr. Jirak has farmed in the Breckenridge, Minnesota area for since 1983.

Brett Johnson.  Mr. Johnson has been a director since March 2013.  He farms in partnership with his brother near Mooreton, ND where they raise corn, soybeans, and sunflowers.  Mr. Johnson previously served twenty one years as a Township Officer, twelve years on the Wyndmere, ND School Board, and six years on the North Dakota Soybean Council. He holds a Bachelor of Science degree in Agricultural Economics from North Dakota State University. 

Chris A. Johnson.  Mr. Johnson has been a director since 2008.  Mr. Johnson has farming operations located near Great Bend, North Dakota, and has been farming since 1974.  Mr. Johnson is the owner/operator of C and S Farms, Inc.  Mr. Johnson served on the Board of Directors for Farmers Elevator Co. of Hankinson, Great Bend, & Mantador.  Mr. Johnson has a Bachelor of Science Degree in Agricultural Economics from North Dakota State University.

Glenn H. Johnson.  Mr. Johnson has been a director since 2008.  Mr. Johnson has managed a farming operation in the Mayville, North Dakota area since 1981.

Byron Koehl.  Mr. Koehl has been a director since March 2010.  Mr. Koehl has been a partner in his family’s farming operation near Hancock, Minnesota, since 1984.  Mr. Koehl serves as President of Outback Five, Inc., of Hancock, Minnesota.  Mr. Koehl is past President of the Stevens County Pork Producers.

Leslie O. Nesvig.  Mr. Nesvig has been a director since 2008 and Treasurer since 2017.  Mr. Nesvig has farming interests in LaMoure and Ranson Counties in North Dakota and Polk County in Minnesota.  He has forty years of experience the banking industry including serving as President of the First State Bank of LaMoure from 1973 to 2009.  Mr. Nesvig is currently retired.   Mr. Nesvig served as Chairman of the Gold Energy ethanol plant start-up project.  Mr. Nesvig currently serves as a Director for Nored, Inc. and for Bancinsure. Mr. Nesvig has a Bachelor of Science Degree in Agricultural Economics and Business from North Dakota State University.

Nicolas A. Pyle.  Mr. Pyle has been a director since 2010 and First Vice-Chair since March 2015.  He previously served as Secretary from March 2013 to March 2015.  He has been farming since 2002 near Casselton, North Dakota.  Mr. Pyle serves as a director of McIntyre-Pyle, Inc.  Mr. Pyle is President and serves as a director of Unity Seed Company, a member of Global Soy Genetics LLC and Director of McIntyre Farms Partnership.  Mr. Pyle holds a Bachelor of Science in Business degree in finance from the University of Minnesota Carlson School of Management. 

Bruce K. Speich.  Mr. Speich has been a director since 2008.  Mr. Speich has farming/ranching operations located in Milnor, North Dakota, and has been farming since 1975.  Mr. Speich currently serves as director for North Dakota Beef Cattle Improvement Association and director for Wild Rice Soil Conservation District.

Lawrence A. Vipond. Mr. Vipond has been a director since March 2015. Mr. Vipond has been farming since 1971 and is a partner in Vipond Farms of Norcross, MN.  Mr. Vipond previously served on the New Horizons Board of Directors and the St. Charles Church Board. Mr. Vipond also served as Chairman of the Herman Community Center Capital Fund Drive. Mr. Vipond attended Fergus Falls Community College.

Scott Stofferahn.  Mr. Stofferahn was elected Executive Vice President, Chief Executive Officer and Chief Financial Officer of the Cooperative effective October 15, 2012.  Starting in March 2001, Mr. Stofferahn worked as State Director for North Dakota Senator Kent Conrad.  Prior to that, he was the State Executive Director for the North Dakota Farm Service Agency from 1993 to 2001.  Mr. Stofferahn has extensive public service experience including serving in the North Dakota State House of Representatives from 1982 to 1992.  Mr. Stofferahn received his Bachelor of Science Degree from North Dakota State University.

Audit Committee and Audit Committee Financial Expert

The Audit Committee assists the Board of Directors in fulfilling its oversight responsibilities relating to the Cooperative’s financial reporting and controls, the annual independent audit of the Cooperative’s financial statements and the legal compliance and ethics programs as established by management and the Board of Directors. The Audit Committee selects the independent public accountants and approves the fees, scope and procedural plans of the audits of the Cooperative’s financial statements.  The Audit Committee administers the Cooperative’s employee complaint program and handles, on behalf of the full Board of Directors, any issues that arise under the Cooperative’s Code of Ethics.  The Audit Committee has a charter that is available from the Cooperative upon request.

As of December 31, 2017, the Board of Directors of the Cooperative has determined that there is no audit committee financial expert serving on the Audit Committee.  The Cooperative is a cooperative association formed in accordance with the Minnesota cooperative law of the State of Minnesota.  In accordance with the Minnesota cooperative association law, and the Cooperative’s Amended and Restated Bylaws, the Board of Directors must be composed of members of the Cooperative.   Based on the state law requirements for both membership and board service, the Cooperative is unable to recruit outside of its membership to elect to its Board of Directors and its audit committee an individual that possesses the attributes of an “audit committee financial expert” as defined by the SEC.  To date, the Cooperative has been unable to recruit from its membership an individual to serve on the Board of Directors that possesses the attributes of an “audit committee financial expert.”

The Audit Committee has reviewed and discussed with management and Widmer Roel our audited financial statements contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017. The Audit Committee also discussed with Widmer Roel the matters required to be discussed pursuant to SAS No.114 (Codification of Statements of Auditing Standards, AU Section 380), which includes, among other items, matters related to the conduct of the audit of the Cooperative’s financial statements.

The Audit Committee has received and reviewed the written disclosures and the letter from Widmer Roel required by the applicable requirements of the Public Company Accounting Oversight Board regarding Widmer Roel’s communications with the Audit Committee concerning its independence from the Cooperative and has discussed with Widmer Roel its independence from the Cooperative.

Based on the review and discussions referred to above, the Audit Committee recommended to the Board that the audited financial statements be included in our Annual Report on Form 10-K for our fiscal year ended December 31, 2017 for filing with the Securities and Exchange Commission.

The members of the Audit Committee at the time of the foregoing review, discussions and recommendation were Nicolas Pyle, chair, Gary Jirak, Shaun Beauclair, Leslie Nesvig, Glenn Johnson, Brett Johnson, and Mark Harless.

Code of Ethics

The Cooperative has adopted a code of ethics that applies to its principal executive officer and principal financial officer as well as all employees and Directors of the Cooperative.  The Cooperative’s code of ethics is posted on its website. The Cooperative intends to include on its website, within the time period required by Form 8-K, any amendment to, or waiver from, a provision of our Code of Ethics that applies to its principal executive officer, principal financial officer, principal accounting officer, controller, or persons performing similar functions, that relates to any element of the Code of Ethics definition enumerated in Item 406(b) of Regulation S-K.

Item 11.  EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

The Cooperative only has a single employee who serves in the capacity of its chief executive officer and chief financial officer (our Named Executive Officer).  The primary objective of the Cooperative’s executive compensation program is to maintain a compensation program that will fairly compensate the Named Executive Officer.  In determining the compensation of the Named Executive Officer, the Personnel and Compensation Committee of the Board of Directors considers the financial condition and operational performance of the Cooperative during the prior year.

The Personnel and Compensation Committee may review the compensation practices of other companies, based in part on market survey data and other statistical data relating to executive compensation obtained through industry publications and other sources.  The Personnel and Compensation Committee does not intend to benchmark executive compensation directly with other publicly traded companies or other companies with which we may compete for potential executives since some of these competitors are privately held companies for which executive compensation information may not be available.  However, the Personnel and Compensation Committee may compare executive compensation as a whole with the compensation packages of other companies for which survey data is available, and may also compare the pay of individual executives if the jobs are sufficiently similar to make the comparison meaningful.

Perquisites and Other Benefits

401(k) Plan

The Cooperative makes available a 401(k) plan for its Named Executive Officer.  The Cooperative pays four percent (4%) of employee’s annual salary into the plan, and the employee may make additional contributions up to the lawful limits.

Employment Agreements

Mr. Stofferahn is not party to an employment agreement with the Cooperative.

Deferred Compensation Agreement

The Cooperative has not adopted any bonus, profit sharing, or deferred compensation plans other than a pension plan for which accruals were frozen as of January 1, 2013 and under which one former employee receives benefits.

Compensation Policies and Practices and Risk Management

Mr. Stofferahn’s compensation is set by the Board.  In the event it is modified, such a modification is based on a performance evaluation conducted by our Personnel and Compensation Committee that consists solely of members of the Board.  As discussed throughout this report, the revenue and expenses of the Cooperative directly relate to the price of corn as well as the rental income received by ProGold for the facility.  Mr. Stofferahn has no control over these two factors.  Based on this reality, no risks arise from the Cooperative’s compensation policies and practices that are reasonably likely to have a material adverse effect on its business operations.

Summary Executive Compensation Table

The following table sets forth, for the last three calendar years, the dollar value of all compensation awarded to, earned by or paid to Mr. Stofferahn.

** Mr. Stofferahn commenced his employment on October 15, 2012.

(1) All Other Compensation is comprised of premiums paid for life and disability insurance, company contributions to the 401(k) plan and reimbursements from the health reimbursement account.

Director Compensation

The Cooperative reimburses our Directors for expenses incurred in connection with board service.  The Cooperative’s Directors are paid $150 per month and the Chairman is paid $375 per month.  In addition, Directors and the Chairman receive a per diem of:

The following table sets forth for the year ending December 31, 2017 the dollar value of all cash and non-cash compensation paid to individuals serving as Directors of the Cooperative during fiscal year 2017.

 

Personnel and Compensation Committee Interlocks and Insider Participation

During fiscal 2017, the members of the Personnel and Compensation Committee were Messrs. Chris Johnson, chair, Richard Bot, Mark Harless, Matt Hasbargen, Bruce Speich, and Larry Vipond. None of the members of the Committee was an officer or employee of the Cooperative during fiscal 2017, or was formerly an officer of the Cooperative. None of the members of the Committee had any relationship requiring disclosure under Item 404 of Regulation S-K.  Our Named Executive Officer during fiscal 2017 did not serve on the compensation committee or the board of any company that employed any member of the Cooperative’s Committee or Board.

Personnel and Compensation Committee Report on Executive Compensation

The Personnel and Compensation Committee of the Board of Directors is responsible for reviewing and recommending to the Board of Directors for its approval compensation levels for the Company’s Named Executive Officer. The Committee’s responsibilities are specified in the Personnel and Compensation Committee Charter, available from the Cooperative upon request. The Committee and Board of Directors have reviewed and discussed the compensation discussion and analysis set forth in this report with management and, based on this review and discussion, the Board of Directors has approved the inclusion of the compensation discussion analysis in this report.

Chris Johnson (Chair)

Richard Bot

Mark Harless

Matt Hasbargen

Bruce Speich

Larry Vipond

   Members of the Personnel and

   Compensation Committee

 

Item 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The following table sets forth, as of February 23, 2018 the number of Units beneficially owned and the percent so owned by (1) each of our directors as of such date, (2) Scott Stofferahn, our Executive Vice President (our Named Executive Officer) and (4) all of our Directors and the Named Executive Officer as a group.  The number of Units owned by each person are those beneficially owned, as determined under the rules of the SEC, and such information is not necessarily indicative of beneficial ownership for any other purpose.  Under such rules, beneficial ownership includes any Units as to which a person has sole or shared voting power or investment power and any Units which the person has the right to acquire within 60 days through the exercise of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney or revocation of a trust, discretionary account or similar arrangement.  The applicable percentage ownership is based on 15,490,480 Units outstanding held by 1,546 members.  Each member of the Cooperative is allowed to cast one vote at any meeting of the members, regardless of the number of Units actually held by that member.  Some of our directors hold their Units through more than one entity which allows those directors to cast a vote for each one of those members.  The address of each director and our Named Executive Officer is 1002 Main Avenue W, Suite 5, West Fargo, ND 58078.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act, as amended, requires our officers and directors, and persons who own more than 10% of a registered class of our equity securities to file reports of ownership and changes in ownership with the SEC. Officers, directors and greater than 10% beneficial owners are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. To our knowledge, and based solely on a review of the copies of such reports furnished to us and written representations from our officers and directors, all directors and officers filed timely reports of ownership and changes in ownership with the SEC.

Item 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

In accordance with the Cooperative’s Bylaws, only people who are members of the Cooperative or representatives of members can serve on our Board of Directors.  As members of the Cooperative (or representatives of members), all of our Directors have a contractual patronage relationship with the Cooperative that obligates them to deliver or contract to deliver corn to the Cooperative for processing.  As a result of this patronage relationship, the Cooperative’s Directors, like all other member of the Cooperative, receive allocations of profit/loss and cash distributions.

The Cooperative has developed its own definition of “Independent Director” that takes into account the patronage relationship that exists between the Cooperative and each Director.  Under the Cooperative’s definition, the patronage relationship is not considered for purposes of determining “independence.”  However, other relevant relationships between the Cooperative and the Directors, and certain family members, are considered in assessing “independence.”  Except with respect to the patronage relationship that exists, the Cooperative’s definition is consistent with the definition of an independent director found in Section 303A.02 of the New York Stock Exchange Listed Company Manual.  Below please find the Cooperative’s definition of an independent director:

A  director of the Cooperative shall be considered an “Independent Director” unless:

Based on the above definition, all of our Directors are independent of management and of the Cooperative.

 

Item 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The following table presents fees for professional audit services rendered by Widmer Roel for the audits of the Cooperative’s annual financial statements for the years ended December 31, 2017 and 2016 and fees, if any, for other services rendered by Widmer Roel during those periods.

 

Audit Fees.  The Audit Fees set forth above include the aggregate fees billed by Widmer Roel to the Cooperative for audit services related to the audit of the Cooperative’s annual financial statements and review of the statements included in the Cooperative’s quarterly reports on Form 10-Q for fiscal 2017 and 2016.

 

Audit-Related Fees.  No additional Audit-Related Fees were billed by Widmer Roel to the Cooperative for assurance and related services provided by Widmer Roel related to the performance of the audit or review of the Cooperative’s financial statements for fiscal 2017 and 2016.

 

Tax Fees.  No Tax Fees were billed by Widmer Roel to the Cooperative for professional services rendered by Widmer Roel for tax compliance, tax advice and tax planning for fiscal 2017 and 2016.

 

All Other Fees.  No Other Fees were billed by Widmer Roel to the Cooperative for professional services provided by Widmer Roel to the Cooperative for fiscal 2017 and 2016.

 

The Cooperative’s Audit Committee would pre-approve all professional services provided by Widmer Roel to the Cooperative.  The Audit Committee approved all of the services and the fees billed for such services to the Cooperative.  The Audit Committee makes its decisions on the approval of services with due consideration given to maintaining the independence of the principal accountant.  None of the hours expended on the audit of the 2017 financial statements were attributed to work performed by persons who were not employed full time on a permanent basis by Widmer Roel.

PART IV

Item 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)  Documents filed as part of this report.

1.Financial Statements

Report of Independent Registered Public Accounting Firm.

Balance Sheets as of December 31, 2017 and 2016.

Statements of Operations and Comprehensive Income for the Years Ended December 31, 2017, 2016 and 2015.

Statements of Changes in Members’ Equity for the Years Ended December 31, 2017, 2016 and 2015.

Statements of Cash Flows for the Years Ended December 31, 2017, 2016 and 2015.

Notes to the Financial Statements.

2.Financial Statement Schedules

Not applicable.

3.Exhibits.

 

Item 16.  FORM 10-K SUMMARY

None

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 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, on March 9, 2018.

 

 

Power of Attorney

 

Each person whose signature appears below appoints Scott Stofferahn as their true and lawful attorney-in fact and agent, with full power of substitution and resubstitution, for the undersigned and in the undersigned’s name, place and stead, to perform all acts and execution of all documents which such attorney and agent may deem necessary or desirable to enable Golden Growers Cooperative to comply with the Securities Exchange Act of 1934, as amended, and any rules, regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with filing with the Commission the Annual Report on Form 10-K of Golden Growers Cooperative for the fiscal year ended December 31, 2017 and any and all amendments and exhibits thereto, and other documents in connection therewith, including specifically, but without limiting the generality of the foregoing, power and authority to sign the names of the undersigned to the Form 10-K and to any instruments and documents filed as part of or in connection with the Form 10-K or any amendments thereto; and the undersigned hereby ratify and confirm all actions taken and documents signed by said attorney and agent as provided herein.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated and as of March 9, 2018.

 

 

 

APPENDIX A

 

INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS

 

GOLDEN GROWERS COOPERATIVE FINANCIAL STATEMENTS

 

 

 

 

 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Audit Committee and Board of Directors

Golden Growers Cooperative

West Fargo, North Dakota

 

Opinion on the Financial Statements

 

We have audited the accompanying balance sheets of Golden Growers Cooperative (the Cooperative) as of December 31, 2017 and 2016, and the related statements of operations, comprehensive income, changes in members’ equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Cooperative as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Cooperative’s management. Our responsibility is to express an opinion on the Cooperative’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Cooperative in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Cooperative is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Cooperative’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

 

 

 

We have served as the Cooperative’s auditor since 2008.

 

Fargo, North Dakota

March 8, 2018

 

 

 

 

GOLDEN GROWERS COOPERATIVE

 

BALANCE SHEETS

DECEMBER 31, 2017 AND 2016

 

(Dollars In Thousands)

 

 

 

 

See accompanying Report of Independent Registered Public Accounting Firm and Notes to the Financial Statements.