Golden Growers Cooperative 10-Q for FY2022 Q3
Golden Growers Cooperative (GGROU)
About this 10-Q
Golden Growers Cooperative filed this 10-Q on November 4, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $22.89M
- up 17.1% from $19.55M a year earlier
- Diluted EPS
- $0.08
- down 27.3% from $0.11 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
Commission file number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices)
Telephone Number
(Registrant’s telephone
number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
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.
| 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).
| No [ ] |
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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.
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended 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 [ ] |
As of November 3, 2022 the Cooperative had Units issued and outstanding.
GOLDEN GROWERS COOPERATIVE
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
GOLDEN GROWERS COOPERATIVE
CONDENSED BALANCE
SHEETS
(In Thousands)
| September 30, 2022 | December 31, 2021 | |||||
| (Unaudited) | (Audited) | |||||
| ASSETS | ||||||
| Current Assets: | ||||||
| Cash and Cash Equivalents | $ | |
$ | |
||
| Short-Term Investments | ||||||
| Other Current Assets | ||||||
| Total Current Assets | ||||||
| Long-Term Investments | ||||||
| Investment in ProGold LLC | ||||||
| Total Assets | $ | |
$ | |
||
| LIABILITIES AND MEMBERS’ EQUITY | ||||||
| Current Liabilities | ||||||
| Accounts Payable | $ | $ | |
|||
| Accrued Liabilities | ||||||
| Total Current Liabilities | ||||||
| Members' Equity: | ||||||
| Members’
Equity Membership Units, Authorized Outstanding December 31, 2021 |
||||||
| Accumulated Other Comprehensive Loss | ( |
) | ||||
| Total Members’ Equity | ||||||
| Total Liabilities and Members’ Equity | $ | |
$ | |
See Notes to Condensed Financial Statements
1
| GOLDEN GROWERS COOPERATIVE |
| CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME |
| (In Thousands, Other Than Share and Per-Share Data) |
| (Unaudited) |
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||
| OPERATIONS | ||||||||||||
| Corn Revenue | $ | |
$ | |
$ | |
$ | |
||||
| Corn Expense | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net Income from ProGold LLC | ||||||||||||
| General & Administrative Expenses | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Net Income from Operations | ||||||||||||
| Other Income | ||||||||||||
| Net Income Before Income Tax | $ | |
$ | |
$ | |
$ | |
||||
| Net Income | $ | |
$ | |
$ | |
$ | |
||||
| Weighted Average Shares/Units Outstanding | ||||||||||||
| Earnings per Share/Membership Unit | ||||||||||||
| Primary and Fully Diluted | $ | $ | $ | $ | ||||||||
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||
| COMPREHENSIVE INCOME | ||||||||||||
| Net Income | $ | |
$ | |
$ | |
||||||
| Unrealized loss on investments | $ | ( |
) | $ | $ | ( |
) | $ | ||||
| Comprehensive Income | $ | |
$ | |
$ | |
$ | |
||||
| GOLDEN GROWERS COOPERATIVE |
| STATEMENTS OF CHANGES IN MEMBERS’ EQUITY |
| (In Thousands) |
| (Unaudited) |
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||
| Changes in Members' Equity | ||||||||||||
| Balance, Beginning of the Period | $ | |
$ | |
$ | |
$ | |
||||
| Net Income | ||||||||||||
| Unrealized loss on investments | ( |
) | ( |
) | ||||||||
| Distributions to Members | ( |
) | ( |
) | ( |
) | ( |
) | ||||
| Balance, End of the Period | $ | |
$ | |
$ | |
$ | |
||||
See Notes to Condensed Financial Statements
2
| GOLDEN GROWERS COOPERATIVE |
| CONDENSED STATEMENTS OF CASH FLOWS |
| (In Thousands) |
| (Unaudited) |
| Nine Months Ended | ||||||
| September 30, 2022 | September 30, 2021 | |||||
| Cash Flows from Operating Activities | ||||||
| Net Income | $ | |
$ | |
||
| Net (Income) from ProGold LLC | ( |
) | ( |
) | ||
| Changes in assets and liabilities | ||||||
| Other Current Assets | ||||||
| Accrued liabilities and payables | ( |
) | ( |
) | ||
| Net Cash Used in Operating Activities | ( |
) | ( |
) | ||
| Cash Flows from Investing Activities | ||||||
| (Purchase) of investments | ( |
) | ( |
) | ||
| Investment in ProGold LLC | ( |
) | ||||
| Distribution received from ProGold LLC | ||||||
| Net Cash Provided by Investing Activities | ||||||
| Cash Flows from Financing Activities | ||||||
| Member distributions paid | ( |
) | ( |
) | ||
| Net Cash Used in Financing Activities | ( |
) | ( |
) | ||
| Increase (Decrease) in Cash and Cash Equivalents | ( |
) | ||||
| Cash and Cash Equivalents, Beginning of Period | ||||||
| Cash and Cash Equivalents, End of Period | $ | |
$ | |
||
| Non-Cash Financing Activity | ||||||
| Accrued Distributions Payable to Members | $ | |
$ | |
||
See Notes to Condensed Financial Statements
3
| GOLDEN GROWERS COOPERATIVE |
| NOTES TO CONDENSED FINANCIAL STATEMENTS |
| FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021 |
NOTE 1 – BASIS OF PRESENTATION
The condensed financial statements of Golden Growers Cooperative (the “Cooperative”) for the three and nine months ended September 30, 2022 and 2021 are unaudited and reflect all adjustments consisting of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed financial statements should be read in conjunction with the financial statements and notes thereto, contained in the Cooperative’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results for the entire fiscal year ending December 31, 2022.
NOTE 2 – EXPENSES
The Cooperative contracts with Cargill, Incorporated (“Cargill”) in connection with the procurement
of corn and other agency services for an annual fee of $
NOTE 3 – PROGOLD LIMITED LIABILITY COMPANY
Prior to March 1, 2022, the Cooperative and American Crystal Sugar Company (“American
Crystal”) held a
| September 30, | December 31, | |||||||||
| (In Thousands) | 2022 | 2021 | 2021 | |||||||
| Current Assets | $ | |
$ | |
$ | |
||||
| Long-Term Assets | ||||||||||
| Total Assets | $ | |
$ | |
$ | |
||||
| Current Liabilities | $ | |
$ | |
$ | |
||||
| Long-Term Liabilities | — | |||||||||
| Total Liabilities | $ | |
$ | |
$ | |
||||
| Members’ Equity | ||||||||||
| Total Liabilities and Members’ Equity | $ | |
$ | |
$ | |
||||
| Rent Revenue on Operating Lease | $ | |
$ | |
$ | |
||||
| Expenses | ||||||||||
| Net Income | $ | |
$ | |
$ | |
||||
4
NOTE 4 – INVESTMENTS
The Cooperative has determined fair value of its investments based on Level 2 inputs (in thousands):
| Level 1 | Level 2 | Level 3 | Total | |||||||||
| September 30, 2022: | ||||||||||||
| Corporate Bonds - Held to Maturity | $ | — | $ | |
$ | — | $ | |
||||
| Fixed Income Funds - Available for Sale | — | — | ||||||||||
| Money Market & CD’s | — | — | ||||||||||
| $ | — | $ | |
$ | — | $ | |
|||||
| December 31, 2021: | ||||||||||||
| Corporate Bonds - Held to Maturity | $ | — | $ | |
$ | — | $ | |
||||
| Fixed Income Funds - Available for Sale | — | — | ||||||||||
| Money Market & CD’s | — | — | ||||||||||
| $ | — | $ | |
$ | — | $ | |
Maturities are as follows as of September 30, 2022 (in thousands):
| Net Carrying | Fair | |||||
| Amount | Value | |||||
| Due in 1 year or less | $ | |
$ | |
||
| Due in 2 to 5 years | ||||||
| Due in 6 to 10 years | ||||||
| $ | |
$ | |
The Cooperative’s investments are as follows as of September 30, 2022 and December 31, 2021 (in thousands):
| Amortized | Unrealized | Unrealized | ||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||
| September 30, 2022: | ||||||||||||
| Corporate Bonds - Held to Maturity | $ | |
$ | $ | ( |
) | $ | |
||||
| Fixed Income Funds - Available for Sale | — | ( |
) | |||||||||
| Money Market & CD’s | — | — | ||||||||||
| $ | |
$ | — | $ | ( |
) | $ | |
||||
| December 31, 2021: | ||||||||||||
| Corporate Bonds - Held to Maturity | $ | |
$ | |
$ | ( |
) | $ | |
|||
| Fixed Income Funds - Available for Sale | — | — | ||||||||||
| Money Market & CD’s | — | — | ||||||||||
| $ | |
$ | |
$ | ( |
) | $ | |
NOTE 5 – EMPLOYEE BENEFIT PLANS
Pension Plan – In December 2012, the Cooperative approved a change to freeze the Cooperative’s defined benefit plan as of January 1, 2013. As a result, no additional benefits will accrue to participants in the plan and no new employees are eligible for the plan.
5
The plan’s fair value and benefit obligation will vary over
time as a result of changes in market interest rates, the life expectancy of
plan participants, and benefit payments. As of December 31, 2021, the plan had a
total fair value of $
For the nine-month periods ended September 30, 2022 and 2021,
the Cooperative made $
NOTE 6 – REVENUE RECOGNITION
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 LLC. The Cooperative recognizes revenue from its corn marketing operations equal to the value of the corn that is delivered to Cargill and certain purchased corn and agency fees paid by members.
Identify Contracts with Customers
Annually, the Cooperative is required to deliver
approximately
Performance Obligations
Members who deliver corn
under Method A are paid the market price or contracted price for their corn at
the time of delivery, as well as an incentive payment of $
Members who elect Method B to deliver corn pay the Cooperative
a $
Variable Consideration
The Cooperative’s Board of
Directors has the discretion to change the member incentive payment, purchased
corn and agency fees based on the Cooperative’s corn delivery needs. The Cargill
agency fee is also a component of corn expense.
Significant Judgments
The evaluation of contracts
with customers, performance obligations, and variable consideration requires
significant judgment; the decision to combine contracts or separate a combined
or single contract into multiple performance obligations could change the amount
of revenue and profit recorded in a given period.
For the nine-month periods ended September 30, 2022 and 2021, the Cooperative recognized corn revenue under ASC 606 of million and million, respectively. Disaggregated revenue for the nine month periods ended September 30, 2022 and 2021 is as follows: revenue from Method A deliveries totaled million and million, respectively; and revenue from Method B deliveries totaled million and million, respectively.
6
NOTE 7 – DISTRIBUTIONS TO MEMBERS
On February 12, 2022, the Cooperative made distributions to its
members totaling $
NOTE 8 – LINE OF CREDIT
The Cooperative has a $
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Cooperative contracts with Cargill in connection with the
procurement of corn and other agency services for an annual fee of $
NOTE 10 – SUBSEQUENT EVENTS
The Cooperative has evaluated events through the date the financial statements were issued for potential recognition or disclosure in the September 30, 2022 financial statements and concluded that no subsequent events have occurred that would require recognition in the September 30, 2022 financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward Looking Statements
The following discussion and analysis should be read in conjunction with the financial statements and notes thereto included in Item 1 of Part I of this Quarterly Report on Form 10-Q and the audited condensed financial statements and related notes thereto and Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, included in the Cooperative’s Annual Report Form on 10-K for the fiscal year ended December 31, 2021. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, among others, those statements including the words “expect”, “anticipate”, “believe”, “may” and similar expressions. The Cooperative’s actual results could differ materially from those indicated in the forward-looking statements for many reasons, including events beyond the Cooperative’s control and assumptions that prove to be inaccurate or unfounded. The Cooperative’s actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including but not limited to: (i) the impact of the Cooperative’s joint ownership interest in ProGold LLC following Cargill’s acquisition of a 50% interest in ProGold LLC; (ii) fluctuations in the market price per bushel of corn; (iii) the continued impact of the novel coronavirus (COVID-19); (iv) the impact of the war in Ukraine; (v) the effect of inflation as well as general economic conditions; and (vi) other factors described from time to time in the Cooperative’s Securities and Exchange Commission filings. The Cooperative does not intend to update the forward-looking statements contained in this Quarterly Report on Form 10-Q other than as required by law and qualifies all of its forward-looking statements by these cautionary statements.
Overview
Golden Growers Cooperative is a value-added agricultural cooperative association governed under Minnesota Statutes Chapter 308B owned by 1,489 members in the business of providing value to its members by facilitating their delivery of corn to the corn wet-milling facility owned by ProGold Limited Liability Company (“ProGold LLC”), a Minnesota limited liability company in which the Cooperative and Cargill Incorporated (“Cargill”) each own a 50% membership interest.
7
Prior to March 1, 2022, the Cooperative and American Crystal Sugary Company (“American Crystal”) owned a 49% interest and 51% in ProGold LLC, respectively. In connection with its interest in ProGold LLC, the Cooperative has the right and obligation to deliver corn to be processed at the wet-mining facility. On April 4, 2017, the Cooperative, Cargill, and American Crystal entered into a Consent Agreement, effective on January 1, 2018 (the “Consent Agreement”), relating to the lease of ProGold LLC’s wet-milling facility to Cargill and the Cooperative’s interest in ProGold LLC. On the same day, Cargill and American Crystal entered into an Option Agreement, effective on January 1, 2018 (the “Option Agreement”), detailing the price, term and other conditions under which American Crystal granted to Cargill an exclusive option (the “Option”) to purchase a 50% interest in ProGold LLC from American Crystal during the first four years of the lease. Under the Consent Agreement, the Cooperative approved and consented to the transfer of the 50% interest in ProGold LLC from American Crystal to Cargill in the event Cargill exercised its option. The Cooperative also secured the right to purchase American Crystal’s remaining 1% interest in ProGold LLC for a base price ranging from $1.3 million to $1.7 million, depending on when Cargill notified 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 had not been paid by Cargill to ProGold LLC through additional rent with respect to certain projects at the facility.
Cargill exercised its Option under the Option Agreement to purchase a 50% interest in ProGold LLC from American Crystal. Simultaneously with the exercise of the Option, the Cooperative, pursuant to the Consent Agreement, elected to purchase American Crystal’s remaining 1% interest in ProGold LLC. As a result of these transactions, effective March 1, 2022, the Cooperative and Cargill each own a 50% interest in ProGold LLC.
In connection with the Option exercise, the Cooperative, Cargill and ProGold LLC entered into that certain ProGold Limited Liability Company Agreement (the “Operating Agreement”), effective March 1, 2022, in order to set forth the structure, governance and operation of ProGold LLC according to certain operational principles and other guidelines described in the Consent Agreement. Beginning March 1, 2022, the Cooperative will be allocated 50% of the profits and losses of ProGold LLC and will be entitled to receive 50% of any cash that is distributed to ProGold LLC’s members.
For more information relating to the Cooperative’s ownership interest in ProGold LLC, please refer to Part I, Item 1 of the Cooperative’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
ProGold LLC leases its corn wet milling facility to Cargill, which uses the facility to process corn into high fructose corn syrup. In connection with the Option exercise, ProGold LLC and Cargill entered into that certain First Amendment to Second Amended and Restated Facility Lease, effective March 1, 2022, which extended the term of the Facility Lease through December 31, 2026. The Cooperative accomplishes its business on behalf of its members through its contractual relationships with all of the parties involved in the ownership and operation of the facility. From an income production perspective, the Cooperative’s membership interest in ProGold LLC is its primary asset that, in addition to giving the Cooperative the right to receive distributions from ProGold LLC, also provides the Cooperative’s 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 LLC facility.
Any person residing in the United States can own membership units of the Cooperative (“Units”) as long as that person delivers or provides for the delivery of corn for processing at the ProGold LLC facility. Ownership of Units requires members to deliver bushels of corn to the Cooperative for processing 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 its members based on the volume of corn they deliver. Subject to certain limitations, as long as a member patronizes the Cooperative by delivering one (1) bushel of corn for each Unit held by the member, the member will be allocated a corresponding portion of the Cooperative’s income (or loss). In this way, the Cooperative operates on a cooperative basis.
To hold Units, a member is required to execute a Uniform Member Agreement that obligates the member to deliver corn to the Cooperative 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 the Cooperative either at the facility or another location designated by the Cooperative. Under Method B, a member appoints the Cooperative as its agent to arrange for the acquisition and delivery of the required bushels of corn on the member’s behalf. The Cooperative appoints Cargill as its agent to arrange for the delivery of the corn by members who elect to deliver corn using Method A, and the Cooperative appoints Cargill as its agent to acquire corn on the Cooperative’s behalf for 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 its agent. Members who deliver corn under Method A are paid the market price or contracted price for their corn at the time of delivery. Members who deliver corn under Method A receive from the Cooperative an incentive payment of $.05 per bushel on the corn that they deliver while members who elect Method B to deliver corn pay to the Cooperative a $.02 per bushel agency fee for the cost of having the Cooperative 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 the Cooperative’s 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.
8
Annually, the Cooperative notifies 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 the Cooperative provides 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 is 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 Cooperative’s Board of Directors.
Cargill then purchases the remainder of the corn to be delivered by the Cooperative on behalf of the Method B delivering members at such time and in such quantities as it deems appropriate and in the best interest of the Cooperative and Cargill. The Cooperative notifies 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 equal to the price paid.
The Cooperative’s Third Amended and Restated Bylaws (“Bylaws”) establish a Method A delivery pool and a Method B delivery pool. Generally, the Cooperative’s income and/or losses are allocated annually based on the percentage of bushels of corn the members elect to deliver using either Method A or Method B. Regardless of the actual percentage allocation between the members who deliver bushels of corn using Method A or Method B, the Bylaws require the Cooperative to annually allocate at least 25% of its 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 members using Method A.
For fiscal year 2022, members elected to deliver 27% of their corn by Method A and members elected to deliver 73% of their corn by Method B. This election will result in 27% of the Cooperative’s income and/or losses and 27% of any cash distributions being allocated to the Method A pool in fiscal year 2022, which reflects the actual percentage of corn members elected to deliver using Method A and does not result in reallocation to meet the 25% requirement set forth in the Cooperative’s Bylaws.
Impact of COVID-19
The Cooperative continues to monitor the global outbreak of the novel coronavirus (COVID-19) and its impact on the Cooperative’s results of operations and financial condition. Corn millers are reporting that demand for high fructose corn syrup in food service and entertainment sectors has improved. Starch demand continues to be strong and ethanol demand improved as COVID-19 restrictions were lifted regionally. The ProGold facility currently continues to operate in the ordinary course and the Cooperative’s overall business has not been impacted. Although demand for products from the corn milling sector have stabilized or improved, the Cooperative is unable to predict the impact of COVID-19 on the future operations of the ProGold facility.
9
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 LLC. 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 and the service fee paid to Cargill.
For the three and nine-month periods ended September 30, 2022, the Cooperative sold approximately 3.3 and 11.8 million bushels of corn, respectively, compared to approximately 3.4 and 12.0 million bushels of corn sold during the three and nine-month periods ended September 30, 2021. For the three and nine-month periods ended September 30, 2022, the members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility approximately 0.5 and 3.3 million bushels of corn using Method A and 2.8 and 8.5 million bushels of corn using Method B. In the same respective periods in 2021, its members, on the Cooperative’s behalf, delivered to Cargill for processing at the facility 0.6 and 3.5 million bushels of corn using Method A and 2.8 and 8.5 million bushels of corn using Method B.
For the three and nine-month periods ended September 30, 2022, the Cooperative recognized corn revenue of $22,891,000 and $82,706,000, respectively, compared to $19,554,000 and $69,389,000, during the same respective periods in 2021, an increase of 17% for the third quarter and an increase of 19% year to date due primarily to an increase in the price per bushel of corn sold year to date in 2022 compared to 2021. The increase in the price per bushel of corn was driven by strong demand and the impact of the war in Ukraine on all commodity prices.
Expenses. The Cooperative recognized corn expense of $22,908,000 and $82,754,000 for the three and nine-month periods ended September 30, 2022, respectively, compared to $19,568,000 and $69,433,000 during the same respective periods in 2021, an increase of 17% for the third quarter, and an increase of 19% year to date due primarily to an increase in the price per bushel of corn purchased in 2022 compared to 2021.
The Cooperative recognized expense of $15,000 and $45,000 for the three and nine-month periods ended September 30, 2022, respectively, and during the same respective periods in 2021 in connection with costs incurred to Cargill related to the Cooperative’s corn marketing operation.
Income from ProGold LLC. The Cooperative derived income from ProGold LLC for the three and nine-month periods ended September 30, 2022 of $1,343,000 and $5,227,000, respectively, compared to $1,790,000 and $6,136,000 during the same respective periods in 2021, a decrease of 25% for the third quarter and a decrease of 15% year to date due primarily to a decrease in ProGold’s lease revenue in 2022 compared to 2021.
General and Administrative Expenses. The Cooperative’s general and administrative expenses include salaries and benefits, professional fees and fees paid to its Board of Directors. The general and administrative expenses for the three and nine-month periods ended September 30, 2022 were $113,000 and $421,000, respectively, compared to $108,000 and $378,000 during the same respective periods in 2021. The increase in administrative expenses for the nine-month period ended September 30, 2022 compared to the nine month period ended September 30, 2021 is primarily due to additional consulting and legal expenses associated with the negotiation of ProGold’s amended lease agreement and operating agreement.
Other Income. Interest income for the three and nine-month periods ended September 30, 2022 was $101,000 and $156,000, respectively, compared to $18,000 and $103,000 during the same respective periods in 2021. The increase is primarily due to higher interest earned on investments.
Liquidity and Capital Resources
The Cooperative’s working capital at September 30, 2022 was $5,414,000 compared to $4,982,000 at September 30, 2021. The increased working capital at the end of the third quarter of fiscal 2022 as compared to the end of the third quarter of fiscal 2021 was the result of changes in the timing of maturities of the Cooperative’s investments. The Cooperative received cash distributions from ProGold LLC totaling $8,039,000 for the nine-month period ended September 30, 2022 compared $4,050,000 for the nine-month period ended September 30, 2021. Increased ProGold LLC distributions are related to the distribution of ProGold reserves prior to the change in ownership of ProGold on March 1, 2022.
10
In fiscal year 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 at a variable interest rate based on the prime rate. The line of credit will terminate on October 16, 2024. The line of credit is secured by the investment management agency account for the Cooperative maintained by Bell Bank. There was no outstanding balance as of September 30, 2022 or December 31, 2021.
The Cooperative had no long-term debt as of September 30, 2022 and September 30, 2021 and used operating cash flows of $374,000 for the nine-month period ended September 30, 2022 compared to used cash flows of $311,000 for the nine-month period ended September 30, 2021. The decrease in operating cash flows for the nine-month period ended September 30, 2022 compared to the nine month period ended September 30, 2021 is primarily due to decreased net income from ProGold in 2022 compared to 2021.
Management believes that non-cash working capital levels, together with the Cooperative’s cash and cash equivalents, are appropriate in the current business environment and does not expect a significant increase or reduction of non-cash working capital in the next twelve months. Management expects that the Cooperative’s cash and cash equivalents, together with available borrowings under the line of credit, will be sufficient to fund its operations for the foreseeable future, including at least the next twelve months.
Significant Accounting Estimates and Policies
The Cooperative generally does not pay out Method A incentive payments or collect Method B agency fees until the end of its fiscal year. The total annual Method B agency fee was determinable once the members completed their delivery method determination prior to January 1, 2022. The quarterly Method B bushel delivery and agency fee revenue is calculated by allocating the portion of the total annual agency fee for that particular quarter or cumulating it for the particular period. The Cooperative tracks Method A corn deliveries throughout the year so it can report the bushels of corn delivered by its members as well as the corresponding Method A incentive fees earned. The final amounts owed by or due to Cargill and/or the Cooperative’s members who elect to deliver using Method A is not calculated until after December 31 in order to account for any failures to deliver, or over-deliveries, of corn.
The remainder of the Cooperative’s significant accounting policies are described in Note 2, Summary of Significant Accounting Policies, of the Notes to the Financial Statements in the Cooperative’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. The Cooperative’s critical accounting estimates are discussed in Item 7, Management’s Discussion and Analysis of Financial Conditions and Results of Operations, in the Cooperative’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no other significant changes in the Cooperative’s significant accounting policies or critical accounting estimates since December 31, 2021.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, the Cooperative is not required to provide disclosure pursuant to this item.
Item 4. Controls and Procedures
The Cooperative’s Chief Executive Officer and Chief Financial Officer has reviewed and evaluated the effectiveness of the Cooperative’s disclosure controls and procedures (as defined in Rules 240.13a -15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934) as of September 30, 2022. 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 and provide reasonable assurance 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 Securities 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 Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in the Cooperative’s internal controls 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 Cooperative’s internal control over financial reporting.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a smaller reporting company, the Cooperative is not required to provide disclosure pursuant to this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information.
None.
Item 6. Exhibits
| Exhibit No. | Exhibit Description | |
| 31.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to Securities Exchange Act Rule 17 CFR 13a-14(a) – filed herewith. | |
| 32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 – filed herewith. | |
| 99.1 | Audited Financial Statements of ProGold Limited Liability Company for the years ended August 31, 2022 and 2021 – filed herewith. | |
| 101 | The following materials from this report, formatted in XBRL (Extensible Business Reporting Language) are filed herewith: (i) balance sheets, (ii) statements of operations and comprehensive income, (iii) statements of cash flows, and (iv) the notes to the financial statements. |
12
SIGNATURES
Pursuant to the requirement 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.
| GOLDEN GROWERS COOPERATIVE | |
| (Registrant) | |
| Date: November 4, 2022 | /s/ Scott Stofferahn |
| Scott Stofferahn | |
| Executive Vice President, | |
| Chief Financial Officer | |
| Duly Authorized Officer |
13
Exhibit 31.1
CERTIFICATION PURSUANT TO 17 CFR 240.13(a) -14(a)
(SECTION 302 CERTIFICATION)
I, Scott Stofferahn, certify that:
| 1. |
I have reviewed this quarterly report on Form 10-Q of Golden Growers Cooperative (the registrant); |
| 2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
| 4. |
I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a- 15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
| a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; | |
| b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, 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; | |
| c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and | |
| d) |
disclosed in this report any changes in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
| 5. |
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and | |
| b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
| GOLDEN GROWERS COOPERATIVE | |
| November 4, 2022 | /s/ Scott Stofferahn |
| Scott Stofferahn | |
| Executive Vice President, Chief Executive Officer and | |
| Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the quarterly report on Form 10-Q of Golden Growers Cooperative (the “Company”) for the fiscal quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Scott Stofferahn, Executive Vice President, serving as Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
| 1. |
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and | |
| 2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| GOLDEN GROWERS COOPERATIVE | |
| November 4, 2022 | /s/ Scott Stofferahn |
| Scott Stofferahn | |
| Executive Vice President, Chief Executive Officer and | |
| Chief Financial Officer |
| PROGOLD, LLC |
| FINANCIAL STATEMENTS |
| AUGUST 31, 2022 |
| WITH INDEPENDENT AUDITOR’S REPORT |
 | |
| 4220 31st Avenue S. | |
| Fargo, ND 58104-8725 | |
| Phone: 701.237.6022 | |
| Toll Free: 888.237.6022 | |
| Fax: 701.280.1495 |
INDEPENDENT REPORT
To the Board of Governors
ProGold,
LLC
West Fargo, ND
Opinion
We have audited the financial statements of ProGold, LLC, which comprise of the balance sheet as of August 31, 2022, the related statements of income, changes in members equity, and cash flows for the year then ended, and the related notes to the financial statements.
In our opinion, the accompanying financial statements presented fairly, in all material respects, the financial position of ProGold, LLC as of August 31, 2022, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America (GAAS). Our responsibilities under those standards are further described in the Auditor’s Responsibility for the Audit of the Financial Statements section of our report. We are required to be independent of ProGold, LLC and to meet our ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the financial statements that are free from material misstatements, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about ProGold, LLC’s ability to continue as a going concern for one year after the date that the financial statements are issued.
Member of |
||
 |
1 |
|
| www.wr.cpa |
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from Material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually, or in the aggregate, they would influence the judgement made by a reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
| • |
Exercise professional judgement and maintain professional skepticism throughout the audit. | |
| • |
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsible to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. | |
| • |
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ProGold, LLC’s internal control. Accordingly, no such opinion is expressed. | |
| • |
Evaluate the appropriateness of accounting policies used the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements. | |
| • |
Conclude whether, in our judgement, there are conditions or events, considered in the aggregate, that raise substantial doubt about ProGold, LLC’s ability to continue as a going concern for a reasonable period of time. |
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Fargo, North Dakota
September 30, 2022
2
PROGOLD, LLC
BALANCE SHEET
AUGUST 31, 2022
| ASSETS | |||
| CURRENT ASSETS | |||
| Cash and cash equivalents | $ | 199,787 | |
| Accounts receivable | 30 | ||
| Prepaid expenses | 46,087 | ||
| Total current assets | 245,904 | ||
| PROPERTY AND EQUIPMENT HELD FOR LEASE | |||
| Land and land improvements | 10,191,265 | ||
| Buildings and equipment | 256,397,834 | ||
| Less accumulated depreciation | (229,422,428 | ) | |
| Total property and equipment held for lease | 37,166,671 | ||
| OTHER ASSETS | |||
| Deferred lease asset | 155,272 | ||
| Total assets | $ | 37,567,847 | |
| LIABILITIES AND MEMBERS' EQUITY | |||
| CURRENT LIABILITIES | |||
| Related party accounts payable | $ | 397,367 | |
| MEMBERS' EQUITY | 37,170,480 | ||
| Total liabilities and members' equity | $ | 37,567,847 | |
| See Notes to Financial Statements | 3 |
PROGOLD, LLC
STATEMENT OF INCOME
FOR THE YEAR ENDED AUGUST 31,
2022
| REVENUES | |||
| Related party rental revenue on operating lease | $ | 17,880,277 | |
| OPERATING EXPENSES | |||
| Depreciation | 2,989,355 | ||
| Maintenance | 748,367 | ||
| General and administrative | 259,785 | ||
| Total expenses | 3,997,507 | ||
| Operating income | 13,882,770 | ||
| OTHER INCOME | 1,715,489 | ||
| NET INCOME | $ | 15,598,259 |
| See Notes to Financial Statements | 4 |
PROGOLD, LLC
STATEMENT OF MEMBERS' EQUITY
FOR THE YEAR ENDED AUGUST 31, 2022
| American | ||||||||||||
| Crystal | Golden | Total | ||||||||||
| Sugar | Growers | Members' | ||||||||||
| Company | Cooperative | Cargill | Equity | |||||||||
| BALANCE, AUGUST 31, 2021 | $ | 19,418,203 | $ | 18,656,703 | $ | - | $ | 38,074,906 | ||||
| Net income | 4,155,847 | 7,799,129 | 3,643,283 | 15,598,259 | ||||||||
| Transfers | (18,917,133 | ) | 238,680 | 18,678,453 | - | |||||||
| Distributions | (4,656,917 | ) | (8,109,272 | ) | (3,736,496 | ) | (16,502,685 | ) | ||||
| BALANCE, AUGUST 31, 2022 | $ | - | $ | 18,585,240 | $ | 18,585,240 | $ | 37,170,480 |
| See Notes to Financial Statements | 5 |
| PROGOLD, LLC |
| STATEMENT OF CASH FLOWS |
| FOR THE YEAR ENDED AUGUST 31, 2022 |
| CASH FLOWS FROM OPERATING ACTIVITIES | |||
| Net income | $ | 15,598,259 | |
| Adjustments to reconcile net income to net cash provided by operating activities | |||
| Depreciation | 2,989,355 | ||
| Loss on sale of assets | 394,228 | ||
| Changes in assets and liabilities | |||
| Accounts receivable | (12 | ) | |
| Prepaid expenses | 25,491 | ||
| Other assets | (155,172 | ) | |
| Accounts payable | 2,310,690 | ||
| Deferred revenues | (2,277,778 | ) | |
| Net cash provided by operating activities | 18,885,061 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||
| Proceeds from sale of property and equipment held for lease | 2,915,876 | ||
| Expenditures for property and equipment held for lease | (7,227,968 | ) | |
| Net cash provided by investing activities | (4,312,092 | ) | |
| CASH FLOWS FROM FINANCING ACTIVITIES | |||
| Distributions to members | (16,502,685 | ) | |
| NET CHANGE IN CASH | (1,929,716 | ) | |
| CASH AND CASH EQUIVALENTS, Beginning of year | 2,129,503 | ||
| CASH AND CASH EQUIVALENTS, End of year | $ | 199,787 | |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FLOW INFORMATION | |||
| Return of construction in progress to owner | $ | 5,757,968 | |
| Cancellation of accrued liability for construction in progress | $ | (5,757,968 | ) |
| Lease deferred revenue cancellation | $ | 2,111,111 |
| See Notes to Financial Statements | 6 |
| PROGOLD, LLC |
| NOTES TO FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED AUGUST 31, 2022 |
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
ProGold, LLC (ProGold) is organized as a Minnesota limited liability company. ProGold was owned by American Crystal Sugar Company (51%) and Golden Growers Cooperative (49%). Effective March 1, 2022, American Crystal Sugar Company transferred ownership in ProGold to Cargill, Incorporated, resulting in a 50/50 venture between Cargill and Golden Growers Cooperative. ProGold has been organized with a life of 50 years and its legal existence will terminate on July 13, 2044, absent a business continuation agreement.
Related Party Operating Lease
ProGold leases a corn wet milling facility to Cargill, Inc. under an operating lease which runs through March 1, 2027, with an automatic one-year extension if certain conditions are not met. Payments are to be received monthly under the lease. The operating lease revenue is recognized as earned ratably over the term of the lease and to the extent that amounts received exceed amounts earned, deferred revenue is recorded. The Company generates lease revenue, which is recognized under ASC Topic 840, Leases, which falls outside the lease scope of ACS topic 606. Expenses (including depreciation and interest) are charged against such revenue as incurred. The lease contains provisions for incresed payments to be received during the lease period related to the plant's capital additions and also requires ProGold to pay $750,000 annually, on a calendar year basis, to fund infrastructure maintenance.
Included in the lease agreement, there was an option agreement allowing Cargill to purchase 50% interest in ProGold from American Crystal Sugar Company. If this option were to be exercised, American Crystal Sugar Company also agreed to sell the remaining 1 % interest to Golden Growers Cooperative, resulting in a 50/50 venture between Cargill and Golden Growers Cooperative. This option was exercised as of March 1, 2022. As of August 31, 2022, Cargill and Golden Growers Cooperative each have 50% ownership of ProGold.
Cash and Cash Equivalents
ProGold Considers all highly liquid debt and equity instruments purchased with a maturity of three months or less to be cash equivalents. ProGold places its temporary cash investments with high-credit-quality financial institutions. At times, such investments may be in excess of the applicable insurance limit.
Property and Equipment Held for Lease
Property and equipment held for lease are stated at cost. Depreciation on assets placed in service is provided using the straight-line method over the estimated useful lives of the individual assets, ranging from 5 to 40 years.
Impairment of Long-Lived Assets
ProGold reviews its property and equipment for impairment whenever events indicate that the carrying amount of the asset may be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value there were no impairment losses for the year ended August 31, 2022.
Related Parties
Golden Growers Cooperative, Cargill, Inc. and American Crystal Sugar are considered related parties for financial reporting purposes.
| (Continued) | 7 |
| PROGOLD, LLC |
| NOTES TO FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED AUGUST 31, 2022 |
Revenue Recognition
Revenue are measured based on the amount of consideration specified in the operating lease agreement. Revenues are recognized when and as performance obligations are satisfied, which is when the rental revenue is received each month. The Company's contracts are generally accounted for as a single performance obligation. The evaluation of contracts with customers, performance obligations, and variable consideration requires significant judgment.
Income Taxes
ProGold is treated in a manner similar to a partnership for federal and state income tax purposes, based upon its current organization. Accordingly, the financial statements do not include any provision for income taxes.
Accounting Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued an update to the authoritative guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The guidance provided by this update becomes effective for ProGold issuance date.
Subsequent Events
Management has evaluated subsequent events through the date of the auditor's report, which is the date the financials were available to be issued. The Company believes that there have been no significant subsequent events where disclosures are necessary.
NOTE 2 - REVENUE RECOGNITION
The Company generates revenue primarily from rental income related to the operating agreement with Golden Growers Cooperative and Cargill, Incorporate.
Identify Contracts with Customers
Revenue are measured based on the amount of consideration specified in the operating lease agreement. Revenues are recognized when and as performance obligations are satisfied, which is when the rental revenue is received each month. The Company's contracts are generally accounted for as a single performance obligation. The evaluation of contracts with customers, performance obligations, and variable consideration requires significant judgment.
Performance Obligations
Contracts are considered to contain a single performance obligation, which is the monthly rent. Payment is due based on terms specified in the operating agreement.
| (Continued) | 8 |
| PROGOLD, LLC |
| NOTES TO FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED AUGUST 31, 2022 |
Variable Consideration
The nature of the Company's business does not give rise to variable consideration.
Significant Judgments
The evaluation of contracts with customers, performance obligations, and variable consideration requires significant judgment; the decision to combine contracts or separate a combined or single contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period.
NOTE 3 - RELATED PARTY LEASE WITH CARGILL, INC
Future minimum payments to be received under the lease are as follows:
| 2023 | $ | 15,750,000 | |
| 2024 | 16,000,000 | ||
| 2025 | 16,000,000 | ||
| 2026 | 16,000,000 | ||
| $ | 63,750,000 |
NOTE 4 - RELATED PARTY CAPITAL EXPENDITURES AGREEMENT WITH CARGILL, INC
ProGold entered into an Infrastructure Maintenance Agreement with Cargill, Inc in which ProGold agreed to fund Cargill Inc for infrastructure maintenance as set forth in the following schedule:
| 2023 | $ | 625,000 | |
| 2024 | 500,000 | ||
| 2025 | 500,000 | ||
| 2026 | 500,000 | ||
| $ | 2,125,000 |
9
| PROGOLD, LLC |
| NOTES TO FINANCIAL STATEMENTS |
| FOR THE YEAR ENDED AUGUST 31, 2022 |
NOTE 5 - DISTRIBUTION TO MEMBERS
Distributions are authorized by the Board of Governors and distributed among Members based on their percentage interest.
NOTE 6 - ENVIRONMENTAL MATTERS
ProGold is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid wase disposal and odor and noise control. The operating lease with Cargill, Inc provides that ProGold be responsible for claims arising for occurrences prior to the execution of the original operating lease, December 1, 1997. ProGold believes that it was in substantial compliance with applicable environmental laws and regulations prior to that time. The operating lease also provides that Cargill, Inc operate the corn wet milling facility in compliance with all applicable federal and state environmental laws and regulations further the term of the lease.
NOTE 7 - INCOME TAXES
ProGold conducts an annual analysis of its various tax positions, assessing the likelihood of those positions being upheld upon examination with relevant tax authorities. ProGold has determined that it has no unrecognized tax benefits. No interest or penalties are recognized in the statements of operations. ProGold is no longer subject to U.S. Federal or state income tax examinations by tax authorities for fiscal years 2016 and earlier.
10