================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
-----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 333-17865
-----------------
CENEX HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0251095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 CENEX DRIVE, (651) 451-5151
INVER GROVE HEIGHTS, MN 55077 (Registrant's
(Address of principal executive offices and zip code) telephone number
including area code)
-----------------
Include 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.
YES _X_ NO ___
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
NONE NONE
---- ----
(Class) (Number of shares outstanding
at February 29, 2000)
================================================================================
INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
Item 1. Financial Statements
Consolidated Balance Sheets as of February 29, 2000 (unaudited), August 31, 1999 and
February 28, 1999 (unaudited) .......................................................... 2
Consolidated Statements of Operations for the three months and six months ended
February 29, 2000 and February 28, 1999 (unaudited) .................................... 3
Consolidated Statements of Cash Flows for the three months and six months ended
February 29, 2000 and February 28, 1999 (unaudited) .................................... 4
Notes to Consolidated Financial Statements (unaudited) ................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ..................... 13
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
Item 1. Financial Statements
Balance Sheets as of February 29, 2000 (unaudited), August 31, 1999 and
February 28, 1999 (unaudited) .......................................................... 14
Statements of Operations for the three months and six months ended
February 29, 2000 and February 28, 1999 (unaudited) .................................... 15
Statements of Cash Flows for the three months and six months ended February 29, 2000
and February 28, 1999 (unaudited) ...................................................... 16
Notes to Financial Statements (unaudited) .............................................. 17
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................................... 18
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
Item 1. Financial Statements
Balance Sheets as of February 29, 2000 (unaudited), August 31, 1999 and
February 28, 1999 (unaudited) .......................................................... 21
Statements of Operations for the three months and six months ended
February 29, 2000 and February 28, 1999 (unaudited) .................................... 22
Statements of Cash Flows for the three months and six months ended February 29, 2000
and February 28, 1999 (unaudited) ...................................................... 23
Notes to Financial Statements (unaudited) .............................................. 24
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................................... 25
PART II. OTHER INFORMATION
Items 1 through 3 have been omitted since all items are inapplicable or answers
are negative.
Item 4. Submission of Matters to a Vote of Security Holders ............................ 28
Item 5 has been omitted since the answer is negative.
Item 6. Exhibits and Reports on Form 8-K ............................................... 28
SIGNATURE PAGE .......................................................................... 29
i
PART I. FINANCIAL INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to the following:
SUPPLY AND DEMAND FORCES. The Company may be adversely affected by supply
and demand relationships, both domestic and international. Supply may be
affected by weather conditions, disease, insect damage, acreage planted,
government regulation and policies and commodity price levels. Demand may be
affected by foreign governments and their programs, relationships of foreign
countries with the United States, the affluence of foreign countries, acts of
war, currency exchange fluctuations, and substitution of commodities. The
current monetary crises in Asia has impacted, and is expected to continue to
impact exports of U.S. agricultural products. Reduced demand for U.S.
agricultural products may also adversely affect the demand for fertilizer,
chemicals and petroleum products sold by the Company and used to produce crops.
Demand may also be affected by changes in eating habits, population growth and
increased or decreased per capita consumption of some products.
PRICE RISKS. Upon purchase, the Company has risks of carrying grain and
petroleum, including price changes and performance risks (including delivery,
quality, quantity and shipment period), depending upon the type of purchase
contract. The Company is exposed to risk of loss in the market value of
positions held, consisting of grain and petroleum inventory and purchase
contracts at a fixed or partially fixed price, in the event market prices
decrease. The Company is also exposed to risk of loss on its fixed price or
partially fixed price sales contracts in the event market prices increase. To
reduce the price change risks associated with holding fixed priced positions,
the Company generally takes opposite and offsetting positions by entering into
commodity futures contracts (either a straight futures contract or an option
futures contract) on regulated commodity futures exchanges.
OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. This industry is
highly competitive. Competitors are adding new plants and expanding capacity of
existing plants. Unless exports increase or existing refineries are closed, this
extra capacity is likely to put additional pressure on prices and erode margins,
adversely affecting the profitability of the Oilseed Processing and Refining
Defined Business Unit.
MILLING BUSINESS COMPETITIVE TRENDS. Certain major competitors of the Wheat
Milling Defined Business Unit have developed long-term relationships with
customers by locating plants adjacent to pasta manufacturing plants. This trend
could potentially decrease the future demand for semolina from nonintegrated
millers. In addition, baking and bread flour demand has declined during a period
when the milling industry has been expanding, which will continue to put
pressure on gross margins.
YEAR 2000. To date, the Company has not experienced any significant year
2000-related failures. The Company's management believes that the Company has
taken the steps reasonably necessary to resolve the year 2000 issue with respect
to matters within its control. While the Company has taken steps to determine
the extent of remediation efforts under taken by key customers and suppliers,
there is no guarantee that the systems of other companies on which this Company
relies have been remediated in order to avoid having a material adverse effect
on the Company's operations or its financial results. To date, the Company has
not experienced any significant problems related to key customer or supplier
year-2000 related failures.
The forward-looking statements herein are qualified in their entirety by
the cautions and risk factors set forth in Exhibit 99, under the caption
Cautionary Statement to this Quarterly Report on Form 10-Q for the quarter ended
February 29, 2000.
1
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ---------- ------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 55,234 $ 75,667 $ 43,654
Receivables ................................................ 707,434 606,641 539,180
Inventories ................................................ 670,549 549,703 506,319
Other current assets ....................................... 181,550 39,414 124,185
---------- ---------- ----------
Total current assets ...................................... 1,614,767 1,271,425 1,213,338
INVESTMENTS ................................................. 407,924 427,896 357,955
PROPERTY, PLANT AND EQUIPMENT ............................... 989,101 968,333 949,599
OTHER ....................................................... 125,132 120,010 119,186
---------- ---------- ----------
Total assets .............................................. $3,136,924 $2,787,664 $2,640,078
========== ========== ==========
LIABILITIES AND EQUITIES
CURRENT LIABILITIES:
Notes payable .............................................. $ 225,475 $ 196,986 $ 247,000
Current portion of long-term debt .......................... 20,802 21,562 17,650
Patrons' credit balances ................................... 55,210 44,970 53,071
Patrons' advance payments .................................. 243,913 127,755 161,508
Checks and drafts outstanding .............................. 37,350 48,605 56,197
Accounts payable ........................................... 648,618 449,774 335,458
Accrued expenses ........................................... 129,650 119,728 89,873
Patronage dividends and equity retirements payable ......... 15,056 43,000 16,303
---------- ---------- ----------
Total current liabilities ................................. 1,376,074 1,052,380 977,060
LONG-TERM DEBT .............................................. 451,500 461,104 442,616
OTHER LIABILITIES ........................................... 78,366 88,173 80,166
MINORITY INTERESTS IN SUBSIDIARIES .......................... 108,938 68,371 57,925
COMMITMENTS AND CONTINGENCIES
EQUITIES .................................................... 1,122,046 1,117,636 1,082,311
---------- ---------- ----------
Total liabilities and equities ............................ $3,136,924 $2,787,664 $2,640,078
========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements (unaudited).
2
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
----------------------------- ----------------------------
2000 1999 2000 1999
(DOLLARS IN THOUSANDS) ------------- ------------- ------------- ------------
REVENUES:
Net sales:
Grain and oilseed ............................ $ 920,623 $ 974,093 $1,923,505 $2,031,964
Energy ....................................... 652,762 254,766 1,312,032 584,634
Processed grain and oilseed .................. 130,335 134,255 266,487 271,810
Agronomy ..................................... 126,957 119,685 229,020 227,287
Feed and farm supplies ....................... 89,439 84,699 207,830 207,534
---------- ---------- ---------- ----------
1,920,116 1,567,498 3,938,874 3,323,229
Patronage dividends ........................... 1,266 3,433 1,524 3,902
Other revenues ................................ 18,864 21,160 44,844 48,371
---------- ---------- ---------- ----------
1,940,246 1,592,091 3,985,242 3,375,502
---------- ---------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold ............................ 1,901,993 1,536,680 3,886,806 3,264,356
Marketing, general and administrative ......... 42,099 36,679 81,391 73,950
Interest ...................................... 14,001 10,422 26,957 19,972
Minority interests ............................ (9,703) 645 (9,166) (756)
---------- ---------- ---------- ----------
1,948,390 1,584,426 3,985,988 3,357,522
---------- ---------- ---------- ----------
(LOSS) INCOME BEFORE INCOME
TAXES ......................................... (8,144) 7,665 (746) 17,980
INCOME TAXES ................................... (4,016) (965) (5,737) 1,035
---------- ---------- ---------- ----------
NET (LOSS) INCOME .............................. $ (4,128) $ 8,630 $ 4,991 $ 16,945
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements (unaudited).
3
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
--------------------------- ----------------------------
2000 1999 2000 1999
(DOLLARS IN THOUSANDS) ------------ ------------ ------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income .................................... $ (4,128) $ 8,630 $ 4,991 $ 16,945
---------- ---------- ---------- ----------
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization ...................... 21,795 20,171 43,973 40,146
Non-cash net loss (income) from joint ventures ..... 7,787 3,402 8,610 (1,267)
Adjustment of inventories to market value .......... -- (5,913) -- 4,829
Noncash portion of patronage dividends received (1,004) (3,291) (1,074) (3,466)
Gain on sale of property, plant and equipment ...... (756) (524) (832) (1,321)
Other, net ......................................... 378 (990) 378 (990)
Changes in operating assets and liabilities:
Receivables ....................................... 17,429 88,110 (97,863) (71,089)
Inventories ....................................... 3,099 13,986 (66,446) (31,414)
Other current assets and other assets ............. (148,822) (101,600) (149,890) (108,837)
Patrons' credit balances .......................... 7,571 (9,882) 10,240 11,747
Patrons' advance payments ......................... (6,639) (25,000) 116,158 13,487
Accounts payable and accrued expenses ............. 171,716 (146,984) 208,766 (77,203)
Other liabilities ................................. (1,331) 1,834 (9,807) 4,366
---------- ---------- ---------- ----------
Total adjustments ............................... 71,223 (166,681) 62,213 (221,012)
---------- ---------- ---------- ----------
Net cash provided by (used in) operating
activities ..................................... 67,095 (158,051) 67,204 (204,067)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ......... (28,690) (37,128) (60,544) (70,943)
Proceeds from disposition of property, plant and
equipment ........................................... 939 1,640 1,395 4,852
Investments .......................................... (12,331) (8,995) (15,495) (11,212)
Investments redeemed ................................. 1,437 962 13,026 5,424
Changes in notes receivable .......................... (1,634) 1,294 (1,581) 2,651
Other investing activities, net ...................... 51 156 29 (65)
---------- ---------- ---------- ----------
Net cash used in investing activities ........... (40,228) (42,071) (63,170) (69,293)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable ............................. (3,879) 217,000 28,489 246,525
Long-term debt borrowings ............................ -- 10,565 -- 10,565
Principal payments on long-term debt ................. (4,795) (2,629) (10,639) (7,257)
Changes in checks and drafts outstanding ............. 450 (9,643) (11,255) 1,455
Retirements of equity ................................ (1,581) (1,328) (13,092) (10,599)
Cash patronage dividends paid ........................ (17,970) (28,591) (17,970) (43,683)
---------- ---------- ---------- ----------
Net cash (used in) provided by financing
activities ..................................... (27,775) 185,374 (24,467) 197,006
---------- ---------- ---------- ----------
NET DECREASE IN CASH AND CASH
EQUIVALENTS .......................................... (908) (14,748) (20,433) (76,354)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD .................................. 56,142 58,402 75,667 120,008
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD ............................................ $ 55,234 $ 43,654 $ 55,234 $ 43,654
========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial
statements (unaudited).
4
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited consolidated statements of operations and cash flows for the
three months and six months ended February 29, 2000 and February 28, 1999,
reflect, in the opinion of management of Cenex Harvest States Cooperatives (the
Company), all normal, recurring adjustments necessary for a fair statement of
the results of operations and cash flows for the interim periods. The results of
operations and cash flows for any interim period are not necessarily indicative
of results for the full year. The consolidated balance sheet data as of August
31, 1999 was derived from audited consolidated financial statements but does not
include all disclosures required by generally accepted accounting principles.
The unaudited consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Reclassifications have been made to the prior year's financial statements
to conform to the current year presentation. These reclassifications had no
effect on previously reported net income or equity.
These statements should be read in conjunction with the consolidated
financial statements and footnotes for the year ended August 31, 1999, included
in the Company's Report on Form 10-K previously filed with Securities and
Exchange Commission on November 22, 1999.
NOTE 2. RECEIVABLES
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ------------ ------------
Trade ........................................ $715,390 $595,403 $553,917
Other ........................................ 15,657 34,493 8,662
-------- -------- --------
731,047 629,896 562,579
Less allowance for doubtful accounts ......... 23,613 23,255 23,399
-------- -------- --------
$707,434 $606,641 $539,180
======== ======== ========
NOTE 3. INVENTORIES
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ------------ ------------
Energy ....................................... $299,316 $209,661 $179,283
Grain and oilseed ............................ 202,497 202,166 133,154
Agronomy ..................................... 86,153 69,050 86,407
Processed grain and oilseed .................. 14,612 14,342 19,093
Feed and farm supplies ....................... 64,930 50,908 85,448
Other ........................................ 3,041 3,576 2,934
-------- -------- --------
$670,549 $549,703 $506,319
======== ======== ========
NOTE 4. COMPREHENSIVE INCOME
During the three months ended February 29, 2000 and February 28, 1999,
total comprehensive (loss) income amounted to $(5.3) million and $8.5 million,
respectively. Total comprehensive income was $3.9 million and $18.3 million for
the six months ended February 29, 2000 and February 28, 1999, respectively.
Accumulated other comprehensive (loss) income on February 29, 2000, August 31,
1999 and February 28, 1999 was $(2.3) million, $(1.2) million and $1.2 million,
respectively.
5
NOTE 5. SEGMENT REPORTING
The Company's businesses are organized, managed and internally reported as
four segments. These segments, which are based on products and services, include
agronomy, energy, grain marketing and farm marketing & supply, and processed
grain and consumer products. Due to cost allocations and intersegment activity,
management does not represent that these segments if operated independently,
would report the income before income taxes and other financial information
presented.
Segment information for the three months and six months ended February 29,
2000 and February 28, 1999 is as follows:
GRAIN MARKETING PROCESSED GRAIN
AND FARM AND CONSUMER
AGRONOMY ENERGY MARKETING & SUPPLY PRODUCTS OTHER TOTAL
---------- ---------- ------------------ --------------- ---------- ----------
For the three months ended
February 29, 2000:
Net sales ..................... $126,957 $ 652,762 $1,010,062 $130,335 $1,920,116
Patronage dividends ........... 73 1,112 $ 81 1,266
Other (losses) revenues ....... (9,999) (417) 21,540 1,970 5,770 18,864
-------- ---------- ---------- -------- -------- ----------
116,958 652,418 1,032,714 132,305 5,851 1,940,246
Cost of goods sold ............ 114,620 659,911 1,006,097 121,365 1,901,993
Marketing, general and
administrative ............... 5,639 11,993 14,953 5,417 4,097 42,099
Interest ...................... (1,585) 6,835 4,989 1,909 1,853 14,001
Minority interests ............ (9,732) 29 (9,703)
-------- ---------- ---------- -------- -------- ----------
(Loss) income before
income taxes ................. $ (1,716) $ (16,589) $ 6,675 $ 3,614 $ (128) $ (8,144)
======== ========== ========== ======== ======== ==========
Total identifiable assets $502,030 $1,263,845 $ 789,896 $304,589 $276,564 $3,136,924
======== ========== ========== ======== ======== ==========
For the three months ended
February 28, 1999:
Net sales ..................... $119,685 $ 254,766 $1,058,792 $134,255 $1,567,498
Patronage dividends ........... 1 6 3,349 65 $ 12 3,433
Other revenues (losses) ....... 86 21,512 (3,942) 3,504 21,160
-------- ---------- ---------- -------- -------- ----------
119,686 254,858 1,083,653 130,378 3,516 1,592,091
Cost of goods sold ............ 103,358 242,816 1,060,786 129,720 1,536,680
Marketing, general and
administrative ............... 3,580 12,299 13,216 4,020 3,564 36,679
Interest ...................... 571 3,404 5,018 1,600 (171) 10,422
Minority interests ............ 549 68 28 645
-------- ---------- ---------- -------- -------- ----------
Income (loss) before
income taxes ................. $ 12,177 $ (4,210) $ 4,565 $ (4,962) $ 95 $ 7,665
======== ========== ========== ======== ======== ==========
Total identifiable assets $423,989 $ 950,867 $ 698,679 $325,507 $241,036 $2,640,078
======== ========== ========== ======== ======== ==========
Assets included in "Other" primarily consisted of intercompany transactions
and corporate facilities.
6
GRAIN MARKETING PROCESSED GRAIN
AND FARM AND CONSUMER
AGRONOMY ENERGY MARKETING & SUPPLY PRODUCTS OTHER TOTAL
---------- ---------- ------------------ --------------- ---------- ----------
For the six months ended
February 29, 2000:
Net sales ..................... $ 229,020 $1,312,032 $2,131,335 $266,487 $3,938,874
Patronage dividends ........... 111 87 1,186 $ 140 1,524
Other (losses) revenues ....... (17,808) 1,525 43,046 7,216 10,865 44,844
--------- ---------- ---------- -------- -------- ----------
211,323 1,313,644 2,175,567 273,703 11,005 3,985,242
Cost of goods sold ............ 210,189 1,303,915 2,125,440 247,262 3,886,806
Marketing, general and
administrative ............... 10,052 23,914 28,529 10,053 8,843 81,391
Interest ...................... (253) 12,582 9,278 3,445 1,905 26,957
Minority interests ............ (9,217) 51 (9,166)
--------- ---------- ---------- -------- -------- ----------
(Loss) income before
income taxes ................. $ (8,665) $ (17,550) $ 12,320 $ 12,943 $ 206 $ (746)
========= ========== ========== ======== ======== ==========
Total identifiable assets $ 502,030 $1,263,845 $ 789,896 $304,589 $276,564 $3,136,924
========= ========== ========== ======== ======== ==========
For the six months ended
February 28, 1999:
Net sales ..................... $ 227,287 $ 584,634 $2,239,498 $271,810 $3,323,229
Patronage dividends ........... 317 28 3,418 65 $ 74 3,902
Other revenues (losses) ....... 673 40,707 (1,037) 8,028 48,371
--------- ---------- ---------- -------- -------- ----------
227,604 585,335 2,283,623 270,838 8,102 3,375,502
Cost of goods sold ............ 207,771 560,885 2,236,977 258,723 3,264,356
Marketing, general and
administrative ............... 8,372 26,100 23,984 7,821 7,673 73,950
Interest ...................... 869 7,073 9,263 2,939 (172) 19,972
Minority interests ............ (880) 68 56 (756)
--------- ---------- ---------- -------- -------- ----------
Income (loss) before
income taxes ................. $ 10,592 $ (7,843) $ 13,331 $ 1,355 $ 545 $ 17,980
========= ========== ========== ======== ======== ==========
Total identifiable assets $ 423,989 $ 950,867 $ 698,679 $325,507 $241,036 $2,640,078
========= ========== ========== ======== ======== ==========
Assets included in "Other" primarily consisted of intercompany transactions
and corporate facilities.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Effective January 1, 2000, the Company, Farmland Industries, Inc.
(Farmland) and Land O' Lakes, Inc. (LOL) formed Agriliance, LLC (Agriliance), a
wholesale agronomy joint venture. For the initial investment in Agriliance, the
Company contributed its interests in the Cenex/Land O' Lakes Agronomy Company,
Agro Distribution, LLC and Agronomy Company of Canada, Ltd. Also effective
January 1, 2000, the Company and Farmland formed United Country Brands, LLC for
the purpose of holding the respective companies' ownership interests in
Agriliance. Effective March 1, 2000, the Company sold 1.455% of its economic
interest in Agriliance to LOL for approximately $7.4 million. After this sale of
ownership interest, the Company holds a 50% interest in United Country Brands,
LLC, which holds a 50% interest in Agriliance.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Company had a consolidated net loss for the three months ended February
29, 2000 of $4.1 million compared to net income of $8.6 million for the same
three-month period in 1999, which represents a $12.7 million decrease. This
decline in profitability is primarily attributable to a reduction in energy
results due to a significant increase in the price of petroleum crude oil and
reduced refinery margins. This loss was partially offset by an increase in the
Company's income from its grain operations, consumer products packaging joint
venture and a tax benefit change of $3.1 million.
Consolidated net sales of $1.9 billion for the three months ended February
29, 2000 increased approximately $353 million (22%) compared to the same three
months ended in 1999.
Grain and oilseed sales of $921 million decreased $53 million (5%) during
the three months ended February 29, 2000 compared to the same three months ended
in 1999. The primary cause for the reduced sales was a decline of 29 cents per
bushel in the average sales price of all grain and oilseed marketed by the
Company. The decrease was partially offset by a combined grain volume increase
of 22 million bushels compared to the same period in 1999.
Energy sales of $653 million increased $398 million (156%) during the three
months ended February 29, 2000 compared to the same period in 1999. This
increase is primarily attributable to the formation of a refinery joint venture
whereby the Company, through its 75% ownership in National Cooperative Refining
Association (NCRA), which in turn owns approximately 57% of the refining joint
venture (Cooperative Refining, LLC), consolidates the sales made to the minority
owner. In addition, there was an increase in the average sales price of refined
fuels of 37 cents per gallon.
Processed grain and oilseed sales of $130 million decreased $3.9 million
(3%) during the three months ended February 29, 2000 compared to the same three
months ended in 1999. Sales of processed soybean products decreased by $12.1
million (13%), which was offset by an increase in wheat milling sales of $8.2
million (19%).
Agronomy sales of $127 million increased $7.3 million (6%) during the three
months ended February 29, 2000 compared to the same three-month period in 1999.
Crop protection sales increased $12.4 million in 2000 compared to 1999, which
was offset by a decrease of $10.83 per ton in the average selling price of plant
food.
Feed and farm supplies sales of $89 million increased by $4.7 million (6%)
during the three months ended February 29, 2000 compared to the same three
months of a year ago and is primarily due to price increases in most product
lines.
Other revenues of $18.9 million decreased $2.3 million (11%) during the
three months ended February 29, 2000 compared to the same three months ended in
1999. The most significant change within other revenues was a net decrease in
the Company's share of earnings from joint ventures. Consumer products packaging
joint venture income increased by $5.9 million and agronomy joint venture loss
increased by $10.0 million. This net decrease was offset by an increase in other
revenues.
8
Cost of goods sold of approximately $1.9 billion increased $365 million
(24%) during the three months ended February 29, 2000, compared to the same
three months ended in 1999. The increase is primarily attributable to the
formation of Cooperative Refining, LLC, which was referenced to in the sales
section of this analysis and to a significant increase in the purchase price of
petroleum crude oil. During the three months ended February 29, 2000, the
average cost of refined fuels and propane increased by 36 cents and 10 cents per
gallon, respectively. Also, during the three months ended February 29, 2000,
agronomy cost of goods increased by $11.3 million compared to the same three
months ended in 1999. These increases were partially offset by decreases in the
Company grain operations. The cost of all grains and oilseed procured by the
Company's through its grain marketing and country elevator operations decreased
29 cents per bushel. Within the Company's food processing operations, the
average cost of wheat declined 31 cents per bushel for wheat and the average
cost of soybeans declined 15 cents per bushel. Both of these decreases are
compared to purchases made during the same three-month period ended in the
previous year.
Marketing, general and administrative expenses of $42.1 million for the
three months ended February 29, 2000 increased $5.4 million (15%) compared to
the same three months ended in 1999. This increase is primarily related to
additional locations and expansion of many of the Company's business segments.
Interest expense of $14.0 million for the three months ended February 29,
2000 increased by $3.6 million (34%) compared to the same three months ended in
1999. The average seasonal borrowings during 2000 increased as a result of
higher working capital needs, and long-term borrowings which reflected financial
activities related to the acquisition of property, plant and equipment,
generated most of this additional expense.
Minority interests in operations for the three-month period ended February
29, 2000 changed by $10.3 million compared to the same three months ended in
1999. Substantially all minority interests is related to NCRA, which operates a
petroleum refinery near McPherson, Kansas. This net change in minority interests
during the current year is reflective of less profitable operations within the
Company's majority owned subsidiaries.
Income tax benefits of $4.0 million and $1.0 million for the three months
ended February 29, 2000 and 1999, respectively, are the result of a net
non-patronage loss of approximately $10.0 million and $2.4 million,
respectively. Income tax expense or benefit and the resulting effective tax rate
varies from period to period based upon the profitability and non-patronage
business activity during each of the comparable periods.
COMPARISON OF SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Company's consolidated net income for the six months ended February 29,
2000 and February 28, 1999 was $5.0 million and $16.9 million, respectively,
which represents an $11.9 million decrease over last year. This decrease in
profitability is primarily attributable to the agronomy and energy segments of
the company. In the agronomy segment, a larger asset base has aggravated the
impact of the normal seasonality of the business. In energy a significant
increase in the price of crude oil for the refineries negatively impacted gross
margin for refined fuels. These decreases are partially offset by increases in
the Company's consumer products packaging joint venture, processed grain and
oilseed operations and a tax benefit generated primarily from agronomy joint
ventures losses.
Consolidated net sales of $3.9 billion for the six months ended February
29, 2000, increased approximately $616 million (19%) compared to the same six
months ended in 1999.
Grain and oilseed sales of $1.9 billion decreased $108 million (5%) during
the six months ended February 29, 2000 compared to the same six months ended in
1999. Although grain volumes increased approximately 37 million bushels, the
primary cause for the decreased sales is a decline of 36 cents per bushel in the
average sales price of all grain and oilseed marketed by the Company.
Energy sales of $1.3 billion increased $727 million (124%) during the six
months ended February 29, 2000 compared to the same six months of a year ago.
This increase is primarily attributable to the formation of a refinery joint
venture whereby the Company, through its 75% ownership in NCRA, which in turn
owns approximately 57% of the refining joint venture (Cooperative Refining,
LLC),
9
consolidates the sales made to the minority owner. In addition, there was an
increase in the average sales price of refined fuels and propane of 28 cents and
12 cents per gallon, respectively. These increases were offset by a 14% decrease
in propane gallons due to unusually warm weather during the current six-month
period as compared to the same period of a year ago.
Processed grain and oilseed sales of $266 million decreased $5.3 million
(2%) during the six months ended February 29, 2000 compared to the same six
months ended in 1999. This decrease was primarily attributable to a 9 cent per
pound reduction in the average sales price of refined oils. The decrease was
partially offset with an increase in volumes of milled wheat products primarily
at the Mount Pocono and Huron mills.
Agronomy sales of $229 million were essentially unchanged during the six
months ended February 29, 2000 compared to the same six months of a year ago.
Feed and farm supplies sales of $208 million were essentially unchanged
during the six months ended February 29, 2000 compared to the same six months of
a year ago.
Other revenues of $44.8 million decreased $3.5 million (7%) during the six
months ended February 29, 2000 compared to the same six months ended in 1999.
The most significant change within other revenues was a decrease in the
Company's share of earnings from joint ventures. Joint venture losses were $17.8
million from the recently formed agronomy joint ventures during the six months
ended February 29, 2000. These losses were partially offset by $8.1 million and
$2.9 million, respectively, of income from the Company's consumer products
packaging and grain marketing joint ventures. The net decrease was offset by an
increase in other revenues.
Cost of goods sold of approximately $3.9 billion increased $622 million
(19%) during the six months ended February 29, 2000 compared to the same six
months ended in 1999. The increase is primarily attributable to the formation of
Cooperative Refining, LLC, which was referenced to in the sales section of this
analysis and to a significant increase in the purchase price of petroleum crude
oil. During the six months ended February 29, 2000, the average cost of refined
fuels and propane increased by 28 cents and 12 cents per gallon, respectively.
These increases were partially offset by decreases in the Company's grain
operations. The cost of all grain and oilseed procured by the Company through
its grain marketing and country elevator operations decreased 35 cents per
bushel. Within the Company's food processing operations, the average cost of
wheat declined 29 cents per bushel for wheat and the average cost of soybeans
declined 51 cents per bushel. Both of these decreases are compared to purchases
made during the same six-month period ended in the previous year.
Marketing, general and administrative expenses of $81.4 million for the six
months ended February 29, 2000 increased by $7.4 million (10%) compared to the
same six months ended in 1999. This increase is primarily related to additional
locations and expansion of many of the Company's business segments.
Interest expense of $27.0 million for the six months ended February 29,
2000 increased by $7.0 million (35%) compared to the same six months ended in
1999. The average seasonal borrowings during 2000 increased as a result of
higher working capital needs, and long-term borrowings which reflected financial
activities related to the acquisition of property, plant and equipment,
generated most of this additional expense.
Minority interests in operations of $9.2 million for the six months ended
February 29, 2000 changed by $8.4 million compared to the same six months ended
in 1999. Substantially all minority interests is related to NCRA. This net
change in minority interests during the current year is reflective of less
profitable operations within the Company's majority owned subsidiaries.
An income tax benefit of $5.7 million for the six months ended February 29,
2000 is primarily the result of a net non-patronage loss of approximately $14.3
million. Income tax expense of $1.0 million for the six months ended February
28, 1999 produced an effective tax rate of 5.8%. Income tax expense or benefit
and the resulting effective tax rate varies from period to period based upon the
profitability and non-patronage business activity during each of the comparable
periods.
10
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company provided net cash of $67.1 million and
used net cash of $158.1 million for the three months ended February 29, 2000 and
February 28, 1999, respectively. For the period ended in 2000, the net loss of
$4.1 million was offset by net non-cash income and expenses of approximately
$28.2 million and reduced working capital requirements of approximately $43.0
million. For the three-month period ended February 28, 1999, net income of $8.6
million and net non-cash income and expenses of approximately $12.8 million were
offset by increased working capital requirements of approximately $179.5
million.
Operating activities of the Company provided net cash of $67.2 million and
used net cash of $204.1 million for the six months ended February 29, 2000 and
February 28, 1999, respectively. For the six-month period ended February 29,
2000, net income of approximately $5.0 million, net non-cash income and expenses
of approximately $51.1 million and reduced working capital requirements of
approximately $11.1 million provided this net cash from operating activities.
For the six month period ended February 28, 1999, net income of $16.9 million
and net non-cash income and expenses of approximately $37.9 million were offset
by increased working capital requirements of approximately $258.9 million.
CASH FLOWS FROM INVESTING
Investing activities of the Company used net cash of $40.2 million during
the three-month period ended February 29, 2000. Expenditures for the acquisition
of property, plant and equipment of $28.7 million, the net change in investments
of $12.3 million and the net change in notes receivable were partially offset by
investments redeemed of $1.4 million and proceeds from the disposition of
property plant and equipment. For the fiscal year ending August 31, 2000, the
Company projects that total expenditures for the acquisition of property, plant
and equipment will be approximately $139.6 million.
Investing activities of the Company used net cash of $42.1 million during
the three months ended February 28, 1999. Expenditures for the acquisition of
property, plant and equipment of $37.1 million and the net change in investments
of $9.0 million were partially offset by proceeds from the disposition of
property plant and equipment of $1.6 million, the net change in notes receivable
and investments redeemed.
Investing activities of the Company used net cash of $63.2 million during
the six months ended February 29, 2000. Expenditures for the acquisition of
property, plant and equipment of $60.5 million, the net change in investments of
$15.5 million and the net change in notes receivable were partially offset by
investments redeemed of $13.0 million and proceeds from the disposition of
property, plant and equipment.
Investing activities of the Company used net cash of $69.3 million during
the six-month period ended February 28, 1999. Expenditures for the acquisition
of property, plant and equipment of $70.9 million and the net change in
investments of $11.2 million were partially offset by investments redeemed of
$5.4 million, proceeds from the disposition of property, plant and equipment of
$4.9 million and the net change in notes receivable.
CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In June 1998, the Company established a
364-day credit facility of $400 million, which was renewed in May 1999, and a
five-year revolving facility of $200 million, all of which is committed. In
addition to these lines of credit, the Company has a 364-day credit facility
dedicated to NCRA, with a syndication of banks in the amount of $50.0 million,
all of which is committed. On February 29, 2000 and February 28, 1999, the
Company had total short-term indebtedness on these various facilities and other
short-term notes payable totaling $225.5 million and $247.0 million,
respectively. On August 31, 1999 the Company had $197.0 million outstanding on
its short-term lines of credit and other notes payable.
11
The Company has financed its long-term capital needs in the past, primarily
for the acquisition of property, plant and equipment, with long-term loan
agreements through the banks for cooperatives. In June 1998, the Company
established a long-term credit agreement through the banks for cooperatives.
This facility committed $200.0 million of long-term borrowing capacity to the
Company, with repayments through the fiscal year 2009. The commitment expired on
May 31, 1999. The amount outstanding on this credit agreement was $160.7
million, $164.0 million and $134.0 million on February 29, 2000, August 31, 1999
and February 28, 1999, respectively, with zero remaining available on both
February 29, 2000 and August 31, 1999. Repayments of approximately $1.6 million
and $3.3 million were made on this facility during the three months and six
months ended February 29, 2000, respectively.
Also in June 1998, the Company entered into a private placement with
several insurance companies for long-term debt in the amount of $225 million.
Repayments will be made in equal installments of $37.5 million each in the years
2008 through 2013.
On February 29, 2000 the Company had total long-term debt outstanding of
$472.3 million, of which approximately $221.3 million was bank financing, $225.0
million was private placement proceeds and $26.0 million was industrial revenue
bonds, capitalized leases and miscellaneous notes payable. Long-term debt of
NCRA represented $55.1 million of the total long-term debt outstanding on
February 29, 2000. On August 31, 1999 and February 28, 1999, the Company had
long-term debt outstanding of $482.7 million and $460.3 million, respectively.
During the six-months ended February 29, 2000 and February 28, 1999, the
Company repaid long-term debt of $10.6 million and $7.3 million, respectively,
and had additional long-term debt borrowings of $10.6 million during the six
months ended February 28, 1999. During the three-month periods ended February
29, 2000 and February 28, 1999, the Company repaid long-term debt of $4.8
million and $2.6 million, respectively, and had no additional long-term
borrowings during either period.
In accordance with the By-Laws and by action of the Board of Directors,
annual net savings from patronage sources are distributed to consenting patrons
following the close of each year and are based on amounts reportable for federal
income tax purposes as adjusted in accordance with the By-Laws. The patronage
earnings from the fiscal year ended August 31, 1999 were distributed in January
and February 2000. The cash portion of this distribution, deemed by the Board of
Directors to be 75% for Equity Participation Units and 30% for regular earnings,
was approximately $18.0 million. During the six months ended February 28, 1999
the Company paid out cash patronage of approximately $43.7 million from the
patronage earnings of the former Harvest States Cooperatives fiscal year ended
May 31, 1998, the former Cenex, Inc. for the period ended May 31, 1998 and the
patronage earnings resulting from the combined operations of the Company for the
three months ended August 31, 1998.
The current equity redemption policy, as authorized by the Board of
Directors, allows for the redemption of capital equity certificates held by
inactive direct members and patrons and active members and patrons at age 72 or
death who were age 61 or older on June 1, 1998. For active direct members and
patrons who were age 60 or younger on June 1, 1998, and member cooperatives,
equities will be redeemed annually based on a prorata formula where the
numerator is dollars available for such purpose as determined by the Board of
Directors, and the denominator is the sum of the patronage certificates held by
such eligible members and patrons. Such redemptions related to the year ended
August 31, 1999, to be distributed in the current fiscal year, are expected to
be approximately $25.7 million, of which approximately $13.1 million was
redeemed during the six months ended February 29, 2000. During the six months
ended February 28, 1999 the Company redeemed approximately $10.6 million of
equity. Approximately $1.6 million and $1.3 million of equity was redeemed by
the Company during the three-month periods ended February 29, 2000 and February
28, 1999, respectively.
During the year ended May 31, 1997, the Company offered securities in the
form of Equity Participation Units (EPUs)in its Wheat Milling and Oilseed
Processing and Refining Defined Business Units. These EPUs give the holder the
right and obligation to deliver to the Company a stated number of bushels in
return for a prorata share of the undiluted grain based patronage earnings of
these respective Defined Business Units. The offering resulted in the issuance
of such equity with a stated value of $13,870,000 and generated additional
capital and cash of $10,837,000, after issuance cost and
12
conversion privileges. Conversion privileges allowed a member to elect to use
outstanding patrons' equities for the payment of up to one-sixth the purchase
price of the EPUs.
Holders of the EPUs will not be entitled to payment of dividends by virtue
of holding such units. However, holders of the units will be entitled to receive
patronage refunds attributable to the patronage sourced income from operations
of the applicable defined business unit on the basis of wheat or soybeans
delivered pursuant to the Member Marketing Agreement. The Board of Directors'
goal is to distribute patronage refunds attributable to the EPUs in the form of
75% cash and 25% capital equity certificates, and to retire those capital equity
certificates on a revolving basis seven years after declaration. However, the
decision as to the percentage of cash patronage will be made each fiscal year by
the Board of Directors and will depend upon the cash and capital needs of the
respective Defined Business Units and is subject to the discretion of the Board
of Directors. The redemption policy will also be subject to change at the
discretion of the Board of Directors.
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company believes that inflation and foreign currency fluctuations have
not had a significant effect on its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, a new standard related to the accounting for derivative transactions
and hedging activities. In July 1999, the FASB issued SFAS No. 137 which defers
the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. While management does not believe this standard
will materially impact the financial position and results of operations of the
Company, it is currently evaluating the reporting requirements under this new
standard.
YEAR 2000
In preparation for the year 2000, the Company engaged an information
technology consulting firm specializing in year 2000 systems projects. The scope
of the program management effort at the Company has included internal mainframe,
midrange, and LAN based systems as well as facilities, package software vendors,
and interfaces with external vendors, processors and customers. Remediation and
upgrades of these systems have been completed for all mission critical systems.
Through February 29, 2000, the Company has expensed approximately $2.1 million
to review and correct its own computer systems.
To date, the Company has not experienced any significant year 2000-related
failures. The Company's management believes that the Company has put in place an
effective program to address the year 2000 issue and that it has taken the steps
reasonably necessary to resolve this issue with respect to matters within its
control. However, it also recognizes that failure by other parties to
sufficiently resolve all aspects of the year 2000 issue in a timely fashion
continues to present substantial risks for the Company. While the Company has
taken steps to determine the extent of remediation efforts undertaken by key
customers and suppliers, there is no guarantee that the systems of other
companies on which this Company relies have been remediated in order to avoid
having a material adverse effect on the Company's results of operations or its
financial position. To date, the Company has not experienced any significant
problems related to key customer or supplier year 2000-related failures.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the Company's fiscal year end
August 31, 1999.
13
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ----------- ------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Receivables .................................................. $24,634 $24,650 $29,233
Inventories .................................................. 17,405 17,084 26,431
Other current assets ......................................... 23
------- ------- -------
Total current assets ........................................ 42,062 41,734 55,664
PROPERTY, PLANT AND EQUIPMENT ................................. 39,329 39,001 37,981
------- ------- -------
Total assets ................................................ $81,391 $80,735 $93,645
======= ======= =======
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Cenex Harvest States Cooperatives ..................... $ 1,119 $ 9,546 $21,487
Accounts payable ............................................. 4,928 5,768 10,185
Accrued expenses ............................................. 5,289 4,227 3,496
------- ------- -------
Total current liabilities ................................... 11,336 19,541 35,168
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY .................................. 70,055 61,194 58,477
------- ------- -------
Total liabilities and defined business unit equity ......... $81,391 $80,735 $93,645
======= ======= =======
The accompanying notes are an integral part of then financial
statements (unaudited).
14
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
----------------------- ------------------------
2000 1999 2000 1999
(DOLLARS IN THOUSANDS) ---------- ---------- ---------- ----------
REVENUES:
Processed oilseed sales ....................... $79,199 $91,311 $162,756 $186,773
Other revenue ................................. 250 68 579 72
------- ------- -------- --------
79,449 91,379 163,335 186,845
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold ............................ 74,057 87,914 151,421 176,887
Marketing, general and administrative ......... 1,182 1,339 2,538 2,649
Interest ...................................... 292 594
------- ------- -------- --------
75,239 89,545 153,959 180,130
------- ------- -------- --------
INCOME BEFORE INCOME TAXES ..................... 4,210 1,834 9,376 6,715
INCOME TAXES ................................... 215 195 515 275
------- ------- -------- --------
NET INCOME ..................................... $ 3,995 $ 1,639 $ 8,861 $ 6,440
======= ======= ======== ========
The accompanying notes are an integral part of the financial
statements (unaudited).
15
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
------------------------- ------------------------
2000 1999 2000 1999
(DOLLARS IN THOUSANDS) ----------- ----------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .................................................. $ 3,995 $ 1,639 $ 8,861 $ 6,440
-------- -------- -------- --------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .............................................. 621 566 1,245 1,112
Loss on disposal of property, plant and equipment ......... 35
Changes in operating assets and liabilities:
Receivables .............................................. 2,242 2,697 16 (530)
Inventories .............................................. (1,389) (2,647) (321) (7,862)
Other current assets ..................................... 2 240 (23)
Accounts payable and accrued expenses .................... (1,029) 3,756 222 4,361
-------- -------- -------- --------
Total adjustments ...................................... 447 4,612 1,174 (2,919)
-------- -------- -------- --------
Net cash provided by operating activities .............. 4,442 6,251 10,035 3,521
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ................ (890) (1,992) (1,608) (3,500)
Proceeds from disposition of property, plant and
equipment .................................................. 3 3
-------- -------- -------- --------
Net cash used in investing activities .................. (890) (1,989) (1,608) (3,497)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to Cenex Harvest States Cooperatives .......... (3,552) (2,623) (8,427) 6,416
Defined business unit equity distributed to the
Company .................................................... (1,639) (6,440)
-------- -------- -------- --------
Net cash used in financing activities .................. (3,552) (4,262) (8,427) (24)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH .............................. -- -- -- --
CASH AT BEGINNING OF PERIOD .................................. -- -- -- --
-------- -------- -------- --------
CASH AT END OF PERIOD ........................................ -- -- -- --
======== ======== ======== ========
The accompanying notes are an integral part of the financial
statements (unaudited).
16
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited statements of operations and cash flows for the three months
and six months ended February 29, 2000 and February 28, 1999 reflect, in the
opinion of management of Cenex Harvest States Cooperatives (the Company), all
normal, recurring adjustments necessary for a fair statement of the results of
operations and cash flows for the interim periods. The results of operations and
cash flows for any interim period are not necessarily indicative of results for
the full year. The balance sheet data as of August 31, 1999 was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles.
These statements should be read in conjunction with the financial
statements and footnotes included in the Oilseed Processing and Refining Defined
Business Unit financial statements for the year ended August 31, 1999, which are
included in the Company's Report on Form 10-K previously filed with the
Securities and Exchange Commission on November 22, 1999.
NOTE 2. RECEIVABLES
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ----------- ------------
Trade ........................................ $25,029 $25,045 $29,628
Less allowance for doubtful accounts ......... 395 395 395
------- ------- -------
$24,634 $24,650 $29,233
======= ======= =======
NOTE 3. INVENTORIES
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ----------- ------------
Processed oilseed products ................... $10,811 $11,918 $10,318
Oilseed ...................................... 6,594 5,166 16,113
------- ------- -------
$17,405 $17,084 $26,431
======= ======= =======
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See the Management Discussion and Analysis for the Company for discussion
of new accounting pronouncements and the Year 2000.
RESULTS OF OPERATIONS
Patronage refunds to the Oilseed Processing and Refining Defined Business
Unit holders are calculated on the basis of tax earnings per bushel. Because of
this, the Company believes that the calculation below is an important measure of
the Defined Business Unit's performance.
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
----------------------- -----------------------
2000 1999 2000 1999
----------- --------- ----------- ---------
(IN THOUSANDS EXCEPT PER BUSHEL INFORMATION)
Income before income taxes ................. $ 4,210 $1,834 $ 9,376 $ 6,715
Income from purchased oil .................. (1,275) (120) (2,816) (873)
Non-patronage joint venture income ......... (153)
Book to tax differences .................... 23 4 47 4
-------- ------ -------- -------
Taxable income ............................. $ 2,958 $1,718 $ 6,454 $ 5,846
======== ====== ======== =======
Bushels processed .......................... 10,018 9,553 19,245 17,618
Income per bushel .......................... $ 0.295 $ 0.180 $ 0.335 $ 0.332
Certain operating information pertaining to the Oilseed Processing and
Refining Defined Business Unit is set forth below, as a percentage of processed
oilseed sales.
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Gross margin ................................ 6.49% 3.72% 6.96% 5.29%
Marketing, general and administrative ....... 1.49% 1.47% 1.56% 1.42%
Interest .................................... 0.00% 0.32% 0.00% 0.32%
COMPARISON OF THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Oilseed Processing and Refining Defined Business Unit net income of
$4.0 million for the three months ended February 29, 2000 represents a $2.4
million increase (144%) compared to the three-month period ended February 28,
1999. An increase in gross margin for soymeal of approximately $1.60 per ton,
and an increase in the refined oil margin of almost a half a cent per pound,
along with somewhat improved volumes for both products were the primary factors
in this improvement in net income for the three-month period ended February 29,
2000 compared to the three-month period ended February 28, 1999.
Net sales of $79.2 million for the three months ended February 29, 2000
decreased by $12.1 million (13%) compared to the three months ended February 28,
1999. A reduction in the sales price for refined oil of approximately $0.09 per
pound was partially offset by a 2% increase in sales volume for refined oil, an
increase of approximately $31 per ton for processed soybean products, and a 6%
increase in sales volume for processed soybean products during the current
three-month period compared to the same period of a year ago.
Other revenues increased approximately $182 thousand during the three
months ended February 29, 2000 compared to the three months ended February 28,
1999. During the 2000 period, the Defined Business Unit recognized interest
income of $246 thousand, accounting for most of this increase.
Cost of goods sold of $74.1 million for the three months ended February 29,
2000 decreased $13.9 million (16%) compared to the three months ended February
28, 1999. Reduced cost for soybeans averaging $0.15 per bushel and reduced cost
for crude soybean oil averaging $0.104 per pound during the three months ended
February 29, 2000, compared to the three months ended February 28, 1999 were
partially offset by a 5% increase in crush volume (approximately 450 thousand
bushels) and a 2% increase in refining volume (approximately 5.5 million
pounds).
18
Marketing, general and administrative expenses of approximately $1.2
million for the three months ended February 29, 2000 declined approximately $0.2
million (12%) compared to the three months ended February 28, 1999.
During the three-month period ended February 29, 2000, the Oilseed
Processing and Refining Defined Business Unit incurred no net interest expense
compared to interest expense of approximately $0.3 million during the same
period ended in 1999. This favorable variance is primarily attributable to the
lower price of raw material and finished products which resulted in no excess
borrowings based on average outstanding daily balances.
Income tax expense of $215 thousand and $195 thousand for the three-month
periods ended February 29, 2000 and February 28, 1999, respectively, resulted in
effective tax rates of 5.1% and 10.6%. The effective tax rate varies from period
to period based upon the percentage of non-patronage business activity to total
business activity.
COMPARISON OF SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Oilseed Processing and Refining Defined Business Unit net income of
$8.9 million for the six months ended February 29, 2000 represents a $2.4
million increase (38%) compared to the six-month period ended February 28, 1999.
This improvement in income during the six-month period ended February 29, 2000
compared to the six months ended February 28, 1999 was a result of an increase
in gross margin for refined oil of approximately 4 tenths of a cent per pound,
an increase in refined oil volume of approximately 7%, and an increase in
processed soybean product volume of approximately 9% which was partially offset
by a decline in the gross margin for the processed soybean products of $3.86 per
ton.
Net sales of $162.8 million for the six months ended February 29, 2000
decreased by $24.0 million (13%) compared to the six months ended February 28,
1999. A reduction in the sales price for refined oil of approximately $0.09 per
pound was partially offset by a 7% increase in sales volume for refined oil, an
increase of approximately $16 per ton for processed soybean products, and a 9%
increase in sales volume for processed soybean products during the current
six-month period compared to the same period of a year ago.
Other revenues increased approximately $.5 million during the six months
ended February 29, 2000 compared to the six months ended February 28, 1999.
During the six months ended February 29, 2000, the Defined Business Unit
recognized interest income of approximately $.4 million, and received
approximately $.2 million from an oilseed joint venture. These two income items
accounted for nearly all of the change in other revenues between the two
periods.
Cost of goods sold of $151.4 million for the six months ended February 29,
2000 decreased $25.5 million (14%) compared to the six months ended February 28,
1999. Reduced cost for soybeans averaging $0.51 per bushel and reduced cost for
crude soybean oil averaging $0.093 per pound during the six months ended
February 29, 2000, compared to the six months ended February 28, 1999 were
partially offset by a 9% increase in crush volume (approximately 1.6 million
bushels) and an 7% increase in refining volume (approximately 35.0 million
pounds).
Marketing, general and administrative expenses of approximately $2.5
million for the six months ended February 29, 2000 declined approximately $.1
million (4%) compared to the six months ended February 28, 1999.
During the six month period ended February 29, 2000, the Oilseed Processing
and Refining Defined Business Unit incurred no net interest expense compared to
interest expense of approximately $0.6 million during the same period ended in
1999. This favorable variance is primarily attributable to the lower price of
raw material and finished products which resulted in no excess borrowings based
on average outstanding daily balances.
Income tax expense of $515 thousand and $275 thousand for the six-month
periods ended February 29, 2000 and February 28, 1999, respectively, resulted in
effective tax rates of 5.5% and 4.1%. The effective tax rate varies from period
to period based upon the percentage of non-patronage business activity to total
business activity.
19
LIQUIDITY AND CAPITAL RESOURCES
The Oilseed Processing and Refining Defined Business Unit's cash
requirements relate primarily to capital improvements and a need to finance
additional inventories and receivables based on increased raw material costs and
levels. These cash needs are expected to be fulfilled by the Company.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended February 29, 2000 provided
net cash of $4.4 million. Net income of $4.0 million and non-cash expenses of
$0.6 million were partially offset by an increase in working capital
requirements of $0.2 million to generate this net cash. For the three-month
period ended February 28, 1999, operating activities provided net cash of $6.3
million. During that period, net income of $1.6 million, non-cash expenses of
approximately $0.6 million and reduced working capital requirements of
approximately $4.1 million provided this net cash from operating activities.
Operating activities for the six months ended February 29, 2000 provided
net cash of $10.0 million. Net income of $8.9 million and non-cash expenses of
$1.2 million were partially offset by an increase in working capital
requirements of $0.1 million. For the three-month period ended February 28,
1999, operating activities provided net cash of $3.5 million. During that
period, net income of $6.4 million and non-cash expenses of approximately $1.1
million were partially offset by increased working capital requirements of
approximately $4.0 million.
CASH FLOWS FROM INVESTING
During the three-month periods ended February 29, 2000 and February 28,
1999, the Oilseed Processing and Refining Defined Business Unit used cash for
investing activities of $0.9 million and $2.0 million, respectively, for the
acquisition of property, plant and equipment.
During the six-month periods ended February 29, 2000 and February 28, 1999,
the Oilseed Processing and Refining Defined Business Unit used cash for
investing activities of $1.6 million and $3.5 million, respectively, for the
acquisition of property plant and equipment.
CASH FLOWS FROM FINANCING
The Oilseed Processing and Refining Defined Business Unit's financing
activities are coordinated through the Company's cash management department.
Cash from all of the Company's operations is deposited with the Company's cash
management department and disbursements are made centrally. As a result, the
Oilseed Processing and Refining Defined Business Unit has a zero cash position.
Financing is available from the Company to the extent of the Company's working
capital position and corporate loan agreements with various banks, and cash
requirements of all other Company operations.
Working capital requirements for each division and defined business unit of
the Company are reviewed on a periodic basis, and could potentially be
restricted based upon management's evaluation of the prevailing business
conditions and availability of funds.
The Oilseed Processing and Refining Defined Business Unit had amounts
payable to the Company of $1.1 million on February 29, 2000 compared to $9.5
million on August 31, 1999 and $21.5 million on February 28, 1999. These
interest bearing balances reflect working capital and fixed asset financing
requirements, and are influenced by the prices of soybeans and crude soybean
oil.
20
WHEAT MILLING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ----------- ------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Receivables .................................................. $ 36,821 $ 30,960 $ 32,765
Inventories .................................................. 18,107 14,339 23,137
Other current assets ......................................... 139 210 165
-------- -------- --------
Total current assets ........................................ 55,067 45,509 56,067
PROPERTY, PLANT AND EQUIPMENT ................................. 108,860 110,547 110,577
INTANGIBLE ASSETS ............................................. 8,881 9,415 9,948
-------- -------- --------
Total assets ................................................ $172,808 $165,471 $176,592
======== ======== ========
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Cenex Harvest States Cooperatives ..................... $ 60,634 $ 48,938 $ 49,391
Accounts payable ............................................. 9,386 7,238 11,998
Accrued expenses ............................................. 4,076 4,440 3,527
Current portion of long-term debt ............................ 10,005 10,005 10,005
-------- -------- --------
Total current liabilities ................................... 84,101 70,621 74,921
LONG-TERM DEBT, CENEX HARVEST STATES
COOPERATIVES ................................................. 23,633 28,510 33,638
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY .................................. 65,074 66,340 68,033
-------- -------- --------
Total liabilities and defined business unit equity ......... $172,808 $165,471 $176,592
======== ======== ========
The accompanying notes are an integral part of the financial
statements (unaudited).
21
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
-------------------------- -------------------------
2000 1999 2000 1999
(DOLLARS IN THOUSANDS) ------------ ----------- ----------- -----------
REVENUES:
Processed grain sales ......................... $ 51,136 $ 42,944 $103,730 $ 85,037
-------- -------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold ............................ 47,308 41,806 95,841 81,837
Marketing, general and administrative ......... 3,483 2,441 6,216 4,679
Interest ...................................... 1,574 1,136 3,069 2,079
-------- -------- -------- --------
52,365 45,383 105,126 88,595
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES ....................... (1,229) (2,439) (1,396) (3,558)
INCOME TAXES ................................... (115) (175) (130) (275)
-------- -------- -------- --------
NET LOSS ....................................... $ (1,114) $ (2,264) $ (1,266) $ (3,283)
======== ======== ======== ========
The accompanying notes are an integral part of the financial
statements (unaudited).
22
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE FOR THE
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29 & 28, FEBRUARY 29 & 28,
--------------------------- -------------------------
2000 1999 2000 1999
(DOLLARS IN THOUSANDS) ------------ ------------ ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... $ (1,114) $(2,264) $ (1,266) $ (3,283)
-------- ------- -------- ---------
Adjustments to reconcile net loss to net cash (used in)
provided by operating activities:
Depreciation and amortization ............................ 1,688 1,357 3,378 2,619
Changes in operating assets and liabilities:
Receivables ............................................. 1,294 (1,104) (5,861) 2,463
Inventories ............................................. 3,279 (1,823) (3,768) (4,242)
Other current assets .................................... 128 (1) 71 265
Accounts payable and accrued expenses ................... (6,468) 2,220 1,784 2,855
-------- ------- -------- ---------
Total adjustments ..................................... (79) 649 (4,396) 3,960
-------- ------- -------- ---------
Net cash (used in) provided by operating
activities ........................................... (1,193) (1,615) (5,662) 677
-------- ------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ............... (712) (5,508) (1,157) (15,235)
-------- ------- -------- ---------
Net cash used in investing activities ................. (712) (5,508) (1,157) (15,235)
-------- ------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to Cenex Harvest States Cooperatives ......... 4,344 7,298 11,696 16,153
Principal payments on long-term debt ....................... (2,439) (2,439) (4,877) (4,878)
Defined business unit equity distributed to the
Company ................................................... 2,264 3,283
-------- ------- -------- ---------
Net cash provided by financing activities ............. 1,905 7,123 6,819 14,558
-------- ------- -------- ---------
NET INCREASE (DECREASE) IN CASH ............................. -- -- -- --
CASH AT BEGINNING OF PERIOD ................................. -- -- -- --
-------- ------- -------- ---------
CASH AT END OF PERIOD ....................................... -- -- -- --
======== ========= ======== =========
The accompanying notes are an integral part of the financial
statements (unaudited).
23
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited statements of operations and cash flows for the three months
and six months ended February 29, 2000 and February 28, 1999 reflect, in the
opinion of management of Cenex Harvest States Cooperatives (the Company), all
normal, recurring adjustments necessary for a fair statement of the results of
operations and cash flows for the interim periods. The results of operations and
cash flows for any interim period are not necessarily indicative of results for
the full year. The balance sheet data as of August 31, 1999 was derived from
audited financial statements but does not include all disclosures required by
generally accepted accounting principles.
These statements should be read in conjunction with the financial
statements and footnotes included in the Wheat Milling Defined Business Unit
financial statements for the year ended August 31, 1999, which are included in
the Company's Report on Form 10-K previously filed with the Securities and
Exchange Commission on November 22, 1999.
NOTE 2. RECEIVABLES
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ----------- ------------
Trade ........................................ $37,012 $32,274 $32,990
Other ........................................ 969 454 527
------- ------- -------
37,981 32,728 33,517
Less allowance for doubtful accounts ......... 1,160 1,768 752
------- ------- -------
$36,821 $30,960 $32,765
======= ======= =======
NOTE 3. INVENTORIES
FEBRUARY 29, AUGUST 31, FEBRUARY 28,
2000 1999 1999
------------ ----------- ------------
Grain ........................................ $14,306 $11,915 $20,157
Processed grain products ..................... 3,242 1,815 2,196
Other ........................................ 559 609 784
------- ------- -------
$18,107 $14,339 $23,137
======= ======= =======
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On February 3, 2000 the Company's Board of Directors approved pursuing the
acquisition of Dakota Valley Mills, located in Fairmount, North Dakota. The mill
processes primarily spring wheat for bulk bakery customers, and has an 8,200
cwt. daily production capacity. The transaction has not been finalized, and is
subject to due diligence and environmental review.
See the Management Discussion and Analysis for the Company for discussion
of new accounting pronouncements and the Year 2000.
RESULTS OF OPERATIONS
Patronage refunds to the Wheat Milling Defined Business Unit holders are
calculated on the basis of tax earnings per bushel. Because of this, the Company
believes that the calculation below is an important measure of the Defined
Business Unit's performance.
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
--------------------------- ---------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
(IN THOUSANDS EXCEPT PER BUSHEL INFORMATION)
Loss before income taxes ................... $ (1,229) $ (2,439) $ (1,396) $ (3,558)
Book to tax differences .................... 101 193 202 193
-------- -------- -------- --------
Taxable loss ............................... $ (1,128) $ (2,246) $ (1,194) $ (3,365)
======== ======== ======== ========
Bushels processed .......................... 10,893 8,255 20,828 16,559
Loss per bushel ............................ $ (0.10) $ (0.27) $ (0.06) $ (0.20)
Certain operating information pertaining to the Wheat Milling Defined
Business Unit is set forth below, as a percentage of sales.
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
----------------------- -----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
Gross margin ...................................... 7.49% 2.65% 7.61% 3.76%
Marketing, general and administrative ............. 6.81% 5.68% 5.99% 5.50%
Interest .......................................... 3.08% 2.65% 2.96% 2.44%
COMPARISON OF THREE MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Wheat Milling Defined Business Unit incurred a net loss of
approximately $1.1 million for the three months ended February 29, 2000 compared
to a net loss of $2.3 milling during the three months ended February 28, 1999,
which resulted in an improvement of approximately $1.2 million (51%). This
improvement in operating results is primarily attributable to a $0.39 per
hundred weight increase in the average gross margin for all products and a 22%
increase in volume.
Net sales of $51.1 million for the three months ended February 29, 2000
increased approximately $8.2 million (19%) compared to the three-month period
ended February 28, 1999. A reduction to the average sales price of $0.23 per
hundred weight was offset by a 1.2 million hundred weight volume increase. The
increased volume is primarily attributable to the Mount Pocono mill which
commenced operations in January of 1999, and the Huron mill, which during the
1999 period, was under conversion of one of its lines from semolina to bakery
flour.
Cost of goods sold of $47.3 million for the three months ended February 29,
2000 increased $5.5 million (13%) compared to the three-month period ended on
February 28, 1999. While the average cost per bushel of raw material declined
$0.31 during the three months ended February 29, 2000 compared to the same three
months of a year ago, increased bushel grind of approximately 1.7 million
bushels and increased milling expense of approximately $1.1 million offset this
price variance. Essentially all of the increased mill expense is attributable to
Mount Pocono, which operated only on a limited basis during the 1999 period.
25
Marketing, general and administrative expenses of $3.5 million for the
three months ended February 29, 2000 increased approximately $1.0 million (43%)
compared to the three months ended February 28,1999. Most of this increase is
attributable to activities at or for the Mount Pocono mill, which operated only
on a limited basis during the1999 period.
Interest expense of $1.6 million during the three months ended February 29,
2000 increase approximately $0.4 million (39%) compared to the three-month
period ended February 28, 1999. Most of this increase in interest expense is
attributable to the construction and working capital requirements of the Mount
Pocono mill.
An income tax benefit of $115 thousand for the three months ended February
29, 2000 is based upon an effective tax rate of 9.4% applied to the pretax loss
of approximately $1.2 million. For the three months ended February 28, 1999, an
income tax benefit of $175 thousand was based upon an effective tax rate of 7.2%
applied to a pretax loss of $2.4 million. The effective tax rate varies from
period to period based upon the percentage of non-patronage business activity to
total business activity.
COMPARISON OF SIX MONTHS ENDED FEBRUARY 29, 2000 AND FEBRUARY 28, 1999
The Wheat Milling Defined Business Unit incurred a net loss of
approximately $1.3 million for the six months ended February 29, 2000 compared
to a net loss of $3.3 milling during the six months ended February 28, 1999, for
an improvement of approximately $2.0 million (61%). This improvement in
operating results is primarily attributable to a $0.30 per hundred weight
increase in the average gross margin for all products and a 27% increase in
volume.
Net sales of $103.7 million for the six months ended February 29, 2000
increased approximately $18.7 million (22%) compared to the six months ended
February 28, 1999. A reduction to the average sales price of $0.32 per hundred
weight was offset by a 2.7 million hundred weight volume increase. The increased
volume is primarily attributable to the Mount Pocono mill which commenced
operations in January of 1999, and the Huron mill, which during the 1999 period,
was under conversion of one of its lines from semolina to bakery flour.
Cost of goods sold of $95.8 million for the six months ended February 29,
2000 increased $14.0 million (17%) compared to the six-month period ended on
February 28, 1999. While the average cost per bushel of raw material declined
$0.29 during the six months ended February 29, 2000 compared to the same six
months of a year ago, increased bushel grind of approximately 4.3 million
bushels and increased milling expense of approximately $1.6 million offset this
price variance. Essentially all of the increased mill expense is attributable to
Mount Pocono, which operated only on a limited basis during the 1999 period.
Marketing, general and administrative expenses of $6.2 million for the six
months ended February 29, 2000 increased approximately $1.5 million (33%)
compared to the six months ended February 28, 1999. Most of this increase is
attributable to activities at or for the Mount Pocono mill, which operated only
on a limited basis during the 1999 period.
Interest expense of $3.1 million during the six months ended February 29,
2000 increase approximately $1.0 million (48%) compared to the six-month period
ended February 28, 1999. Most of this increase in interest expense is
attributable to the construction and working capital requirements of the Mount
Pocono mill.
An income tax benefit of $130 thousand for the six months ended February
29, 2000 is based upon an effective tax rate of 9.3% applied to the pretax loss
of approximately $1.4 million. For the six months ended February 28, 1999, an
income tax benefit of $275 thousand was based upon an effective tax rate of 7.7%
applied to a pretax loss of $3.6 million. The effective tax rate varies from
period to period based upon the percentage of non-patronage business activity to
total business activity.
LIQUIDITY AND CAPITAL RESOURCES
The Wheat Milling Defined Business Unit's cash requirements result from
capital improvements and the need to finance additional inventories and
receivables based on increased raw material costs and levels. These cash needs
are expected to be fulfilled by the Company.
26
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended February 29, 2000 used net
cash of approximately $1.2 million. Non-cash expenses of $1.7 million were
offset by the net operating loss of $1.1 million and increased working capital
requirements of approximately $1.8 million. Increased working capital
requirements were primarily attributable to increased volume activity. Operating
activities for the three months ended February 28, 1999 used net cash of
approximately $1.6 million. Non-cash expenses of approximately $1.4 million were
offset by the net operating loss of $2.3 million and increased working capital
requirements of $ .7 million.
Operating activities for the six months ended February 29, 2000 used net
cash of approximately $5.7 million. Non cash expenses of $3.4 million were
offset by the net operating loss of $1.3 million and increased working capital
requirements of approximately $7.8 million. Increased working capital
requirements were primarily attributable to increased volume activity. Operating
activities for the three months ended February 28, 1999 provided net cash of
approximately $ .7 million. Non-cash expenses of approximately $2.6 million and
reduced working capital requirements of approximately $1.4 million were
partially offset by the net operating loss of $3.3 million.
CASH FLOWS FROM INVESTING
Cash expended for the acquisition of property, plant and equipment during
the three-month periods ended February 29, 2000 and February 28, 1999, totaled
approximately $0.7 million and $5.5 million, respectively. The majority of the
capital expenditures during the 1999 period were for the completion of the Mount
Pocono mill.
Cash expended for the acquisition of property, plant and equipment during
the six-month periods ended February 29, 2000 and February 28, 1999, totaled
approximately $1.2 million and $15.2 million, respectively. The majority of the
capital expenditures during the 1999 period were for the completion of the Mount
Pocono mill.
CASH FLOWS FROM FINANCING
The Wheat Milling Defined Business Unit's financing activities are
coordinated through the Company's cash management department. Cash from all of
the Company's operations is deposited with the Company's cash management
department and disbursements are made centrally. As a result, the Defined
Business Unit has a zero cash position. Financing is available from the Company
to the extent of the Company's working capital position and corporate loan
agreements with various banks and cash requirements of all other Company
operations.
Working capital requirements for each division and defined business unit of
the Company are reviewed on a periodic basis, and could potentially be
restricted based upon availability of funds.
The Wheat Milling Defined Business Unit had amounts payable to the Company
of $60.6 million on February 29, 2000 compared to $48.9 million on August 31,
1999, and $49.4 million on February 28, 1999. This increase is primarily
attributable to additional financing required for accounts receivables and
inventories due to increased volume activity.
The Wheat Milling Defined Business Unit had long-term debt outstanding and
payable to the Company of $33.6 million on February 29, 2000 compared with $38.5
million on August 31, 1999, and $43.6 million of February 28, 1999. This debt
was originally incurred for the acquisition, expansion, and construction of
certain mills within the Wheat Milling Defined Business Unit. Approximately
$10.0 million of the current balance is payable within the next twelve months.
27
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting held on December 1-2, 1999, the following
new directors were elected to the Board of Directors: Richard Owen, Robert
Grabarski, Glen Keppy. In addition, the following directors were re-elected to
the Board: Curt Eischens, Jerry Hasnedl, Bruce Anderson, Steven Burnet. Finally,
the following directors' terms of office continued after the meeting: Robert
Bass, Robert Elliott, Jim Kile, Gerald Kuster, Leonard Larsen, Duane Stenzel,
Michael Toelle, Richard Traphagen, Merlin Van Walleghn, Elroy Webster. Steven
Burnet was subsequently elected Chairman of the Board.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------------------------------------------------------------
10.38 Joint Venture Agreement for Agriliance LLC, dated as of January
1, 2000 among Farmland Industries, Inc., Cenex Harvest States
Cooperatives, United Country Brands, LLC and Land O' Lakes, Inc.
10.39 Employment Agreement dated as of January 14, 2000 between Noel K.
Estenson and Cenex Harvest States Cooperatives
10.40 Employment Agreement dated as of January 14, 2000 between John D.
Johnson and Cenex Harvest States Cooperatives
99 Cautionary Statement
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
Form 8-K, Item 5, "Other Events" filed December 1, 1999 referencing the
press release issued to the public on November 23, 1999 which described the
outcome of a proposed unification of the Company and Farmland Industries,
Inc.
28
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENEX HARVEST STATES COOPERATIVES
-------------------------------------------
(Registrant)
NAME TITLE DATE
---- ----- ----
/S/ JOHN SCHMITZ Senior Vice President and Chief April 11, 2000
- ------------------- Financial Officer
John Schmitz
29