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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
 
 
For the quarterly period ended
July 31, 2011
 
 
 
OR
 
 
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 
 
 
For the transition period from               to               .
 
 
 
COMMISSION FILE NUMBER 000-51177
 
GOLDEN GRAIN ENERGY, LLC
(Exact name of registrant as specified in its charter)
 
Iowa
 
02-0575361
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1822 43rd Street SW, Mason City, Iowa 50401
(Address of principal executive offices)
 
(641) 423-8525
(Registrant's telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
x Yes     o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
x Yes     o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer o
Accelerated Filer  o
Non-Accelerated Filer x
Smaller Reporting Company o

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: 

As of September 14, 2011, there were 23,540,000 Class A membership units outstanding and 920,000 Class B membership units outstanding.

1

INDEX



2




PART I    FINANCIAL INFORMATION

Item 1. Financial Statements

GOLDEN GRAIN ENERGY, LLC
Balance Sheet

 ASSETS
 
July 31, 2011
 
October 31, 2010

 
 (Unaudited)
 
 (Audited)
Current Assets
 

 

Cash and equivalents
 
$

 
$
119,386

Accounts receivable
 
9,629,127

 
9,509,184

Other receivables
 
1,212,214

 
431,286

Due from broker
 
2,991,144

 
3,724,180

Inventory
 
10,308,505

 
7,067,208

Prepaid expenses and other
 
1,294,896

 
1,082,941

Total current assets
 
25,435,886

 
21,934,185


 

 

Property and Equipment
 

 

Land and land improvements
 
11,262,333

 
11,262,333

Building and grounds
 
25,366,370

 
25,366,370

Grain handling equipment
 
13,293,819

 
13,356,924

Office equipment
 
317,569

 
320,493

Plant and process equipment
 
68,388,107

 
67,321,512

Construction in progress
 
2,096,529

 
1,812,702


 
120,724,727

 
119,440,334

Less accumulated depreciation
 
45,962,331

 
39,126,094

Net property and equipment
 
74,762,396

 
80,314,240


 

 

Other Assets
 

 

Investments
 
20,782,918

 
17,526,517

Grant receivable, net of current portion
 
2,394,728

 
2,860,077

Debt issuance costs, net of accumulated amortization (2011 $11,838; 2010 $2,959)
 
65,109

 
73,988

Total other assets
 
23,242,755

 
20,460,582


 

 

Total Assets
 
$
123,441,037

 
$
122,709,007

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


Notes to Financial Statements are an integral part of this Statement.

3




GOLDEN GRAIN ENERGY, LLC
Balance Sheet

LIABILITIES AND MEMBERS' EQUITY
 
July 31, 2011
 
October 31, 2010

 
 (Unaudited)
 
 (Audited)
Current Liabilities
 

 

Outstanding checks in excess of bank balance
 
$
1,522,196

 
$
359,308

Current portion long-term debt
 
44,200

 
244,326

Accounts payable
 
4,973,389

 
4,160,470

Accrued expenses
 
1,090,795

 
961,237

Derivative instruments
 
1,481,762

 
3,130,957

Deferred revenue
 
375,908

 
359,794

Total current liabilities
 
9,488,250

 
9,216,092


 

 

Long-term Liabilities
 

 

Deferred compensation
 
201,504

 
114,646

Long-term debt, net of current maturities
 
12,508,676

 
20,295,450

Deferred revenue, net of current portion
 
1,885,806

 
2,197,184

Total long-term liabilities
 
14,595,986

 
22,607,280


 

 

Commitments and Contingencies
 

 


 

 

Members' Equity (24,460,000 units issued and outstanding)
 
99,356,801

 
90,885,635


 

 

Total Liabilities and Members’ Equity
 
$
123,441,037

 
$
122,709,007

 
 
 
 
 
 
 
 
 
 

Notes to Financial Statements are an integral part of this Statement.

4

GOLDEN GRAIN ENERGY, LLC
Statements of Operations (Unaudited)


Three Months Ended
 
Three Months Ended
 
Nine Months Ended
 
Nine Months Ended

July 31, 2011
 
July 31, 2010
 
July 31, 2011
 
July 31, 2010


 

 

 

Revenues
$
89,806,943

 
$
51,194,491

 
$
229,979,034

 
$
154,038,116



 

 

 

Cost of Goods Sold
83,654,774

 
47,824,263

 
217,030,259

 
140,680,477



 

 

 

Gross Profit
6,152,169

 
3,370,228

 
12,948,775

 
13,357,639



 

 

 

Operating Expenses
592,478

 
485,506

 
1,885,190

 
1,759,048



 

 

 

Operating Income
5,559,691

 
2,884,722

 
11,063,585

 
11,598,591



 

 

 

Other Income (Expense)

 

 

 

Interest income

 
7,466

 
2,468

 
64,856

Interest expense
(150,830
)
 
(299,513
)
 
(351,840
)
 
(1,134,640
)
Loss on debt extinguishment

 
(1,321,601
)
 

 
(1,321,601
)
Equity in net income of investments
1,243,435

 
430,399

 
3,871,953

 
2,609,856

Total
1,092,605

 
(1,183,249
)
 
3,522,581

 
218,471



 

 

 

Net Income
$
6,652,296

 
$
1,701,473

 
$
14,586,166

 
$
11,817,062

 
 
 
 
 

 

Basic & diluted net income per unit
$
0.27

 
$
0.06

 
$
0.60

 
$
0.42

Weighted average units outstanding for the calculation of basic & diluted net income per unit
24,460,000

 
27,326,667

 
24,460,000

 
28,282,222

Distributions Per Unit
$

 
$

 
$
0.25

 
$

 
 
 
 
 
 
 
 






Notes to Financial Statements are an integral part of this Statement.

5

GOLDEN GRAIN ENERGY, LLC
Statements of Cash Flows (Unaudited)


Nine Months Ended
 
Nine Months Ended

July 31, 2011
 
July 31, 2010


 

Cash Flows from Operating Activities

 

Net income
$
14,586,166

 
$
11,817,062

Adjustments to reconcile net income to net cash from operating activities:

 

Depreciation and amortization
6,939,514

 
7,169,635

Unrealized (gain) on risk management activities
(1,649,195
)
 
(824,887
)
Amortization of deferred revenue
(295,264
)
 
(261,372
)
Accretion of interest on grant receivable
(146,193
)
 
(137,326
)
Earnings in excess of distributions from investments
(3,256,401
)
 
(2,444,348
)
Deferred compensation expense
178,453

 
69,482

Change in assets and liabilities

 

Accounts receivable
(119,943
)
 
4,626,952

Inventory
(3,241,297
)
 
(780,379
)
Due from broker
733,036

 
937,858

Prepaid expenses and other
(903,282
)
 
(282,042
)
Accounts payable
812,919

 
486,446

Accrued expenses
129,558

 
62,785

Deferred compensation payable
(91,595
)
 
(81,513
)
Net cash provided by operating activities
13,676,476

 
20,358,353



 

Cash Flows from Investing Activities

 

Capital expenditures
(1,378,791
)
 
(894,958
)
Purchase of investments

 
(2,000
)
   Net cash (used in) investing activities
(1,378,791
)
 
(896,958
)


 

Cash Flows from Financing Activities

 

Increase (decrease) in outstanding checks in excess of bank balance
1,162,888

 
(56,335
)
Proceeds from long-term debt

 
21,045,377

Payments for long-term debt
(7,986,900
)
 
(35,644,879
)
Payments for offering costs

 
(88,060
)
Redemption of membership units

 
(5,188,189
)
Distributions to members
(6,115,000
)
 

Payments received on grant receivable
521,941

 
470,691

Net cash (used in) financing activities
(12,417,071
)
 
(19,461,395
)


 

Net (Decrease) in Cash and Equivalents
(119,386
)
 



 

Cash and Equivalents – Beginning of Period
119,386

 



 

Cash and Equivalents – End of Period
$

 
$

 
 
 
 
Supplemental Cash Flow Information

 

Cash paid for interest
$
360,736

 
$
1,277,710


Notes to Financial Statements are an integral part of this Statement.

6

GOLDEN GRAIN ENERGY, LLC
Notes to Financial Statements
(Unaudited)



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted as permitted by such rules and regulations.  These financial statements and related notes should be read in conjunction with the financial statements and notes thereto included in the Company's audited financial statements for the year ended October 31, 2010, contained in the Company's annual report on Form 10-K for 2010.
 
In the opinion of management, the interim condensed financial statements reflect all adjustments considered necessary for fair presentation.  The adjustments made to these statements consist only of normal recurring adjustments.

Nature of Business
Golden Grain Energy, LLC (Golden Grain Energy) is approximately a 105 million gallon annual production ethanol plant near Mason City, Iowa. The Company sells its production of ethanol, distiller grains with solubles and corn oil primarily in the continental United States.

Organization
Golden Grain Energy is organized as an Iowa limited liability company.  The members' liability is limited as specified in Golden Grain Energy's operating agreement and pursuant to the Iowa Revised Uniform Limited Liability Company Act. 

Accounting Estimates
Management uses estimates and assumptions in preparing these financial statements in accordance with generally accepted accounting principles.  Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. Actual results could differ from those estimates.

Cash and Equivalents
The Company's cash balances are maintained in bank depositories and periodically exceeded federally insured limits during the year. The Company has not experienced any losses in connection with these balances.
Receivables
Credit sales are made primarily to one customer and no collateral is required. The Company carries these accounts receivable at face amount with no allowance for doubtful accounts due to the historical collection rates on these accounts.

Investments
The Company has less than a 20% investment interest in five unlisted companies in related industries. These investments are being accounted for by the equity method of accounting under which the Company's share of net income is recognized as income in the Company's income statement and added to the investment account. Distributions or dividends received from the investments are treated as a reduction of the investment account.

The fiscal years of Renewable Products Marketing Group, LLC (RPMG), Guardian Eagle, LLC and Guardian Energy, LLC end on September 30 and the fiscal years of Absolute Energy, LLC and Homeland Energy Solutions, LLC end on December 31. The Company consistently follows the practice of recognizing the net income based on the most recent reliable data. Therefore, the net income which is reported in the Company's income statement for the three and nine months ended July 31, 2011 for all companies is based on the investee's results for the quarter ended June 30, 2011.

Revenue and Cost Recognition
Revenue from the sale of the Company's products is recognized at the time title to the goods and all risks of ownership transfer to the customers.  This generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Collectability of revenue is reasonably assured based on historical evidence of collectability between the Company and its customers. Interest income is recognized as earned.

Shipping costs incurred by the Company in the sale of ethanol, distiller grains and corn oil are not specifically identifiable and as a result, revenue from the sale of ethanol, distiller grains and corn oil are recorded based on the net selling price reported to the Company from the marketers. Railcar lease costs incurred by the Company in the sale and shipment of distiller grain products

7

GOLDEN GRAIN ENERGY, LLC
Notes to Financial Statements
(Unaudited)



are included in cost of goods sold.

Inventory
Inventories are generally valued at the lower of cost (weighted average) or market.  In the valuation of inventories and purchase commitments, market is based on current replacement values except that it does not exceed net realizable values and is not less than net realizable values reduced by allowances for approximate normal profit margin.

Investment in commodities contracts, derivative instruments and hedging activities
The Company evaluates its contracts to determine whether the contracts are derivative instruments. Certain contracts that meet the definition of a derivative may be exempted from derivative accounting and treated as normal purchases or normal sales if documented as such. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.
 
The Company enters into short-term cash, option and futures contracts as a means of securing corn and natural gas for the ethanol plant and managing exposure to changes in commodity and energy prices. We occasionally also enter into derivative contracts to hedge our exposure to price risk as it relates to ethanol sales. As part of its risk management process, the Company uses futures and option contracts through regulated commodity exchanges or through the over-the-counter market to manage its risk related to pricing of inventories. All of the Company's derivatives, other than those excluded under the normal purchases and sales exclusion, are designated as non-hedge derivatives, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated or accounted for as hedging instruments.
 
Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of contracts are presented on the accompanying balance sheet as derivative instruments.

Net income per unit
Basic and diluted earnings per unit are computed using the weighted-average number of Class A and B units outstanding during the period.

Environmental liabilities
The Company's operations are subject to environmental laws and regulations adopted by various governmental authorities in the jurisdiction in which it operates. These laws require the Company to investigate and remediate the effects of the release or disposal of materials at its locations. Accordingly, the Company has adopted policies, practices and procedures in the areas of pollution control, occupational health and the production, handling, storage and use of hazardous materials to prevent material environmental or other damage, and to limit the financial liability which could result from such events. Environmental liabilities are recorded when the Company's liability is probable and the costs can be reasonably estimated. No expense or liability has been recorded as of July 31, 2011 or October 31, 2010 for environmental liabilities.

Fair Value
Financial instruments include cash and equivalents, receivables, due from broker, accounts payable, accrued expenses, long-term debt and derivative instruments. Management believes the fair value of each of these instruments approximates their carrying value as of the balance sheet date. The fair value of derivative financial instruments is based on quoted market prices. The fair value of other current financial instruments is estimated to approximate carrying value due to the short-term nature of these instruments. The fair value of the long-term debt is estimated based on anticipated interest rates which management believes would currently be available to the Company for similar issues of debt, taking into account the current credit risk of the Company and the other market factors.

Risks and Uncertainties
The ethanol industry is currently receiving an indirect benefit from the Volumetric Ethanol Excise Tax Credit (VEETC) provided to gasoline blenders which is expected to expire on December 31, 2011. This credit provides for a 45-cent per ethanol gallon tax credit for gasoline blenders (calculated as 4.5 cents per gallon of gasoline that contains at least 10% ethanol) and a 54-cent a gallon tariff on ethanol imports. Although the Renewable Fuels Standard still exists to maintain the demand for ethanol in the United States, the Company is uncertain of the potential impact that the elimination in the VEETC credit would have on the Company and the overall ethanol industry.

8

GOLDEN GRAIN ENERGY, LLC
Notes to Financial Statements
(Unaudited)




2.    INVENTORY

Inventory consisted of the following as of July 31, 2011 and October 31, 2010 :

 
 
July 31, 2011

 
October 31, 2010

Raw Materials
 
$
3,157,170

 
$
2,303,497

Work in Process
 
2,044,441

 
1,382,622

Finished Goods
 
5,106,894

 
3,381,089

Totals
 
$
10,308,505

 
$
7,067,208


3.    BANK FINANCING

On July 23, 2010, the Company entered into a master loan agreement establishing a senior credit facility with Farm Credit Services of America (FLCA) which includes a revolving term loan and a seasonal revolving loan with maximum borrowings of $30,000,000 and $5,000,000 and maturing on February 1, 2017 and August 1, 2012, respectively. The borrowings are secured by substantially all the assets of the Company.

In addition, the Company is subject to certain financial covenants including but not limited to minimum working capital and net worth requirements and limitations on distributions. Failure to comply with the protective loan covenants or maintain the required financial ratios may cause acceleration of the outstanding principal balances on the loans and/or imposition of fees or penalties. As of July 31, 2011, the Company had approximately $22.6 million total available to borrow under the credit agreements.

The Company had the following amounts outstanding under its credit agreements.
 
 
July 31, 2011
 
October 31, 2010
Variable line of credit for $30,000,000 requiring monthly interest payments at 3.15% above the one-month LIBOR with semiannual reductions in availability of $2,500,000 starting in August 2011 (3.36% as of July 31, 2011)
 
$
12,389,527

 
$
20,142,021

 
 
 
 
 
Seasonal line of credit agreement for $5,000,000 requiring monthly interest payments at 2.90% above the one-month LIBOR. (3.11% as of July 31, 2011)
 

 

 
 
 
 
 
Other notes payable
 
163,349

 
397,755

 
 
12,552,876

 
20,539,776

Less amounts due within one year
 
44,200

 
244,326

Long-term debt
 
$
12,508,676

 
$
20,295,450


The estimated maturities of long-term debt for the twelve month periods ending July 31 are as follows:

2012
 
$
44,200

2013
 
47,592

2014
 
48,746

2015
 
22,811

2016
 
4,889,527

Thereafter
 
7,500,000

Total
 
$
12,552,876



9

GOLDEN GRAIN ENERGY, LLC
Notes to Financial Statements
(Unaudited)



4.    RELATED PARTY TRANSACTIONS

The Company purchased corn and materials from members of its Board of Directors that own or manage elevators. Purchases during the three and nine months ended July 31, 2011 totaled approximately $29,246,000 and $75,937,000, respectively. Purchases during the same periods of 2010 totaled approximately $13,147,000 and $45,718,000, respectively. Effective in August 2011, one of the related parties who manages an elevator from which we purchase a large amount of corn is no longer considered a related party. 

The Company entered into an agreement with Homeland Energy Solutions, LLC in December 2008. Pursuant to the agreement, the companies have agreed to split the compensation costs associated with each position covered by the agreement partially in an effort to reduce the costs of administrative overhead. The Company recorded a reduction of approximately $65,000 and $227,000 to operating expenses during the three and nine months ended July 31, 2011 and a reduced costs during the same periods of 2010 of $69,000 and $271,000, respectively.

5.    EMPLOYEE BENEFIT PLANS

The Company has a deferred phantom unit compensation plan for certain employees equal to 1% of net income. One-third of the amount is paid in cash immediately and the other two-thirds have a five year vesting schedule. During the three and nine months ended July 31, 2011, the Company recorded compensation expense related to this plan of approximately $72,000 and $178,000, respectively. During the same periods of 2010, the Company recorded compensation expense related to this plan of approximately $29,000 and $69,000. As of July 31, 2011, and October 31, 2010, the Company had a liability of approximately $202,000 and $115,000 outstanding as deferred compensation and has approximately $129,000 to be recognized as future compensation expense over the weighted average vesting period of approximately one year. The amount to be recognized in future years as compensation expense is estimated based on the greater of fair market value or book value of the Company's membership units as of July 31, 2011. Fair value is determined by recent trading activity of the Company's membership units. The Company had approximately 74,000 unvested equivalent phantom units outstanding under this plan as of July 31, 2011.

6.    COMMITMENTS, CONTINGENCIES AND AGREEMENTS

Ethanol, Distiller Grains and Corn Oil marketing agreements and major customers
The Company has entered into marketing agreements with a marketing company, in which the Company has an investment, for the exclusive rights to market, sell and distribute the entire ethanol, distiller grains and corn oil inventory produced by the Company. The distiller grains agreement was executed in December 2010 for an initial nine month period of time beginning on January 1, 2011 with an automatic extension for an additional one year term unless written notice is given. The marketing fees are presented net in revenues.

Approximate sales and marketing fees related to the agreements in place as of July 31, 2011 are as follows:

 
 
Three Months Ended July 31,
 
Nine Months Ended July 31,
 
 
2011
 
2010
 
2011
 
2010
Sales ethanol & corn oil
 
$
78,537,000

 
$
42,860,000

 
$
198,598,000

 
$
129,998,000

Sales distiller grains
 
15,121,000

 

 
31,366,000

 

 
 
 
 
 
 
 
 
 
Marketing fees ethanol & corn oil
 
156,000

 
138,000

 
388,000

 
345,000

Marketing fees distiller grains
 
82,000

 

 
176,000

 

 
 
 
 
 
 
 
 
 
As of
 
July 31, 2011
 
October 31, 2010
 
 
 
 
Amount due from marketer of ethanol, distiller grains & corn oil
 
$
9,629,000

 
$
8,148,000

 
 
 
 

7.    RISK MANAGEMENT

The Company's activities expose it to a variety of market risks, including the effects of changes in commodity prices. These financial exposures are monitored and managed by the Company as an integral part of its overall risk-management program. The Company's risk management program focuses on the unpredictability of financial and commodities markets and seeks to reduce the potentially adverse effects that the volatility of these markets may have on its operating results.


10

GOLDEN GRAIN ENERGY, LLC
Notes to Financial Statements
(Unaudited)



To reduce price risk caused by market fluctuations, the Company generally follows a policy of using exchange traded futures contracts to reduce its net position of merchandisable agricultural commodity inventories and forward cash purchase and sales contracts and uses exchange traded futures contracts to reduce price risk. Exchange-traded futures contracts are valued at market price. Changes in market price of contracts related to corn and natural gas are recorded in cost of goods sold and changes in market prices of contracts related to sale of ethanol are recorded in revenues.

Unrealized gains and losses on forward contracts are deemed "normal purchases" under derivative accounting guidelines and, therefore, are not marked to market in the Company's financial statements. The following table represents the approximate amount of realized gains (losses) and changes in fair value recognized in earnings on commodity contracts for periods ended July 31, 2011 and 2010 and the fair value of derivatives as of July 31, 2011 and October 31, 2010:

 
 
Income Statement Classification
 
Realized Gain (Loss)
 
Unrealized Gain (Loss)
 
Total Gain (Loss)
Derivatives not designated as hedging instruments:
 
 
 
 
 
 
 
 
Commodity Contracts for the
 
Revenue
 
$
(304,000
)
 
$
(3,310,000
)
 
$
(3,614,000
)
three months ending July 31, 2011
 
Cost of Goods Sold
 
88,000

 
3,982,000

 
4,070,000

 
 
Total
 
(216,000
)
 
672,000

 
456,000

 
 
 
 
 
 
 
 
 
Commodity Contracts for the
 
Revenue
 
$
1,504,000

 
$
(644,000
)
 
$
860,000

three months ending July 31, 2010
 
Cost of Goods Sold
 
(923,000
)
 
666,000

 
(257,000
)
 
 
Total
 
581,000

 
22,000

 
203,000

 
 
 
 
 
 
 
 
 
Commodity Contracts for the
 
Revenue
 
$
(6,924,000
)
 
$
(3,310,000
)
 
$
(10,234,000
)
nine months ended July 31, 2011
 
Cost of Goods Sold
 
6,995,000

 
1,828,000

 
8,823,000

 
 
Total
 
71,000

 
(1,482,000
)
 
(1,411,000
)
 
 
 
 
 
 
 
 
 
Commodity Contracts for the
 
Revenue
 
$
2,316,000

 
$
(644,000
)
 
$
1,672,000

nine months ended July 31, 2010
 
Cost of Goods Sold
 
(513,000
)
 
417,000

 
(96,000
)
 
 
Total
 
1,803,000

 
(227,000
)
 
1,576,000


 
 
Balance Sheet Classification
 
July 31, 2011
 
October 31, 2010
Futures contracts through March 2012
 
Current Asset (Liabilities)
 
$
1,482,000

 
$
(3,131,000
)


As of July 31, 2011, the Company had approximate outstanding commitments for purchases:

 
 
Commitments Through
 
Amount
Corn - fixed price
 
March 2012
 
$
19,330,000

Corn - basis contract
 
November 2011
 
33,226,000

Natural Gas - fixed price
 
December 2011
 
753,000

 
 
 
 
 



11

GOLDEN GRAIN ENERGY, LLC
Notes to Financial Statements
(Unaudited)



8.    FAIR VALUE MEASUREMENTS

Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:

Level 1: Valuations for assets and liabilities traded in active markets from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2: Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third-party pricing services for identical or similar assets or liabilities.

Level 3: Valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets or liabilities.

A description of the valuation methodologies used for instruments measured at fair value, including the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
 
Derivative financial instruments: Commodity futures and exchange-traded commodity options contracts are reported at fair value utilizing Level 1 inputs. For these contracts, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes and live trading levels from markets such as the CME and NYMEX.  Crush swaps are bundled contracts or combined contracts that include a portion of corn, ethanol and natural gas rolled into a single trading instrument. These contracts are reported at fair value utilizing Level 2 inputs and are based on the various trading activity of the components of each segment of the bundled contract.

The following table summarizes financial assets and financial liabilities measured at the approximate fair value on a recurring basis, segregated by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:

 
 
Total
 
Level 1
 
Level 2
 
Level 3
Liabilities, derivative financial instruments
 
 
 
 
 
 
 
 
July 31, 2011
 
$
1,482,000

 
$

 
$
1,482,000

 
$

October 31, 2010
 
3,131,000

 

 
3,131,000

 


Certain financial assets and financial liabilities are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances, for example, when there is evidence of impairment.
 

12

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

Forward Looking Statements

This report contains forward-looking statements that involve future events, our future performance and our expected future operations and actions.  In some cases you can identify forward-looking statements by the use of words such as "may," "will," "should," "anticipate," "believe," "expect," "plan," "future," "intend," "could," "estimate," "predict," "hope," "potential," "continue," or the negative of these terms or other similar expressions.  These forward-looking statements are only our predictions and involve numerous assumptions, risks and uncertainties, including, but not limited to those listed below and those business risks and factors described elsewhere in this report and our other Securities and Exchange Commission filings. 

Changes in the availability and price of corn and natural gas;
Our ability to profitably operate the ethanol plant, including the sale of distiller grains and corn oil, and maintain a positive spread between the selling price of our products and our raw material costs;
The effect our hedging activities have on our financial performance and cash flows;
Ethanol, distiller grains and corn oil supply exceeding demand and corresponding price reductions;
Our ability to generate free cash flow to invest in our business, service our debt and satisfy the financial covenants contained in our credit agreement with our lender;
Changes in our business strategy, capital improvements or development plans;
Changes in plant production capacity or technical difficulties in operating the plant;
Changes in general economic conditions or the occurrence of certain events causing an economic impact in the agriculture, oil or automobile industries;
Lack of transport, storage and blending infrastructure preventing our products from reaching high demand markets;
Changes in federal and/or state laws and environmental regulations (including the elimination of VEETC, the Renewable Fuel Standard or any federal and/or state ethanol tax incentives);
Changes and advances in ethanol production technology;
Competition from alternative fuel additives;
Changes in interest rates or the lack of credit availability; and
Our ability to retain key employees and maintain labor relations.

Our actual results or actions could and likely will differ materially from those anticipated in the forward-looking statements for many reasons, including the reasons described in this report.  We are not under any duty to update the forward-looking statements contained in this report.  We cannot guarantee future results, levels of activity, performance or achievements.  We caution you not to put undue reliance on any forward-looking statements, which speak only as of the date of this report.  You should read this report and the documents that we reference in this report and have filed as exhibits, completely and with the understanding that our actual future results may be materially different from what we currently expect.  We qualify all of our forward-looking statements with these cautionary statements. Unless otherwise stated, references in this report to particular years or quarters refer to our fiscal years ended in October and the associated quarters of those fiscal years.

Overview

Golden Grain Energy, LLC was formed as an Iowa limited liability company on March 18, 2002, for the purpose of constructing, owning and operating a fuel-grade ethanol plant near Mason City in north central Iowa. Since December 2004, we have been engaged in the production of ethanol and distiller grains at the plant and have produced corn oil since February 2009. References to "we," "us," "our" and the "Company" refer to Golden Grain Energy, LLC. We have capacity to produce approximately 105 million gallons of ethanol per year.

Our revenue is derived primarily from the sale and distribution of our ethanol, distiller grains and corn oil. We market our products through Renewable Products Marketing Group, Inc. ("RPMG"), a professional third party marketer. We are an equity owner of RPMG which allows us to realize favorable marketing fees in the sale of our ethanol, distiller grains and corn oil.

On July 13, 2011, we executed and delivered amended loan agreements with respect to our comprehensive credit facility with Farm Credit Services of America, FLCA and Farm Credit Services of American, PCA (collectively “Farm Credit”). Specifically, we executed an amendment to our Master Loan Agreement which allows us to transfer funds between our various lines of credit. Also, we executed an amendment to our Short-Term Revolving Line of Credit to extend the maturity date of this line of credit to August 1, 2012. Finally, we executed an amendment to our Long-Term Revolving Line of Credit to take into account the change Farm Credit made to our Master Loan Agreement. The terms of our Farm Credit loans are described in more detail below in the section entitled "Short-Term and Long-Term Debt Sources."


13

In May 2011, Iowa passed a law that promotes the use of higher level blends of ethanol in Iowa. The law provides a $0.03 per gallon tax credit to retailers who sell E15, a blend of 15% ethanol and 85% gasoline. The law also provides liability protections for retailers whose customers may use E15 in vehicles that are not approved to use E15. In addition, the new law enhances the current E85 retailer tax credit. This new law may provide additional ethanol demand in Iowa which could positively impact our financial performance. However, gasoline retailers may need to install new infrastructure in order to make E15 available which could be costly and could delay or reduce the effect this new law has on ethanol demand in Iowa.
    
During 2010, the ethanol industry experienced a significant increase in distiller grains exports to China. Animal feeding operations in China are growing which has prompted a significant increase in animal feed demand from China, including increased distiller grains demand. However, China began investigating United States distiller grains exporters for allegedly dumping distiller grains into the Chinese market. Management believes the Chinese dumping claim was a strategy by the Chinese government to negatively impact distiller grains prices. However, due to recent increases in corn prices, domestic demand for distiller grains along with increased exports to Mexico, distiller grains prices have been increasing. Management anticipates that the Chinese anti-dumping investigation will be concluded by the end of 2011 and management does not anticipate China will impose a significant tariff on distiller grains produced in the United States.

The ethanol industry is currently impacted by the Volumetric Ethanol Tax Credit (VEETC) which is frequently referred to as the blenders' credit. This credit provides a credit of 45 cents per gallon of ethanol that is blended with gasoline. This incentive is scheduled to expire on December 31, 2011. Management anticipates that VEETC will not be renewed and therefore will not be available starting January 1, 2012. Management believes that the expiration of VEETC will not have a significant effect on ethanol demand provided gasoline prices remain high and the renewable fuels use requirement of the Federal Renewable Fuels Standard (RFS) is maintained. However, if the RFS is repealed, ethanol demand may be significantly impacted. In addition, if gasoline prices decrease significantly, it could result in decreased ethanol demand. Currently, fuel blenders use more ethanol than they are required to use under the RFS due to a favorable price spread between gasoline and ethanol which makes the blended fuel more competitive based on price. This favorable price spread may disappear without VEETC and if gasoline prices decrease.

Results of Operations for the Three Months Ended July 31, 2011 and 2010
 
The following table shows the results of our operations and the percentage of our revenue, cost of goods sold, operating expenses and other items to total revenue in our statement of operations for the three months ended July 31, 2011 and 2010:

 
2011
 
2010
Income Statement Data
Amount
 
%
 
Amount
 
%
Revenue
$
89,806,943

 
100.0
 
$
51,194,491

 
100.0

Cost of Goods Sold
83,654,774

 
93.1
 
47,824,263

 
93.4

Gross Profit
6,152,169

 
6.9
 
3,370,228

 
6.6

Operating Expenses
592,478

 
0.7
 
485,506

 
0.9

Operating Income
5,559,691

 
6.2
 
2,884,722

 
5.6

Other Income (Expense)
1,092,605

 
1.2
 
(1,183,249
)
 
(2.3
)
Net Income
$
6,652,296

 
7.4
 
$
1,701,473

 
3.3


Revenue. Our total revenue was significantly higher for the third quarter of 2011 compared to the same period of 2010, primarily due to increased prices for ethanol, distiller grains and corn oil. We also produced more ethanol and corn oil during the third quarter of 2011 compared to the same period of 2010 which positively impacted our total revenue. For the third quarter of 2011, ethanol sales accounted for approximately 81% of our total revenue, distiller grains sales accounted for approximately 17% of our total revenue and corn oil sales accounted for approximately 2% of our total revenue. For the third quarter of 2010, ethanol sales accounted for approximately 84% of our total revenue, distiller grains sales accounted for approximately 15% of our total revenue and corn oil sales accounted for approximately 1% of our total revenue.

The average price we received for our ethanol during the third quarter of 2011 was approximately 77% higher than the average price we received for the same period of 2010. Management attributes this increase in the average price we received for our ethanol with higher corn and energy prices along with increased ethanol exports to Europe, Canada and Brazil which positively impacted ethanol demand during the 2011 period. Management also believes that ethanol prices increased due to the anticipated expiration of the VEETC blenders' credit. Management believes that demand was higher from fuel blenders who were stocking up on ethanol so they could secure the blenders' credit prior to when it is anticipated to expire at the end of 2011. Management anticipates that ethanol prices will continue to correlate to corn prices which are anticipated to decrease in the fall when the new

14

corn crop is harvested. Management anticipates that the expiration of VEETC will not have a significant effect on the market price of ethanol in the short term unless gasoline prices decrease. If gasoline prices were to decrease significantly, it may lead to less ethanol demand from blenders who voluntarily blend more ethanol than they are required to blend under the RFS. However, management anticipates if these price decreases were to occur, they would be short-term decreases due to the increasing ethanol demand that results from the RFS.

Our total ethanol gallons sold increased by approximately 3% during the third quarter of 2011 compared to the same period of 2010. Management attributes this increase in ethanol sales with better efficiencies and yield improvements. Management anticipates that ethanol sales for the fourth quarter of 2011 will be slightly lower than the third quarter of 2011 due to our anticipated semi-annual plant shutdown for maintenance in September.

The average price we received for our dried distiller grains during the third quarter of 2011 was approximately 100% greater than during the same period of 2010. The average price we received for our modified/wet distiller grains during the third quarter of 2011 was approximately 145% greater than during the same period of 2010. Management attributes these significant increases in the prices we received for our distiller grains with higher corn prices and increased domestic and export demand for dried distiller grains. Distiller grains prices are typically positively impacted by increases in corn prices as distiller grains are primarily used as an animal feed substitute for corn. Management anticipates that distiller grains prices will continue to fluctuate in relationship to corn prices. Decreased demand from China due to the recent anti-dumping investigation has not impacted the distiller grains market as much as initially expected due to higher corn prices and increased demand from domestic users as well as exports to Mexico which have more than offset the decreased demand from China. Management anticipates continued strong demand for distiller grains due to higher corn prices.

We sold approximately 1% less tons of distiller grains during the third quarter of 2011 compared to the same period of 2010. Management attributes the decrease in distiller grain sales to increases in the pounds of corn oil sold. When we remove corn oil from our distiller grains, the total weight of our distiller grains decreases. Management anticipates that distiller grains sales will remain steady during the rest of our 2011 fiscal year. We continue to sell significantly more distiller grains in the dried form due to market conditions in the distiller grains markets, including the higher demand and transportability of dried versus modified/wet distiller grains.

The average price we received for our corn oil during the third quarter of 2011 was approximately 79% higher than during the same period of 2010. Management attributes this increase in the average price we received for our corn oil with increased corn prices and corn oil demand from biodiesel production. Management anticipates that corn oil prices will continue at the recent highs as long as corn prices remain high. In addition to the increase in corn oil prices, we sold approximately 80% more pounds of corn oil during the third quarter of 2011 compared to the same period of 2010. Management attributes this increase in corn oil sales with improved production processes and procedures. Management anticipates that corn oil sales for the fourth quarter of 2011 will be slightly lower than the third quarter of 2011 due to our semi-annual plant shutdown for maintenance.

We enter into various derivative instrument positions in order to protect the price we receive for our ethanol. These derivative instrument positions resulted in a combined realized and unrealized loss of approximately $3.6 million during the third quarter of 2011. For the third quarter of 2010, we had a combined realized and unrealized gain on our ethanol derivative instrument positions of approximately $860,000. We recognize the gains or losses that result from changes in the value of our derivative instruments related to ethanol in revenues as the changes occur.  

Cost of Goods Sold. The primary raw materials used to produce ethanol, distiller grains and corn oil are corn and natural gas. Our total cost of goods sold related to corn increased by approximately 108% during the third quarter of 2011 compared to the same period of 2010. Our average cost per bushel of corn during the third quarter of 2011 was approximately 104% higher than during the same period of 2010. Management attributes this significant increase in corn costs with higher market corn prices. Corn prices have continued to increase due to concerns regarding the anticipated amount of corn that will be harvested in the fall of 2011. This may lead to continued tight corn supplies and smaller carryover which is expected to continue to result in higher corn prices into 2012. Further, any increase in corn demand may further increase corn prices and result in decreased corn supplies. Our corn consumption was approximately 2% higher during the third quarter of 2011 compared to the same period of 2010, due to our increased ethanol production. Management anticipates that our corn consumption will remain at the current conversion levels for the remaining part of 2011. Corn conversion rates have been better in 2011 compared to 2010 because of the quality of the corn crop in the 2010 harvest compared to the 2009 harvest and slight modifications we made to the production process.

Our total cost of goods sold related to natural gas costs increased by approximately 7% during the third quarter of 2011 compared to the same period of 2010. The average price we paid per mmBtu of natural gas decreased by approximately 1% for the third quarter of 2011 compared to the same period of 2010. Management attributes this decrease in the average price we paid for our natural gas with strong natural gas supplies which have kept natural gas prices low. Management anticipates that natural

15

gas prices will continue at their current levels unless the natural gas industry experiences production problems or large increases in demand during 2011. Our natural gas consumption was approximately 8% higher during the third quarter of 2011 compared to the same period of 2010. Management attributes this increase in natural gas consumption with increased ethanol production and above average heat during the third quarter of 2011 which caused us to operate extra equipment to maintain correct temperature balance in the ethanol facility.

We enter into various derivative instrument positions in order to protect the price we pay for our corn and natural gas. These derivative instrument positions resulted in a combined realized and unrealized gain of approximately $4.1 million during the third quarter of 2011. For the third quarter of 2010, our derivative instrument positions resulted in a combined realized and unrealized loss of approximately $257,000. We recognize the gains or losses that result from changes in the value of our derivative instruments from corn and natural gas in cost of goods sold as the changes occur. As corn and natural gas fluctuate, the value of our derivative instruments are recognized in cost of goods sold.

Operating Expenses. Our operating expenses were higher for the third quarter of 2011 compared to the same period of 2010 due primarily to increases in personnel expenses and higher dues and subscriptions related to various industry groups with which we are involved.

Other Income (Expense). We had no interest income during the third quarter of 2011 because all of our extra cash was used to pay down our revolving lines of credit with our primary lender. In addition, our interest expense decreased significantly during the third quarter of 2011 compared to the same period of 2010 because the interest rate on our long-term loans decreased significantly when we refinanced with Farm Credit. We also had less debt outstanding during the third quarter of 2011 compared to the same period of 2010 which decreased our interest expense. We had a loss of approximately $1.3 million related to our debt refinancing during the third quarter of 2010 which increased our other expense during that period. Our equity in the net income of our investments increased during the third quarter of 2011 compared to the same period of 2010 due primarily to strong returns during the quarter ended June 30, 2011 for the ethanol companies in which we are invested.

Results of Operations for the Nine Months Ended July 31, 2011 and 2010
 
The following table shows the results of our operations and the percentage of revenues, cost of goods sold, operating expenses and other items to total revenues in our statement of operations for the nine months ended July 31, 2011 and 2010:

 
2011
 
2010
Income Statement Data
Amount
 
%
 
Amount
 
%
Revenue
$
229,979,034

 
100.0
 
$
154,038,116

 
100.0
Cost of Goods Sold
217,030,259

 
94.4
 
140,680,477

 
91.3
Gross Profit
12,948,775

 
5.6
 
13,357,639

 
8.7
Operating Expenses
1,885,190

 
0.8
 
1,759,048

 
1.1
Operating Income
11,063,585

 
4.8
 
11,598,591

 
7.5
Other Income
3,522,581

 
1.5
 
218,471

 
0.1
Net Income
$
14,586,166

 
6.3
 
$
11,817,062

 
7.7

Revenues. Our total revenues were significantly higher for the first nine months of 2011 compared to the same period of 2010. This increase in revenue is a result of a significant increase in the average price we received for our ethanol, distiller grains and corn oil during the first nine months of 2011 compared to the same period of 2010. We also had increased sales of ethanol, distiller grains and corn oil during the first nine months of 2011 compared to the same period of 2010.

The average price we received for our ethanol was approximately 51% higher for the first nine months of 2011 compared to the same period of 2010. Management attributes this increase in ethanol prices with higher corn and gasoline prices. In addition, our ethanol sales increased by approximately 3% for the first nine months of 2011 compared to the same period of 2010. Management attributes this increase in ethanol sales with improved production by the ethanol plant during the 2011 period. During the first nine months of 2011, we experienced combined realized and unrealized losses on our ethanol swaps of approximately $10.2 million which decreased our revenue. By comparison, we experienced combined realized and unrealized gains on our ethanol swaps of approximately $1.7 million during the first nine months of 2010 which increased our revenue.

The average price we received for our dried distillers grains was approximately 72% greater for the first nine months of 2011 compared to the same period of 2010. In addition, the average price we received for our modified/wet distillers grains was

16

approximately 69% greater for the first nine months of 2011 compared to the same period of 2010. Management attributes these price increases with higher corn prices which positively impact the market price of distiller grains. On a total tons basis, we sold approximately 2% more distiller grains during the first nine months of 2011 compared to the same period of 2010.

We sold approximately 60% more pounds of corn oil during the first nine months of 2011 compared to the same period of 2010. Management attributes this increase in corn oil sales with better performance from the oil separation equipment during 2011 compared to 2010. In addition to the increase in total pounds of corn oil sold, the average price we received for our corn oil increased by approximately 54% for the first nine months of 2011 compared to the same period of 2010.

Cost of Goods Sold. Our cost of goods sold was significantly higher for the first nine months of 2011 compared to the same period of 2010. Our average cost per bushel of corn was approximately 79% higher during the first nine months of 2011 compared to the same period of 2010. We consumed a comparable number of bushels of corn during the first nine months of 2011 and the same period of 2010.

Our natural gas costs decreased by approximately 9% during the first nine months of 2011 compared to the same period of 2010. The average price we paid per mmBtu of natural gas was approximately 12% lower during the first nine months of 2011 compared to the same period of 2010. Our natural gas consumption during the first nine months of 2011 was approximately 4% higher compared to the first nine months of 2010. Management attributes this increase in our natural gas consumption with increased production.

We experienced approximately $8.8 million of combined realized and unrealized gains for the first nine months of 2011 related to our corn and natural gas derivative instruments which decreased our cost of goods sold. By comparison, we experienced an approximately $96,000 combined realized and unrealized loss for the first nine months of 2010 related to our corn and natural gas derivative instruments which increased our cost of goods sold. We recognize the gains or losses that result from the changes in the value of our derivative instruments from corn and natural gas in cost of goods sold as the changes occur.  As corn and natural gas prices fluctuate, the value of our derivative instruments are impacted, which affects our financial performance.

Operating Expenses. Our operating expenses were slightly higher during the first nine months of 2011 compared to the same period of 2010 primarily due to increased personnel expenses, advertising and promotion expenses and legal fees related to our involvement in the Chinese anti-dumping investigation.

Other Income (Expense). Our interest income was lower for the first nine months of 2011 compared to the same period of 2010 as a result of having less cash on hand during the 2011 period. Our interest expense was lower for the first nine months of 2011 compared to the same period of 2010 due to decreased borrowing on our credit facilities during the 2011 period and lower interest rates on our long-term debt. We had a loss we realized when we refinanced our debt in the third quarter of 2010 of approximately $1.3 million. Our income from our investments was significantly higher for the first nine months of 2011 compared to the same period of 2010 due to the general improvement of performance in the ethanol industry. Our investments are in other companies which are involved in the ethanol industry.
 
Changes in Financial Condition for the Nine Months Ended July 31, 2011

Current Assets. Due to higher prices for our products, the value of our accounts receivable was comparable at July 31, 2011 and at October 31, 2010, however, we were awaiting payment for a smaller quantity of our products at July 31, 2011 compared to October 31, 2010. The amount we had due from our commodities broker was lower at July 31, 2011 compared to October 31, 2010 because we had a smaller derivative instrument position in place and therefore were required to hold less cash in our margin account with our commodities broker to offset unrealized losses on our risk management positions. The value of our inventory was higher at July 31, 2011 compared to October 31, 2010 primarily because we had higher value corn and ethanol inventory on hand at July 31, 2011 compared to October 31, 2010.

Property and Equipment. The net value of our property and equipment was lower at July 31, 2011 compared to October 31, 2010 primarily as a result of depreciation. We have ongoing construction in progress costs due primarily to our centrifuge replacement project and the addition of a maintenance and storage building.

Other Assets. Our other assets were higher at July 31, 2011 compared to October 31, 2010 due mainly to the income we realized during the first nine months of 2011 from our various investments. The value of our grant receivable was lower at July 31, 2011 compared to October 31, 2010 due to the payments we received on our Cerro Gordo grant during our first and third quarters of 2011.

Current Liabilities. Our outstanding checks in excess of our bank balance represents any checks that we have issued

17

which have not yet been cashed. Checks that we issue are paid from our revolving lines of credit and any cash that we generate is used to pay down our lines of credit with our primary lender. Our current portion of long-term debt was lower at July 31, 2011 compared to October 31, 2010 because we repaid the no interest loan we had outstanding with the Iowa Department of Economic Development in December 2010. Our accounts payable was higher at July 31, 2011 compared to October 31, 2010 due primarily to higher corn prices which increases the total amount that we have due to our corn suppliers. The liability associated with our derivative instruments was lower at July 31, 2011 compared to October 31, 2010 because we had less derivative instrument positions outstanding at July 31, 2011 compared to October 31, 2010.

Long-term Liabilities. Our long-term liabilities were lower at July 31, 2011 compared to October 31, 2010, primarily because we continue to pay down our lines of credit with Farm Credit.
  
Liquidity and Capital Resources

Based on financial forecasts performed by our management, we anticipate that we will have sufficient cash from our current credit facilities and cash from our operations to continue to operate the ethanol plant at capacity for the next 12 months. As of July 31, 2011, we had approximately $17.6 million available pursuant to our variable line of credit and $5 million available pursuant to our seasonal line of credit.

We do not currently anticipate seeking additional equity or debt financing in the near term. However, should we experience unfavorable operating conditions in the future, we may have to secure additional debt or equity financing for working capital or other purposes.

We do not currently anticipate any significant purchases of property and equipment that would require us to secure additional capital in the next 12 months. However, management continues to evaluate conditions in the ethanol industry and explore opportunities to improve the efficiency and profitability of our operations which may require capital expenditures.

The following table shows our cash flows for the nine months ended July 31, 2011 and 2010:

 
Nine Months Ended July 31
 
2011
 
2010
Net cash provided by operating activities
$
13,676,476

 
$
20,358,353

Net cash (used in) investing activities
(1,378,791
)
 
(896,958
)
Net cash (used in) financing activities
(12,417,071
)
 
(19,461,395
)

Cash Flow From Operations 

Our cash flows from operations for the first nine months of 2011 were lower primarily due to a significant change in our accounts receivable which benefited our cash flow during the 2010 period. Further, we had a large increase in inventory at July 31, 2011 because of a higher quantity and price of corn and ethanol on hand at July 31, 2011 compared to October 31, 2010.
 
Cash Flow From Investing Activities 

We used more cash for investing activities during the first nine months of 2011 compared to the same period of 2010 due to our installation of new centrifuges in the plant and the addition of a maintenance storage shed. During the first nine months of 2010, we used cash primarily for our cream yeast project.

Cash Flow From Financing Activities.

During the first nine months of 2011, we primarily used cash for financing activities related to a distribution we paid to our members and for payments on our long-term debt. During the first nine months of 2010, we used significantly more cash to repay our long-term debt because we were paying down our revolving loan with our primary lender at that time along with regular payments we made on our term loan. We also refinanced with Farm Credit during the 2010 period and we redeemed the redeemable membership units we issued in our private placement offering in 2009.

Short-Term and Long-Term Debt Sources

On July 23, 2010, we entered into a new comprehensive credit facility with Farm Credit Services of America, FLCA and

18

Farm Credit Services of America, PCA (collectively "Farm Credit"). The total face amount of this new comprehensive credit facility is $35 million which is split among two separate loans: (i) a $30 million variable line of credit with a maturity date of February 1, 2017; and (ii) a $5 million seasonal line of credit with a maturity date of August 1, 2011. In exchange for this new comprehensive credit facility, we executed a mortgage in favor of Farm Credit covering all of our real property and granted Farm Credit a security interest in all of our equipment and other assets. In the event we default on our loans with Farm Credit, Farm Credit may foreclose on our assets, including both our real property and our machinery and equipment. On July 13, 2011, we executed and delivered amended loan agreements with Farm Credit in order to extend the maturity date of our seasonal line of credit until August 1, 2012.

Variable Line of Credit

We have a long-term revolving line of credit with a total principal amount of $30 million. Interest on this loan accrues at 3.15% above the One-Month London Interbank Offered Rate (LIBOR). The interest rate is subject to weekly adjustment. We may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements. The maximum principal amount of this loan decreases by $2.5 million semi-annually starting on August 1, 2011 and continuing until February 1, 2016. After February 1, 2016, we will have $5 million available pursuant to this long-term revolving line of credit until it matures on February 1, 2017. In the event any amount is outstanding on this loan in excess of the new credit limit after these periodic reductions, we agreed to repay principal on the loan until we reach the new credit limit. We agreed to pay an annual fee of 0.6% of the unused portion of this loan. As of July 31, 2011, we had approximately $12.4 million outstanding on this loan which accrued interest at a rate of 3.36% per year and approximately $17.6 million available to be drawn.

Seasonal Line of Credit

The maturity date of this seasonal line of credit is August 1, 2012. Interest on this loan accrues at 2.9% above the One-Month LIBOR. The interest rate is subject to weekly adjustment. We may elect to enter into a fixed interest rate on this loan at various times throughout the term of the loan as provided in the loan agreements. We agreed to pay an annual fee of 0.3% of the unused portion of this loan. As of July 31, 2011, we had $0 outstanding on this loan and $5 million available to be drawn. If we had a balance on this line of credit, interest would accrue at a rate of 3.11% per year.

Administrative Agency Agreement

As part of the Farm Credit loan closing, we entered into an Administrative Agency Agreement with CoBank, ACP ("CoBank"). CoBank purchased a participation interest in the Farm Credit loans and was appointed the administrative agent for the purpose of servicing the loans. As a result, CoBank will act as the agent for Farm Credit with respect to our loans. We agreed to pay CoBank an annual fee of $5,000 as the agent for Farm Credit.

Covenants

Our credit agreements with Farm Credit are subject to numerous covenants requiring us to maintain various financial ratios. As of July 31, 2011, we were in compliance with all of our loan covenants with Farm Credit. Based on current management projections, we anticipate that we will be in compliance with our loan covenants for the next 12 months and beyond.

Grants and Government Programs

We entered into an agreement with the Iowa Department of Economic Development for funding through the State of Iowa's Value-Added Agricultural Products and Processes Financial Assistance Program ("VAAPPFAP") in conjunction with our original plant construction. We repaid the remaining balance of this loan on December 15, 2010.

In December 2006, we received the first payment from our semi-annual economic development grants equal to the amount of the tax assessments imposed on our ethanol plant by Cerro Gordo County, the county in which our ethanol plant is located. Based on our 2009 assessment, the total amount of these grants is expected to be approximately $6 million, which will be paid semi-annually over a 10-year period with the final payment being made in 2019.
 
Critical Accounting Policies

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

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Revenue Recognition

Revenue from the sale of our products is recognized at the time title to the goods and all risks of ownership transfer to the customers.  The time of transfer is defined in the specific sales agreement; however, it generally occurs upon shipment, loading of the goods or when the customer picks up the goods. Collectability of revenue is reasonably assured based on historical evidence of collectability between us and our customers. Interest income is recognized as earned.

Shipping costs incurred by us in the sale of ethanol and corn oil are not specifically identifiable and as a result, revenue from the sale of ethanol and corn oil are recorded based on the net selling price reported to us from our marketer. Shipping costs incurred by us in the sale of distiller grain products are included in cost of goods sold.

Investment in Commodities Contracts, Derivative Instruments and Hedging Activities

We evaluate contracts to determine whether the contracts are derivative instruments. Certain contracts that meet the definition of a derivative may be exempted from derivative accounting and treated as normal purchases or normal sales if documented as such. Normal purchases and normal sales are contracts that provide for the purchase or sale of something other than a financial instrument or derivative instrument that will be delivered in quantities expected to be used or sold over a reasonable period in the normal course of business.
 
We enter into short-term cash, option and futures contracts as a means of securing corn and natural gas for the ethanol plant and managing exposure to changes in commodity and energy prices. We occasionally also enter into derivative contracts to hedge our exposure to price risk as it relates to ethanol sales. As part of its risk management process, we use futures and option contracts through regulated commodity exchanges or through the over-the-counter market to manage its risk related to pricing of inventories. All of our derivatives, other than those excluded under the normal purchases and sales exclusion, are designated as non-hedge derivatives, with changes in fair value recognized in net income. Although the contracts are economic hedges of specified risks, they are not designated or accounted for as hedging instruments.
 
Realized and unrealized gains and losses related to derivative contracts related to corn and natural gas are included as a component of cost of goods sold and derivative contracts related to ethanol are included as a component of revenues in the accompanying financial statements. The fair values of contracts are presented on the accompanying balance sheet as derivative instruments.

Off-Balance Sheet Arrangements.
 
We currently have no off-balance sheet arrangements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Interest Rate Risk

We are exposed to market risk from changes in interest rates. Exposure to interest rate risk results primarily from holding revolving lines of credit which bear variable interest rates. Specifically, we had approximately $12.4 million outstanding in variable rate debt as of July 31, 2011. The approximate change to our income for a twelve month period based on a 10% adverse change in interest rates for our variable rate debt as of July 31, 2011 would be approximately $42,000. We had no amount outstanding on variable interest loans as of July 31, 2010.

Commodity Price Risk

We seek to minimize the risks from fluctuations in the prices of raw material inputs, such as corn and natural gas, and finished products, such as ethanol and distiller grains, through the use of hedging instruments. In practice, as markets move, we actively manage our risk and adjust hedging strategies as appropriate. Although we believe our hedge positions accomplish an economic hedge against our future purchases and sales, management has chosen not to use hedge accounting, which would match

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the gain or loss on our hedge positions to the specific commodity purchase being hedged. We are using fair value accounting for our hedge positions, which means as the current market price of our hedge positions changes, the realized or unrealized gains and losses are immediately recognized in our cost of goods sold or as an offset to revenues. The immediate recognition of hedging gains and losses under fair value accounting can cause net income to be volatile from quarter to quarter due to the timing of the change in value of the derivative instruments relative to the cost and use of the commodity being hedged.

As of July 31, 2011, we had price protection in place for approximately 4% of our anticipated corn needs, approximately 7% of our natural gas needs and approximately 5% of our ethanol sales for the next 12 months.

A sensitivity analysis has been prepared to estimate our exposure to ethanol, corn and natural gas price risk. Market risk related to these factors is estimated as the potential change in income resulting from a hypothetical 10% adverse change in the average cost of our corn and natural gas prices and average ethanol price as of July 31, 2011, net of the forward and future contracts used to hedge our market risk for corn and natural gas usage requirements. The volumes are based on our expected use and sale of these commodities for a one year period from July 31, 2011. The results of this analysis, which may differ from actual results, are as follows:

 
 
Estimated Volume Requirements for the next 12 months (net of forward and futures contracts)
 
Unit of Measure
 
Hypothetical Adverse Change in Price
 
Approximate Adverse Change to Income
Natural Gas
 
2,801,000

 
MMBTU
 
10%
 
$
1,223,000

Ethanol
 
103,983,000

 
Gallons
 
10%
 
$
33,077,000

Corn
 
38,165,000

 
Bushels
 
10%
 
$
25,716,000


Liability Risk

We participate in a captive reinsurance company (the "Captive").  The Captive reinsures losses related to worker's compensation, commercial property and general liability.  Premiums are accrued by a charge to income for the period to which the premium relates and is remitted by our insurer to the captive reinsurer.  The Captive reinsures catastrophic losses in excess of a predetermined amount.  Our premiums are structured such that we have made a prepaid collateral deposit estimated for losses related to the above coverage.  The Captive insurer has estimated and collected an amount in excess of the estimated losses but less than the catastrophic loss limit insured by the Captive. We cannot be assessed in excess of the amount in the collateral fund.

Item 4.  Controls and Procedures
 
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.

Our management, including our President and Chief Executive Officer (the principal executive officer), Walter Wendland, along with our Chief Financial Officer, (the principal financial officer), Christine Marchand, have reviewed and evaluated the effectiveness of our disclosure controls and procedures as of July 31, 2011. Based on this review and evaluation, these officers believe that our disclosure controls and procedures are effective in ensuring that material information related to us is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission.

For the fiscal quarter ended July 31, 2011, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

None.



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Item 1A. Risk Factors

The following risk factors are provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factors set forth below should be read in conjunction with the risk factors section and the Management's Discussion and Analysis section for the fiscal year ended October 31, 2010, included in our annual report on Form 10-K.

Competition from the advancement of alternative fuels may lessen the demand for ethanol. Alternative fuels, gasoline oxygenates and ethanol production methods are continually under development. A number of automotive, industrial and power generation manufacturers are developing alternative clean power systems using fuel cells, plug-in hybrids, electric cars or clean burning gaseous fuels. Like ethanol, these emerging technologies offer an option to address worldwide energy costs, the longterm availability of petroleum reserves and environmental concerns. Fuel cells have emerged as a potential alternative to certain existing power sources because of their higher efficiency, reduced noise and lower emissions. Fuel cell industry participants are currently targeting the transportation, stationary power and portable power markets in order to decrease fuel costs, lessen dependence on crude oil and reduce harmful emissions. If these alternative technologies continue to expand and gain broad acceptance and become readily available to consumers for motor vehicle use, we may not be able to compete effectively.This additional competition could reduce the demand for ethanol, resulting in lower ethanol prices that might adversely affect our results of operations and financial condition.

We may incur casualty losses that are not covered by insurance which could negatively impact the value of our units. We have purchased insurance which we believe adequately covers our losses from foreseeable risks. However, there are risks that we may encounter for which there is no insurance or for which insurance is not available on terms that are acceptable to us. If we experience a loss which materially impairs our ability to operate the ethanol plant which is not covered by insurance, the value of our units could be reduced or eliminated.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. (REMOVED AND RESERVED)

Item 5. Other Information

None.



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Item 6. Exhibits.

(a)
The following exhibits are filed as part of this report.
Exhibit No.
 
Exhibit
10.1

 
Amendment to the Master Loan Agreement between Farm Credit Services of America, FLCA, Farm Credit of America, PCA and Golden Grain Energy, LLC dated June 23, 2011.*
10.2

 
Revolving Credit Supplement between Farm Credit of America, PCA and Golden Grain Energy, LLC dated June 23, 2011.*
10.3

 
Revolving Term Loan Supplement between Farm Credit Services of America, FLCA and Golden Grain Energy, LLC dated June 23, 2011.*
31.1

 
Certificate Pursuant to 17 CFR 240.13a-14(a)*
31.2

 
Certificate Pursuant to 17 CFR 240.13a-14(a)*
32.1

 
Certificate Pursuant to 18 U.S.C. Section 1350*
32.2

 
Certificate Pursuant to 18 U.S.C. Section 1350*
101

 
The following financial information from Golden Grain Energy, LLC's Quarterly Report on Form 10-Q for the quarter ended July 31, 2011, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of July 31, 2011 and October 31, 2010, (ii) Statements of Operations for the three and nine months ended July 31, 2011 and 2010, (iii) Statements of Cash Flows for the nine months ended July 31, 2011 and 2010, and (iv) the Notes to Condensed Financial Statements.**

*    Filed herewith.
**    Furnished herewith.

SIGNATURES

Pursuant to the requirements 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 GRAIN ENERGY, LLC
 
 
 
 
Date:
September 14, 2011
 
/s/ Walter Wendland
 
 
 
Walter Wendland
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
September 14, 2011
 
/s/ Christine Marchand
 
 
 
Chrstine Marchand
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)
    

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