Attached files
file | filename |
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EXCEL - IDEA: XBRL DOCUMENT - GOLDEN GRAIN ENERGY | Financial_Report.xls |
EX-31.2 - CERTIFICATION - GOLDEN GRAIN ENERGY | a312certification43015.htm |
EX-32.1 - CERTIFICATION - GOLDEN GRAIN ENERGY | a321certification43015.htm |
EX-31.1 - CERTIFICATION - GOLDEN GRAIN ENERGY | a311certification43015.htm |
EX-32.2 - CERTIFICATION - GOLDEN GRAIN ENERGY | a322certification43015.htm |
EX-10.1 - REVOLVING TERM LOAN SUPPLEMENT - GOLDEN GRAIN ENERGY | a101revolvingtermloansuppl.htm |
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 | April 30, 2015 | |
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 June 11, 2015, there were 18,953,000 Class A membership units outstanding and 920,000 Class B membership units outstanding.
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INDEX
Page Number | |
2
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
GOLDEN GRAIN ENERGY, LLC
Balance Sheets
ASSETS | April 30, 2015 | October 31, 2014 | ||||||
(Unaudited) | ||||||||
Current Assets | ||||||||
Cash and equivalents | $ | 23,881,883 | $ | 47,444,566 | ||||
Marketable securities | 6,178,877 | 8,262,637 | ||||||
Accounts receivable | 5,074,470 | 7,586,542 | ||||||
Other receivables | 1,410,281 | 752,305 | ||||||
Derivative instruments | 566,477 | 385,815 | ||||||
Inventory | 8,533,491 | 4,860,052 | ||||||
Prepaid expenses and other | 1,912,994 | 987,640 | ||||||
Total current assets | 47,558,473 | 70,279,557 | ||||||
Property and Equipment | ||||||||
Land and land improvements | 12,516,479 | 11,666,479 | ||||||
Building and grounds | 25,761,752 | 25,761,752 | ||||||
Grain handling equipment | 14,641,955 | 13,519,305 | ||||||
Office equipment | 197,308 | 197,308 | ||||||
Plant and process equipment | 82,987,868 | 81,520,875 | ||||||
Construction in progress | 2,502,246 | 2,252,148 | ||||||
138,607,608 | 134,917,867 | |||||||
Less accumulated depreciation | 79,292,919 | 75,273,527 | ||||||
Net property and equipment | 59,314,689 | 59,644,340 | ||||||
Other Assets | ||||||||
Investments | 26,372,686 | 36,788,435 | ||||||
Other assets | 610,247 | 845,483 | ||||||
Total other assets | 26,982,933 | 37,633,918 | ||||||
Total Assets | $ | 133,856,095 | $ | 167,557,815 | ||||
Notes to Financial Statements are an integral part of these Statements.
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GOLDEN GRAIN ENERGY, LLC
Balance Sheets
LIABILITIES AND MEMBERS' EQUITY | April 30, 2015 | October 31, 2014 | ||||||
(Unaudited) | ||||||||
Current Liabilities | ||||||||
Current portion long-term debt | $ | — | $ | 13,114 | ||||
Accounts payable | 5,417,771 | 5,575,194 | ||||||
Accrued expenses | 1,301,153 | 1,908,324 | ||||||
Other current liabilities | 202,863 | 295,340 | ||||||
Total current liabilities | 6,921,787 | 7,791,972 | ||||||
Long-term Liabilities | ||||||||
Deferred compensation | 258,560 | 235,421 | ||||||
Deferred revenue, net of current portion | 251,668 | 306,861 | ||||||
Total long-term liabilities | 510,228 | 542,282 | ||||||
Commitments and Contingencies | ||||||||
Members' Equity (19,873,000 units issued and outstanding) | 126,424,080 | 159,223,561 | ||||||
Total Liabilities and Members’ Equity | $ | 133,856,095 | $ | 167,557,815 | ||||
Notes to Financial Statements are an integral part of these Statements.
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GOLDEN GRAIN ENERGY, LLC
Statements of Operations (Unaudited)
Three Months Ended | Three Months Ended | Six Months Ended | Six Months Ended | ||||||||||||
April 30, 2015 | April 30, 2014 | April 30, 2015 | April 30, 2014 | ||||||||||||
Revenues | $ | 52,854,192 | $ | 79,555,311 | $ | 113,902,315 | $ | 152,542,836 | |||||||
Cost of Goods Sold | 49,027,807 | 60,966,422 | 97,721,660 | 119,560,254 | |||||||||||
Gross Profit | 3,826,385 | 18,588,889 | 16,180,655 | 32,982,582 | |||||||||||
Operating Expenses | 695,417 | 987,521 | 1,751,405 | 1,772,263 | |||||||||||
Operating Income | 3,130,968 | 17,601,368 | 14,429,250 | 31,210,319 | |||||||||||
Other Income (Expense) | |||||||||||||||
Other income | 415,568 | 363,388 | 498,432 | 452,277 | |||||||||||
Interest (expense) | (34,318 | ) | (46,701 | ) | (69,607 | ) | (109,986 | ) | |||||||
Equity in net income of investments | 455,468 | 4,859,654 | 4,012,244 | 9,700,132 | |||||||||||
Total Other Income | 836,718 | 5,176,341 | 4,441,069 | 10,042,423 | |||||||||||
Net Income | $ | 3,967,686 | $ | 22,777,709 | $ | 18,870,319 | $ | 41,252,742 | |||||||
Basic & diluted net income per unit | $ | 0.20 | $ | 1.15 | $ | 0.95 | $ | 2.07 | |||||||
Weighted average units outstanding for the calculation of basic & diluted net income per unit | 19,873,000 | 19,883,000 | 19,873,000 | 19,883,000 | |||||||||||
Distributions Per Unit | $ | — | $ | 0.40 | $ | 2.60 | $ | 0.90 | |||||||
Notes to Financial Statements are an integral part of these Statements.
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GOLDEN GRAIN ENERGY, LLC
Statements of Cash Flows (Unaudited)
Six Months Ended | Six Months Ended | ||||||
April 30, 2015 | April 30, 2014 | ||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 18,870,319 | $ | 41,252,742 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 4,025,134 | 4,837,479 | |||||
Unrealized (gain) on risk management & investing activities | (246,902 | ) | (1,025,448 | ) | |||
Amortization of deferred revenue | (147,670 | ) | (226,873 | ) | |||
Change in accretion of interest on grant receivable | 31,211 | (8,410 | ) | ||||
Distributions (earning) in excess of earnings (distributions) from investments | 10,415,749 | (3,821,656 | ) | ||||
Deferred compensation expense | 149,153 | 35,931 | |||||
Change in assets and liabilities | |||||||
Accounts receivable | 2,512,072 | 2,031,345 | |||||
Inventory | (3,673,439 | ) | (4,660,254 | ) | |||
Prepaid expenses and other | (1,891,271 | ) | (238,491 | ) | |||
Accounts payable | (157,423 | ) | 934,087 | ||||
Accrued expenses | (607,171 | ) | 51,958 | ||||
Deferred compensation payable | (126,014 | ) | — | ||||
Net cash provided by operating activities | 29,153,748 | 39,162,410 | |||||
Cash Flows from Investing Activities | |||||||
Capital expenditures | (3,689,741 | ) | (1,189,275 | ) | |||
Purchase of marketable securities | (3,000,000 | ) | — | ||||
Proceeds from sale of marketable securities | 5,150,000 | — | |||||
Purchase of investments | — | (110,000 | ) | ||||
Net cash (used in) investing activities | (1,539,741 | ) | (1,299,275 | ) | |||
Cash Flows from Financing Activities | |||||||
(Decrease) in outstanding checks in excess of bank balance | — | (563,531 | ) | ||||
Payments for long-term debt | (13,114 | ) | (1,589,060 | ) | |||
Distributions to members | (51,669,800 | ) | (9,941,500 | ) | |||
Payments received on grant receivable | 506,224 | 236,843 | |||||
Net cash (used in) financing activities | (51,176,690 | ) | (11,857,248 | ) | |||
Net (Decrease) Increase in Cash and Equivalents | (23,562,683 | ) | 26,005,887 | ||||
Cash and Equivalents – Beginning of Period | 47,444,566 | — | |||||
Cash and Equivalents – End of Period | $ | 23,881,883 | $ | 26,005,887 | |||
Supplemental Cash Flow Information | |||||||
Cash paid for interest | $ | 82,953 | $ | 123,837 | |||
Supplemental Disclosure of Noncash Operating, Investing & Financing Activities | |||||||
Deferred revenue reclassified as a reduction in fixed assets | — | 450,000 | |||||
Distributions Declared and unpaid | — | 7,953,200 |
Notes to Financial Statements are an integral part of these Statements.
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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 notes 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, 2014, contained in the Company's annual report on Form 10-K for 2014.
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 110 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. The Company also holds several investments in various companies that focus on ethanol production, marketing and/or logistics.
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 exceed federally insured limits during the period. The Company has not experienced any losses in connection with these balances. Also included in cash and equivalents are highly liquid investments that are readily convertible into known amounts of cash which are subject to an insignificant risk of change in value due to interest rate, quoted price or penalty on withdrawal and have a maturity of three months or less.
Marketable Securities
Marketable securities consist of certificates of deposits with original maturities of greater than three months and mutual funds. Certificates of deposit are considered held to maturity securities, which are measured at cost. Mutual funds are considered trading securities which are measured at fair value using prices obtained from pricing services. Any unrealized or realized gains and losses on the trading securities are recorded as part of other income (expense).
At April 30, 2015, marketable securities consisted of mutual funds invested in intermediate-term municipal and government bonds with an approximate cost and fair market value of $6,136,000 and $6,179,000, respectively. At October 31, 2014, marketable securities consisted of mutual funds invested in intermediate-term municipal and government bonds with an approximate cost and fair market value of $5,211,000 and $5,263,000, respectively, and certificates of deposit all with maturities of less than one year and an approximate value of $3,000,000. For the three months ended April 30, 2015 the Company recorded a net unrealized loss of approximately $17,000 from these investments as part of other income (expense). For the six months ended April 30, 2015 the Company recorded a net realized and unrealized gain of approximately $23,000 and $42,000 from these investments as part of other income (expense). There were no marketable securities as of April 30, 2014.
Receivables
Credit sales are made primarily to one customer and no collateral is required. The Company carries these accounts receivable at original invoice 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 four 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
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treated as a reduction of the investment account. The investments are evaluated for indications of impairment on a regular basis. A loss would be recognized when the fair value is determined to be less than the carrying value.
The fiscal years of Renewable Products Marketing Group, LLC (RPMG) and Guardian Energy Janesville, 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 period ended April 30, 2015 for all companies is based on the investee's results for the three and six months ended March 31, 2015.
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 its marketer. Railcar lease costs incurred by the Company in the sale and shipment of distiller grain products are included in cost of goods sold.
Inventory
Inventories are generally valued at the lower of weighted average cost 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.
Property & Equipment
Property and equipment are stated at historical cost. Significant additions and betterments are capitalized, while expenditures for maintenance and repairs are charged to operations when incurred. The Company uses the straight-line method of computing depreciation over the estimated useful lives between 3 and 40 years.
The Company reviews its property and equipment for impairment whenever events indicate that the carrying amount of the assets may not be recoverable. If circumstances require a long-lived asset to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
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. The Company occasionally also enters into derivative contracts to hedge its 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
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financial statements. The fair values of contracts are presented on the accompanying balance sheet as derivative instruments net of cash due from/to broker.
Deferred Compensation
The Company has a deferred 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 has a vesting schedule of the lesser of five years from the grant date or seven years of continuous employment with the Company. 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 April 30, 2015. Fair value is determined by recent trading activity of the Company's membership units.
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.
Fair Value
Financial instruments include cash and equivalents, certificates of deposit, marketable securities, receivables, accounts payable, accrued expenses, long-term debt and derivative instruments. The fair value of marketable securities and derivative financial instruments is based on quoted market prices. The fair value of the long-term debt is estimated based on level 3 inputs based on the current anticipated interest rate 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. The fair value of other current financial instruments is estimated to approximate carrying value due to the short-term nature of these instruments.
Risks and Uncertainties
The Company has certain risks and uncertainties that it will experience during volatile market conditions, which can have a severe impact on operations. The Company's revenues are derived from the sale and distribution of ethanol and distiller grains to customers primarily located in the United States. Corn for the production process is supplied to the plant primarily from local agricultural producers and from purchases on the open market. For the three and six months ended April 30, 2015, ethanol sales accounted for approximately 78% and 81% of total revenue, respectively, distiller grains sales accounted for approximately 19% and 16% of total revenue, respectively, and corn oil sales accounted for approximately 3% of total revenue while corn costs averaged approximately 80% of cost of goods sold.
The Company's operating and financial performance is largely driven by the prices at which ethanol is sold and the net expense of corn. The price of ethanol is influenced by factors such as supply and demand, weather, government policies and programs, and unleaded gasoline and the petroleum markets with ethanol selling, in general, for less than gasoline at the wholesale level. Excess ethanol supply in the market, in particular, puts downward pressure on the price of ethanol. The Company's largest cost of production is corn. The cost of corn is generally impacted by factors such as supply and demand, weather, government policies and programs. The Company's risk management program is used to protect against the price volatility of these commodities.
2. INVENTORY
Inventory consisted of the following as of April 30, 2015 and October 31, 2014:
April 30, 2015 | October 31, 2014 | |||||||
Raw Materials | $ | 4,170,878 | $ | 3,150,725 | ||||
Work in Process | 1,261,496 | 1,193,582 | ||||||
Finished Goods | 3,101,117 | 515,745 | ||||||
Totals | $ | 8,533,491 | $ | 4,860,052 |
3. BANK FINANCING
The Company has entered into a master loan agreement with Farm Credit Services of America (FLCA) which includes a revolving term loan with original maximum borrowings of $30,000,000 and $5,000,000 which mature on February 1, 2019 and February 1, 2020, respectively. Interest on the term loan is payable monthly at 3.15% above the one-month LIBOR (3.34% as of April 30,
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2015). The borrowings are secured by substantially all the assets of the Company. The revolving term loan maximum borrowings are reduced by $2,500,000 on a semi-annual basis starting in August 2013. Agreement allows for additional reductions in the maximum borrowings at the Company's request.
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 April 30, 2015, the Company had no outstanding borrowings and $20.0 million additional available to borrow under the credit agreement. As of October 31, 2014, the Company had no borrowings outstanding.
The Company had other notes payable of approximately $0 and $13,000 outstanding as of April 30, 2015 and October 31, 2014, respectively.
4. RELATED PARTY TRANSACTIONS
The Company purchased corn and materials from members of its Board of Directors or Risk Management Committee that own or manage elevators. Purchases from the related parties during the three and six months ended April 30, 2015 totaled approximately $18,777,000 and $37,760,000, respectively. Purchases during the three and six months ended April 30, 2014 totaled approximately $20,412,000 and $37,389,000, respectively. As of April 30, 2015 the amount owed to related parties was approximately $166,000.
Previously, the Company had a management services agreement with Homeland Energy Solutions, LLC to share the compensation costs associated with each management position covered under the agreement partially in an effort to reduce the costs of administrative overhead. This agreement was terminated on May 16, 2014. The Company recorded a reduction in expenses related to these shared costs during the three months and six months ended April 30, 2014 of approximately $57,000 and $118,000, respectively.
5. 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 marketing fees are presented net in revenues.
Approximate sales and marketing fees related to the agreements in place are as follows:
Three Months Ended April 30, | Six Months Ended April 30, | |||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Sales ethanol, distiller grains & corn oil | $ | 53,092,000 | $ | 79,658,000 | $ | 114,172,000 | $ | 156,363,000 | ||||||||
Marketing fees | 118,000 | 104,000 | 207,000 | 205,000 | ||||||||||||
As of | April 30, 2015 | October 31, 2014 | ||||||||||||||
Amount due from marketer | $ | 5,074,000 | $ | 7,587,000 |
6. 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.
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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 and unrealized gains (losses) and changes in fair value recognized in earnings on commodity contracts for the periods ended April 30, 2015 and 2014 and the fair value of derivatives as of April 30, 2015 and October 31, 2014:
Income Statement Classification | Realized Gain (Loss) | Change in Unrealized Gain (Loss) | Total Gain (Loss) | |||||||||||
Derivatives not designated as hedging instruments: | ||||||||||||||
Commodity Contracts for the | Revenue | $ | (189,000 | ) | $ | 69,000 | $ | (120,000 | ) | |||||
three months ended April 30, 2015 | Cost of Goods Sold | 245,000 | 480,000 | 725,000 | ||||||||||
Total | $ | 56,000 | $ | 549,000 | $ | 605,000 | ||||||||
Commodity Contracts for the | Revenue | $ | — | $ | 1,000 | $ | 1,000 | |||||||
three months ended April 30, 2014 | Cost of Goods Sold | (617,000 | ) | (1,519,000 | ) | (2,136,000 | ) | |||||||
Total | $ | (617,000 | ) | $ | (1,518,000 | ) | $ | (2,135,000 | ) | |||||
Commodity Contracts for the | Revenue | $ | (47,000 | ) | $ | (16,000 | ) | $ | (63,000 | ) | ||||
six months ended April 30, 2015 | Cost of Goods Sold | 432,000 | 679,000 | 1,111,000 | ||||||||||
Total | $ | 385,000 | $ | 663,000 | $ | 1,048,000 | ||||||||
Commodity Contracts for the | Revenue | $ | (2,299,000 | ) | $ | (1,316,000 | ) | $ | (3,615,000 | ) | ||||
six months ended April 30, 2014 | Cost of Goods Sold | (2,655,000 | ) | 1,073,000 | (1,582,000 | ) | ||||||||
Total | $ | (4,954,000 | ) | $ | (243,000 | ) | $ | (5,197,000 | ) |
Balance Sheet Classification | April 30, 2015 | October 31, 2014 | ||||||||
Futures and option contracts through December 2015 | ||||||||||
In gain position | $ | 768,000 | $ | 648,000 | ||||||
In loss position | (183,000 | ) | (726,000 | ) | ||||||
Cash held by (due to) broker | (19,000 | ) | 464,000 | |||||||
Current Asset | $ | 566,000 | $ | 386,000 |
As of April 30, 2015, the Company had the following approximate outstanding purchase and sale commitments, of which approximately $11,203,000 of the purchase commitments were with related parties.
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Commitments Through | Amount | |||||
Sale commitments | ||||||
Ethanol - fixed price | May 2015 | $ | 137,000 | |||
Distiller Grains - fixed price | August 2015 | 9,894,000 | ||||
Purchase commitments | ||||||
Corn - fixed price | July 2016 | $ | 10,449,000 | |||
Corn - basis contract | July 2015 | 11,879,000 | ||||
Natural gas - fixed price | March 2016 | 500,000 |
As of April 30, 2015, the Company has fixed price futures and forward contracts in place for approximately 14% of our anticipated corn needs, 5% of our natural gas needs and 4% of our ethanol sales for the next 12 months with limited open positions beyond that period.
7. 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.
Marketable Securities: The Company's short-term investments are classified within Level 1 and comprised of short-term liquid investments (e.g. mutual funds), classified as trading securities, which are carried at fair value based on the quoted market prices.
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:
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Total | Level 1 | Level 2 | Level 3 | |||||||||||||
Marketable securities | ||||||||||||||||
Assets, April 30, 2015 | $ | 6,179,000 | $ | 6,179,000 | $ | — | $ | — | ||||||||
Assets, October 31, 2014 | 5,263,000 | 5,263,000 | — | — | ||||||||||||
Derivative financial instruments | ||||||||||||||||
April 30, 2015 | ||||||||||||||||
Assets | $ | 768,000 | $ | 528,000 | $ | 240,000 | $ | — | ||||||||
Liabilities | (183,000 | ) | (11,000 | ) | (172,000 | ) | — | |||||||||
October 31, 2014 | ||||||||||||||||
Assets | $ | 648,000 | $ | 447,000 | $ | 201,000 | $ | — | ||||||||
Liabilities | (726,000 | ) | (610,000 | ) | (116,000 | ) | — |
8. INVESTMENTS
Condensed, combined unaudited financial information of the Company’s investment in Absolute Energy, Homeland Energy Solutions, Guardian Energy and RPMG is as follows (in 000’s)
Balance Sheet | 3/31/2015 | 9/30/2014 | ||||||||||||||
Current Assets | $ | 264,333 | $ | 320,903 | ||||||||||||
Other Assets | 258,729 | 267,563 | ||||||||||||||
Current Liabilities | 164,189 | 140,262 | ||||||||||||||
Long-term Debt | 41,441 | 17,007 | ||||||||||||||
Members’ Equity | 317,433 | 431,197 | ||||||||||||||
Three Months Ended April 30. | Six Months Ended April 30. | |||||||||||||||
Income Statement | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Revenue | $ | 173,704 | $ | 246,580 | $ | 395,247 | $ | 510,150 | ||||||||
Gross Profit | 7,812 | 57,491 | 57,041 | 116,726 | ||||||||||||
Net Income | 3,293 | 53,573 | 47,329 | 106,961 |
The Company recorded equity in net income (loss) of approximately (in 000's):
Three Months Ended April 30, | Six Months Ended April 30, | |||||||||||||||
Equity in Net Income (Loss) | 2015 | 2014 | 2015 | 2014 | ||||||||||||
Absolute Energy | $ | 193 | $ | 1,144 | $ | 1,437 | $ | 2,538 | ||||||||
Guardian Energy | (346 | ) | 2,360 | 1,021 | 4,657 | |||||||||||
Homeland Energy Solutions | 222 | 1,158 | 1,212 | 2,158 | ||||||||||||
Other | 386 | 198 | 342 | 347 | ||||||||||||
Total | $ | 455 | $ | 4,860 | $ | 4,012 | $ | 9,700 |
The following table shows the condensed financial information of Guardian Energy, which represents greater than 10% of the net income for the six months ended April 30, 2014:
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Guardian Energy Condensed Financial Information | ||||||||||||||||
Balance Sheet | 3/31/2015 | 9/30/2014 | ||||||||||||||
Current Assets | $ | 20,538 | $ | 68,726 | ||||||||||||
Other Assets | 51,547 | 56,576 | ||||||||||||||
Current Liabilities | 14,688 | 22,193 | ||||||||||||||
Long-term Debt | 41,200 | 16,788 | ||||||||||||||
Members’ Equity | 16,197 | 86,321 | ||||||||||||||
Three Months Ended | Six Months Ended | |||||||||||||||
Income Statement | 3/31/2015 | 3/31/2014 | 3/31/2015 | 3/31/2014 | ||||||||||||
Revenue | $ | 50,177 | $ | 86,473 | $ | 115,117 | $ | 170,075 | ||||||||
Gross Profit | 1,294 | 25,255 | 17,647 | 50,813 | ||||||||||||
Net Income | (3,049 | ) | 22,165 | 9,876 | 43,770 |
9. SUBSEQUENT EVENTS
On May 18, 2015 the board of directors declared a cash distribution of $0.50 per membership unit to the holders of Class A and Class B units of record at the close of business on May 18, 2015 for a total distribution of $9,936,500. The distribution will be recorded in the Company's third quarter financial statements for the 2015 fiscal year and was paid in June 2015.
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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.
• | The impact lower gasoline prices have on the market price of ethanol and our ability to profitably operate the ethanol plant; |
• | Changes in the availability and price of corn and natural gas; |
• | The effect a reduction or elimination of the Federal Renewable Fuels Standard would have on the market for our ethanol; |
• | Our ability to transport our finished goods in order to continue to operate our ethanol plant at capacity; |
• | 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 ability of the ethanol industry to generate additional demand through higher level blends of ethanol, including E15 and E85; |
• | 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; |
• | Changes and advances in ethanol production technology; |
• | 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 110 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, LLC, the parent company of RPMG, which allows us to realize favorable marketing fees in the sale of our ethanol, distiller grains and corn oil.
On November 17, 2014, our board of directors declared a distribution of $2.60 per membership unit for members of record as of November 17, 2014. The total amount of the distribution was $51,669,800 which was paid in December 2014. On May 18, 2015, our board of directors declared a distribution of $0.50 per membership unit for members of record as of that date. The total amount to be distributed was $9,936,500 and was paid in June 2015.
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Results of Operations
Comparison of the Three Months Ended April 30, 2015 and 2014
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 three months ended April 30, 2015 and 2014:
2015 | 2014 | ||||||||||
Income Statement Data | Amount | % | Amount | % | |||||||
Revenue | $ | 52,854,192 | 100.0 | $ | 79,555,311 | 100.0 | |||||
Cost of Goods Sold | 49,027,807 | 92.8 | 60,966,422 | 76.6 | |||||||
Gross Profit | 3,826,385 | 7.2 | 18,588,889 | 23.4 | |||||||
Operating Expenses | 695,417 | 1.3 | 987,521 | 1.2 | |||||||
Operating Income | 3,130,968 | 5.9 | 17,601,368 | 22.1 | |||||||
Other Income | 836,718 | 1.6 | 5,176,341 | 6.5 | |||||||
Net Income | $ | 3,967,686 | 7.5 | $ | 22,777,709 | 28.6 |
Revenues. Our total revenue was lower for our second quarter of 2015 compared to the same period of 2014 due to lower average prices that we received for our products. For our second quarter of 2015, ethanol sales accounted for approximately 78% of our total revenue, distiller grains sales accounted for approximately 19% of our total revenue, and corn oil sales accounted for approximately 3% of our total revenue. For our second quarter of 2014, ethanol sales accounted for approximately 83% of our total revenue, distiller grains sales accounted for approximately 15% of our total revenue, and corn oil sales accounted for approximately 2% of our total revenue.
The average price per gallon we received for our ethanol was approximately 44% lower for our second quarter of 2015 compared to the same period of 2014. Management attributes this decrease in the average price we received for our ethanol with lower oil and corn prices which typically impacts ethanol prices. During our first and second quarters of 2014, there were significant rail shipping delays which management believes reduced supply and supported higher ethanol prices during that time.
While we experienced decreasing ethanol prices toward the beginning of our second quarter of 2015 which limited our profitability, towards the end of our second quarter of 2015 our operating margins improved. Management anticipates that we will maintain positive operating margins for the remaining quarters of our 2015 fiscal year based on current projections. Further, we experienced significantly lower gasoline prices at the beginning of our second quarter of 2015 due to lower oil prices. Ethanol typically trades at a discount compared to the price of gasoline which makes ethanol a favorable product for fuel blenders to use in order to decrease gasoline prices. When gasoline prices decreased, it resulted in lower ethanol prices. Towards the end of our second quarter of 2015, gasoline prices increased which positively impacted market ethanol prices and resulted in improved operating margins. Management anticipates continued volatility in the ethanol market as a result of changing gasoline prices which impacts ethanol demand and ultimately prices.
According to the United States Energy Information Administration (EIA), the United States exported a record volume of ethanol during 2014. Management believes that this increase in ethanol exports was due in part to lower ethanol prices domestically along with increased worldwide demand for ethanol which both spurred ethanol exports. Management anticipates that ethanol exports may continue at the current levels due to anticipated continued low ethanol prices. Management believes that strong ethanol exports may be necessary to maintain positive operating margins for United States ethanol producers.
We sold approximately 12% more gallons of ethanol during our second quarter of 2015 compared to the same period of 2014. As a result of rail logistics issues we experienced during our first and second quarters of 2014, we were required to slow operations during that time and our ethanol inventory increased which decreased our ethanol sales. In addition, our total ethanol production was 14% higher during our second fiscal quarter of 2015 as compared to the second quarter of 2014 due to increased production efficiencies during 2015 as well as slowed operations during 2014 as a result of rail logistics. We anticipate production levels to be slightly higher in the remaining quarters of our 2015 fiscal year as compared to 2014 as long as rail shipping and logistic delays are minimal during 2015.
During our second quarter of 2015, we experienced combined realized and unrealized losses on our ethanol derivatives of approximately $120,000 which decreased our revenue. By comparison, we experienced combined realized and unrealized gain on our ethanol derivative instruments of $1,000 during our second quarter of 2014 which increased our revenue.
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The average price per ton we received for our dried distillers grains was approximately 23% less for our second quarter of 2015 compared to the same period of 2014. In addition, the average price per ton we received for our modified/wet distillers grains was approximately 4% less for our second quarter of 2015 compared to the same period of 2014. Management attributes these price decreases with lower market corn prices and higher corn supplies after the 2014 harvest. China started accepting distiller grains exports from the United States at the end of 2014 after nearly six months when China did not accept distiller grains from the United States. China objected to distiller grains exports from the United States based on a genetic corn trait which was not approved in China. This corn trait was present in distiller grains produced in the United States. While China has restarted imports of distiller grains, many are concerned that China could once again refuse distiller grains from the United States which results in uncertainty regarding future distiller grains demand. This uncertainty may continue to negatively impact distiller grains prices. However, with China reentering the distiller grains market, distiller grains prices have trended higher and have positively impacted our operating margins. Management anticipates that distiller grains will continue to trade at a relative value of nearly 100% of corn for the foreseeable future.
Our distiller grains production was approximately 4% more during our second quarter of 2015 compared to the same period of 2014 due primarily to an increase in the amount of ethanol we produced. Conversely, we experienced an improvement in our conversion rate of corn into ethanol which resulted in lower distiller grains production. As we extract more ethanol from a bushel of corn, it results in less total tons of distiller grains produced. Management anticipates slightly higher ethanol production due to improved rail logistics which may result in higher distiller grains production during the remaining quarters of 2015 compared to 2014.
We sold approximately 24% more pounds of corn oil during our second quarter of 2015 compared to the same period of 2014. This increase in corn oil sales resulted from increased ethanol production during the 2015 period. Management anticipates that corn oil production will be at a comparable rate per bushel during the remaining quarters of our 2015 fiscal year to our second quarter of 2015. The average price per pound we received for our corn oil was approximately 12% less for our second quarter of 2015 compared to the same period of 2014. Management attributes this decline in corn oil prices with increased corn oil supply in the market which has not been met by corresponding increases in corn oil demand. In addition, corn oil substitutes for biodiesel production such as soybean oil have been priced lower recently which has negatively impacted corn oil prices. Management anticipates continued competition from these competing products which may continue to result in lower corn oil prices. Further, management anticipates continued volatility in corn oil prices due to uncertainty regarding corn oil demand. The biodiesel industry is a major source of corn oil demand. However, recent legislative uncertainty related to the biodiesel production tax credit has negatively impacted biodiesel production which has a corresponding impact on corn oil prices.
Cost of Goods Sold. Our cost of goods sold was significantly lower for our second quarter of 2015 compared to the same period of 2014 due primarily to lower corn costs and natural gas costs. Our average cost per bushel of corn was approximately 19% lower during our second quarter of 2015 compared to the same period of 2014. This decrease in our cost per bushel of corn was primarily related to decreased market corn prices. Management believes corn prices have somewhat stabilized and will continue to trade in a window similar to what was experienced during the first part of 2015. In addition, China is currently accepting corn and distiller grain imports that were previously banned which may provide support for corn prices in the United States. Management anticipates continued lower average corn prices during our 2015 fiscal year as compared to recent years.
We consumed approximately 11% more corn during our second quarter of 2015 compared to the same period of 2014 due to increased ethanol production. In addition, we were able to improve our corn conversion rate by approximately 2% during our second quarter of 2015 compared to the same period of 2014 which allowed us to produce more of our products per bushel of corn. Management anticipates consistent corn consumption during the rest of our 2015 fiscal year provided we continue to experience profitable operating margins and do not experience rail transportation delays which require us to reduce production.
Our natural gas costs decreased by approximately 60% during our second quarter of 2015 compared to the same period of 2014. The average price we paid per MMBtu of natural gas was approximately 61% lower during our second quarter of 2015 compared to the same period of 2014. Management attributes this decrease in natural gas prices with lower commodity and energy prices during the 2015 period. Further, we experienced a spike in natural gas prices during our second quarter of 2014 which resulted in significantly higher natural gas prices during that time. Management anticipates that natural gas prices will continue to trade in a range which has been typical of previous years. Our natural gas consumption during our second quarter of 2015 was approximately 3% higher compared to the same period of 2014. Management attributes this increase in our natural gas consumption with increased ethanol production.
We experienced approximately $725,000 of combined realized and unrealized gains for our second quarter of 2015 related to our corn and natural gas derivative instruments which decreased our cost of goods sold. By comparison, we experienced approximately $2,136,000 of combined realized and unrealized losses for the same period of 2014 related to our corn and natural
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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 is impacted, which affects our financial performance.
Operating Expenses. Our operating expenses were significantly lower during our second quarter of 2015 compared to the same period of 2014 primary due to less personnel expense during 2015 and higher contributions to trade organizations during 2014 as compared to the second fiscal quarter of 2015. Management anticipates that our operating expenses will remain slightly lower during the remaining quarters of our 2015 fiscal year compared to our 2014 fiscal year.
Other Income (Expense). Other income was lower for our second quarter of 2015 compared to the same period of 2014 due to a decrease in our portion of the net income generated by our investments. Our investments are in other companies involved in the ethanol industry which experienced less favorable operating margins during our first quarter of 2015. We had less interest expense during our second quarter of 2015 compared to the same period of 2014 due to less outstanding borrowing on our revolving loan.
Comparison of the Six Months Ended April 30, 2015 and 2014
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 six months ended April 30, 2015 and 2014:
2015 | 2014 | ||||||||||
Income Statement Data | Amount | % | Amount | % | |||||||
Revenue | $ | 113,902,315 | 100.0 | $ | 152,542,836 | 100.0 | |||||
Cost of Goods Sold | 97,721,660 | 85.8 | 119,560,254 | 78.4 | |||||||
Gross Profit | 16,180,655 | 14.2 | 32,982,582 | 21.6 | |||||||
Operating Expenses | 1,751,405 | 1.5 | 1,772,263 | 1.2 | |||||||
Operating Income | 14,429,250 | 12.7 | 31,210,319 | 20.5 | |||||||
Other Income | 4,441,069 | 3.9 | 10,042,423 | 6.6 | |||||||
Net Income | $ | 18,870,319 | 16.6 | $ | 41,252,742 | 27.0 |
Revenues. Our total revenue was lower for our six months ended April 30, 2015 compared to the same period of 2014 due to lower average prices that we received for our products. For our six months ended April 30, 2015, ethanol sales accounted for approximately 81% of our total revenue, distiller grains sales accounted for approximately 16% of our total revenue, and corn oil sales accounted for approximately 3% of our total revenue. For our second quarter of 2014, 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.
The average price per gallon we received for our ethanol was approximately 32% lower for our six months ended April 30, 2015 compared to the same period of 2014. Management attributes this decrease in the average price we received for our ethanol with lower oil and corn prices which typically impacts ethanol prices. During our first two quarters of 2014, there were significant rail shipping delays which management believes reduced ethanol supply and in turn supported higher ethanol prices during that time.
We sold approximately 6% more gallons of ethanol during our six months ended April 30, 2015 compared to the same period of 2014. As a result of rail logistics issues we experienced during the first half of 2014, we were required to slow operations during that time and our ethanol inventory increased which decreased our ethanol sales. We have also experienced increased production efficiencies during 2015 which has increased the gallons of ethanol we are able to produce and sell. We did not experience the same logistics issues during our two fiscal quarters of 2015 which resulted in increased ethanol sales during the 2015 period.
During our six months ended April 30, 2015, we experienced combined realized and unrealized losses on our ethanol derivatives of approximately $63,000 which decreased our revenue. By comparison, we experienced combined realized and unrealized losses on our ethanol derivative instruments of $3,615,000 during our six months ended April 30, 2014, which decreased our revenue.
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The average price per ton we received for our dried distillers grains was approximately 26% less for our six months ended April 30, 2015 compared to the same period of 2014. In addition, the average price per ton we received for our modified/wet distillers grains was approximately 32% less for our six months ended April 30, 2015 compared to the same period of 2014. Management attributes these price decreases with lower market corn prices and higher corn supplies after the 2014 harvest.
Our dried distiller grains production was approximately 3% less during our six months ended April 30, 2015 compared to the same period of 2014 due primarily to an increase in the amount of modified/wet distillers grains we produced. In addition, we experienced an improvement in our conversion rate of corn into ethanol which resulted in lower distiller grains production. As we extract more ethanol from a bushel of corn, it results in less total tons of distiller grains produced.
We sold approximately 7% more pounds of corn oil during our six months ended April 30, 2015 compared to the same period of 2014. This increase in corn oil sales resulted from increased ethanol production and corn usage as well as improved corn oil extraction techniques during the 2015 period. The average price per pound we received for our corn oil was approximately 13% less for our six months ended April 30, 2015 compared to the same period of 2014. Management attributes this decline in corn oil prices with increased corn oil supply in the market which has not been met by corresponding increases in corn oil demand. In addition, corn oil substitutes for biodiesel production such as soybean oil have been priced lower recently which has negatively impacted corn oil prices.
Cost of Goods Sold. Our cost of goods sold was significantly lower for our six months ended April 30, 2015 compared to the same period of 2014 due primarily to lower corn costs and natural gas costs. Our average cost per bushel of corn was approximately 18% lower during our six months ended April 30, 2015 compared to the same period of 2014. This decrease in our cost per bushel of corn was primarily related to decreased market corn prices.
We consumed approximately 5% more corn during our six months ended April 30, 2015 compared to the same period of 2014 due to increased ethanol production which was offset by improved corn conversion efficiency. We were able to improve our corn conversion rate by approximately 2% during our six months ended April 30, 2015 compared to the same period of 2014 which allowed us to produce more of our products per bushel of corn.
Our natural gas costs decreased by approximately 44% during our six months ended April 30, 2015 compared to the same period of 2014. The average price we paid per MMBtu of natural gas was approximately 44% lower during our six months ended April 30, 2015 compared to the same period of 2014. Management attributes this decrease in natural gas prices with lower commodity and energy prices during the 2015 period. Further, we experienced a spike in natural gas prices during the first half of 2014 which resulted in significantly higher natural gas prices during that time. Our natural gas consumption during our six months ended April 30, 2015 was approximately 2% lower compared to the same period of 2014. Management attributes this decrease in our natural gas consumption with capital improvements we made to our thermal oxidier which made it more energy efficient.
We experienced approximately $1,111,000 of combined realized and unrealized gains for our six months ended April 30, 2015 related to our corn and natural gas derivative instruments which decreased our cost of goods sold. By comparison, we experienced approximately $1,582,000 of combined realized and unrealized losses for the same period of 2014 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 is impacted, which affects our financial performance.
Operating Expenses. Our operating expenses were similar during our six months ended April 30, 2015 compared to the same period of 2014. Management anticipates that our operating expenses will remain steady or slightly decrease during the remaining quarters of our 2015 fiscal year compared to our 2014 fiscal year.
Other Income (Expense). Other income was lower for our six months ended April 30, 2015 compared to the same period of 2014 due to a decrease in our portion of the net income generated by our investments. Our investments are in other companies involved in the ethanol industry which experienced less favorable operating margins during our first six months of 2015. We had less interest expense during our six months ended April 30, 2015 compared to the same period of 2014 due to less outstanding borrowing on our revolving loan.
Changes in Financial Condition for the Six Months Ended April 30, 2015
Current Assets. We had less cash and equivalents as well as marketable securities at April 30, 2015 compared to October 31, 2014. This decrease in our cash position and marketable securities is due to a $51,669,800 distribution paid to members in December 2014. The decrease in our accounts receivable at April 30, 2015 compared to October 31, 2014 was due to reduced
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ethanol prices at the end of our second quarter of 2015 compared to the end of our 2014 fiscal year in addition to the timing of a unit train shipment. The value of our inventory was greater at April 30, 2015 compared to October 31, 2014 primarily due to increased finished goods inventory due to timing of a unit train shipment.
Property and Equipment. The net value of our property and equipment was slightly higher at April 30, 2015 compared to October 31, 2014 due to an increase in capital projects offset by depreciation. We had approximately $2.5 million in construction in progress at April 30, 2015 related to various capital projects we were conducting during our 2014 and 2015 fiscal years, including our syrup loadout and centrifuge projects.
Other Assets. Our other assets were lower at April 30, 2015 compared to October 31, 2014 due to a decrease in the value of our various investments caused by distributions received in excess of earnings recorded for the six months ended April 30, 2015.
Current Liabilities. Our accounts payable at April 30, 2015 were comparable to October 31, 2014. Our accrued expenses were lower at April 30, 2015 compared to October 31, 2014 due to payment of employee benefits as it relates to bonuses for our 2014 fiscal year. These payments are typically made during our first quarter each year.
Long-term Liabilities. Our long-term liabilities were similar at April 30, 2015 compared to October 31, 2014.
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 and beyond. As of April 30, 2015, we had $20 million available pursuant to our revolving term loan and approximately $30 million in cash and equivalents and marketable securities.
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.
We commenced a program of investing our excess cash in short-term liquid investments which allows us to access the cash when we need it and preserve our capital while limiting our loss exposure. Only a portion of our cash balances are federally insured when they are deposited with our bank. As a result, our plan is intended to decrease the risk we face if we were concentrating our cash balances with one financial institution.
The following table shows our cash flows for the six months ended April 30, 2015 and 2014:
Six Months Ended April 30, | |||||||
2015 | 2014 | ||||||
Net cash provided by operating activities | $ | 29,153,748 | $ | 39,162,410 | |||
Net cash (used in) investing activities | (1,539,741 | ) | (1,299,275 | ) | |||
Net cash (used in) financing activities | (51,176,690 | ) | (11,857,248 | ) |
Cash Flow From Operations
Our cash flows from operations for the six months ended April 30, 2015 were lower compared to the same period of 2014 due primarily to decreased income offset by distributions received in excess of earnings from our investments.
Cash Flow From Investing Activities
We used more cash for investing activities during our six months ended April 30, 2015 compared to the same period of 2014 primarily due to increased capitial expenditures as well as purchases of marketable securities offset by the sale of marketable securities. During our six months ended April 30, 2014, we used cash for capital expenditures related to additional rail loading infrastructure and other upgrades throughout the facility.
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Cash Flow From Financing Activities.
During our six months ended April 30, 2015, we primarily used cash for financing activities related to a distribution we paid to members. During our six months ended April 30, 2014, we used more cash for the payment of long-term debt.
Short-Term and Long-Term Debt Sources
We have a credit facility with Farm Credit with an initial availability of $35 million, which currently has availability of $20 million. In exchange for this 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.
Variable Line of Credit
We have a long-term revolving line of credit. 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, 2013 and continuing until February 1, 2019. After February 1, 2019, we will have $5 million available pursuant to this long-term revolving line of credit until it matures on February 1, 2020. The loan agreement allows for additional reductions in the maximum borrowings at our request. 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 0.5% of the unused portion of this loan. As of April 30, 2015, we had $0 outstanding on this loan with an accrued interest rate of 3.34% per year. As of April 30, 2015, we had approximately $20 million available to be drawn on this loan.
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 April 30, 2015, 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
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 $9 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 U.S. 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:
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.
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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 our risk management process, we use futures and option contracts through regulated commodity exchanges or through the over-the-counter market to manage our 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.
Investments
The Company has less than a 20% investment interest in four 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 investments are evaluated for indications of impairment on a regular basis. A loss would be recognized when the fair value is determined to be less than the carrying value.
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 as discussed below. We have no exposure to interest rate changes as we did not have any amounts outstanding on our variable interest rate loans as of April 30, 2015. 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.
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 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.
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As of April 30, 2015, we had price protection in place for approximately 14% of our anticipated corn needs, 5% of our natural gas needs and 4% 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 April 30, 2015, 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 April 30, 2015. 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 | 2,953,000 | MMBTU | 10% | $ | 1,074,000 | ||||||
Ethanol | 110,881,600 | Gallons | 10% | 15,490,000 | |||||||
Corn | 33,939,000 | Bushels | 10% | 12,995,000 |
Liability Risk
We participate, along with other plants in the industry, in a group captive insurance company (Captive). The Captive insures losses related to workman's compensation, commercial property and general liability. The Captive reinsures catastrophic losses for all participants, including the Company, in excess of predetermined amounts. Our 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. These 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 over 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 Executive Vice President and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosures.
Our management, including our Executive Vice President (the principal executive officer), Curtis Strong, 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 defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of April 30, 2015. Based on this review and evaluation, these officers have concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods required by the forms and rules of the Securities and Exchange Commission; and to ensure that the information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to our management including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
For the fiscal quarter ended April 30, 2015, 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
There have been no material changes to the risk factors previously disclosed in our annual report on Form 10-K for the fiscal year ended October 31, 2014.
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.
(a) | The following exhibits are filed as part of this report. |
Exhibit No. | Exhibit | ||
10.1 | Revolving Term Loan Supplement between CoBank and Golden Grain Energy dated March 20, 2015.* | ||
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 April 30, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of April 30, 2015 and October 31, 2014, (ii) Statements of Operations for the three and six months ended April 30, 2015 and 2014, (iii) Statements of Cash Flows for the six months ended April 30, 2015 and 2014, and (iv) the Notes to Condensed Financial Statements.** |
* Filed herewith.
** Furnished herewith.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: | June 11, 2015 | /s/ Curtis Strong | |
Curtis Strong | |||
Executive Vice-President | |||
(Principal Executive Officer) | |||
Date: | June 11, 2015 | /s/ Christine Marchand | |
Christine Marchand | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
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