================================================================================
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 NOVEMBER 30, 2001.
[ ] 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 telephone number
(Address of principal executive offices and zip code) 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
November 30, 2001)
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INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 2001 (unaudited), August 31, 2001 and
November 30, 2000 (unaudited) ........................................................... 2
Consolidated Statements of Operations for the three months ended November 30, 2001 and
2000 (unaudited) ........................................................................ 3
Consolidated Statements of Cash Flows for the three months ended November 30, 2001 and
2000 (unaudited) ........................................................................ 4
Notes to Consolidated Financial Statements (unaudited) .................................. 5
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ........................................................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...................... 13
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 ............................. 14
Item 5 has been omitted since the answer is negative
Item 6. Exhibits and Reports on Form 8-K ................................................ 14
SIGNATURE PAGE ........................................................................... 15
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. These factors include those set forth in Exhibit 99,
under the caption "Cautionary Statement" to this Quarterly Report on Form 10-Q
for the quarter ended November 30, 2001.
1
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2001 2001 2000
-------------- ------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 106,453 $ 113,458 $ 87,537
Receivables ................................................ 642,542 686,140 839,826
Inventories ................................................ 547,949 510,443 686,308
Other current assets ....................................... 93,390 60,995 50,377
---------- ---------- ----------
Total current assets ...................................... 1,390,334 1,371,036 1,664,048
INVESTMENTS ................................................. 461,448 467,953 454,233
PROPERTY, PLANT AND EQUIPMENT ............................... 1,026,075 1,023,872 1,035,722
OTHER ASSETS ................................................ 214,574 194,458 196,015
---------- ---------- ----------
Total assets .............................................. $3,092,431 $3,057,319 $3,350,018
========== ========== ==========
LIABILITIES AND EQUITIES
CURRENT LIABILITIES:
Notes payable .............................................. $ 110,815 $ 97,195 $ 308,055
Current portion of long-term debt .......................... 15,669 17,754 28,573
Customer credit balances ................................... 62,590 38,486 73,863
Customer advance payments .................................. 102,847 109,135 129,077
Checks and drafts outstanding .............................. 60,063 87,808 72,774
Accounts payable ........................................... 464,480 495,198 645,349
Accrued expenses ........................................... 139,788 148,026 136,308
Patronage dividends and equity retirements payable ......... 91,024 72,154 67,957
---------- ---------- ----------
Total current liabilities ................................. 1,047,276 1,065,756 1,461,956
LONG-TERM DEBT .............................................. 568,588 542,243 473,384
OTHER LIABILITIES ........................................... 105,372 99,906 92,265
MINORITY INTERESTS IN SUBSIDIARIES .......................... 88,369 88,261 126,800
COMMITMENTS AND CONTINGENCIES
EQUITIES .................................................... 1,282,826 1,261,153 1,195,613
---------- ---------- ----------
Total liabilities and equities ............................ $3,092,431 $3,057,319 $3,350,018
========== ========== ==========
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
THREE MONTHS ENDED
NOVEMBER 30,
-----------------------------
2001 2000
(DOLLARS IN THOUSANDS) ------------- -------------
REVENUES:
Net sales ..................................... $1,871,952 $2,189,489
Patronage dividends ........................... 721 425
Other revenues ................................ 32,076 26,006
---------- ----------
1,904,749 2,215,920
---------- ----------
COSTS AND EXPENSES:
Cost of goods sold ............................ 1,804,364 2,133,528
Marketing, general and administrative ......... 42,898 38,410
Interest ...................................... 10,815 15,572
Equity income from investments ................ (3,942) (2,360)
Minority interests ............................ 3,036 3,733
---------- ----------
1,857,171 2,188,883
---------- ----------
INCOME BEFORE INCOME TAXES ..................... 47,578 27,037
INCOME TAXES ................................... 6,223 (32,485)
---------- ----------
NET INCOME ..................................... $ 41,355 $ 59,522
========== ==========
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
THREE MONTHS ENDED
NOVEMBER 30,
---------------------------
2001 2000
(DOLLARS IN THOUSANDS) ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 41,355 $ 59,522
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization .................................... 24,699 24,755
Noncash net income from equity investments ....................... (3,942) (2,360)
Minority interests ............................................... 3,036 3,733
Adjustment of inventories to market value ........................ 14,885
Noncash portion of patronage dividends received .................. (766) (151)
Gain on sale of property, plant and equipment .................... (2,348) (626)
Deferred tax benefit ............................................. (34,247)
Other, net ....................................................... (60)
Changes in operating assets and liabilities:
Receivables ..................................................... 46,053 (5,018)
Inventories ..................................................... (52,391) (83,923)
Other current assets and other assets ........................... (25,890) (20,426)
Customer credit balances ........................................ 24,104 37,084
Customer advance payments ....................................... (6,288) (2,858)
Accounts payable and accrued expenses ........................... (44,259) 9,175
Other liabilities ............................................... 5,466 7,336
--------- ---------
Net cash provided by (used in) operating activities ........... 23,654 (8,004)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ....................... (21,808) (24,412)
Proceeds from disposition of property, plant and equipment ......... 6,116 1,515
Investments ........................................................ (6,125) (7,481)
Equity investments redeemed ........................................ 14,092 7,566
Investments redeemed ............................................... 1,328 167
Changes in notes receivable ........................................ (2,163) (32)
Acquisition of intangibles ......................................... (27,469)
Distribution to minority owners .................................... (3,985) (3,988)
Other investing activities, net .................................... 1,090 1,076
--------- ---------
Net cash used in investing activities ......................... (38,924) (25,589)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable ........................................... 13,620 90,129
Long-term debt borrowings .......................................... 30,000 565
Principal payments on long-term debt ............................... (5,780) (9,108)
Changes in checks and drafts outstanding ........................... (27,745) (11,312)
Retirements of equities ............................................ (1,830) (5,537)
--------- ---------
Net cash provided by financing activities ..................... 8,265 64,737
--------- ---------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ................................................... (7,005) 31,144
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .......................................................... 113,458 56,393
--------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD .......................................................... $ 106,453 $ 87,537
========= =========
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 balance sheets as of November 30, 2001 and 2000,
and the statements of operations and cash flows for the three months ended
November 30, 2001 and 2000 reflect, in the opinion of management of Cenex
Harvest States Cooperatives (the Company), all normal recurring adjustments
necessary for a fair statement of the financial position and results of
operations and cash flows for the interim periods. The results of operations and
cash flows for interim periods are not necessarily indicative of results for a
full year. The consolidated balance sheet data as of August 31, 2001 has been
derived from audited consolidated financial statements but does not include all
disclosures required by accounting principles generally accepted in the United
States of America.
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned and majority-owned subsidiaries and limited
liability companies. The effects of all significant intercompany accounts and
transactions have been eliminated.
Certain reclassifications have been made to the prior period'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, 2001, included
in the Company's Annual Report on Form 10-K previously filed with the Securities
and Exchange Commission on November 19, 2001.
GOODWILL AND OTHER INTANGIBLES ASSETS
Effective September 1, 2001 the Company adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible
Assets". This statement discontinued the amortization of goodwill and
indefinite-lived intangible assets, subject to periodic impairment testing.
Goodwill (net of accumulated amortization) at August 31, 2001 was $29.2 million
and was included as a component of other assets. The effect of adopting the new
standard will reduce goodwill amortization expense by approximately $2.0 million
annually. In accordance with the provisions of the new standard, the Company has
six months from the initial date of adoption to complete its transitional
impairment testing. No material changes to the carrying value of goodwill and
other intangible assets are expected to be made as a result of the adoption of
SFAS No. 142. Subsequent impairment testing will take place annually as well as
when there is a triggering event. In addition, the classification of the
intangible assets was reviewed, along with the remaining useful lives of
intangibles being amortized, and no material changes were made.
Intangible assets subject to amortization at August 31, 2001 and November
30, 2001 were $10.1 million ($14.9 million net of accumulated amortization of
$4.8 million) and $36.3 million ($41.5 million net of accumulated amortization
of $5.2 million), respectively. The intangible assets subject to amortization
are amortized on a straight-line basis over the number of years that approximate
their respective useful lives (ranging from 5 to 15 years). Total amortization
expense during the three-month periods ended November 30, 2001 and 2000 was
immaterial. For the next five fiscal years, the future estimated annual
amortization expense related to intangible assets being amortized will
approximate $3.9 million each year.
BUSINESS COMBINATIONS
Effective July 2001 the Company also adopted the provisions of SFAS No.
141, "Business Combinations".
During the three months ended November 30, 2001 and 2000 the Company made
various acquisitions using the purchase method of accounting. Accordingly, the
purchase prices were allocated to assets acquired and liabilities assumed based
on their estimated fair values at the dates of acquisition. These acquisitions
individually and in the aggregate are not material to the Company's operations.
Operations of the acquired companies have been included in the operations of the
Company since the date of the respective acquisition.
5
Through Country Energy, LLC, a joint venture with Farmland Industries, Inc.
(Farmland), the Company marketed refined petroleum products including gasoline,
diesel fuel, propane and lubricants under the Cenex brand. On November 30, 2001
the Company purchased the wholesale energy business of Farmland, as well as all
interest in Country Energy, LLC. The purchase price of the acquisition was $39.0
million. Based on estimated fair values, the majority of the purchase price was
allocated to intangible assets of $26.4 million, primarily trademarks,
tradenames and non-compete agreements. The intangible assets have a weighted
average life of approximately 12 years. The balance of the purchase price was
allocated to inventory, real and personal property and other. The Company also
entered into a supply agreement related to the purchase of Farmland's refined
fuel production from their Coffeyville, Kansas refinery at prevailing market
values.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
143, "Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is currently analyzing the effects of adoption
of this pronouncement.
The FASB also recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
retains and expands upon the fundamental provisions of existing guidance related
to the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived asset to be disposed of by sale.
Generally, the provisions of SFAS No. 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company is currently analyzing the effects of
adoption of this pronouncement.
NOTE 2. RECEIVABLES
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2001 2001 2000
-------------- ------------ -------------
Trade ......................................... $636,935 $682,593 $830,540
Other ......................................... 31,308 28,864 32,478
-------- -------- --------
668,243 711,457 863,018
Less allowances for doubtful accounts ......... 25,701 25,317 23,192
-------- -------- --------
$642,542 $686,140 $839,826
======== ======== ========
NOTE 3. INVENTORIES
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2001 2001 2000
-------------- ------------ -------------
Grain and oilseed ............................. $262,630 $237,498 $299,289
Energy ........................................ 182,296 163,710 289,398
Feed and farm supplies ........................ 79,380 76,570 69,210
Processed grain and oilseed ................... 19,770 28,648 24,558
Other ......................................... 3,873 4,017 3,853
-------- -------- --------
$547,949 $510,443 $686,308
======== ======== ========
An inventory write-down of $14.9 million was recorded in the first quarter
of fiscal 2002 to reduce inventories to lower of cost or market.
6
NOTE 4. INVESTMENTS
The following provides summarized unaudited financial information for
Ventura Foods, LLC and Agriliance, LLC for the three-month periods as indicated
below.
VENTURA FOODS, LLC
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
-------------------------
2001 2000
----------- -----------
Net sales .............................. $258,400 $230,009
Gross profit ........................... 41,101 33,877
Net income ............................. 15,244 11,464
AGRILIANCE, LLC
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
-------------------------
2001 2000
----------- -----------
Net sales .............................. $ 677,047 $ 660,881
Gross profit ........................... 45,904 56,998
Net loss ............................... (21,152) (22,637)
NOTE 5. COMPREHENSIVE INCOME
For the three months ended November 30, 2001 and 2000, total comprehensive
income amounted to $42.4 million and $60.9 million, respectively. Accumulated
other comprehensive loss on November 30, 2001, August 31, 2001 and November 30,
2000 was $0.9 million, $1.9 million and $1.0 million, respectively.
NOTE 6. NON-CASH FINANCING ACTIVITIES
During the three months ended November 30, 2001 and 2000 the Company
accrued patronage dividends and equity retirements payable of $20.7 million and
$29.8 million, respectively.
NOTE 7. SEGMENT REPORTING
Segments, which are based on products and services, include Agronomy,
Energy, Grain Marketing, Country Operations and Processed Grains and Foods.
Reconciling Amounts represent the elimination of intracompany sales between
segments. 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 as presented.
7
Segment information for the three months ended November 30, 2001 and 2000
is as follows:
PROCESSED
GRAIN COUNTRY GRAINS AND RECONCILING
AGRONOMY ENERGY MARKETING OPERATIONS FOODS OTHER AMOUNTS TOTAL
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2001
Net sales $ 554,242 $ 981,897 $ 374,666 $ 163,049 $ (201,902) $1,871,952
Patronage dividends 423 179 61 $ 58 721
Other revenues 2,619 8,452 20,489 25 491 32,076
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
-- 557,284 990,528 395,216 163,074 549 (201,902) 1,904,749
Cost of goods sold 497,975 981,997 374,217 152,077 (201,902) 1,804,364
Marketing, general and
administrative $ 1,167 15,000 5,477 12,452 7,579 1,223 42,898
Interest (427) 4,082 1,629 3,143 2,596 (208) 10,815
Equity loss (income) from
investments 3,302 1,376 (989) (6) (7,625) (3,942)
Minority interests 2,895 141 3,036
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Loss) income before
income taxes $ (4,042) $ 35,956 $ 2,414 $ 5,269 $ 8,447 $ (466) $ -- $ 47,578
========== ========== ========== ========== ========== ========== ========== ==========
Total identifiable assets at
November 30, 2001 $ 226,437 $1,144,175 $ 359,103 $ 713,175 $ 434,522 $ 215,019 $3,092,431
========== ========== ========== ========== ========== ========== ========== ==========
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2000
Net sales $ 873,396 $ 977,789 $ 403,662 $ 160,170 $ (225,528) $2,189,489
Patronage dividends $ 268 9 57 33 $ 58 425
Other revenues 746 5,441 18,783 26 1,010 26,006
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
268 874,151 983,287 422,478 160,196 1,068 (225,528) 2,215,920
Cost of goods sold 834,011 975,601 400,992 148,452 (225,528) 2,133,528
Marketing, general and
administrative 1,790 9,750 6,037 11,707 7,983 1,143 38,410
Interest (1,171) 7,080 2,165 3,737 3,708 53 15,572
Equity loss (income) from
investments 5,229 (156) (1,819) 93 (5,707) (2,360)
Minority interests 3,730 3 3,733
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(Loss) income before
income taxes $ (5,580) $ 19,736 $ 1,303 $ 5,946 $ 5,760 $ (128) $ -- $ 27,037
========== ========== ========== ========== ========== ========== ========== ==========
Total identifiable assets at
November 30, 2000 $ 220,982 $1,379,552 $ 336,740 $ 786,490 $ 407,392 $ 218,862 $3,350,018
========== ========== ========== ========== ========== ========== ========== ==========
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Through Country Energy, LLC, a joint venture with Farmland Industries, Inc.
(Farmland), the Company marketed refined petroleum products including gasoline,
diesel fuel, propane and lubricants under the Cenex brand. On November 30, 2001
the Company purchased the wholesale energy business of Farmland, as well as all
interest in Country Energy, LLC. The purchase price of the acquisition was $39.0
million. Based on estimated fair values, the majority of the purchase price was
allocated to intangible assets of $26.4 million, primarily trademarks,
tradenames and non-compete agreements. The intangible assets have a weighted
average life of approximately 12 years. The balance of the purchase price was
allocated to inventory, real and personal property and other. The Company also
entered into a supply agreement related to the purchase of Farmland's refined
fuel production from their Coffeyville, Kansas refinery at prevailing market
values.
In September 2001, the Company signed a non-binding letter of intent to
form a joint venture with Cargill, Incorporated to engage in wheat flour milling
in North America. The Company would hold a 24% interest in the joint venture.
The transaction is subject to a definitive agreement.
The Company expects insurance costs to increase due to the terrorist
attacks of September 11, 2001, but the increases will not materially impact the
Company's financial statements.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2001 AND 2000
Consolidated net income for the three months ended November 30, 2001 was
$41.4 million compared to $59.5 million for the same three-month period in 2000,
which represents an $18.1 million (31%) decrease. This decrease in profitability
is primarily attributable to a tax benefit of $34.2 million in the prior year,
which was partially offset by increased earnings in the Company's Energy
segment.
Consolidated net sales of $1.9 billion for the three months ended November
30, 2001 decreased $317.5 million (15%) compared to the same three months ended
in 2000.
Company-wide grain and oilseed net sales of $1.0 billion increased $5.5
million (1%) during the three months ended November 30, 2001 compared to the
same three months ended in 2000. Sales for the three months ended November 30,
2001 were $981.9 million and $242.3 million from Grain Marketing and Country
Operations segments, respectively. Sales for the three months ended November 30,
2000 were $977.8 million and $258.4 million from Grain Marketing and Country
Operations segments, respectively. The Company eliminated all intracompany sales
from the Country Operations segment to the Grain Marketing segment, of $188.0
million and $205.5 million, for the three months ended November 30, 2001 and
2000, respectively. The net increase in sales was primarily due to an increase
of $0.34 per bushel in the average sales price of all grain and oilseed marketed
by the Company which was partially offset by a decrease in grain volume of 9%,
compared to the same three months ended in 2000.
Energy net sales of $540.3 million decreased $313.1 million (37%) during
the three months ended November 30, 2001 compared to the same period in 2000.
Sales for the three months ended November 30, 2001 and 2000 were $554.2 million
and $873.4 million, respectively. The Company eliminated all intracompany sales
from the Energy segment to the Country Operations segment of $13.9 million and
$20.0 million, respectively. The decrease is primarily attributable to a net
volume decrease compared to the same three months ended in 2000 due to the
dissolution of Cooperative Refining, LLC (CRLLC) effective December 31, 2000.
The Company owned 58% of CRLLC through its 75% ownership in National Cooperative
Refining Association (NCRA) and therefore consolidated CRLLC business activity
up to the time of dissolution. In addition, the average sales price of refined
fuels rack sales decreased by $0.23 per gallon, which was partially offset by a
volume increase of 13% compared to the same three months ended in 2000. The
average sales price of propane decreased by $0.15 per gallon, which was
partially offset by a volume increase of 9% compared to the same three months
ended in 2000.
Country Operations farm supply sales of $132.4 million decreased by $12.9
million (9%) during the three months ended November 30, 2001 compared to the
same three months ended in 2000. The
9
decrease is primarily due to a reduction in the average retail sales price of
energy products compared to the same three months ended in 2000.
Processed Grains and Foods sales of $163.0 million increased $2.9 million
(2%) during the three months ended November 30, 2001 compared to the same three
months ended in 2000. This increase is primarily due to Foods acquisitions which
increased sales by $8.5 million compared to the same three months ended in 2000.
In addition, sales of processed wheat increased by $4.5 million compared to the
same three months ended in 2000, primarily due to price increases with volumes
remaining essentially unchanged. Sales of processed oilseed decreased by $10.2
million primarily due to price decreases with volumes remaining essentially
unchanged compared to the same three months ended in 2000.
Patronage dividends of $0.7 million increased $0.3 million (70%) during the
three months ended November 30, 2001 compared to the same three months ended in
2000. This increase is primarily due to an increased patronage dividend from a
cooperative bank.
Other revenues of $32.1 million increased $6.1 million (23%) during the
three months ended November 30, 2001 compared to the same three months ended in
2000. The most significant change was due to increases in service revenues
within the Grain Marketing segment and gains on sales of assets within the
Energy segment compared to the same three months ended in 2000.
Cost of goods sold of $1.8 billion decreased $329.2 million (15%) during
the three months ended November 30, 2001, compared to the same three months
ended in 2000. The decrease is primarily due to the Energy segment decrease in
volume as a result of the dissolution of CRLLC, which was previously discussed.
In addition, the cost of refined fuels rack purchases decreased by 13% primarily
due to a $0.22 per gallon decrease in cost which was partially offset by a 13%
volume increase in 2001 compared to the same three months ended in 2000. Country
Operations farm supply cost of goods sold decreased by 9% during the current
three-month period compared to the same three-month period ended in the prior
year, primarily due to the reduced cost of energy products. The cost of all
grains and oilseed procured by the Company through its Grain Marketing and
Country Operations segments increased 3% in 2001 compared to the same
three-month period ended in 2000 primarily due to a $0.35 cost per bushel
increase which was partially offset by a 9% decrease in volume. Processed Grains
and Foods segment cost of goods sold increase was not material.
Marketing, general and administrative expenses of $42.9 million for the
three months ended November 30, 2001 increased by $4.5 million (12%) compared to
the same three months ended in 2000. This increase is primarily due to expenses
resulting from an Energy segment acquisition as previously discussed.
Interest expense of $10.8 million for the three months ended November 30,
2001 decreased by $4.8 million (31%) compared to the same three months ended in
2000. The average level of short-term borrowings decreased by 53% and the
average short-term interest rate decreased by 4.0% during the three months ended
in 2001 compared to the same three months ended in 2000. These decreases in
interest expense were partially offset by increases due to an additional $80.0
million of long-term debt from a private placement.
Equity income from investments of $3.9 million for the three months ended
November 30, 2001 increased by $1.6 million (67%) compared to the same three
months ended in 2000. The increase was primarily attributable to increases in
earnings from Processed Grains and Foods segment investments of $1.9 million and
decreased losses from Agronomy segment investments of $1.9 million during the
three months ended November 30, 2001 compared to the same three months ended in
2000. These increases were partially offset by decreased earnings within the
Energy and Grain Marketing segments of $1.5 million and $0.8 million,
respectively, during the three months ended November 30, 2001 compared to the
same three months ended in 2000.
Minority interests of $3.0 million for the three months ended November 30,
2001 decreased by $0.7 million (19%) compared to the same three months ended in
2000. Substantially all minority interests were related to NCRA. This net change
in minority interests was reflective of more profitable operations within the
Company's minority-owned subsidiaries during the three months ended November 30,
2001 compared to the same three months ended in 2000.
10
Income tax expense of $6.2 million for the three months ended November 30,
2001 compares to a tax benefit of $32.5 million for the three months ended
November 30, 2000. The federal and state statutory rate applied to nonpatronage
business activity was 38.9% for the three months ended November 30, 2001 and
2000. An income tax benefit of $34.2 million for the three months ended November
30, 2000 resulted from a change in the tax rate applied to the Company's
cumulative temporary differences between income for financial statement purposes
and income used for tax reporting purposes. The Company's calculation of its
patronage distribution using earnings for financial statement purposes rather
than tax basis earnings prompted the rate change. The Company recorded an income
tax expense of $6.2 million and $1.7 million for the three months ended November
30, 2001 and 2000, respectively. The income taxes and effective tax rate varies
from period to period based upon profitability and nonpatronage business
activity during each of the comparable periods.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company provided net cash of $23.7 million and
used net cash of $8.0 million for the three months ended November 30, 2001 and
2000, respectively. For the three-month period ended in 2001, net income of
$41.4 million and net non-cash expenses of $35.5 million were partially offset
by increased working capital requirements of $53.2 million. For the three-month
period ended November 30, 2000, net income of $59.5 million was offset by $8.9
million of net non-cash income and increased working capital requirements of
$58.6 million.
CASH FLOWS FROM INVESTING
Investing activities of the Company used net cash of $38.9 million during
the three-month period ended November 30, 2001. Expenditures for the acquisition
of property, plant and equipment of $21.8 million, acquisitions of intangibles
of $27.5 million, investments of $6.1 million, the changes in notes receivable
of $2.2 million and distributions to minority owners of $4.0 million were
partially offset by investments redeemed of $15.4 million, proceeds from the
disposition of property, plant and equipment of $6.1 million and other investing
activities. The acquisitions of intangibles is primarily related to the purchase
of Farmland's wholesale energy business, as previously discussed and represents
trademarks, tradenames and non-compete agreements. For the year ended August 31,
2002 the Company expects to spend approximately $153.6 million for the
acquisition of property, plant and equipment, which includes $22.7 million of
expenditures for the construction of an oilseed processing facility in Fairmont,
Minnesota. Total expenditures related to the construction of the facility are
projected to be approximately $90.0 million. Capital expenditures at NCRA,
primarily related to the EPA low sulfur fuel regulations required by 2006, are
expected to be approximately $200.0 million over the next five years.
Investing activities of the Company used net cash of $25.6 million during
the three months ended November 30, 2000. Expenditures for the acquisition of
property, plant and equipment of $24.4 million, investments of $7.5 million,
distributions to minority owners of $4.0 million and the changes in notes
receivable were partially offset by investments redeemed of $7.7 million,
proceeds from the disposition of property, plant and equipment of $1.5 million
and other investing activities.
CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In May 2001, the Company renewed and
expanded its 364-day credit facility to $550.0 million 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 $30.0 million committed. On
November 30, 2001, August 31, 2001 and November 30, 2000, the Company had total
short-term indebtedness outstanding on these various facilities and other
short-term notes payable totaling $110.8 million, $97.2 million and $308.1
million, respectively.
In June 1998, the Company established a five-year revolving credit facility
with a syndication of banks, with $200.0 million committed. On November 30,
2001, August 31, 2001 and November 30, 2000 the Company had outstanding balances
on this facility of $75.0 million, $45.0 million and $45.0 million,
respectively, categorized as long-term debt. The outstanding balance on November
30, 2001 includes $30.0 million which was drawn during the current three-month
period.
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The Company has financed its long-term capital needs in the past, primarily
for the acquisition of property, plant and equipment, with long-term 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 fiscal year 2009. The commitment expired on May 31, 1999. The
amount outstanding on this credit facility was $149.2 million, $150.9 million
and $155.8 million on November 30, 2001, August 31, 2001 and November 30, 2000,
respectively. Repayments of approximately $1.6 million were made on this
facility during each of the three months ended November 30, 2001 and 2000.
Also in June 1998, the Company issued a private placement with several
insurance companies for long-term debt in the amount of $225.0 million.
Repayments will be made in equal annual installments of $37.5 million each in
the years 2008 through 2013.
In January 2001, the Company entered into a note purchase and private shelf
agreement with Prudential Insurance Company. The long-term note in the amount of
$25.0 million will be repaid in equal annual installments of approximately $3.6
million, in the years 2005 through 2011. A subsequent note for $55.0 million was
issued in March 2001, related to the private shelf facility. The $55.0 million
note will be repaid in equal annual installments of approximately $7.9 million,
in the years 2005 through 2011.
On November 30, 2001, the Company had total long-term debt outstanding of
$584.3 million, of which $266.0 million was bank financing, $305.0 million was
private placement debt and $13.3 million was industrial development revenue
bonds and other notes and contracts payable. Long-term debt of NCRA represented
$26.0 million of the total long-term debt outstanding on November 30, 2001. On
August 31, 2001 and November 30, 2000, the Company had long-term debt
outstanding of $560.0 million and $502.0 million, respectively.
During the three-month periods ended November 30, 2001 and 2000, the
Company repaid long-term debt of $5.8 million and $9.1 million, respectively,
and had additional long-term borrowings of $30.0 million and $0.6 million,
respectively, for the same three-month periods.
In accordance with the by-laws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting patrons
following the close of each fiscal year. Effective September 1, 2000, patronage
refunds are calculated based on earnings for financial statement purposes rather
than based on amounts reportable for federal income tax purposes as had been the
Company's practice prior to this date. This change was authorized through a
by-law amendment at the Company's annual meeting on December 1, 2000. The
patronage earnings from the fiscal year ended August 31, 2001 are expected to be
distributed during the second quarter of the current fiscal year. The cash
portion of this distribution, deemed by the Board of Directors to be 100% for
Equity Participation Units and 30% for other patronage earnings, is expected to
be approximately $38.7 million and is classified as a current liability on the
November 30, 2001 and August 31, 2001 consolidated balance sheets.
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 direct members and patrons at age
72 or death that were of age 61 or older on June 1, 1998. For active direct
members and patrons who were of age 60 or younger on June 1, 1998, and member
cooperatives, equities older than 10 years 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 older than 10 years held by such eligible members and
patrons. Total redemptions related to the year ended August 31, 2001, to be
distributed in the current fiscal year, are expected to be approximately $33.5
million, of which $1.8 million was redeemed during the three months ended
November 30, 2001. During the three months ended November 30, 2000 the Company
redeemed $5.5 million of equity.
The Board of Directors has authorized the sale and issuance of up to
50,000,000 shares of 8% Preferred Stock at a price of $1.00 per share. The
Company filed a registration statement on Form S-2 with the Securities and
Exchange Commission registering the Preferred Stock. The registration statement
was declared effective on October 31, 2001, and sales of the Preferred Stock
were immaterial through November 30, 2001.
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EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company's management believes that inflation and foreign currency
fluctuations have not had a significant effect on its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
Effective September 1, 2001 the Company adopted the provisions of Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets". The adoption of this
pronouncement did not have a material impact on the Company's consolidated
financial statements.
The FASB recently issued SFAS No. 143, "Accounting for Asset Retirement
Obligations" which addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the associated
asset retirement costs. SFAS No. 143 is effective for financial statements
issued for fiscal years beginning after June 15, 2002. The Company is currently
analyzing the effects of adoption of this pronouncement.
The FASB also recently issued SFAS No. 144, "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement addresses financial accounting
and reporting for the impairment or disposal of long-lived assets. SFAS No. 144
retains and expands upon the fundamental provisions of existing guidance related
to the recognition and measurement of the impairment of long-lived assets to be
held and used and the measurement of long-lived asset to be disposed of by sale.
Generally, the provisions of SFAS No. 144 are effective for financial statements
issued for fiscal years beginning after December 15, 2001 and interim periods
within those fiscal years. The Company is currently analyzing the effects of
adoption of this pronouncement.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended November 30, 2001 the Company did not experience any
adverse changes in market risk exposures that materially affect the quantitative
and qualitative disclosures presented in the Company's Annual Report on Form
10-K for the year ended August 31, 2001.
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting held on November 29-30, 2001, the following
directors were re-elected to the Board of Directors: Michael Toelle and Robert
Bass. The following directors were newly elected to the Board of Directors,
replacing Gerald Kuster and Richard Traphagen: Dennis Carlson and Randy Knecht.
The following directors' terms of office continued after the meeting: Steven
Burnet, Robert Elliott, Bruce Anderson, Merlin Van Walleghen, Curt Eischens,
Robert Grabarski, Jerry Hasnedl, Glen Keppy, Jim Kile, Leonard Larsen, Richard
Owen, Duane Stenzel and Elroy Webster.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------
99 Cautionary Statement
(b) Reports on Form 8-K
None.
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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)
DATE SIGNATURE
---- ---------
January 10, 2002 /s/ JOHN SCHMITZ
----------------------- ----------------------------------
(Date) John Schmitz
Executive Vice President and
Chief Financial Officer
15