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EXCEL - IDEA: XBRL DOCUMENT - GOLDEN GRAIN ENERGYFinancial_Report.xls
EX-31.2 - CERTIFICATION - GOLDEN GRAIN ENERGYa312certification13113.htm
EX-31.1 - CERTIFICATION - GOLDEN GRAIN ENERGYa311certification13113.htm
EX-32.1 - CERTIFICATION - GOLDEN GRAIN ENERGYa321certification13113.htm
EX-32.2 - CERTIFICATION - GOLDEN GRAIN ENERGYa322certification13113.htm
EX-10.4 - EXHIBIT - GOLDEN GRAIN ENERGYa104-5000000revolvingterml.htm
EX-10.2 - EXHIBIT - GOLDEN GRAIN ENERGYa102-amendmenttomasterloan.htm
EX-10.3 - EXHIBIT - GOLDEN GRAIN ENERGYa103-revolvingtermloansupp.htm
EX-10.1 - EXHIBIT - GOLDEN GRAIN ENERGYa101-membershipunitrepurch.htm
EX-3.1 - EXHIBIT - GOLDEN GRAIN ENERGYa31-secondamendmenttotheth.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
January 31, 2013
 
 
 
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 March 15, 2013, there were 18,963,000 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
 
January 31, 2013
 
October 31, 2012

 
 (Unaudited)
 
 (Audited)
Current Assets
 

 

Accounts receivable
 
$
7,466,209

 
$
6,733,711

Other receivables
 
1,061,170

 
860,725

Derivative instruments
 
590,472

 
414,646

Inventory
 
14,178,324

 
9,893,958

Prepaid expenses and other
 
1,691,325

 
1,312,326

Total current assets
 
24,987,500

 
19,215,366


 

 

Property and Equipment
 

 

Land and land improvements
 
11,262,333

 
11,262,333

Building and grounds
 
25,761,752

 
25,761,752

Grain handling equipment
 
13,457,627

 
13,457,627

Office equipment
 
320,345

 
320,345

Plant and process equipment
 
75,454,525

 
75,454,525

Construction in progress
 
2,545,895

 
1,482,255


 
128,802,477

 
127,738,837

Less accumulated depreciation
 
58,975,472

 
56,617,389

Net property and equipment
 
69,827,005

 
71,121,448


 

 

Other Assets
 

 

Investments
 
23,074,690

 
23,602,518

Grant receivable, net of current portion
 
1,480,180

 
1,457,420

Debt issuance costs, net of accumulated amortization (2013 $29,565; 2012 $26,635)
 
69,881

 
50,312

Total other assets
 
24,624,751

 
25,110,250


 

 

Total Assets
 
$
119,439,256

 
$
115,447,064

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


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

3




GOLDEN GRAIN ENERGY, LLC
Balance Sheet

LIABILITIES AND MEMBERS' EQUITY
 
January 31, 2013
 
October 31, 2012

 
 (Unaudited)
 
 (Audited)
Current Liabilities
 

 

Outstanding checks in excess of bank balance
 
$
596,384

 
$
360,338

Current portion long-term debt
 
35,149

 
34,454

Accounts payable
 
6,336,437

 
6,705,426

Accrued expenses
 
1,023,533

 
951,126

Deferred revenue
 
464,379

 
415,345

Total current liabilities
 
8,455,882

 
8,466,689


 

 

Long-term Liabilities
 

 

Deferred compensation
 
190,418

 
243,122

Long-term debt, net of current maturities
 
25,499,497

 
2,742,744

Deferred revenue, net of current portion
 
1,363,220

 
1,300,513

Total long-term liabilities
 
27,053,135

 
4,286,379


 

 

Commitments and Contingencies
 

 


 

 

Members' Equity (19,883,000 and 24,460,000 units issued and outstanding, respectively )
 
83,930,239

 
102,693,996


 

 

Total Liabilities and Members’ Equity
 
$
119,439,256

 
$
115,447,064

 
 
 
 
 
 
 
 
 
 

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

January 31, 2013
 
January 31, 2012


 

Revenues
$
85,408,162

 
$
84,368,277



 

Cost of Goods Sold
86,373,717

 
77,421,344



 

Gross Profit (Loss)
(965,555
)
 
6,946,933



 

Operating Expenses
771,383

 
666,979



 

Operating Income (Loss)
(1,736,938
)
 
6,279,954



 

Other Income (Expense)

 

Other income

 
790

Interest expense
(123,233
)
 
(54,886
)
Equity in net income of investments
96,414

 
3,253,681

Total
(26,819
)
 
3,199,585



 

Net Income (Loss)
$
(1,763,757
)
 
$
9,479,539

 
 
 
 
Basic & diluted net income (loss) per unit
$
(0.08
)
 
$
0.39

Weighted average units outstanding for the calculation of basic & diluted net income (loss) per unit
22,934,333

 
24,460,000

Distributions Per Unit
$

 
$
0.65

 
 
 
 






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

5


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


Three Months Ended
 
Three Months Ended

January 31, 2013
 
January 31, 2012


 

Cash Flows from Operating Activities

 

Net income (loss)
$
(1,763,757
)
 
$
9,479,539

Adjustments to reconcile net income to net cash provided by operating activities:

 

Depreciation and amortization
2,361,014

 
2,252,824

Unrealized (gain) on risk management activities
(175,826
)
 
(441,715
)
Amortization of deferred revenue
(113,259
)
 
(107,983
)
Accretion of interest on grant receivable
(30,524
)
 
(47,297
)
Earnings in excess of (less than) distributions from investments
436,632

 
(1,433,403
)
Deferred compensation expense
15,187

 
24,509

Change in assets and liabilities

 

Accounts receivable
(732,498
)
 
10,654,182

Inventory
(4,284,366
)
 
(3,916,858
)
Prepaid expenses and other
(571,680
)
 
(852,069
)
Accounts payable
(164,178
)
 
1,163,373

Accrued expenses
72,407

 
38,967

Deferred compensation payable
(67,891
)
 
(158,743
)
Net cash provided by (used in) operating activities
(5,018,739
)
 
16,655,326



 

Cash Flows from Investing Activities

 

Capital expenditures
(1,268,451
)
 
(1,071,174
)
   Net cash (used in) investing activities
(1,268,451
)
 
(1,071,174
)


 

Cash Flows from Financing Activities

 

Increase in outstanding checks in excess of bank balance
236,046

 

Proceeds from long-term debt
22,848,644

 

Payments for long-term debt

 
(42,007
)
Payments for offering costs
(22,500
)
 

Redemption of membership units
(17,000,000
)
 

Distributions to members

 
(15,899,000
)
Payments received on deferred contract
225,000

 

Net cash provided by (used in) financing activities
6,287,190

 
(15,941,007
)


 

Net Increase (Decrease) in Cash and Equivalents

 
(356,855
)


 

Cash and Equivalents – Beginning of Period

 
485,088



 

Cash and Equivalents – End of Period
$

 
$
128,233

 
 
 
 
Supplemental Cash Flow Information

 

Cash paid for interest
$
71,162

 
$
53,391

 
 
 
 
Supplemental Schedule of Non Cash Activities
 
 
 
Accounts Payable related to Construction in Process
$
(204,811
)
 
$

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

6


GOLDEN GRAIN ENERGY, LLC
Statements of Changes in Members' Equity
For the three months ended January 31, 2013

Balance - October 31, 2012
102,693,996

Redemption of 4,577,000 membership units
(17,000,000
)
Net Loss
(1,763,757
)
Balance - January 31, 2013
83,930,239



7

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, 2012, contained in the Company's annual report on Form 10-K for 2012.
 
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.

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 four 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) 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 three months ended January 31, 2013 for all companies is based on the investee's results for the quarter ended December 31, 2012.

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

8

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



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
The Company incurred site selection and plan development costs on the proposed site that were capitalized. Significant additions, betterments and costs to acquire land options are capitalized, while expenditures for maintenance and repairs are charged to operations when incurred. Property and equipment are stated at costs. The Company uses the straight-line method of computing depreciation over the estimated useful lives between 5 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. 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 of cash due from/to broker.

Net income (loss) per unit
Basic and diluted net income (loss) 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 January 31, 2013 or October 31, 2012 for environmental liabilities.


9

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



Fair Value of financial instruments
Financial instruments include cash and equivalents, receivables, accounts payable, accrued expenses, long-term debt and derivative instruments. The fair value of 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. Due to the variable nature of the interest rate charged against the debt the fair value of the debt approximates carrying value. 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, distiller grains and corn oil 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 first three months of 2013, ethanol sales accounted for approximately 74% of total revenue, distiller grains sales accounted for approximately 23% of total revenue and corn oil sales accounted for approximately 3% of total revenue while corn costs averaged approximately 87% of cost of goods sold.

The Company's operating and financial performance is largely driven by the prices at which we sell ethanol 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.

Reclassification
Certain items in the cash flow statement for the period ended January 31, 2012 have been reclassified to conform to the 2013 classification. The changes were made to agree with the classification used in the January 31, 2013 financial statements.

2.    INVENTORY

Inventory consisted of the following as of January 31, 2013 and October 31, 2012:

 
 
January 31, 2013

 
October 31, 2012

Raw Materials
 
$
7,076,151

 
$
3,049,045

Work in Process
 
2,453,483

 
2,449,296

Finished Goods
 
4,648,690

 
4,395,617

Totals
 
$
14,178,324

 
$
9,893,958


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 and a seasonal revolving loan with original maximum borrowings of $30,000,000 and $5,000,000, respectively, and maturing 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 (3.36% as of January 31, 2013). The borrowings are secured by substantially all the assets of the Company. On December 26, 2012, the Company executed an amended credit agreement that increased the total loan availability from $22.5 million to $35 million. The revolving term loan maximum borrowings are reduced by $2,500,000 on a semi-annual basis starting in August 2013.
 
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 January 31, 2013, the Company had approximately $25,458,000 outstanding and $9,542,000 total additional available to borrow under the credit agreement.

10

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




The Company has other notes payable of approximately $77,000 and $154,000 outstanding as of January 31, 2013 and October 31, 2012, 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 during the three months ended January 31, 2013 totaled approximately $19,317,000. Purchases during the same period of 2012 totaled approximately $32,840,000.

The Company entered into an agreement with Homeland Energy Solutions, LLC in December 2008. Pursuant to the agreement, the companies have agreed to share 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 $66,000 to operating expenses during the three months ended January 31, 2013 and $52,000 for the same period of 2012.

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 months ended January 31, 2013, the Company recorded compensation expense related to this plan of approximately $15,000. During the same periods of 2012, the Company recorded compensation expense related to this plan of approximately $25,000. As of January 31, 2013, and October 31, 2012, the Company had a liability of approximately $190,000 and $243,000 outstanding as deferred compensation and has approximately $9,200 to be recognized as future compensation expense. Three of the employees covered under this plan are fully vested and another employee has approximately three years left to vest. 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 January 31, 2013. Fair value is determined by recent trading activity of the Company's membership units. The Company had approximately 2,700 unvested equivalent phantom units outstanding under this plan as of January 31, 2013.

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 and automatically extends 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 January 31, 2013 are as follows:

 
 
Three Months Ended January 31,
 
 
2013
 
2012
Sales ethanol, distiller grains & corn oil
 
$
85,710,000

 
$
82,814,000

Marketing fees
 
146,000

 
138,000

 
 
 
 
 
 
 
As of
 
 
January 31, 2013
 
October 31, 2012
Amount due from marketer of ethanol, distiller grains & corn oil
 
$
7,365,000

 
$
6,216,000


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

11

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



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.

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 January 31, 2013 and 2012 and the fair value of derivatives as of January 31, 2013 and October 31, 2012:

 
 
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
 
$
134,000

 
$
(290,000
)
 
$
(156,000
)
three months ending January 31, 2013
 
Cost of Goods Sold
 
855,000

 
29,000

 
884,000

 
 
Total
 
989,000

 
(261,000
)
 
728,000

 
 
 
 
 
 
 
 
 
Commodity Contracts for the
 
Revenue
 
$
(225,000
)
 
$
1,918,000

 
$
1,693,000

three months ending January 31, 2012
 
Cost of Goods Sold
 
133,000

 
(1,580,000
)
 
(1,447,000
)
 
 
Total
 
(92,000
)
 
338,000

 
246,000


 
 
Balance Sheet Classification
 
January 31, 2013
 
October 31, 2012
Futures and option contracts through May 2013
 
 
 


 
 
In gain position
 
 
 
$
199,000

 
$
486,000

In loss position
 
 
 
$
(951,000
)
 
$
(977,000
)
Cash held by broker
 
 
 
$
1,342,000

 
$
906,000

 
 
Current Asset
 
$
590,000

 
$
415,000


As of January 31, 2013, the Company had outstanding purchase commitments of which approximately $13,766,000 were with related parties:
 
 
Commitments Through
 
Amount
Corn - fixed price
 
July 2013
 
$
10,436,000

Corn - basis contract
 
May 2013
 
31,601,000

Natural Gas - fixed price
 
August 2015
 
7,941,000



12

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



As of January 31, 2013, the Company has fixed price contracts in place for approximately 12% of our anticipated corn needs, approximately 23% of our natural gas needs and approximately 5% of our ethanol sales for the next 12 months.

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
Derivative financial instruments
 
 
 
 
 
 
 
 
January 31, 2013
 
 
 
 
 
 
 
 
Assets
 
$
199,000

 

 
$
199,000

 

Liabilities
 
$
(951,000
)
 

 
$
(951,000
)
 

October 31, 2012
 
 
 
 
 
 
 
 
Assets
 
$
486,000

 

 
$
486,000

 

Liabilities
 
(977,000
)
 

 
(977,000
)
 



13

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



9. 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
 
12/31/2012
 
9/30/2012
Current Assets
 
$
246,929

 
$
234,095

Other Assets
 
304,214

 
313,018

Current Liabilities
 
178,934

 
163,804

Long-term Debt
 
63,063

 
40,396

Members’ Equity
 
309,146

 
332,913

 
 
 
 
 
 
 
Three Months Ended
Income Statement
 
12/31/2012
 
12/31/2011
Revenue
 
$
263,734

 
$
299,825

Gross Profit
 
7,409

 
48,813

Net Income
 
2,829

 
42,709


The Company recorded equity in net income from investments related to the entities described above of approximately $96,000 for the three months ended January 31, 2013. For the three months ended January 31, 2012 the Company recorded equity in net income from these entities of approximately $3,254,000.



14


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 Renewable Fuel Standard, implementation of E15 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 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 December 12, 2012, we executed an agreement with our largest member to repurchase and retire all of the units owned by this member. We agreed to close on this repurchase prior to December 31, 2012. We repurchased and retired 4,577,000 membership units in exchange for $17 million. In order to finance this repurchase, we entered into amended credit agreements, described below, with our primary lender, Farm Credit Services of America, FLCA and Farm Credit Services of America, PCA (collectively "Farm Credit").



15


On December 26, 2012, we executed amended credit agreements with Farm Credit. The primary purposes of these credit agreement amendments were to increase the amount that we have available to borrow on our long-term revolving loans and to amend our financial loan covenants. Specifically, we executed an amendment to the Master Loan Agreement, a $30 million Revolving Term Loan Supplement and a $5 million Revolving Term Loan Supplement.

Pursuant to the amended credit agreements, Farm Credit increased our credit availability on our long-term revolving loans from $22.5 million to $35 million. In addition, the amended credit agreements increased our minimum working capital covenant from $12 million to $15 million and reduced our minimum tangible net worth covenant from $62.5 million to $55 million. Our $30 million Revolving Term Loan is subject to a reducing feature which provides that the amount of capital we can borrow decreases by $2.5 million semi-annually starting on August 1, 2013 and continuing until this revolving loan matures on February 1, 2019. Our $5 million Revolving Term Loan is not subject to any reductions until it matures on February 1, 2020.

In 2011, the European Union launched anti-dumping and anti-subsidy investigations related to ethanol exports from the United States. In August 2012, the European Union concluded the anti-subsidy investigation and decided not to impose a tariff related to the anti-subsidy portion of the investigation due to the fact that the VEETC blenders credit had expired. However, the European Union decided to impose a 9.6% tariff on ethanol imported from the United States based on the anti-dumping portion of the investigation. Management anticipates that this will result in decreased ethanol exports to Europe.

Results of Operations for the Three Months Ended January 31, 2013 and 2012
 
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 January 31, 2013 and 2012:

 
2013
 
2012
Income Statement Data
Amount
 
%
 
Amount
 
%
Revenue
$
85,408,162

 
100.0

 
$
84,368,277

 
100.0
Cost of Goods Sold
86,373,717

 
101.1

 
77,421,344

 
91.8
Gross Profit (Loss)
(965,555
)
 
(1.1
)
 
6,946,933

 
8.2
Operating Expenses
771,383

 
0.9

 
666,979

 
0.8
Operating Income (Loss)
(1,736,938
)
 
(2.0
)
 
6,279,954

 
7.4
Other Income (Expense)
(26,819
)
 

 
3,199,585

 
3.8
Net Income (Loss)
$
(1,763,757
)
 
(2.1
)
 
$
9,479,539

 
11.2

Revenue. Our total revenue was higher for our first quarter of 2013 compared to the same period of 2012, primarily due to increased distiller grains and corn oil revenue during the 2013 period. For our first quarter of 2013, ethanol sales accounted for approximately 74% of our total revenue, distiller grains sales accounted for approximately 23% of our total revenue and corn oil sales accounted for approximately 3% of our total revenue. For our first quarter of 2012, ethanol sales accounted for approximately 80% of our total revenue, distiller grains sales accounted for approximately 17% of our total revenue and corn oil sales accounted for approximately 3% of our total revenue.

The average price we received for our ethanol during our first quarter of 2013 was approximately 3% lower than the average price we received for the same period of 2012. Management attributes this decrease in the average price we received for our ethanol with decreased ethanol demand compared to ethanol supplies as the industry continues to experience higher imports and stable demand. Management believes that without an increase in the amount of ethanol that can be blended with gasoline for use in standard (non-flex fuel) vehicles, ethanol demand will not significantly increase. Further, since ethanol is typically blended with gasoline, when gasoline demand is lower it negatively impacts ethanol demand. Recent increases in gasoline prices have negatively impacted ethanol demand and prices.

Our total ethanol gallons sold decreased by approximately 1% during our first quarter of 2013 compared to the same period of 2012 due to decreased ethanol production. We have continued to work to improve our efficiency and production per bushel during our first quarter of 2013 with increased fermentation times which has resulted in decreased total ethanol production for the first quarter of 2013 compared to the same period of 2012. Management anticipates that ethanol sales will remain relatively consistent during the remaining quarters of our 2013 fiscal year provided that we can continue to secure corn at prices that allow us to generate positive cash flows from our operations. Management anticipates improved operating margins in the ethanol industry during our second quarter of 2013 which may lead to increased ethanol production. However, management anticipates that ethanol

16


imports from Brazil may increase during our third quarter of 2013 which may have a negative impact on our operating margins. We anticipate continued volatility in the ethanol market as we experience relatively stable demand and shifting ethanol supply.

The average price we received for our distiller grains increased during our first quarter of 2013 compared to the same period of 2012. Management attributes this increase in distiller grains prices with higher corn prices which typically positively impact distiller grains prices and a tight corn supply which is keeping the price of distiller grains up in relationship to the price of corn. The average price we received for our dried distiller grains during our first quarter of 2013 was approximately 35% greater than the same period of 2012. The average price we received for our modified/wet distiller grains during our first quarter of 2013 was approximately 116% greater than during the same period of 2012. We typically market the vast majority of our distiller grains in the dried form compared to the modified/wet form due to market conditions which favor dried distiller grains. Management makes decisions regarding what form of distiller grains we produce and sell based on these market conditions. Management anticipates that distiller grains prices will continue to fluctuate in relationship to corn prices. We continue to experience strong export demand for distiller grains which management attributes to higher corn prices and higher world demand for animal feed.

We sold approximately 4% less tons of distiller grains during our first quarter of 2013 compared to the same period of 2012. Management attributes the decrease in distiller grain sales to increased production of corn oil, on a per bushel basis, by the ethanol plant and decreased production of ethanol. Since distiller grains are a co-product of the ethanol production process, when ethanol production decreases it results in a decrease in distiller grains production. Management anticipates relatively consistent distiller grains production during the remaining quarters of our 2013 fiscal year.

The average price we received for our corn oil during our first quarter of 2013 was approximately 17% lower than during the same period of 2012. Management attributes this decrease in the average price we received for our corn oil with increased corn oil supplies and lower corn oil demand due to reduced biodiesel production. Management anticipates that corn oil prices will continue at the recent levels provided that corn oil demand for biodiesel production remains consistent and the corn oil supply does not increase significantly. We sold approximately the same amount of corn oil during our first quarter of 2013 compared to the same period of 2012. Management anticipates continued strong corn oil sales for the remainder of the 2013 fiscal year.

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 $156,000 during our first quarter of 2013. For our first quarter of 2012, we had a combined realized and unrealized gain on our ethanol derivative instrument positions of approximately $1,693,000. 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 13% during our first quarter of 2013 compared to the same period of 2012. Our average cost per bushel of corn during our first quarter of 2013 was approximately 21% higher than during the same period of 2012. Management attributes this increase in corn costs with tighter corn supplies and concerns regarding continued drought conditions during 2013. Corn prices have been volatile during our last two fiscal years and management anticipates that corn prices will continue to be volatile during our 2013 fiscal year and beyond.
    
Our corn consumption was approximately 6% lower during our first quarter of 2013 compared to the same period of 2012 because of our increased operating efficiency and lower ethanol production. Management anticipates that our corn consumption will remain relatively consistent during the remaining quarters of our 2013 fiscal year. Management continues to work to maximize the amount of ethanol that we produce per bushel of corn in order to reduce our cost of goods sold.

Our natural gas costs increased by approximately 4% during our first quarter of 2013 compared to the same period of 2012. The average price we paid per mmBtu of natural gas increased by approximately 8% for our first quarter of 2013 compared to the same period of 2012. Management attributes this increase in the average price we paid for our natural gas with certain natural gas commitments we have in place which are at rates higher than current market prices. Management anticipates that natural gas prices will continue at their current levels unless the natural gas industry experiences production problems or large demand increases. Management believes that the United States may start exporting natural gas in the future which could increase natural gas demand and result in higher domestic natural gas prices. Our natural gas consumption was approximately 4% lower during our first quarter of 2013 compared to the same period of 2012 because of decreased production.

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 $884,000 during our first quarter of 2013. For our first quarter of 2012, our derivative instrument positions resulted in a combined realized and unrealized loss of approximately $1,447,000. 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.

17



Operating Expenses. Our operating expenses were higher for our first quarter of 2013 compared to the same period of 2012 due primarily to ethanol promotion related to various industry groups which we support.

Other Income (Expense). Our interest expense was higher during our first quarter of 2013 compared to the same period of 2012 due to increased borrowing on our credit facilities with Farm Credit. Our equity in the net income of our investments decreased during our first quarter of 2013 compared to the same period of 2012 due primarily to market conditions in the ethanol industry which negatively impacted results throughout the industry. Our investments are primarily in other companies involved in the ethanol industry.
 
Changes in Financial Condition for the Three Months Ended January 31, 2013

Current Assets. The increase in our accounts receivable at January 31, 2013 compared to October 31, 2012 was due to the timing of our quarter end with respect to payments we received from our marketer. The value of our inventory was higher at January 31, 2013 compared to October 31, 2012 due to having a higher quantity of corn and finished goods inventory on hand at January 31, 2013 compared to October 31, 2012. Our prepaid expenses were higher at January 31, 2013 compared to October 31, 2012 primarily due to insurance premium payments we make in November of each year which represent our premiums for the entire year.

Property and Equipment. The net value of our property and equipment was lower at January 31, 2013 compared to October 31, 2012 due to depreciation. We had approximately $2.5 million in construction in progress at January 31, 2013 related to our grain handling system upgrade and expansion project which we anticipate will be complete at the end of March 2013.

Other Assets. Our other assets at January 31, 2013 were comparable to October 31, 2012. We paid our primary lender $22,500 for the increase in our credit facility during the first fiscal quarter of 2013.

Current Liabilities. Our current liabilities were comparable at January 31, 2013 and October 31, 2012. Checks issued in excess of our bank balances are paid from our line of credit with Farm Credit when the checks are presented for payment.

Long-term Liabilities. Our long-term liabilities were higher at January 31, 2013 compared to October 31, 2012, primarily due to a loan balance of approximately $25,458,000 we had outstanding with Farm Credit. This increase in our long-term debt relates primarily to our repurchase of membership units owned by our largest equity holder in December 2012 and also from increases in both corn and ethanol finished goods inventory. Deferred compensation liabilities were lower at January 31, 2013 compared to October 31, 2012 due to payments we made for deferred compensation.
  
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 January 31, 2013, we had approximately $9,542,000 available pursuant to our variable 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, beyond our current grain handling system upgrade and expansion, 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 three months ended January 31, 2013 and 2012:

 
Three Months Ended January 31,
 
2013
 
2012
Net cash (used in) provided by operating activities
$
(5,018,739
)
 
$
16,655,326

Net cash (used in) investing activities
(1,268,451
)
 
(1,071,174
)
Net cash provided by (used in) financing activities
6,287,190

 
(15,941,007
)

18



Cash Flow From Operations 

Our cash flow from operations for the first three months of 2013 was lower primarily due to a decrease in our net income compared to the same period of 2012. Further, during the 2012 period, a decrease in accounts receivable had a significant positive impact on our cash flow during that period.
 
Cash Flow From Investing Activities 

We used less cash for investing activities during the first three months of 2013 compared to the same period of 2012 primarily due to having less capital expenditures. Our primary capital expenditure during the 2013 period was for our grain handling upgrade project.

Cash Flow From Financing Activities.

During the first three months of 2013, we received proceeds from our long-term debt which we used to fund our unit repurchase in December 2012. We primarily used cash for financing activities during the 2012 period for a distribution we made to our members.

Short-Term and Long-Term Debt Sources

We have a $35 million credit facility with Farm Credit. In exchange for this $35 million 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 Lines of Credit

We have a long-term revolving line of credit with an original available amount of $35 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, 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. 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 January 31, 2013, we had approximately $25,458,000 outstanding on this loan with an accrued interest rate of 3.36% per year. As of January 31, 2013, we had approximately $9,542,000 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 January 31, 2013, 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.
 

19


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:

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 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 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.

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.


20




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 $25.5 million outstanding in variable rate debt as of January 31, 2013. 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 January 31, 2013 would be approximately $86,000.
 
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.

As of January 31, 2013, we had price protection in place for approximately 12% of our anticipated corn needs, approximately 23% 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 January 31, 2013, 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 January 31, 2013. 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
 
1,294,000

 
MMBTU
 
10%
 
$
483,000

Ethanol
 
104,624,000

 
Gallons
 
10%
 
$
23,237,000

Corn
 
33,989,497

 
Bushels
 
10%
 
$
25,033,000


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 January 31, 2013. 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,

21




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 January 31, 2013, 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.

Item 1A. Risk Factors

The following risk factor is provided due to material changes from the risk factors previously disclosed in our annual report on Form 10-K. The risk factor 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, 2012, included in our annual report on Form 10-K.

If exports to Europe are decreased due to the imposition by the European Union of a tariff on U.S. ethanol, ethanol prices may be negatively impacted. The European Union recently concluded an anti-dumping investigation related to ethanol produced in the United States and exported to Europe. As a result of this investigation, the European Union has imposed a tariff of $83.03 per metric ton on ethanol which is produced in the United States and exported to Europe. If exports of ethanol to Europe decrease as a result of this tariff, it could negatively impact the market price of ethanol in the United States. Any decrease in ethanol prices or demand may negatively impact our ability to profitably operate the ethanol plant.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
ISSUER PURCHASES OF EQUITY SECURITIES
    
During our first quarter of 2013, we made the following repurchases of our membership units.

Period
 
Total number of units purchased
 
Average price paid per unit
 
Total number of units purchased as part of publicly announced plans or programs
 
Maximum number of units that may be yet be purchased under the plans or programs
November 2012
 

 
$

 

 

December 2012
 
4,577,000(1)

 
3.71

 

 

January 2013
 

 

 

 

Total
 
4,577,000

 
$
3.71

 

 

(1) This repurchase was a privately negotiated transaction.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

None.


22




Item 6. Exhibits.

(a)
The following exhibits are filed as part of this report.
Exhibit No.
 
Exhibit
3.1

 
Second Amendment to the Third Amended and Restated Operating Agreement of Golden Grain Energy, LLC *
10.1

 
Membership Unit Repurchase Agreement dated December 12, 2012 between Golden Grain Energy, LLC and Steven Retterath. *
10.2

 
Amendment to the Master Loan Agreement dated December 26, 2012 between Golden Grain Energy, LLC and Farm Credit Services of America, FLCA and Farm Credit Services of America, PCA. *
10.3

 
Revolving Term Loan Supplement dated December 26, 2012 between Golden Grain Energy, LLC and Farm Credit Services of America, FLCA and Farm Credit Services of America, PCA. *
10.4

 
$5,000,000 Revolving Term Loan Supplement dated December 26, 2012 between Golden Grain Energy, LLC and Farm Credit Services of America, FLCA and Farm Credit Services of America, PCA. *
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 January 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Balance Sheets as of January 31, 2013 and October 31, 2012, (ii) Statements of Operations for the three months ended January 31, 2013 and 2012, (iii) Statements of Cash Flows for the three months ended January 31, 2013 and 2012, 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:
March 15, 2013
 
/s/ Walter Wendland
 
 
 
Walter Wendland
 
 
 
President and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
March 15, 2013
 
/s/ Christine Marchand
 
 
 
Christine Marchand
 
 
 
Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)
    

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