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UNITED STATES |
SECURITIES AND EXCHANGE COMMISSION |
WASHINGTON, D.C. 20549 |
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| AMENDMENT NO. 2 TO |
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| FORM 10-K |
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x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
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For the fiscal year ended AUGUST 31, 2010 | ||
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or | ||
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 | ||
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Commission File | ||
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MINN-DAK FARMERS COOPERATIVE | ||
(Exact name of Registrant as specified in its charter) |
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North Dakota | 23-7222188 |
(State of Incorporation) | (I.R.S. Employer Identification Number) |
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7525 Red River Road | (701) 642-8411 |
(Address of Principal Executive Offices) | (Registrant’s Telephone Number) |
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act o YES x NO
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. o YES x NO
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 during the preceding 12 months. o YES o NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark if 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. (Check one):
Large accelerated filero Accelerated filero Non-accelerated filerx Smaller Reporting Companyo
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YESo NOx
Minn-Dak Farmers Cooperative is a cooperative. Its voting and non-voting common equity can only be held by its members. No public market for voting and non-voting common equity of Minn-Dak Farmers Cooperative is established and it is unlikely, in the foreseeable future that a public market for its voting and non-voting common equity will develop.
As of November 24, 2010, 477 shares of the Company’s Common Stock and 72,200 “units” of the Registrant’s Preferred Stock, each consisting of 1 share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C Preferred Stock, were outstanding.
1
Description of Amendment No. 2 to Annual Report on Form 10-K for the Year Ended August 31, 2010:
On November 24, 2010, Minn-Dak Farmers Cooperative (the “Company”) filed its Annual Report on Form 10-K for the year ended August 31, 2010 (the “2010 Form 10-K”). Amendment No. 1, Filed on December 9, 2010 included the revised Balance Sheet information only. Amendment No. 2 to Form 10-K for the year ended August 31, 2010 is being filed to now include the following financial information in the exhibits and financial statement schedules:
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| 1. | Report of Independent Registered Public Accounting Firm |
| 2. | Consolidated Balance Sheets as of August 31, 2010, 2009 and 2008 |
| 3. | Consolidated Statements of Operations for the Years Ended August 31, 2010, 2009 and 2008 |
| 4. | Consolidated Statements of Changes in Members’ Investments for the years ended August 31, 2010, 2009 and 2008 |
| 5. | Consolidated Statements of Cash flows for the Years Ended August 31, 2010, 2009 and 2008 |
| 6. | -Notes to the Consolidated Financial Statements |
Other than the changes described in Amendment No. 1 to the Balance Sheets, there were no other changes to the original 10-K and related financial statements that were filed on November 24, 2010 for the year ended August 31, 2010.
PART IV.
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ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES | |
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| Documents filed as part of this Amendment No. 2 to Annual Report on Form 10-K: | |
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| a. | Consolidated Financial Statements |
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| - Report of Independent Registered Public Accounting Firm |
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| -Consolidated Balance Sheets as of August 31, 2010, 2009 and 2008 |
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| -Consolidated Statements of Operations for the Years Ended August 31, 2010, 2009 and 2008 |
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| -Consolidated Statements of Changes in Members’ Investments for the years ended August 31, 2010, 2009 and 2008 |
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| -Consolidated Statements of Cash flows for the Years Ended August 31, 2010, 2009 and 2008 |
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| -Notes to the Consolidated Financial Statements |
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| b. | The exhibits to this Amendment No. 2 to Annual Report on Form 10-K are as follows: |
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Exhibit No. |
| Description |
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31.1 |
| Certification of the President/Chief Executive Officer (principal executive officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
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31.2 |
| Certification of the Executive Vice President/Chief Financial Officer (principal financial officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
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31.3 |
| Certification of the Controller/Chief Accounting Officer (principal accounting officer) pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act. |
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32 |
| Certification pursuant to 18 U.S.C. §1350 |
2
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Item 15a. | Report of Independent Registered Public Accounting Firm |
The Audit Committee
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota
We have audited the accompanying consolidated balance sheets ofMinn-Dak Farmers Cooperative (a North Dakota cooperative association) as of August 31, 2010, 2009, and 2008, and the related consolidated statements of operations, change in members’ investments and comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express such an opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position ofMinn-Dak Farmers Cooperative as of August 31, 2010, 2009, and 2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
/S/ Eide Bailly LLP
Fargo, North Dakota
November 24, 2010
3
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MINN-DAK FARMERS COOPERATIVE |
CONSOLIDATED BALANCE SHEETS |
AUGUST 31, 2010, 2009, AND 2008 |
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| 2010 |
| 2009 |
| 2008 |
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ASSETS |
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CURRENT ASSETS |
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Cash |
| $ | 128,611 |
| $ | 93,949 |
| $ | 159,175 |
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Current bond trust |
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| 4,731,005 |
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| — |
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| — |
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Receivables |
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Trade accounts |
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| 12,730,660 |
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| 14,299,830 |
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| 16,376,068 |
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Growers |
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| 13,763,089 |
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| 10,196,312 |
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| 7,313,090 |
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Income tax |
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| — |
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| — |
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| 234,461 |
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Other |
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| 2,551 |
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| 2,551 |
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| 2,551 |
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| 26,496,300 |
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| 24,498,693 |
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| 23,926,170 |
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Advances to affiliates - Midwest Agri-Commodities Co. and United Sugars Corporation |
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| — |
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| 1,105,797 |
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| 1,492,451 |
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Inventories |
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Refined sugar, pulp, molasses and thick juice to be sold on a pooled basis |
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| 29,770,313 |
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| 27,046,374 |
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| 28,452,755 |
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Sugarbeets |
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| 3,121,298 |
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| — |
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| — |
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Nonmember refined sugar |
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| 1,717,395 |
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| 1,451,972 |
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| 1,357,893 |
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Yeast |
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| 237,105 |
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| 200,317 |
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| 167,799 |
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Materials and supplies |
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| 13,403,175 |
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| 11,296,034 |
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| 10,159,944 |
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| 48,249,286 |
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| 39,994,697 |
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| 40,138,391 |
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Deferred charges |
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| 1,324,353 |
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| 1,436,316 |
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Prepaid expenses and other assets |
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| 2,047,411 |
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| 3,109,313 |
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| 2,149,816 |
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Current deferred income tax asset |
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| — |
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| 25,600 |
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| 145,000 |
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Total current assets |
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| 81,652,613 |
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| 70,152,402 |
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| 69,447,319 |
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PROPERTY, PLANT AND EQUIPMENT |
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Land and land improvements |
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| 28,164,267 |
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| 27,130,273 |
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| 26,476,273 |
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Buildings |
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| 37,882,719 |
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| 37,757,659 |
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| 37,592,109 |
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Factory equipment |
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| 152,493,105 |
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| 147,419,262 |
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| 141,263,455 |
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Other equipment |
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| 5,300,600 |
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| 4,675,425 |
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| 3,766,400 |
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Capitalized leases |
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| 3,352,917 |
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| 2,960,658 |
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| 746,210 |
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Construction in progress |
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| 5,213,973 |
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| 4,690,526 |
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| 4,500,912 |
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| 232,407,581 |
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| 224,633,803 |
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| 214,345,359 |
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Less accumulated depreciation and amortization |
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| 135,638,384 |
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| 127,336,389 |
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| 119,566,871 |
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| 96,769,197 |
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| 97,297,414 |
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| 94,778,488 |
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OTHER ASSETS |
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Investment in other cooperatives and unconsolidated marketing cooperatives |
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| 11,115,672 |
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| 11,343,602 |
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| 11,523,024 |
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Bond trust and financing costs |
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| 2,492,735 |
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| 98,302 |
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| 126,663 |
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Other |
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| 5,034,845 |
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| 992,175 |
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| 1,187,408 |
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| 18,643,252 |
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| 12,434,079 |
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| 12,837,095 |
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| $ | 197,065,062 |
| $ | 179,883,895 |
| $ | 177,062,902 |
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See Notes to Consolidated Financial Statements.
4
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| 2010 |
| 2009 |
| 2008 |
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LIABILITIES AND MEMBERS’ INVESTMENT |
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CURRENT LIABILITIES |
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Short-term notes payable |
| $ | 27,557,680 |
| $ | 18,977,978 |
| $ | 24,440,000 |
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Current portion of long-term debt and capital leases |
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| 2,977,034 |
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| 2,905,841 |
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| 2,594,188 |
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Current portion of bonds payable |
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| — |
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| 2,120,000 |
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| 2,010,000 |
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| 2,977,034 |
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| 5,025,841 |
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| 4,604,188 |
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Accounts payable |
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Trade |
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| 10,143,993 |
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| 11,566,445 |
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| 9,511,224 |
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Checks Outstanding |
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| 1,007,863 |
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| 545,766 |
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| — |
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Deferred liabilities |
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| 8,825,180 |
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| — |
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| — |
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Growers |
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| 13,874,124 |
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| 17,704,288 |
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| 17,429,879 |
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Income tax |
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| 194,745 |
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| — |
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| — |
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| 34,045,905 |
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| 29,816,499 |
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| 26,941,103 |
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Payable to affiliates - Midwest Agri-Commodities Co. and United Sugars Corporation |
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| 283,460 |
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| — |
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Accrued liabilities |
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| 3,100,968 |
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| 2,945,383 |
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| 3,299,010 |
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Total current liabilities |
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| 67,965,047 |
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| 56,765,701 |
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| 59,284,301 |
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LONG-TERM DEBT AND CAPITAL LEASES, NET OF CURRENT PORTION |
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| 18,690,023 |
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| 22,148,959 |
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| 13,778,143 |
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BONDS PAYABLE |
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| 19,240,000 |
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| 11,370,000 |
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| 13,490,000 |
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LONG-TERM DEFERRED INCOME TAX LIABILITY |
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| 265,800 |
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| 354,400 |
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| 443,000 |
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LONG-TERM UNRECOGNIZED TAX BENEFITS LIABILITY |
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| 274,075 |
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| 256,075 |
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LONG-TERM PENSION LIABILITY |
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| 19,629,704 |
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| 12,827,360 |
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| 5,795,189 |
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COMMITMENTS AND CONTINGENCIES (NOTE 10) |
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Total liabilities |
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| 125,790,574 |
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| 103,740,495 |
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| 93,046,708 |
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MEMBERS’ INVESTMENT |
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Preferred stock |
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Class A - 100,000 shares authorized, $105 par value; |
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| 7,581,000 |
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| 7,581,000 |
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| 7,581,000 |
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Class B - 100,000 shares authorized $75 par value; |
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| 5,415,000 |
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| 5,415,000 |
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| 5,415,000 |
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Class C - 100,000 shares authorized, $76 par value; |
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| 5,487,200 |
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| 5,487,200 |
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| 5,487,200 |
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| 18,483,200 |
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| 18,483,200 |
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| 18,483,200 |
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Common stock, 600 shares authorized, $250 par value; |
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| 119,250 |
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| 118,500 |
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| 120,750 |
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474 shares outstanding on 8-31-09 and |
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483 shares outstanding on 8-31-08 and |
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Paid in capital in excess of par value |
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| 32,094,407 |
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| 32,094,407 |
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| 32,094,407 |
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Nonqualified allocated patronage |
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| 28,298,571 |
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| 28,298,718 |
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| 28,298,508 |
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Accumulated other comprehensive loss |
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| (18,837,157 | ) |
| (12,811,235 | ) |
| (4,890,516 | ) |
Retained earnings |
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| 11,116,217 |
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| 9,959,810 |
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| 9,909,845 |
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| 71,274,488 |
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| 76,143,400 |
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| 84,016,194 |
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| $ | 197,065,062 |
| $ | 179,883,895 |
| $ | 177,062,902 |
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5
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MINN-DAK FARMERS COOPERATIVE |
CONSOLIDATED STATEMENTS OF OPERATIONS |
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008 |
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| 2010 |
| 2009 |
| 2008 |
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REVENUE |
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From sales of sugar, sugar co-products, and yeast, net of discounts |
| $ | 214,311,789 |
| $ | 225,034,020 |
| $ | 243,573,467 |
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EXPENSES |
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Production costs of sugar, co-products, and yeast sold |
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| 72,008,374 |
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| 79,586,897 |
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| 73,592,738 |
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Sales and distribution costs |
|
| 40,451,329 |
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| 43,308,982 |
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| 48,667,319 |
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General and administrative |
|
| 7,079,301 |
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| 7,065,675 |
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| 7,275,736 |
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Interest |
|
| 1,974,363 |
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| 2,017,946 |
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| 3,230,496 |
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| 121,513,367 |
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| 131,979,500 |
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| 132,766,289 |
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OTHER INCOME |
|
| 7,777,785 |
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| 2,493,245 |
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| 1,299,870 |
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NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE INCOME TAXES |
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| 100,576,207 |
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| 95,547,765 |
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| 112,107,049 |
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INCOME TAXES EXPENSE (BENEFIT) |
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| 343,580 |
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| (505,145 | ) |
| 1,243,679 |
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NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS |
| $ | 100,232,627 |
| $ | 96,052,910 |
| $ | 110,863,370 |
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DISTRIBUTION OF NET PROCEEDS |
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Credited to members’ investment |
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Components of net income |
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Income from non-member business |
| $ | 1,156,407 |
| $ | 334,861 |
| $ | 2,721,265 |
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Patronage income |
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| 4,020,142 |
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| 3,727,840 |
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| 5,117,244 |
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Net income credited to member’s investment |
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| 5,176,549 |
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| 4,062,701 |
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| 7,838,509 |
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Payments to members for sugarbeets, net of unit retention capital |
|
| 95,056,078 |
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| 91,990,209 |
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| 103,024,861 |
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NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS |
| $ | 100,232,627 |
| $ | 96,052,910 |
| $ | 110,863,370 |
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See Notes to Consolidated Financial Statements.
6
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MINN-DAK FARMERS COOPERATIVE |
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ INVESTMENT |
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008 |
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| Preferred |
| Common |
| Paid in Capital |
| Non-Qualified |
| Accumulated |
| Retained |
| Total |
| Comprehensive |
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE, AUGUST 31, 2007 |
| $ | 18,483,200 |
| $ | 121,000 |
| $ | 32,094,407 |
| $ | 27,598,667 |
| $ | (2,368,458 | ) | $ | 7,444,091 |
| $ | 83,372,907 |
|
|
|
|
Stock - Sales - common (8 shares) |
|
|
|
|
| 2,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,000 |
|
|
|
|
Repurchases - common (9 shares) |
|
|
|
|
| (2,250 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (2,250 | ) |
|
|
|
Revolvement of unit retention capital |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
Revolvement of prior years’ allocated patronage |
|
|
|
|
|
|
|
|
|
|
| (4,417,403 | ) |
|
|
|
|
|
|
| (4,417,403 | ) |
|
|
|
Adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (255,511 | ) |
| (255,511 | ) |
|
|
|
Net income for the year ended August 31, 2008 |
|
|
|
|
|
|
|
|
|
|
| 5,117,244 |
|
|
|
|
| 2,721,265 |
|
| 7,838,509 |
| $ | 7,838,509 |
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (2,522,058 | ) |
|
|
|
| (2,522,058 | ) |
| (2,522,058 | ) |
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 5,316,451 |
|
BALANCE, AUGUST 31, 2008 |
|
| 18,483,200 |
|
| 120,750 |
|
| 32,094,407 |
|
| 28,298,508 |
|
| (4,890,516 | ) |
| 9,909,845 |
|
| 84,016,194 |
|
|
|
|
Stock - Sales - common (6 shares) |
|
|
|
|
| 1,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 1,500 |
|
|
|
|
Repurchases - common (15 shares) |
|
|
|
|
| (3,750 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (3,750 | ) |
|
|
|
Revolvement of patronage-Estate |
|
|
|
|
|
|
|
|
|
|
| (101,701 | ) |
|
|
|
|
|
|
| (101,701 | ) |
|
|
|
Revolvement of prior years’ allocated patronage |
|
|
|
|
|
|
|
|
|
|
| (3,625,929 | ) |
|
|
|
|
|
|
| (3,625,929 | ) |
|
|
|
Effects of FAS 158 Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (284,896 | ) |
| (284,896 | ) |
|
|
|
Net income for the year ended August 31, 2009 |
|
|
|
|
|
|
|
|
|
|
| 3,727,840 |
|
|
|
|
| 334,861 |
|
| 4,062,701 |
| $ | 4,062,701 |
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (7,920,719 | ) |
|
|
|
| (7,920,719 | ) |
| (7,920,719 | ) |
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (3,858,018 | ) |
BALANCE, AUGUST 31, 2009 |
|
| 18,483,200 |
|
| 118,500 |
|
| 32,094,407 |
|
| 28,298,718 |
|
| (12,811,235 | ) |
| 9,959,810 |
|
| 76,143,400 |
|
|
|
|
Stock - Sales - common (10 shares) |
|
|
|
|
| 2,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2,500 |
|
|
|
|
Repurchases - common (7 shares) |
|
|
|
|
| (1,750 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| (1,750 | ) |
|
|
|
Revolvement of patronage-Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
Revolvement of prior years’ allocated patronage |
|
|
|
|
|
|
|
|
|
|
| (4,020,289 | ) |
|
|
|
|
|
|
| (4,020,289 | ) |
|
|
|
Effects of FAS 158 Adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| — |
|
|
|
|
Net income for the year ended August 31, 2010 |
|
|
|
|
|
|
|
|
|
|
| 4,020,142 |
|
|
|
|
| 1,156,407 |
|
| 5,176,549 |
| $ | 5,176,549 |
|
Pension liability adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,025,922 | ) |
|
|
|
| (6,025,922 | ) |
| (6,025,922 | ) |
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (849,374 | ) |
BALANCE, AUGUST 31, 2010 |
| $ | 18,483,200 |
| $ | 119,250 |
| $ | 32,094,407 |
| $ | 28,298,571 |
| $ | (18,837,157 | ) | $ | 11,116,217 |
| $ | 71,274,488 |
|
|
|
|
See Notes to Consolidated Financial Statements.
7
|
MINN-DAK FARMERS COOPERATIVE |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
Income allocated to members’ investment |
| $ | 5,176,549 |
| $ | 4,062,701 |
| $ | 7,838,509 |
|
Accumulated other comprehensive loss |
|
| (6,025,922 | ) |
| (7,920,718 | ) |
| (2,522,058 | ) |
Add (deduct) noncash items |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 8,808,312 |
|
| 8,440,002 |
|
| 8,115,079 |
|
Amortization |
|
| 752,461 |
|
| 359,548 |
|
| 436,512 |
|
(Gain) Loss on disposal of equipment |
|
| (25,553 | ) |
| (108,602 | ) |
| 112,747 |
|
(Gain)Loss allocated from unconsolidated marketing cooperatives |
|
| 84,761 |
|
| (115,543 | ) |
| 43,419 |
|
Noncash portion of patronage capital credits |
|
| 32,396 |
|
| (974,925 | ) |
| (644,842 | ) |
Deferred income taxes |
|
| (63,000 | ) |
| 30,800 |
|
| 1,136,000 |
|
(Increase)/Decrease in cash surrender of retired executive life insurance |
|
| 11,651 |
|
| 49,555 |
|
| 20,224 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Accounts receivable and advances |
|
| (608,351 | ) |
| (420,329 | ) |
| (2,408,377 | ) |
Inventory and prepaid expenses |
|
| (7,192,687 | ) |
| (815,803 | ) |
| 1,299,903 |
|
Deferred charges and other |
|
| (2,873,808 | ) |
| 114,473 |
|
| 629,083 |
|
Accounts payable, accrued liabilities, and other liabilities |
|
| 10,158,503 |
|
| 9,665,509 |
|
| (662,766 | ) |
| ||||||||||
NET CASH FROM OPERATING ACTIVITIES |
|
| 8,235,312 |
|
| 12,366,668 |
|
| 13,393,433 |
|
| ||||||||||
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
Proceeds from disposition of property, plant and equipment |
|
| 125,666 |
|
| 332,455 |
|
| 11,170 |
|
Capital expenditures |
|
| (7,987,929 | ) |
| (8,817,485 | ) |
| (7,975,759 | ) |
Capital adjustment of unconsolidated marketing cooperatives |
|
| (237,248 | ) |
| 871,094 |
|
| 325,357 |
|
Proceeds from patronage refunds and equity revolvements |
|
| 367,407 |
|
| 418,184 |
|
| 272,726 |
|
| ||||||||||
NET CASH USED FOR INVESTING ACTIVITIES |
|
| (7,732,104 | ) |
| (7,195,752 | ) |
| (7,366,506 | ) |
| ||||||||||
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
Sale (repurchase) of common stock, net |
|
| 750 |
|
| (2,250 | ) |
| (250 | ) |
Net proceeds (repayments) of short-term debt |
|
| 8,579,703 |
|
| (5,462,022 | ) |
| 5,440,000 |
|
Checks outstanding |
|
| 462,098 |
|
| 545,766 |
|
| — |
|
Proceeds from long term debt |
|
| — |
|
| 10,000,000 |
|
| — |
|
Payment of financing fees |
|
| (753,447 | ) |
| (207,405 | ) |
| (284,410 | ) |
Payment of long-term debt/lease |
|
| (5,030,020 | ) |
| (5,692,828 | ) |
| (5,239,138 | ) |
Payment of unit retains and allocated patronage |
|
| (3,727,630 | ) |
| (4,417,403 | ) |
| (6,038,860 | ) |
| ||||||||||
NET CASH USED FOR FINANCING ACTIVITIES |
|
| (468,546 | ) |
| (5,236,142 | ) |
| (6,122,658 | ) |
| ||||||||||
NET CHANGE IN CASH |
|
| 34,662 |
|
| (65,226 | ) |
| (95,731 | ) |
| ||||||||||
CASH, BEGINNING OF YEAR |
|
| 93,949 |
|
| 159,175 |
|
| 254,906 |
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF YEAR |
| $ | 128,611 |
| $ | 93,949 |
| $ | 159,175 |
|
8
|
MINN-DAK FARMERS COOPERATIVE |
CONSOLIDATED STATEMENTS OF CASH FLOWS |
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
|
|
|
Cash payments for |
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 1,861,232 |
| $ | 2,067,437 |
| $ | 3,438,931 |
|
| ||||||||||
Income tax net payments (refunds) |
| $ | 485,910 |
| $ | (790,406 | ) | $ | 1,930,729 |
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds for bond issuance transferred to restricted investment |
| $ | 7,000,000 |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Equipment purchased by issuance of capital lease |
| $ | 392,259 |
| $ | 2,365,296 |
| $ | 746,210 |
|
See Notes to Consolidated Financial Statements.
9
NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
Minn-Dak Farmers Cooperative (the Company) is a North Dakota cooperative association owned by its member-growers for the purpose of processing sugarbeets and marketing sugar and co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) is a North Dakota corporation engaged primarily in the production and marketing of baker’s yeast. Link Acquisition Company LLC (Link) was formed to advance possible strategic business activities by the Company. Approximately 93% of net sales are related to sugarbeet operations and 7% are related to yeast operations.
The majority of the net proceeds from the Company are from member patronage business.
Principles of Consolidation
The financial statements include the accounts of the Company and its wholly owned subsidiaries, Minn-Dak Yeast and Link. Significant intercompany activity has been eliminated from the Balance Sheet, Statement of Operations, Statement of Members’ Investment and Statements of Cash Flows.
Cash and Cash Equivalents
Cash Equivalents are assets which are readily convertible into cash within three months. The Company does not consider Bond Trust assets as Cash Equivalents.
Receivable and Credit Policy
Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 15 to 90 days from the invoice date. Trade receivables are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days old are considered delinquent. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of trade receivables is reduced by a valuation allowance that reflects Management’s best estimate of the amounts that will not be collected. Management reviews all trade receivable balances that exceed 90 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Additionally, Management estimates an allowance to apply to the aggregate trade receivables to create a general allowance covering those amounts. The allowance is based on an evaluation of the receivables account with particular attention paid to the largest customer balances and the risk profile of the entire portfolio.
Credit Risk
The Company via United Sugars and Midwest Agri-Commodities and Minn-Dak Yeast grant credit to food processors located throughout the United States. In addition, the Company grants credit to member-growers located in North Dakota and Minnesota, for sugarbeet seed, technology fees, and co-products.
Inventories
Inventories of refined sugar, thick juice, pulp and molasses to be sold on a pooled basis are valued at net realizable value, while third-party purchased refined sugar to be sold on a pooled basis is valued at the lower of the cost or market. Inventory of yeast is valued at the lower of average cost or market. Materials and supplies are valued at most recent purchase price that approximates weighted average cost. During the periods when sugarbeets are purchased from growers, but not yet converted into bin sugar or thick juice, that inventory is valued at grower payment cost. In valuing inventories at net realizable value, the Company, in effect sells the remaining inventory to the subsequent periods sugar and co-product pool.
10
Reclassifications
Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.
Prepaid Expense and Other Assets
Purchased sugar allocation and prepaid insurance costs related to subsequent fiscals year are recorded as assets and subsequently expensed to those years.
Deferred Costs and Product Values
All costs incurred prior to the beginning of the Company’s fiscal year that relate to agricultural development and labor procurement costs, receiving and processing the subsequent year’s sugarbeet crop are deferred. Similarly, the net realizable values of products produced prior to the beginning of the Company’s fiscal year that relate to the subsequent year’s sugarbeet crop are deferred. The net result of these deferred costs and grower sugar beet payables as of August 31, 2010 of $8,825,181 has been recorded in the Company’s balance sheet in “Deferred liabilities.” Deferred costs as of August 31, 2009 and August 31, 2008 of $1,324,343 and $1,436,316 respectively were recorded in the Company’s balance sheet as current assets under the heading “Deferred charges”. There were no deferred products produced prior to the fiscal years ending August 31, 2009 and August 31, 2008.
Property, Plant, Equipment and Depreciation
Property, plant and equipment are stated at cost. Additions, renewals and betterments are capitalized, whereas expenditures for maintenance and repairs are charged to expense. The cost and related accumulated depreciation of assets retired or sold are removed from the appropriate asset and depreciation accounts and the resulting gain or loss is reflected in income.
It is the policy of the Company to provide depreciation based on methods designed to amortize the cost of the properties over their estimated useful lives. Property, plant and equipment are depreciated for financial reporting purposes, principally using declining balance methods, with estimated useful lives ranging from 3 to 40 years. Statutory lives and methods are used for income tax reporting purposes. Capital lease equipment is depreciated in accordance with FASB ASC 840,Accounting for Leases.
Capitalized assets include indirect costs such as fringe benefits, interest and engineering when appropriate. The indirect costs capitalized for the years ended August 31, 2010, 2009 and 2008 were $257,391, $205,240, and $133,775, respectively. There was no construction-period interest capitalized for the years ended August 31, 2010, 2009 and 2008.
Goodwill and Other Intangible Assets
In accordance with Statement of Financial Accounting Standards FASB ASC 350 (Accounting Standards Codification),Intangibles – Goodwill and Other, the Company does not amortize goodwill. The Company has annually evaluated goodwill and other intangible assets for impairment and concluded that no impairment charge was necessary.
11
Costs associated with the acquisition of permanent allocation rights will be amortized over the remaining life of the farm program, currently estimated at four crop years.
Investments in Other Cooperatives and Unconsolidated Marketing Cooperatives
Equity Value Investments in Unconsolidated Marketing Cooperatives Investments - The investments in United Sugars Corporation and Midwest -Commodities Company are accounted for using the equity method, wherein the investment is recorded at the amount of the underlying equity in the net assets of the investments and adjusted to recognize the Company’s share of the undistributed earnings or losses. Transactions with these companies are considered to be related party transactions.
Investments in Other Cooperatives - The investments in stocks and capital credits of other cooperatives are stated at cost, plus the Company’s share of allocated patronage and capital credits.
Income Taxes
A consolidated federal income tax return is filed for the Company and its wholly owned subsidiaries. Deferred income taxes are provided for in the timing of certain temporary deductions/increases for financial and income tax reporting purposes.
Revenue Recognition
The Company generally recognizes revenue at the point of customer receipt of product.
Accounting Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Bond Origination Costs
Bond financing costs incurred in connection with the financing of the construction projects related to the processing facility have been capitalized. The Company is amortizing the bond financing costs over the terms of the financing obtained using a straight line method.
Amortization of bond financing cost for the years ended August 31, 2010, 2009, and 2008 totaled $21,650, $28,362 and $28,362, respectively.
Self-Funded Insurance
The Contract year for the Company’s employee health plan starts January 1 and ends December 31. In fiscal year 2008, the Company operated with a fully insured employee health plan through December 2007. In fiscal years ending August 31, 2009 and 2010, the Company operated with a self-funded employee health plan administered by Blue Cross Blue Shield of North Dakota (BCBS) for the entire fiscal year. In addition to administering claims, BCBS insures individual health claims in excess of $100,000 and aggregate annual claims in excess of 120% of expected claims for the plan year. The Company has exposure for claims incurred but not paid at the end of each reporting period. Historical information supplied by BCBS, based on employee enrollment and factors that are established at each contract renewal, is used to estimate it’s liability for these claims. This liability is estimated, actual claims experience may differ from Company estimates.
12
Uninsured Cash Balance
The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to certain limits. At times during the year, the Company’s balances exceeded these limits. The Company does not consider this a material risk.
Impairment and Disposal of Long-Lived Assets
The Company accounts for impairment or disposal of long-lived assets in accordance with the provisions of FASB ASC 144,Impairment or Disposal of Long-Lived Assets.
Shipping and Handling Costs
Shipping and handling costs are included in cost of product sold upon receipt of the Company’s product by its customers as well as the net realizable value calculations of the inventory through allocations from the Company’s marketing cooperatives.
Advertising
The Company’s advertising costs are expensed as incurred. Advertising expense for the years ended August 31, 2010, 2009 and 2008 totaled $19,875, $19,955 and $21,568, respectively.
Pension Liability
In accordance with FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans, the Company records the liability for its defined benefit retirement plan as the benefit obligation in the financial statements. The Company has determined that the future tax benefits associated with FASB ASC 715 are patronage sourced and, therefore, will flow directly to the shareholder/growers. As a result, no future tax benefit to the Company is recorded.
Fair Value
Fair value is defined under FASB ASC 820,Accounting for Fair Value Measurements as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. FASB ASC 820 established a fair value hierarchy that prioritizes the assumptions, or “inputs,” used in applying valuation techniques. The three levels of inputs within fair value hierarchy include:
|
|
|
| o | Level 1 inputs were quoted prices (unadjusted) in active markets for identical assets or liabilities. |
| o | Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that were not active, and inputs (other than quoted prices) that were observable for the asset or liability, either directly or indirectly. |
13
|
|
|
| o | Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. |
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued new standards in the ASC 820,Fair Value Measurements. These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. The new disclosures regarding Level 1 and 2 fair value measurements and clarification of existing disclosures are effective for the Company beginning with its interim filing for February 2010. The disclosures about the roll forward of information in Level 3 are required for the Company with its interim filing in February 2011. This update will not have a material effect on the Company’s results of operations, financial position or cash flows.
Recently Adopted Accounting Pronouncements
In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective upon issuance.
In June 2009, the FASB issued Accounting Standards Update 2009-01 Generally Accepted Accounting Principles. The Company adopted this ASU on September 1, 2009. This standard did not have an impact on the Company’s results of operations or financial condition. However, throughout the notes to the financial statements references that were previously made to various former US GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.
In September of 2006, the FASB issued FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans. This pronouncement was adopted by the Company with the notation that the Company would continue to measure its plan’s liabilities as of May 31. However, with full adoption of FASB ASC 715, the new measurement date for the plan’s liabilities is August 31. In 2009, this resulted in a one-time addition to liability and reduction of retained earnings of $284,896 for the August 31, 2009 financial statements.
Concentration and Sources of Labor
The Company’s total factory campaign and full time workforce consists of 457 employees, of which 61% are covered by a collective bargaining agreement. The agreement expires on May 31, 2011.
Risks and Uncertainties
Interest costs - The Company is at risk for interest rate changes in both seasonal and long-term debt. The Company has variable rates on a substantial majority of its seasonal and long-term debt. Interest rate risk is not expected to have a material impact on the Company’s annual return to its growers. During the first quarter of the Company’s fiscal year ending August 31, 2011, the Company adopted a policy to manage future risks associated with interest rate variability.
14
Accumulated Other Comprehensive Income (Loss)
FASB ASC 220,Reporting Comprehensive Income (Loss), establishes rules for reporting comprehensive income and loss and its components. Accumulated other comprehensive loss consists of the FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans adjustment and is presented in the Statement of Member’s Investment. See Note 12.
NOTE 2 - INTANGIBLE ASSETS
Intangible assets derived from the purchase of the non-controlling interest in Minn-Dak Yeast include $110,152 of Goodwill, which is not being amortized; $514,000 for Customer Relations and $62,000 for a Non-Compete Agreement, which are being amortized on a straight-line basis over 5 years. The amortization of these intangible assets for the years ended August 31, 2010, 2009 and 2008 was $143,127, $143,127 and $143,127, respectively. The cumulative amortization of these intangible assets as of August 31, 2010, 2009 and 2008 is $480,582, $337,455 and $194,327 respectively.
NOTE 3 - INVESTMENTS
The investment in stock of other cooperatives and unconsolidated marketing cooperatives consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Dakota Valley Electric Cooperative |
| $ | 6,166,685 |
| $ | 5,978,829 |
| $ | 5,632,704 |
|
CoBank |
|
| 4,379,995 |
|
| 4,964,489 |
|
| 4,801,609 |
|
United Sugars Corporation |
|
| 369,509 |
|
| 216,396 |
|
| 971,797 |
|
Midwest Agri-Commodities |
|
| 10,091 |
|
| 10,717 |
|
| 10,867 |
|
Other |
|
| 189,392 |
|
| 173,171 |
|
| 106,047 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 11,115,672 |
| $ | 11,343,602 |
| $ | 11,523,024 |
|
NOTE 4 - SHORT-TERM DEBT, LONG-TERM DEBT, CAPITAL LEASE PAYABLE, AND BONDS PAYABLE
Short-Term Debt
Information regarding short-term debt for the years ended August 31, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Seasonal loan with CoBank, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
due December 31, 2010, the interest rate was 2.76% as of August 31, 2010. |
| $ | 27,557,680 |
| $ | 18,977,978 |
| $ | 24,440,000 |
|
15
The Company had a $45,000,000 seasonal line of credit with CoBank, with $17,442,320 available on August 31, 2010. On November 15, 2010, the Company obtained a seasonal line of Credit renewal for $85,000,000 through May 31, 2011; with a step down to $45,000,000 from June 1, 2011 through December 31, 2011. The lines are secured with a first lien on substantially all property and equipment and current assets of the Company. The Company utilizes the USDA’s CCC Sugar Loan Program to provide an additional source of seasonal financing. Un-advanced funds remaining from the $85,000,000 and $45,000,000 seasonal debt lines are subject to a 0.375% commitment fee.
Maximum borrowings, average borrowing levels and average interest rates for short-term debt for the years ended August 31, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
| |||
Maximum borrowings |
| $ | 50,390,927 |
| $ | 45,551,000 |
| $ | 57,767,930 |
|
|
|
|
|
|
|
|
|
|
|
|
Average borrowing levels |
| $ | 31,524,428 |
| $ | 28,410,018 |
| $ | 36,003,083 |
|
|
|
|
|
|
|
|
|
|
|
|
Average interest rates |
|
| 2.37 | % |
| 2.23 | % |
| 4.23 | % |
Long-Term Debt
Information regarding long-term debt at August 31 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
CoBank term loan, with fixed and variable rates, due in varying principal repayments through August 20, 2016 as of August 31, 2010, fixed interest rate currently at 5.60% and the variable interest rate was 1.66% as of August 31, 2010 with a first lien on substantially all property, equipment, and current assets of the Company located in Wahpeton, ND |
| $ | 19,134,260 |
| $ | 22,461,958 |
| $ | 15,789,655 |
|
|
|
|
|
|
|
|
|
|
|
|
Less current portion |
|
| (2,495,773 | ) |
| (2,495,773 | ) |
| (2,493,103 | ) |
|
|
|
|
|
|
|
|
|
|
|
Long term portion |
| $ | 16,638,487 |
| $ | 19,966,185 |
| $ | 13,296,552 |
|
In addition, the Company may make special advance payments on its term loans with CoBank after its seasonal loans have been paid in full, with the understanding that the special advance payments will be re-advanced subject to the reinstatement provisions, prior to the granting of any new seasonal loans. Any such advance payments are subject to a commitment fee of 0.375% of the daily un-advanced commitment.
Interest expense for the years ended August 31, 2010, 2009 and 2008 totaled $1,974,363, $2,017,946 and $3,230,496, respectively.
16
Minimum principal amounts due on the Company’s long-term debt are as follows:
|
|
|
|
|
Years ending August 31, |
|
|
|
|
|
|
|
|
|
2011 |
| $ | 2,495,773 |
|
2012 |
|
| 3,327,697 |
|
2013 |
|
| 3,327,697 |
|
2014 |
|
| 3,327,697 |
|
2015 |
|
| 3,327,697 |
|
Thereafter |
|
| 3,327,699 |
|
|
|
|
|
|
Total Principal amounts due |
| $ | 19,134,260 |
|
As of August 31, 2010, the Company was in compliance with all loan covenants with the Bank.
Capital Leases
The Company is the lessee of equipment under capital leases with varying expiration dates. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. For the years ended August 31, 2010, 2009 and 2008 the capitalized costs of the leased assets were $3,352,917, $2,960,658 and $821,950 respectively and accumulated amortization was $853,734, $365,403 and $468,472 respectively. This equipment is being depreciated in accordance with FASB ASC 840,Accounting for Leases. Depreciation of assets under these capital leases is included in depreciation expense.
Minimum future lease payments under capital leases are as follows:
|
|
|
|
|
|
Years ending August 31, |
|
|
|
|
|
|
|
|
|
| |
2011 |
| $ | 600,729 |
| |
2012 |
|
| 609,416 |
| |
2013 |
|
| 960,621 |
| |
2014 |
|
| 212,886 |
| |
2015 |
|
| 463,711 |
| |
|
|
|
|
| |
Total minimum lease payments |
| $ | 2,847,363 |
| |
|
|
|
|
| |
Less: Amount representing interest |
|
| 314,566 |
| |
|
|
|
|
| |
Present value of net minimum lease payment |
| $ | 2,532,797 |
| |
|
|
|
|
| |
Less: Current Portion |
|
| 481,262 |
| |
|
|
|
|
| |
Long Term Portion |
| $ | 2,051,535 |
|
17
Bonds Payable
The Company financed capital expenditures related to the processing facility through the sale of Industrial Development Revenue Bonds, Series 2002, by Richland County North Dakota. On December 7, 2009, the Company applied for and received approval from Richland County to re-finance its tax-exempt long-term bonds. All variable rate bonds outstanding as of January 15, 2010 were called and new variable rate bonds were issued with a single maturity date of February 1, 2023 with no associated gains or losses. In addition, $7.0 million in new tax-exempt bonds, which are exempt from alternative minimum taxes, were approved by Richland County to finance future capital expenditures. These variable rate bonds were issued on February 18, 2010 with a single maturity date of February 1, 2025. The letters of credit from the Bank associated with these bonds were also renewed as of the date of the issuance of the bonds. The new tax-exempt bond proceeds, initially $7.0 million, are held as a restricted investment in a bond trust until qualified expenditures related to the bonds have been expended by the Company. The Company guarantees the bonds. The Company has letter of credit arrangements expiring February 28, 2011 with a bank that provides security for obligations under the bonds payable totaling approximately $19,814,564 at August 31, 2010. There were no outstanding advances under these letter of credit arrangements as of August 31, 2010.
The Company also has the right, but not the obligation to sell an additional $8.8 million of tax-exempt bonds prior to December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
Information regarding tax exempt bonds payable at |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
Richland County North Dakota |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bonds, with variable rates, due in varying principal repayments through January 2011 Refinanced January 28, 2010. |
| $ | — |
| $ | 2,570,000 |
| $ | 3,755,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Bonds with repayments through April 2019. Refinanced January 28, 2010. |
|
| — |
|
| 10,920,000 |
|
| 11,745,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Richland County North Dakota bonds, with variable interest rates due February 1, 2023, the effective interest rate was 3.10% as of August 31, 2010. |
|
| 12,240,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richland County North Dakota bonds with variable interest rate due February 1, 2025; the effective interest rate was 2.81% as of August 31, 2010. |
|
| 7,000,000 |
|
| — |
|
| — |
|
|
| $ | 19,240,000 |
| $ | 13,490,000 |
| $ | 15,500,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Less Current Portion |
|
| — |
|
| (2,120,000 | ) |
| (2,010,000 | ) |
Long Term Portion |
| $ | 19,240,000 |
| $ | 11,370,000 |
| $ | 13,490,000 |
|
18
Minimum future principal payments required on the obligations under bonds payable are as follows:
|
|
|
|
|
|
Years ending August 31, |
|
|
|
|
|
|
|
|
|
|
|
2011 |
| $ | — |
| |
2012 |
|
| — |
| |
2013 |
|
| — |
| |
2014 |
|
| — |
| |
2015 |
|
| — |
| |
Thereafter |
|
| 19,240,000 |
| |
|
|
|
|
| |
|
| $ | 19,240,000 |
|
|
|
|
|
|
Funds Held In Trust as of August 31, 2010 |
| $ | 7,000,000 |
|
Funds Eligible for Draw-Current as of August 31, 2010 |
|
| 4,731,005 |
|
Funds Eligible for Draw-Long Term as of August 31, 2010 |
| $ | 2,268,995 |
|
NOTE 5 - MEMBERS’ INVESTMENT AND GROWER PAYMENTS
The ownership of non-dividend bearing common stock is restricted to a “member-producer,” as defined in the by-laws of the Company. Each member-producer shall own only one share of common stock and is entitled to one vote at any meeting of the members. Each member-producer is also required to purchase units of preferred stock and is entitled to grow the maximum acres per unit of preferred stock as is authorized by the Board of Directors each farming year. The Company’s Board of Directors authorized the members to plant for the fiscal years 2010, 2009 and 2008, respectively 1.60, 1.60 and 1.50 acres per unit of preferred stock.A unit consists of one share each of Class A, Class B and Class C preferred stock. The preferred shares are non-voting and non-dividend bearing. The Company’s Board of Directors must approve all transfers and sales of stock.
The Company’s net income, determined in accordance with generally accepted accounting principles consistently applied, shall be distributed annually on the basis of delivered pounds of sugar, in cash or in the form of credits to each member-producer’s patronage credit account as established on the books of the Company. In the event of a loss in any one-year, the Company shall act in such a manner as to first recoup the loss from those patrons who were patrons in the year in which the loss occurred.
Under the terms of the Company sugarbeet growing contracts with each of its member-producers, the Company is obligated to pay the member-producers for sugarbeets delivered at a price per pound of extractable and bonus sugar. However, if, in the opinion of the Company’s Board of Directors, the working capital position of the Company is insufficient, the Company shall withhold and/or retain from the price to be paid per pound of extractable sugar such amounts as are deemed by the Board of Directors to be necessary for operations, the deductions to be made at such time and in a manner as the Board of Directors shall decide. The amount so withheld and or retained shall be evidenced in the records of the Company by allocated patronage and/or per unit retains in favor of the member-producers. The Board of Directors has the power to determine whether such allocated patronage and/or per unit retains shall be “qualified” or “nonqualified” for income tax purposes.
19
The Company allocated non-qualified patronage to the members for the years ended August 31, 2010, 2009 and 2008 of $4,020,142, $3,727,840, and $5,117,244, respectively.
During the year ended August 31, 2010, the Company revolved the remaining 66% of the allocated patronage for the fiscal year ended August 31, 2004 totaling $2,876,660 and 31% of the allocated patronage for the fiscal year ended August 31, 2005, totaling $1,143,629. In addition, for the fiscal period ending August 31, 2010, 2009 and 2008 the Company revolved $-0-, $101,701, and $-0- of allocated patronage to certain deceased members’ estates.
During the year ended August 31, 2009, the Company revolved the remaining 46% of the allocated patronage for the fiscal year ended August 31, 2003 totaling $2,199,418 and 33% of the allocated patronage for the fiscal year ended August 31, 2004, totaling $1,426,511.
During the year ended August 31, 2008, the Company revolved the remaining 52% of the allocated patronage for the fiscal year ended August 31, 2002 totaling $1,868,412 and 54% of the allocated patronage for the fiscal year ended August 31, 2003, totaling $2,548,991.
NOTE 6 - INVESTMENT IN MARKETING COOPERATIVES
The Company has formed common marketing agency agreements with United Sugars Corporation (United Sugars) and Midwest Agri-Commodities (Midwest) to be the exclusive marketing agents for all products produced by the Company and other member processors.
The Company’s ownership requirement in United Sugars is calculated periodically and is based on the average volume of sugar produced during the five previous fiscal years. The investment is accounted for on the equity method and the amount of sales and related costs recognized by each member processor is allocated based on their pro-rata share of production for the year. The Company provided United Sugars with cash advances on an ongoing basis for its share of operating and marketing expenses incurred. During the years ended August 31, 2010, 2009 and 2008, the Company had advanced $26,299,502, $30,087,285 and $34,383,138, for operating and marketing expenses incurred respectively. The Company had outstanding advances due to/(from) United Sugars as of August 31, 2010, 2009 and 2008 of $(1,424,545), $(1,740,649) and $(2,064,475), respectively. The Company accounts for United Sugars’ FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans adjustment as an additional change in accumulated other comprehensive income (loss).
The Company has a one-fourth ownership interest in Midwest. The amount of the investment is accounted for using the equity method. All sugarbeet pulp and a portion of the molasses produced are sold by Midwest as an agent for the Company. The amount of sales and related costs to be recognized by each owner is allocated based on their pro-rata share of production for the year. The Company provided Midwest with cash advances on an ongoing basis for its share of operating and marketing expenses incurred by Midwest. The Company advanced Midwest during the years ended August 31, 2010, 2009 and 2008, $9,235,346, $8,440,062 and $9,026,985, respectively. The Company had outstanding advances due to Midwest as of August 31, 2010, 2009 and 2008 of $1,708,006, $634,852 and $572,020, respectively. The owners of Midwest guarantee, on a pro-rata basis, the $9,000,000 short-term line of credit that Midwest has with its primary lender. The Company accounts for Midwest’s FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans adjustment as an additional change in accumulated other comprehensive income (loss).
20
NOTE 7 - INCOME TAXES
The Company is a nonexempt cooperative as described under Section 1381(a) (2) of the Internal Revenue Code of 1986. Accordingly, net margins from business done with member patrons, which are allocated and distributed as prescribed in Section 1382 of the Code, will be taxable to the members and not to the Company. To the extent that net margins are not allocated and paid as stated above or arise from non-patronage business, the Company shall have taxable income subject to corporate income tax rates.
The significant components of deferred tax assets and liabilities included on the balance sheet at August 31 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
|
|
|
|
|
|
|
|
Non-qualified unit retains and allocated patronage due to members |
| $ | 11,319,500 |
| $ | 11,319,000 |
| $ | 11,319,000 |
|
Net operating loss carry-forwards |
|
| 7,241,900 |
|
| 6,121,600 |
|
| 5,706,455 |
|
Other |
|
| 2,443,123 |
|
| 1,113,741 |
|
| 2,427,545 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
| 21,004,523 |
|
| 18,554,341 |
|
| 19,453,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 18,503,239 |
|
| 18,528,741 |
|
| 16,325,000 |
|
Other |
|
| 2,767,083 |
|
| 354,400 |
|
| 3,426,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
| 21,270,323 |
|
| 18,883,141 |
|
| 19,751,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
| $ | (265,800 | ) | $ | (328,800 | ) | $ | (298,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
Classified as follows |
|
|
|
|
|
|
|
|
|
|
Current asset |
| $ | — |
| $ | 25,600 |
| $ | 145,000 |
|
Long-term asset (liability) |
|
| (265,800 | ) |
| (354,400 | ) |
| (443,000 | ) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset (liability) |
| $ | (265,800 | ) | $ | (328,800 | ) | $ | (298,000 | ) |
The state and federal operating loss carry forwards totaling approximately $18,100,000 will expire in 2015 through 2029.
The provision for income taxes is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Current expense (benefit) |
| $ | 406,579 |
|
| (535,945 | ) |
| 107,679 |
|
Net change in temporary differences |
|
| (62,999 | ) |
| 30,800 |
|
| 1,136,000 |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
| $ | 343,580 |
| $ | (505,145 | ) | $ | 1,243,679 |
|
21
Deferred tax assets are reduced by a valuation allowance to the extent Management concludes it is more likely than not that the assets will not be realized. For the years ended August 31, 2010, 2009, and 2008 the Company had a valuation allowance of $705,400, $335,300 and $-0- respectively.
The items accounting for the difference between expected tax (benefit) computed at the federal statutory rate of 35% and the provision of income taxes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
Expected federal income tax expense at the statutory rate |
|
| 35.0 | % |
| 35.0 | % |
| 35.0 | % |
State tax expense at statutory rate |
|
| 5.0 | % |
| 5.0 | % |
| 5.0 | % |
Payments to members |
|
| -39.4 | % |
| -40.0 | % |
| -38.3 | % |
Other, net |
|
| -0.3 | % |
| -0.5 | % |
| -0.6 | % |
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
| 0.3 | % |
| -0.5 | % |
| 1.1 | % |
The Company allocates the patronage related benefits of the Domestic Production Activities Deduction directly to its patrons. During the years ended August 31, 2010, 2009 and 2008 the Company passed through $5,944,573, $5,742,508 and $-0- respectively to its patrons.
Significant temporary timing differences between financial and income tax reporting are as follows:
|
|
|
| 1. | When non-qualified allocated patronage is elected by the Board of Directors, the Company is not allowed an income tax deduction until they are paid in cash to the member-producers, where as qualified allocated patronage is deducted when declared. |
| 2. | Depreciation - For financial reporting purposes, the Company uses straight-line and accelerated methods of depreciation with lives of 3 to 40 years, while, for income tax purposes, the Company uses required statutory depreciable lives and methods. |
| 3. | Non-qualified patronage credits from investments in other cooperatives - For financial statement purposes, the Company recognizes income when the patronage credit notification is received while, for income tax purposes, the companies recognize income when the patronage is received in cash. |
| 4. | Inventory capitalization - For income tax reporting purposes, certain overhead costs are included as a part of inventory costs in accordance with inventory capitalization rules. These costs are charged to expense as incurred for financial reporting purposes. |
| 5. | Recognition of vacation pay - For financial reporting purposes, vacation pay is charged to expense as accrued, whereas, for income tax purposes, vacation pay is deducted to the extent paid within 2 ½ months of year end. |
| 6. | On August 31, 2006, the Company had a net $915,560 in non-patronage long-term tax liability resulting from a combination of non-patronage tax issues that will reverse over the life of certain assets now considered to be member business related. The Company will amortize the $915,560 long-term liability over the approximate remaining book life of those assets generating the liability. The amortization of the long-term tax liability for the years ended August 31, 2010, 2009 and 2008 was $88,600, $88,600 and $236,280, respectively leaving a remaining balance on August 31, 2010 of $265,800 to be amortized in future years. |
| 7. | Non-qualified deferred compensation is deducted for book purposes as incurred and deducted for tax purposes as paid. |
22
Adoption of FASB ASC 740-10,Accounting for Uncertainty in Income Taxes
On September 1, 2007 The Company adopted the provisions of FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109”. FASB ASC 740-10 prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. FASB ASC 740-10 requires that the company determine whether the benefits of tax positions are more likely than not of being sustained upon audit based upon the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is more likely than not of being sustained in our financial statements. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit in its financial statements.
As of August 31, 2010, the company’s financial statements reflect the final settlement pertaining to its only income tax activity qualifying for FASB ASC 740-10 treatment. For purposes of FASB ASC Topic 740-10, the Company recognizes any interest and penalties accrued related to unrecognized tax benefits in tax expense.
The total amount of unrecognized tax benefits as of August 31, 2010 is $-0-.
The aggregate changes in the balance of the Company’s gross unrecognized tax benefits were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
Year Ended August 31, |
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Balance of unrecognized tax benefits beginning balance |
| $ | 274,075 |
| $ | 256,075 |
| $ | — |
|
Increases for tax positions related to current year |
|
| 13,500 |
|
| 18,000 |
|
| — |
|
Increases for tax positions related to prior year |
|
| — |
|
|
|
|
| 256,075 |
|
Reductions for tax positions of prior years |
|
| — |
|
| — |
|
| — |
|
Decreases related to settlements |
|
| (287,575 | ) |
| — |
|
| — |
|
Reductions due to lapsed statute of limitations |
|
| — |
|
| — |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Balance of unrecognized tax benefits at August 31 |
| $ | — |
| $ | 274,075 |
| $ | 256,075 |
|
Tax returns filed as of August 31, 2004 through current filings are open for examination.
NOTE 8 - DEPRECIATION
The Company’s depreciation expense for the years ended August 31, 2010, 2009 and 2008 was $8,808,312, $8,440,002 and $8,115,079, respectively.
23
NOTE 9 - ENVIRONMENTAL MATTERS
The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an ongoing and expanding control program designed to meet these environmental laws and regulations. While the Company will continue to have ongoing environmental compliance requirements, currently there are no pending regulatory enforcement actions and the Company believes that it is in substantial compliance with applicable environmental laws and regulations.
The Company cannot predict whether future changes in environmental laws or regulations might increase the cost of operating its facilities and conducting its business. Any such changes could have financial consequences for the Company and its members.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
During fiscal year 1997, the Company entered into a long-term lease agreement on a property, which included providing a guarantee for the notes to finance the leased property. The Company’s contingent liability related to these notes totaled $555,286 as of August 31, 2010.
During fiscal year 2000, the Company sold certain notes receivable with recourse. The Company’s contingent liability related to these notes totaled $23,585 as of August 31, 2010.
During the fiscal year 2010, the Company entered into a coal purchase agreement requiring a minimum annual purchase of coal in the amount of $1.6 million for each of the fiscal years ending August 31, 2011, 2012 and 2013 respectively.
NOTE 11 - OPERATING LEASES
The Company is a party to various operating leases for vehicles and equipment. Future minimum payments for long-term leases for the years ending August 31, under these obligations, are as follows:
|
|
|
|
|
|
Years ending August 31, |
|
|
|
| |
|
|
|
|
|
|
2011 |
|
| $ | 74,540 |
|
2012 |
|
|
| 67,258 |
|
2013 |
|
|
| 38,222 |
|
| $ | 180,020 |
|
Operating lease and contract expenses for the years ended August 31, 2010, 2009 and 2008, totaled $960,068, $1,145,998 and $1,535,475, respectively.
24
NOTE 12 - EMPLOYEE BENEFIT PLANS
401(k) Plan
The Company has a qualified 401(k) employee benefit plan that covers all employees meeting eligibility requirements. The Company’s matching contribution to the plan is at a level of 100% of employee contributions, with a maximum of 4% of compensation. Employer contributions to the plan for the years ended August 31, 2010, 2009 and 2008 totaled $660,677, $637,822 and $631,063, respectively.
Effective September 1, 2007, individual participating employees who have met the non-elective eligibility requirements of the plan received a contribution of 4% of their compensation each pay period as provided by the plan. Individuals participating in this benefit are excluded from the non-contributory defined benefit plan. Employer contributions to the plan for the years ended August 31, 2010, 2009, and 2008 totaled $79,385, $65,657 and $53,907, respectively.
Pension plan
The Company has a non-contributory defined benefit plan, which covers substantially all employees who meet certain requirements of age, hours worked per year, years of service, and age at retirement or termination. The pension funding policy is to deposit amounts allowable by law with independent trustees. Funds deposited with independent trustees maintained to provide pension benefits to plan participants and their beneficiaries. The Company’s measurement date was changed in 2009 which resulted in measurement dates of August 31, 2010 and 2009, and for the prior year the measurement date was May 31, 2008.
In August 2006, the Pension Protection Act (PPA) was signed into law. The PPA modified the funding requirements for defined benefit pension plans by subjecting defined benefit plans to 100% of the current liability-funding target. Defined benefit plans with a funding status of less than 80% of the current liability are defined as being “at risk”. These provisions do not apply to plans with less than 500 participants. As of the last plan filing, the Company’s plan had 477 participants.
In September 2006, the FASB issued FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans. This standard requires employers to recognize the underfunded or overfunded status of defined benefit pension and Post-retirement plans as an asset or liability in its statement of financial position, and recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive loss, which is a component of stockholders’ equity. As a result of the application of FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans as of August 31, 2010, 2009 and 2008 the Company increased liabilities by $6,802,344, $7,547,180 and $639,310. These liabilities were offset to accumulated other comprehensive income (loss). As a result of FASB ASC 715, in the year ended August 31, 2010, 2009 and 2008 the Company recognized an increase in accumulated other comprehensive income/(loss) of ($6,274,921), ($7,080,155) and ($2,218,282), respectively. In accordance with FASB ASC 715, the measurement date was moved from May 31, 2008 to August 31, 2009 creating a fifteen-month period vs. twelve-month period the preceding year.
25
The following table sets forth the plan’s funded status at August 31:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Change in pension benefit obligation |
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year |
| $ | 31,076,170 |
| $ | 26,101,309 |
| $ | 25,712,339 |
|
Service cost |
|
| 1,003,895 |
|
| 1,284,966 |
|
| 940,135 |
|
Interest cost |
|
| 1,843,576 |
|
| 2,175,966 |
|
| 1,558,671 |
|
Experience (gain)/loss due to participant changes |
|
| 7,260,190 |
|
| 2,774,339 |
|
| (1,351,129 | ) |
Benefits paid |
|
| (1,051,850 | ) |
| (1,260,410 | ) |
| (758,707 | ) |
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year |
|
| 40,131,981 |
|
| 31,076,170 |
|
| 26,101,309 |
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets |
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year |
|
| 18,480,578 |
|
| 20,158,363 |
|
| 20,277,824 |
|
Actual return on plan assets |
|
| 1,882,201 |
|
| (2,494,214 | ) |
| (360,683 | ) |
Employer contribution |
|
| 1,512,580 |
|
| 2,097,024 |
|
| 1,060,000 |
|
Benefits and expenses paid |
|
| (1,068,267 | ) |
| (1,280,595 | ) |
| (818,778 | ) |
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year |
|
| 20,807,092 |
|
| 18,480,578 |
|
| 20,158,363 |
|
|
|
|
|
|
|
|
|
|
|
|
Accrued pension benefit cost liability |
| $ | (19,324,889 | ) | $ | (12,595,592 | ) | $ | (5,942,946 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
| Pension Benefits |
| |||||||
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Non-current assets |
| $ | — |
| $ | — |
| $ | — |
|
Current liabilities |
|
| — |
|
| — |
|
| — |
|
Noncurrent |
|
|
|
|
|
|
|
|
|
|
liabilities |
|
| (19,324,889 | ) |
| (12,595,592 | ) |
| (5,942,946 | ) |
|
| $ | (19,324,889 | ) | $ | (12,595,592 | ) | $ | (5,942,946 | ) |
The estimated amounts that will be amortized from Accumulated Other Comprehensive Income to future fiscal years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Accumulated loss |
| $ | 17,802,784 |
| $ | 11,525,420 |
| $ | 4,436,275 |
|
Prior service cost |
|
| 104,828 |
|
| 136,860 |
|
| 169,107 |
|
|
| $ | 17,907,612 |
| $ | 11,662,280 |
| $ | 4,605,382 |
|
The accumulated benefit obligations for all defined benefit pension plans for the years ended August 31, 2010, 2009 and 2008 were $29,641,358, $22,858,793 and $19,721,092, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions as of August 31 |
|
|
|
|
|
|
|
|
|
|
Discount rate |
|
| 5.2 | % |
| 6.2 | % |
| 6.5 | % |
Expected return on plan assets |
|
| 8.0 | % |
| 8.0 | % |
| 8.0 | % |
Rate of total compensation increase |
|
| 4.5 | % |
| 4.3 | % |
| 4.3 | % |
26
The net periodic pension cost for the years ended August 31, includes the following components:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Components on net periodic pension benefit cost |
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 1,003,895 |
| $ | 1,284,966 |
| $ | 940,135 |
|
Interest cost |
|
| 1,843,576 |
|
| 2,175,966 |
|
| 1,558,671 |
|
Expected return on plan assets |
|
| (1,492,426 | ) |
| (2,036,453 | ) |
| (1,621,109 | ) |
Amortization of prior service cost |
|
| 32,032 |
|
| 32,247 |
|
| 32,782 |
|
Amortization of transition amount |
|
| — |
|
| — |
|
| — |
|
Amortization of net (gain) or loss |
|
| 609,468 |
|
| 236,046 |
|
| — |
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension benefit cost |
| $ | 1,996,545 |
| $ | 1,692,772 |
| $ | 910,479 |
|
The 2009 data includes a fifteen-month period. The net periodic cost was allocated as follows:
|
|
|
|
|
Current Period |
| $ | 1,407,876 |
|
Adjustment to Retained Earnings |
|
| 284,896 |
|
Total |
| $ | 1,692,772 |
|
The Company’s pension plan weighted-average asset allocation at August 31, by asset category is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
| 2010 |
| 2009 |
| 2008 |
| |||
Asset category |
|
|
|
|
|
|
|
|
|
|
Equity securities |
|
| 59 | % |
| 61 | % |
| 66 | % |
Debt securities |
|
| 35 | % |
| 37 | % |
| 31 | % |
Real estate |
|
| 4 | % |
| 0 | % |
| 0 | % |
Other |
|
| 2 | % |
| 2 | % |
| 3 | % |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
| 100 | % |
| 100 | % |
| 100 | % |
27
The fair values of the company’s pension plan assets at August 31, 2010, by asset category are as follows:
|
Pension Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Quoted Prices in |
| Significant |
| Significant |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ | 544,983 |
| $ | 544,983 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Common Stocks |
| $ | 2,708,722 |
| $ | 2,708,722 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Stocks |
| $ | 85,377 |
| $ | 85,377 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds-Equity |
| $ | 8,018,686 |
| $ | 8,018,686 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds-Fixed Income |
| $ | 6,978,002 |
| $ | 6,978,002 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Equity Account |
| $ | 296,753 |
| $ | 296,753 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity Account |
| $ | 2,174,569 |
| $ | 2,174,569 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 20,807,092 |
| $ | 20,807,092 |
| $ | — |
| $ | — |
|
28
The fair values of the company’s pension plan assets at August 31, 2009, by asset category are as follows:
|
Pension Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Quoted Prices in |
| Significant |
| Significant |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ | 924,841 |
| $ | 924,841 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic Common Stocks |
| $ | 2,400,669 |
| $ | 2,400,669 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign Stocks |
| $ | 131,010 |
| $ | 131,010 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds-Equity |
| $ | 6,482,750 |
| $ | 6,482,750 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mutual Funds-Fixed Income |
| $ | 6,460,184 |
| $ | 6,460,184 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Core Equity Account |
| $ | 440,639 |
| $ | 440,639 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
International Equity Account |
| $ | 1,640,485 |
| $ | 1,640,485 |
| $ | — |
| $ | — |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 18,480,578 |
| $ | 18,480,578 |
| $ | — |
| $ | — |
|
The fair values of the company’s pension plan assets at August 31, 2008, by asset category are as follows:
|
Pension Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
| Quoted Prices in |
| Significant |
| Significant |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents |
| $ | 943,634 |
| $ | 943,634 |
| $ | — |
| $ | — |
|
Domestic Common Stocks |
| $ | 2,580,263 |
| $ | 2,580,263 |
| $ | — |
| $ | — |
|
Foreign Stocks |
| $ | 151,351 |
| $ | 151,351 |
| $ | — |
| $ | — |
|
Mutual Funds-Equity |
| $ | 8,737,566 |
| $ | 8,737,566 |
| $ | — |
| $ | — |
|
Mutual Funds-Fixed Income |
| $ | 5,893,353 |
| $ | 5,893,353 |
| $ | — |
| $ | — |
|
Core Equity Account |
| $ | 568,645 |
| $ | 568,645 |
| $ | — |
| $ | — |
|
International Equity Account |
| $ | 1,283,551 |
| $ | 1,283,551 |
| $ | — |
| $ | — |
|
|
| $ | 20,158,363 |
| $ | 20,158,363 |
| $ | — |
| $ | — |
|
29
Discount Rate
The Company’s methodology for selecting the discount rate for the Company’s plan was to seek guidance from outside pension experts for determination of the appropriate discount rate through August 31, 2008 and use the Mercer Index for dates beginning September 1, 2008. The decision to use the Mercer index rate was intended to provide an outside unbiased benchmark for this key accounting assumption.
Investment Philosophy
The Company’s Board of Directors appoints individuals to serve as Trustees of the Company’s Pension Plans. The Trustees approve the Investment Policy Statement for the Company’s Pension Plans. The Pension Operating committee is responsible for administering and following the Investment Policy Statement. The independent Investment Consultant provides investment advice and assistance regarding the investments of the Trust, analyzes investment expenses, and negotiates fees of Investment Managers and Custodians. The Investment Policy Statement is designed to diversify against the risk of large losses while still achieving long-term return goals on a historical basis. The Investment Policy is reviewed at least annually by the Operating Committee who recommends changes to the Trustees. Diversification of investment risk is consistent with other pension plans of similar size and demographics as reviewed by the Company’s independent Investment Consultant. The asset allocation targets for the plan consist of five primary areas: Domestic Equity, International Equity, Real Estate, Marketable Alternatives and Fixed Income. Cash allocations are allowed only as necessary for impending benefit payments. The stated goal for each allocation target is to exceed the return of its corresponding benchmark without exposure to excessive risk.
Percentage of Pension Plan Assets by Asset Class as of August 31, 2010
|
|
|
|
|
|
Asset Class |
| Target Range |
| Actual Allocations | |
|
|
|
|
|
|
Large Cap Us Common Stocks |
| 25% - 30% |
| 30.8% |
|
|
|
|
|
|
|
Mid and Small Cap US Common Stock |
| 10% - 20% |
| 14.7% |
|
|
|
|
|
|
|
Total Domestic Equity |
| 40% - 50% |
| 45.5% |
|
|
|
|
|
|
|
International (Non US) Equity |
| 15% - 21% |
| 15.8% |
|
|
|
|
|
|
|
Total Equity |
| 58% - 68% |
| 61.3% |
|
|
|
|
|
|
|
Real Estate |
| 2.5% - 5.5% |
| 4.4% |
|
|
|
|
|
|
|
Marketable Alternatives |
| 1.5% - 4.5% |
| 3.3% |
|
|
|
|
|
|
|
Total Fixed Income |
| 25% - 40% |
| 31.0% |
|
|
|
|
|
|
|
Cash |
| 0% - 5% |
| 0.0% |
|
30
Prohibited Investments
Non-Marketable Securities
Short Sales or Purchases on Margin
There have been no changes in the valuation methodologies used at August 31, 2010, 2009 and 2008. The Plan’s investment in any category over 10% is diversified through the use of multiple investment alternatives to reduce risk.
Expected Return on Plan Assets
The expected long-term rate of return on plan assets should, over time, approximate the historical long-term returns on pension plan assets. The Company’s methodology for selecting the Expected Return on Plan Assets is to seek guidance from outside pension experts for an appropriate rate.
The expected return on total Plan assets is developed by combining the Plan’s long-term asset class allocation targets with the long-term return expectations for each of these asset classes. Expected asset class returns are developed by the Plan’s investment consultant. The final assumption is chosen by the company as their best estimate among a range of possible alternatives, and reviewed for reasonableness by the Plan actuary.
Contributions
The Company expects to contribute $1,790,000 to its pension plan in 2011.
Distributions (Expected Future)
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:
|
|
|
|
|
2011 |
| $ | 929,000 |
|
2012 |
|
| 884,000 |
|
2013 |
|
| 968,000 |
|
2014 |
|
| 899,000 |
|
2015 |
|
| 1,038,000 |
|
Thereafter, through 2020 |
|
| 8,426,000 |
|
|
| $ | 13,144,000 |
|
31
As a result of FASB ASC 715,Accounting for Defined Benefit Pension and Other Postretirement Plans, the Company has recognized a charge to accumulated other comprehensive loss as follows:
|
|
|
|
|
|
|
|
|
|
|
Fiscal Year Ended August 31: |
| 2010 |
| 2009 |
| 2008 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance |
| $ | 12,811,235 |
| $ | 4,890,516 |
|
| 2,368,458 |
|
Minn Dak Farmers Cooperative |
|
| 6,274,921 |
|
| 7,080,155 |
|
| 2,218,280 |
|
United Sugars |
|
| (315,151 | ) |
| 771,949 |
|
| 209,017 |
|
Midwest Agri |
|
| 66,152 |
|
| 68,615 |
|
| 94,761 |
|
|
|
|
|
|
|
|
|
|
|
|
Ending Balance |
| $ | 18,837,157 |
| $ | 12,811,235 |
| $ | 4,890,516 |
|
Non-qualified benefit plans
The Company has various non-qualified plans for those employees who meet certain requirements.
The Supplemental Executive Retirement Plan (SERP) is designed to provide an employee who exceeds the annual compensation limit of the Company’s defined benefit plan with a benefit as if the annual compensation limit didn’t apply. This plan is unfunded; therefore there are no assets associated with this plan. The cumulative liability for this plan for the years ended August 31, 2010, 2009, and 2008 was $304,815, $231,768 and $276,562, respectively.
The Non-Qualified Deferred Compensation plan allows an employee to defer wages to a future date. The deferment becomes part of the company assets. To receive payments under this plan, the participant must meet the requirements of the plan or separate from the Company. The cumulative assets and liabilities for this plan for the years ended August 31, 2010, 2009, and 2008 were $411,507, $365,015 and $385,745, respectively.
Non-Qualified key-life insurance - The Company has life insurance policies on a former executive sufficient to cover a $500,000 obligation to the former executive’s estate. The policies are self sufficient, and requiring no additional funding for the term of the policies.
NOTE 13 - FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Quoted market prices are generally not available for the Company’s financial instruments. Fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates involve uncertainties and matters of judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
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| o | Long-Term Debt, Inclusive of Current Maturities - Based upon discounted cash flows and current borrowing rates with similar maturities, the book value of the Bank debt of approximately $19.1 million, $22.5 million and $15.8 million compares to fair values of $19.2 million, $22.8 million and $16.1 million respectively as of August 31, 2010, 2009 and 2008. Also included in the Company’s long-term debt was $19.2 million, $13.5, million and $15.5 million in tax exempt bonds, in comparison to the fair value of $19.2 million, $13.5 million and $15.5 million respectively for the periods ending August 31, 2010, 2009 and 2008. |
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| o | Proceeds for Bond Issuance Transferred to Restricted Investment –included in the Company’s current bond trust and restricted long-term other assets was $7.0 million in comparison to the fair value of $7.0 million as of August 31, 2010. |
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| o | Investments in CoBank, and Investments in Marketing Cooperatives - The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations. |
NOTE 14 – SUBSEQUENT EVENTS
The Company has considered subsequent events through the date the financial statements were issued.
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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.
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| MINN-DAK FARMERS COOPERATIVE |
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| BY | /S/ David H. Roche |
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| DAVID H. ROCHE, PRESIDENT |
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| AND CHIEF EXECUTIVE OFFICER |
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PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED ON BEHALF OF THE REGISTRANT BY THE FOLLOWING PERSONS IN THE CAPACITIES INDICATED ON FEBRUARY 22, 2011.
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| SIGNATURE |
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/s/ David H. Roche |
| President and |
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David H. Roche |
| Chief Executive Officer |
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/s/ Steven M. Caspers |
| Executive Vice President and |
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Steven M. Caspers |
| Chief Financial Officer |
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/s/ Allen E. Larson |
| Controller and |
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Allen E. Larson |
| Chief Accounting Officer |
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/s/ Dale Blume |
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Dale Blume |
| Director |
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/s/ Dennis Butenhoff |
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Dennis Butenhoff |
| Director |
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/s/ Brent Davison |
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Brent Davison |
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/s/ Doug Etten |
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Doug Etten |
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/s/ Patrick Freese |
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Patrick Freese |
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/s/ Dennis Klosterman |
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Dennis Klosterman |
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/s/ Russell Mauch |
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Russell Mauch |
| Director |
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/s/ C Kevin Kutzer |
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C Kevin Kutzer |
| Director |
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/s/ Charles Steiner |
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Charles Steiner |
| Director |
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