Golden Growers Cooperative - Annual Report: 2019 (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, 2019

 

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒   No  ☐

 

 

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

 

 

 

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 5, 2020, 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

 

 

 

 

FORWARD LOOKING STATEMENTS

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.  Forward-looking statements in this report generally relate to: our expectations regarding our membership in ProGold Limited Liability Company (“ProGold”) and its distributions to the Cooperative; our beliefs regarding the sufficiency of working capital and cash flows; our expectations regarding our continued ability to renew or obtain financing on reasonable terms when necessary; the impact of recently issued accounting pronouncements; our intentions and beliefs relating to our costs, product developments and business strategies; our expected operating and financial results; our expectations concerning our contract arrangements with members; our beliefs regarding competitive factors and our competitive strengths; our predictions regarding the impact of seasonality; our beliefs regarding the impact of the farming industry on our business; our beliefs regarding our internal controls over financial reporting; and our intentions for paying member distributions. Many of these forward-looking statements are located in this report under “Item 1. BUSINESS” and “Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS,” but they may appear in other sections as well.

This report should be read thoroughly with the understanding that our actual results may differ materially from those set forth in the forward-looking statements for many reasons, including events beyond our control and assumptions that prove to be inaccurate or unfounded. We cannot provide any assurance with respect to our future performance or results. Our actual results or actions could differ materially from those anticipated in the forward-looking statements for many reasons, including, but not limited to, the effect of general economic conditions and the agricultural cycle on the demand for our members’ corn;  changes in ProGold’s operating costs, leases, or ownership;  changes in our contractual relationships; changes in tax laws; our ability to retain our key employee; the cost of complying with laws, regulations, and standards relating to corporate governance and public disclosure, and the demand such compliance places on management’s time; and other factors described in this report and from time to time in our other reports filed with the Securities and Exchange Commission.    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 Cooperative undertakes no obligation to update any forward-looking statements in this report to reflect future events or developments.  Readers should not place undue reliance on such forward-looking statements. The Cooperative qualifies all of its forward-looking statements by these cautionary statements.

PART I

Item 1.  BUSINESS

GENERAL

Golden Growers Cooperative is a value-added agricultural cooperative association owned by  1,531  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 paid ProGold an annual lease payment of $17 million in 2019 and will pay annul lease payments of $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 Units in the Cooperative 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.  The member with a Method A corn commitment then directly contracts with Cargill for corn delivered by Method A.  At the end of each month Cargill reports the number of Method A Bushels delivered and the average daily price paid for corn that Cargill purchased from Members on the Cooperative’s behalf. The product of the number of bushels delivered multiplied by the average monthly market price is reported as Method A corn expense.  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. 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.  The purchase price shall be equal to the average price reported for Method A corn for the final month of the year.  In addition, the Method A member with a shortfall will be charged a purchased corn fee and agency fee determined by the Board of Directors.

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 as it deems appropriate and in the best interest of us and Cargill.  The Cooperative shall notify Cargill of the number of Method B bushels to be purchased during the quarter.  Cargill will certify to the Cooperative that it has purchased the necessary Method B bushels.  The price paid will be the weighted average price for Method A corn during the quarter multiplied by the number of Method B bushels. Method B corn revenue will be determined to be equal to the price paid.

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 $60,000 in 2019. This fee was 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 Second Amended and Restated Bylaws (“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 2018 and 2019 fiscal years, our members elected to and delivered 27.7% and 27.0%, respectively, of the bushels of corn by Method A and 72.3% and 73.0%, respectively, of the bushels of corn by Method B.  This resulted in 27.7% and 27.0% of our income and/or losses and 27.7% and 27.0% of any cash distributions being allocated to the Method A pool, respectively, in fiscal years 2018 and 2019. This 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 facility year-round, 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 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.

Employees

As of December 31, 2019, 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.

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

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.

Item 1B.  UNRESOLVED STAFF COMMENTS

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.

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

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.

Item 4.  MINE SAFETY DISCLOSURES

Not applicable.

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 FNC Ag Stock, LLC 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 1,531 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 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, 2018, the Cooperative made aggregate cash distributions to members of $6,831,000.  For the fiscal year ended December 31, 2019, the Cooperative made aggregate cash distributions to members of $6,692,000. 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

 

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.

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, as discussed in the section entitled “Forward Looking Statements.”  Readers should not place undue reliance on such forward-looking statements.

Results of Operations

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 for processing at the facility.  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. 

The Cooperative sold approximately 15.5 million bushels of corn on behalf of its members in each of fiscal 2018 and 2019.  The Cooperative recognized corn revenue of $54,296,000 in fiscal 2019 as compared to $50,102,000 in fiscal 2018, an increase of 8.4% due primarily to an increase in the price of corn sold.  The Cooperative recognized corn expense of $54,336,000 in fiscal 2019 and $50,152,000 in fiscal 2018, an increase of 8.3% due primarily to an increase in the price of corn purchased. 

In fiscal 2019, the Cooperative’s members, on the Cooperative’s behalf, delivered to Cargill 4,183,000 bushels of corn using Method A and 11,308,000 bushels of corn using Method B, resulting in incentive fee expense of $209,000 and agency fee income of $226,000 for this period. In fiscal 2018, the Cooperative’s members, on the Cooperative’s behalf, delivered to Cargill 4,285,000 bushels of corn using Method A and 11,206,000 bushels of corn using Method B, resulting in incentive fee expense of $214,000 and agency fee income of $224,000 for this period.  In each of fiscal 2019 and 2018, the Cooperative recognized expense of $60,000 for Cargill’s services as our agent in connection with the Cooperative’s corn marketing operation. 

The Cooperative derived income from ProGold for the fiscal year ended December 31, 2019, of $7,659,000, an increase of $735,000 or 10.6% as compared to $6,924,000 for the period ended December 31, 2018. The increase in income received from ProGold was due primarily to an increase in ProGold rent revenue in 2019 compared to 2018 related to certain Capital Expenditures Agreements between Cargill and ProGold entered into during fiscal 2019, which are further described in ProGold’s Audited Financial Statements, attached hereto at Exhibit 99.1.

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 fiscal 2019 were $565,000, an increase of $30,000 or 6% as compared to fiscal 2018.  The increase was due primarily to increased financial service and consulting costs.

Other Income

Interest income for the fiscal year ended December 31, 2019, was $181,000 compared to $82,000 for the fiscal year ended December 31, 2018. The increase was due primarily to increased long term investment income.  Realized gain on investments for the fiscal year ended December 31, 2019, was $9,000 as compared to $0 for the same respective period in 2018.

Liquidity and Capital Resources

The Cooperative’s working capital was $5,100,000 at December 31, 2019 and $5,192,000 at December 31, 2018.  The decreased working capital in 2019 as compared to 2018 was a result of decreased short-term investments during 2019 as compared to 2018 related to a CD that matured and was re-invested into bonds with a longer term.

The Cooperative received cash distributions from ProGold totaling $8,081,000 in fiscal 2019 and $8,216,000 in fiscal 2018. The decrease was primarily related to increased ProGold capital expenditures in 2019 compared to 2018. The Cooperative paid cash distributions to its members totaling $6,692,000 in fiscal 2019 and $6,831,000 in fiscal 2018.

In fiscal 2018, the Cooperative invested a portion of its cash reserves in bonds. To ensure that the Cooperative would have access to cash if needed before the maturity of the bonds, the Cooperative also established a $2,000,000 line of credit with a variable interest rate based on the prime rate that terminates on October 16, 2020.  The line of credit is secured by the Investment Management Agency account for Golden Growers maintained by Bell Bank.  There was no outstanding balance as of December 31, 2019.

The Cooperative had no long-term debt as of December 31, 2019 and December 31, 2018.

The Cooperative used operating cash flows of $458,000 for the fiscal year ended December 31, 2019 and $542,000 for the fiscal year ended December 31, 2018. The decreased use of operating cash flows is primarily due to increased earnings.

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.

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, 2019.  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

Effective January 1, 2019, the Cooperative adopted ASU 2016-02, Leases.  The standard increases transparency and comparability among organizations by requiring the recognition of right-to-use (“ROU”) assets and lease liabilities on the balance sheet.  The standard did not significantly impact on the Cooperative’s financial statements. 

Effective January 1, 2018, the Cooperative adopted 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 determined that the timing, pattern and amount of revenue recognized under the new standard is substantially the same as previously recognized by the Cooperative.

Effective January 1, 2018, the Cooperative adopted ASU 2016-01, Financial Instruments.  The standard did not have a significant impact on the Cooperative’s financial statements.  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.  

Item 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we are not required to provide disclosure pursuant to this Item.

Item 8.  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA

The Cooperative’s financial statements for the fiscal years ended December 31, 2018 and 2019 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 ACCOUNTING 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, 2019, 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, 2019 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 has historically consisted of fifteen directors, comprised of three directors from each of five geographic districts. Except as further described herein, directors are elected to serve three-year terms.  A director cannot serve more than four consecutive full three-year terms on the Board. 

On March 28, 2019, the Cooperative’s members approved amendments to the Cooperative’s Amended and Restated Bylaws. In addition to updates regarding tax matters, remote participation by directors at Board meetings, quorum at Board meetings, and a new section regarding action by the Board without a meeting, the Second Amended and Restated Bylaws, attached hereto as Exhibit 3.3, reduced the number of election districts for purposes of nominating and electing directors from five to three geographic districts and reduced the total number of directors from fifteen to twelve in 2020 and from twelve to nine in 2021 as three directors in each of 2020 and 2021 reach their term limitations for serving on the Board. The amendments also created two different types of directors: District Directors and Directors-at-Large. District Directors must belong to the district they represent and be elected by a majority of the members from their geographic district present at a members’ meeting for that purpose. Directors-at-Large may come from any district, but must be elected by a majority of all members present at a members’ meeting for that purpose. Regardless of the type of directorship, director nominees must be members of the Cooperative holding Units of the Cooperative. 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.

Immediately following the 2019 amendment, the Board of Directors appointed three directors from among the then-current members of the Board of Directors to serve as Directors-at-Large.  Regardless of the term any such appointed Director-at-Large may have previously been elected to serve by the members, two such Directors-at-Large were appointed to three year terms and one Director-at-Large was appointed to a two year term. All other directors were assigned to one of the three new geographic districts as District Directors. While typically one director is elected each year from each district at the Annual Member Meeting held in March, in 2020, members from the newly created North and South geographic districts will each hold elections for one District Director to serve a three year term. Additional transitional voting through the 2023 Annual Members’ Meeting is set forth in the Second Amended and Restated Bylaws.

Each person’s experience, qualifications, attributes or skills to serve as a director are determined by the members voting at the Annual Member Meeting at which the election occurs and are 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, or from the general pool, does not come forward indicating a desire to run for election to serve as a director, then that seat on the Board of Directors becomes or remains unfilled.

The Cooperative’s Board officers consist of a Chairperson, First Vice Chairperson, Second Vice Chairperson, 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 Cooperative’s Named Executive Officer are as follows:

 

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

 

Shaun Beauclair.  Mr. Beauclair has been a director since 2008 and Second Vice Chairperson 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. Mr. Beauclair has reached the term limitation for serving on the Cooperative’s Board of Directors and, therefore, is not eligible to stand for reelection at the Cooperative’s 2020 Annual Member Meeting. The Cooperative thanks Mr. Beauclair for his years of service.

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. Mr. Bot is seeking reelection at the Cooperative’s 2020 Annual Member Meeting.

Mark L. Harless.  Mr. Harless has been a director since March of 2011 and Chairperson since March 2015.  He previously served as Vice Chairperson 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. Mr. Harless is seeking reelection at the Cooperative’s 2020 Annual Member Meeting.

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 1987. 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. Mr. Johnson has reached the term limitation for serving on the Cooperative’s Board of Directors and, therefore, is not eligible to stand for reelection at the Cooperative’s 2020 Annual Member Meeting. The Cooperative thanks Mr. Johnson for his years of service.

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. Mr. Johnson has reached the term limitation for serving on the Cooperative’s Board of Directors and, therefore, is not eligible to stand for reelection at the Cooperative’s 2020 Annual Member Meeting. The Cooperative thanks Mr. Johnson for his years of service.

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 March 2017.  Mr. Nesvig has farming interests in LaMoure and Ransom 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 Chairperson 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, 2019, 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 Securities and Exchange Commission.  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, 2019. 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, 2019 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 executive officer 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.

Delinquent Section 16(a) Reports

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 Securities and Exchange Commission. Officers, directors, and greater than 10% beneficial owners are required by Securities and Exchange Commission regulations to furnish the Cooperative with copies of all Section 16(a) reports they file. To our knowledge, and based solely on a review of the copies of such reports furnished to the Cooperative and written representations from our executive officer and directors, our executive officer and directors filed timely reports of ownership changes and changes in ownership with the Securities and Exchange Commission with the exception of Chris Johnson, who filed a Form 4 on January 3, 2020 to report the purchase of Units on July 1, 2015 and on January 2, 2020.

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 and capital improvement expenditures made by ProGold for the facility.  Mr. Stofferahn has no control over these 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 Chairperson is paid $375 per month.  In addition, directors and the Chairperson receive a per diem of:

The following table sets forth for the year ending December 31, 2019 the dollar value of all cash and non-cash compensation paid to individuals serving as directors of the Cooperative during fiscal year 2019.

 

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

The following table sets forth, as of  March 5, 2020 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 1,531 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.

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, 2019 and 2018 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 2019 and 2018.

 

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 2019 and 2018.

 

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 2019 and 2018.

 

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 2019 and 2018.

 

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 2019 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, 2019 and 2018.

Statements of Operations and Comprehensive Income for the Years Ended December 31, 2019, 2018 and 2017.

Statements of Changes in Members’ Equity for the Years Ended December 31, 2019, 2018 and 2017.

Statements of Cash Flows for the Years Ended December 31, 2019, 2018 and 2017.

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 6, 2020.

 

 

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, 2019 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 6, 2020.

 

 

 

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, 2019 and 2018, 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, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019, 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.

 

/s/ Widmer Roel PC

 

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

 

Fargo, North Dakota

March 6, 2020

 

 

 

 

GOLDEN GROWERS COOPERATIVE

 

BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

 

(Dollars In Thousands)

 

 

 

 

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

 

GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019,  2018 AND 2017

 

(Dollars In Thousands)

 

 

 

 

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

 

GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019,  2018, AND 2017

 

(Dollars In Thousands)

 

 

 

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

 

GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF CHANGES IN MEMBERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2019,  2018 AND 2017

 

(Dollars In Thousands)

 

 

 

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

 

GOLDEN GROWERS COOPERATIVE

 

STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019,  2018 AND 2017

 

(Dollars In Thousands)

 

 

 

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