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 28, 1997.
[] 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
HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0121095
--------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1667 NORTH SNELLING AVENUE, ST. PAUL, MN 55108 (612) 646-9433
- ---------------------------------------------- --------------
(Address of principal executive offices and zip code) (Registrant's 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 ____ NO __X__
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 28, 1997)
INDEX
PART I. FINANCIAL INFORMATION PAGE NO.
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of May 31, 1996, and February 28,
1997
Consolidated Statements of Earnings for the three months and nine
months ended February 28, 1996, and February 28, 1997
Consolidated Statement of Capital as of February 28, 1997
Consolidated Cash Flow Statements for the three months and nine months
ended February 28, 1996, and February 28, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
OILSEED PROCESSING AND REFINING DIVISION
(a division of Harvest States Cooperatives)
Item 1. Financial Statements (Unaudited)
Balance Sheets as of May 31, 1996, and February 28, 1997
Statements of Earnings for the three months and nine months ended
February 28, 1996, and February 28, 1997
Statement of Divisional Equity as of February 28, 1997
Cash Flow Statements for the three months and nine months ended
February 28, 1996, and February 28, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
WHEAT MILLING DIVISION
(a division of Harvest States Cooperatives)
Item 1. Financial Statements (Unaudited)
Balance Sheets as of May 31, 1996, and February 28, 1997
Statements of Earnings for the three months and nine months ended
February 28, 1996, and February 28, 1997
Statement of Divisional Equity as of February 28, 1997
Cash Flow Statements for the three months and nine months ended
February 28, 1996, and February 28, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since all items are
inapplicable or answers are negative
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE PAGE
EXHIBIT INDEX
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. When used in
this Form 10-Q and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer, the word or phrases
"believes," "anticipates," "expects," "intends," "will likely result,"
"estimates," "projects" or similar expressions are intended to identify such
forward-looking statements, but are not the exclusive means of identifying such
statements. 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:
SUPPLY AND DEMAND FORCES. The Company may be adversely affected by supply and
demand relationships, both domestic and international. Supply is 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. Demand may
also be affected by changes in eating habits, by population growth and
increased or decreased per capita consumption of some products.
PRICE DECLINES AND FALL IN DEMAND. Rising grain and oilseed prices in the 1995
growing and harvesting season, which continued into 1996, tended to reduce
inventories of stored grain, but prompted producers in Europe, Canada,
Argentina, Australia and other countries to plant additional grain. Prices for
most grains have fallen substantially through February 1997.
PRICE RISKS. Upon purchase, the Company has risks of carrying grain, including
price changes and performance risks (including delivery, quality, quantity and
shipment period), depending upon the type of purchase contract entered into.
The Company is exposed to risk of loss in the market value of positions held,
consisting of grain 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 positions, the Company generally takes opposite and
offsetting positions by entering into grain commodity futures contracts
(either a straight futures contract or an option futures contract) on
regulated commodity futures exchanges.
PROCESSING AND REFINING BUSINESS COMPETITION. The 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 Processing and Refining
Division.
MILLING BUSINESS COMPETITION. In March 1997, it was reported that Borden
(which represented 23.8% of the Milling Division's semolina and durum flour
sales in the year ended May 31, 1996) was closing half of its North American
pasta manufacturing plants which could have an impact on the earnings of the
Milling Division. The closing of the Borden plants is discussed in greater
detail in Management's Discussion and Analysis of Financial Condition and
Results of Operations for the Wheat Milling Division.
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 the Quarterly Report on Form 10-Q, for the quarter ended February
28, 1997.
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, February 28,
1996 1997
-------------- --------------
(unaudited)
CURRENT ASSETS:
Cash $ 21,426,227 $ 6,568,569
Receivables 367,244,539 337,521,170
Inventories 434,507,118 161,564,581
Prepaid expenses and deposits 41,825,850 53,612,416
-------------- --------------
Total current assets 865,003,734 559,266,736
OTHER ASSETS:
Investments 83,269,566 123,967,470
Other 48,353,983 34,533,422
-------------- --------------
Total other assets 131,623,549 158,500,892
PROPERTY PLANT AND EQUIPMENT 232,145,401 224,310,964
-------------- --------------
$1,228,772,684 $ 942,078,592
============== ==============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Notes payable $ 324,000,000 $ 123,000,000
Patron credit balances 29,007,419 39,668,949
Advances received on grain sales 201,825,190 136,573,747
Drafts outstanding 23,837,715 28,745,424
Accounts payable and accrued expenses 163,435,268 103,172,167
Patronage dividends payable 13,100,000 8,800,000
Current portion of long-term debt 13,923,204 17,746,083
-------------- --------------
Total current liabilities 769,128,796 457,706,370
LONG-TERM DEBT 118,705,972 114,652,007
OTHER LIABILITIES 3,685,797 4,501,651
COMMITMENTS AND CONTINGENCIES
CAPITAL 337,252,119 365,218,564
-------------- --------------
$1,228,772,684 $ 942,078,592
============== ==============
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended Nine Months Ended
February 28, February 28,
-------------------------------- --------------------------------
1996 1997 1996 1997
---- ---- ---- ----
REVENUES:
Sales:
Grain and oilseed $2,003,567,248 $1,347,181,612 $5,333,525,829 $4,895,823,810
Processed grain and oilseed 193,903,117 170,619,575 597,619,457 566,997,937
Feed and farm supplies 28,917,534 35,252,183 114,582,801 149,076,530
-------------------------------- --------------------------------
2,226,387,899 1,553,053,370 6,045,728,087 5,611,898,277
Patronage dividends 4,924,666 3,062,133 6,815,690 7,789,427
Other revenues 19,278,627 20,091,794 55,100,245 53,901,006
-------------------------------- --------------------------------
2,250,591,192 1,576,207,297 6,107,644,022 5,673,588,710
COSTS AND EXPENSES:
Cost of good sold 2,198,462,847 1,535,885,774 5,978,113,941 5,565,810,727
Marketing, general and administrative 20,900,548 15,716,213 60,152,187 52,643,909
Interest 9,376,734 4,797,141 23,273,353 13,215,390
-------------------------------- --------------------------------
2,228,740,129 1,556,399,128 6,061,539,481 5,631,670,026
-------------------------------- --------------------------------
EARNINGS BEFORE INCOME TAXES 21,851,063 19,808,169 46,104,541 41,918,684
INCOME TAXES 2,650,000 2,350,000 5,700,000 4,950,000
-------------------------------- --------------------------------
NET EARNINGS $ 19,201,063 $ 17,458,169 $ 40,404,541 $ 36,968,684
================================ ================================
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL
PATRONAGE NONPATRONAGE PATRONAGE CAPITAL
TOTAL CERTIFICATES CERTIFICATES PAYABLE RESERVE
------------- ------------- ------------ ------------ ------------
BALANCE AT MAY 31, 1996:
Stated as capital $ 337,252,119 $ 241,516,152 $ 9,739,995 $ 30,600,000 $ 55,395,972
Stated as current liability 13,100,000 13,100,000
Distribution of patronage dividends payable for
preceding year including cash payment of
$13,194,270 (unaudited) (13,194,270) 30,767,070 6,112,120 (43,700,000) (6,373,460)
Redemption of capital equity certificates (unaudited) (4,331,121) (4,279,974) (51,147)
Equities issued (unaudited) 4,193,985 4,193,985
Other (unaudited) 29,167 234,390 154 (205,377)
Net earnings (unaudited) 36,968,684 29,400,000 7,568,684
Patronage dividends payable in cash, stated
as a current liability (unaudited) (8,800,000) (8,800,000)
------------- ------------- ------------ ------------ ------------
BALANCE AT FEBRUARY 28, 1997 (unaudited) $ 365,218,564 $ 272,431,623 $ 15,801,122 $ 20,600,000 $ 56,385,819
============= ============= ============ ============ ============
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)
Three Months Ended Nine Months Ended
February 28, February 28,
----------------------------- -----------------------------
1996 1997 1996 1997
---- ---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 19,201,063 $ 17,458,169 $ 40,404,541 $ 36,968,684
Adjustments to reconcile net earnings to
net cash flows:
Depreciation and amortization 5,178,804 4,601,860 15,356,584 18,377,418
Noncash income from joint venture (5,579,912) (3,421,698) (10,192,436) (7,728,631)
Noncash portion of patronage dividends received (4,448,642) (3,185,553) (5,954,201) (6,391,031)
Loss (gain) on sale of property, plant, and
equipment (3,320) (138,355) 92,991 50,219
Change in assets and liabilities:
Receivables (4,303,601) 56,307,761 (221,085,197) 49,393,607
Inventories 79,397,121 58,966,478 (117,595,531) 272,942,537
Patron credit balances (34,613,391) (90,218,623) (30,007,167) 10,661,530
Advances received on grain and oilseed sales (13,487,263) (123,148,157) 168,196,884 (65,251,443)
Accounts payable, accrued expenses, and
drafts outstanding (71,974,104) (74,789,136) 2,356,834 (54,193,787)
Prepaid expenses, deposits, and other (51,823,076) (40,336,526) (81,713,554) (30,030,264)
----------------------------- -----------------------------
Total adjustments (101,657,384) (215,361,949) (280,544,793) 187,830,155
----------------------------- -----------------------------
Net cash (used in) provided by operating
activities (82,456,321) (197,903,780) (240,140,252) 224,798,839
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant, and
equipment 170,146 223,962 864,051 1,229,229
Investments redeemed 1,511,987 414,766 2,345,740 6,314,791
Acquisition of property, plant, and equipment (7,874,979) (8,791,362) (31,831,745) (34,138,386)
Payments on notes receivable 197,233 (28,926) 499,776 184,775
Investments (1,002,530) (124,962) (1,002,530) (1,377,118)
Investments in joint ventures 7,215,059
Other (418,874) (14,770) (36,898)
----------------------------- -----------------------------
Net cash used in investing activities (6,998,143) (8,725,396) (29,139,478) (20,608,548)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) under line of credit
agreements 74,500,000 123,000,000 242,000,000 (201,000,000)
Long-term debt borrowings 29,000,000 54,361,058 10,000,000
Principal payments on long-term debt (1,971,612) (2,869,961) (5,367,546) (9,268,247)
Principal payments under capital lease obligations (367,010) (711,430) (731,207) (1,254,311)
Redemption of capital equity certificates (1,268,409) (1,088,985) (4,413,655) (4,331,121)
Cash patronage dividends paid 101,443 (10,934,810) (13,194,270)
----------------------------- -----------------------------
Net cash provided by (used in) financing
activities 99,892,969 118,431,067 274,913,840 (219,047,949)
----------------------------- -----------------------------
INCREASE (DECREASE) IN CASH 10,438,505 (88,198,109) 5,634,110 (14,857,658)
CASH AT BEGINNING OF PERIOD 6,852,282 94,766,678 11,656,677 21,426,227
----------------------------- -----------------------------
CASH AT END OF PERIOD $ 17,290,787 $ 6,568,569 $ 17,290,787 $ 6,568,569
============================= =============================
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such unaudited consolidated
financial statements include all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation thereof. Operating results
for the nine month period ended February 28, 1997 are not necessarily indicative
of the results that may be expected for the year ending May 31, 1997.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's Annual Report for the year ended May 31,
1996 included in the Company's Prospectus dated February 14, 1997, previously
filed with the Commission.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year presentation.
NOTE 2. RECEIVABLES
MAY 31, FEBRUARY 28,
1996 1997
--------------- ---------------
Trade................................. $297,112,614 $253,081,516
Elevator accounts..................... 59,163,181 75,965,289
Other................................. 18,003,744 15,959,351
--------------- ---------------
374,279,539 345,006,156
Less allowance for losses............. (7,035,000) (7,484,986)
--------------- ---------------
$367,244,539 $337,521,170
=============== ===============
NOTE 3. INVENTORIES
MAY 31, FEBRUARY 28,
1996 1997
--------------- ---------------
Grain and oilseed..................... $351,504,342 $100,496,448
Processed grain and oilseed products.. 52,555,945 32,888,542
Feed and Farm supplies................ 30,446,831 28,179,591
--------------- ---------------
$434,507,118 $161,564,581
=============== ===============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
The Company's consolidated net earnings for the three months ended February
28, 1997 and 1996 were $17,500,000 and $19,200,000, respectively, which
represents a $1,700,000 decrease for the period ended in 1997. Included in the
three-month net earnings for the period ended February 28, 1996 are insurance
settlements totaling approximately $6,000,000 related to a fire at a joint
venture export facility which interrupted business at the Company's country
elevator facilities as well as at the export facility during the summer and fall
of calendar year 1995. This revenue was partially offset during the three months
ended February 28, 1997 by improved earnings from the Company's grain processing
activities when compared with the results for the same period ended in 1996.
Consolidated net sales of $1,550,000,000 decreased by $675,000,000 (30%)
during the three-month period ended February 28, 1997 compared to the same
period ended in 1996. This decrease is primarily the result of a decline in
volume of 115,800,000 bushels of grain sold as well as a reduction in the
average weighted sales price per bushel, from $4.69 per bushel for this period
in 1996 to $4.33 per bushel for the current three-month period. Also
contributing to the decline in sales dollars for the three-month period ended
February 28, 1997 compared to the three months ended a year earlier is the fact
that on August 30, 1996 the Company transferred its consumer products packaging
division to a nonconsolidated joint venture. This division had sales of
$95,000,000 during the three months ended February 29, 1996.
Patronage dividends received decreased $1,900,000 (38%) for the three-month
period ended February 28, 1997 compared to the same period ended in 1996 as a
result of lower patronage earnings distributed by cooperative customers and
suppliers.
Other Revenue of $20,100,000 decreased $800,000 for the three months ended
February 28, 1997 compared to the same period ended in 1996. This net decrease
is primarily attributable to a decrease in joint venture income of $2,200,000,
partially offset by an increase in service income at the Company's country
elevator facilities.
Cost of goods sold of $1,536,000,000 decreased $662,000,000 (30%) for the
three months ended February 28, 1997 compared to the same period ended in 1996.
This decrease is primarily the result of the decline in bushel volume as well as
a decrease in the weighted average cost per bushel of $4.64 for the period ended
in 1996 compared to $4.29 during the current three-month period. The Company's
consumer products packaging division which was transferred to a nonconsolidated
joint venture on August 30, 1996 had costs of goods sold for the three months
ended February 28, 1996 of $89,000,000.
Marketing and administrative expenses declined by $5,200,000 (25%) during
the three months ended February 28, 1997 compared to the same period ended in
1996. The primary cause for this decrease was the elimination of such expenses
related to the consumer products packaging division which was transferred to the
nonconsolidated joint venture on August 30, 1996.
Interest expense decreased $4,600,000 (49%) during the three months ended
February 28, 1997 compared to the same period ended in 1996 due to a decline in
working capital requirements.
Income tax expense decreased $300,000 (11%) for the three-month period
ended February 28, 1997 which is reflective of slightly lower pretax earnings
with effective tax rates of $11.8% and 12.1% for 1997 and 1996, respectively.
COMPARISON OF NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
The Company's consolidated net earnings for the nine-month period ended
February 28, 1997 of $37,000,000 declined $3,400,000 (8%) compared to the same
period ended in 1996 due to a decline in grain volume at both its country and
export facilities, partially offset by increases in volumes and gross margins
from the Company's grain and oilseed processing activities.
Consolidated net sales of $5,600,000,000 decreased by $400,000,000 (7%)
during the nine-month period ended February 28, 1997 compared to the same period
ended in 1996. This decrease is primarily the result of a decline in volume of
287,200,000 bushels of grain, partially offset by higher average weighted sales
price per bushel, from $4.13 per bushel for this period in 1996 to $4.82 per
bushel for the current nine-month period. The Company transferred its consumer
products packaging division to a nonconsolidated joint venture on August 30,
1996; this change in structure accounts for $130,000,000 of the sales dollar
decrease for the nine months ended February 28, 1997 compared to the same period
ended in 1996.
Patronage dividends received increased $1,000,000 (15%) for the nine-month
period ended February 28, 1997 compared to the same period ended in 1996 as a
result of higher patronage earnings distributed by cooperative customers and
suppliers.
Other Revenues of $53,900,000 for the nine months ended February 28, 1997
decreased $1,200,000 (2%). This net decrease is primarily attributable to a
decrease in grain joint venture income of $5,400,000 offset by earnings of
$2,200,000 from the consumer products packaging joint venture, and a reduction
in interest income of $2,800,000. These decreases were partially offset by an
increase in country elevator service revenues of $5,700,000.
Cost of goods sold of $5,565,000,000 decreased $400,000,000 (7%) for the
nine months ended February 28, 1997 compared to the same period ended in 1996.
This decrease is primarily the result of the decline in bushel volume, partially
offset by an increase in the weighted average cost per bushel of $4.78 for the
nine months ended in 1997 compared to $4.09 for the same period ended in 1996.
The Company's consumer products packaging division which was transferred to a
nonconsolidated joint venture on August 30, 1996 had costs of goods sold for the
nine months ended February 28, 1997 and 1996 of $89,000,000 and $208,000,000,
respectively, a decrease of $119,000,000.
Marketing and administrative expenses declined by $7,500,000 (12%) during
the nine months ended February 28, 1997 compared to the same period ended in
1996. The primary cause for this decrease was the elimination of such expenses
related to the consumer products packaging division which was transferred to the
nonconsolidated joint venture on August 30, 1996.
Interest expense decreased $10,100,000 (43%) during the nine months ended
February 28, 1997 compared to the same period ended in 1996 due to a decline in
working capital requirements.
Income tax expense decreased $750,000 for the nine-month period ended
February 28, 1997 which is reflective of lower pretax earnings with effective
tax rates of $11.8% and 12.4% for 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company used cash of $197,900,000 and
$82,500,000 during the three months ended February 28, 1997 and 1996,
respectively. Net cash used for operations during these periods is primarily
attributable to the changes in working capital requirements with such balances
increasing and therefore using cash of $213,300,000 and $77,600,000 during the
three months ended February 28, 1997 and 1996, respectively.
Operating activities of the Company provided cash of $224,800,000 during the
nine months ended February 28, 1997, while operating activities used
$240,100,000 during the same period ended in 1996. Net cash provided during the
nine months ended February 28, 1997 is primarily the result of reduced working
capital requirements created by the reduced grain volumes during this period,
with such balances contributing $183,600,000. Net cash used during the nine
months ended February 28, 1996 was primarily the result of increased working
capital requirements created by increased volume and rising prices, with such
balances using $300,100,000.
CASH FLOWS FROM INVESTING
Net cash used for the Company's investing activities were $8,700,000 and
$7,000,000 for the three months ended February 28, 1997 and 1996, respectively.
Acquisitions of property, plant and equipment comprised the principal use of
this cash in each of the periods. Such expenditures totaled approximately
$8,800,000 and $7,900,000 for the three months ended February 28, 1997 and 1996
respectively.
On August 30, 1996 the Company formed a joint venture with a regional
consumer products packaging company, and contributed substantially all of the
net assets of the consumer products packaging division as its capital investment
in the joint venture. In return for these assets, the Company received a 40%
interest in the joint venture and the joint venture assumed debt to the Company
of approximately $33,700,000.
For the nine months ended February 28, 1997 and 1996, net cash flows used in
the Company's investing activities totaled $20,600,000 and $29,100,000,
respectively. Acquisitions of property, plant and equipment comprised the
principal use of this cash in each of the periods. Such expenditures totaled
approximately $34,100,000 and $31,800,000 for the nine months ended February 28,
1997 and 1996 respectively. Redemption of investments in other cooperatives and
joint ventures partially offsets these expenditures. Such redemptions during the
nine months ended February 28, 1997 and 1996 totaled $13,500,000 and $2,300,000
respectively.
CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit. As of February 28, 1997 the Company had short-term lines of credit
totaling $550,000,000, all of which is committed. Total outstanding was
$123,000,000 and $324,000,000 on February 28, 1997 and May 31, 1996,
respectively.
The Company increased its short-term borrowings by $123,000,000 and
$74,500,000 during the three-month periods ended February 28, 1997 and 1996,
respectively.
The Company decreased its short-term borrowings by $201,000,000 during the
nine months ended February 28, 1997, and increased its short-term borrowing by
$242,000,000 during the same period ended February 28, 1996.
The Company has financed its long-term capital needs, primarily for the
acquisition of property, plant, and equipment, with long term agreements through
the banks for cooperatives with maturities through the year 2007. Total
indebtedness of these agreements totaled $123,000,000 and $120,700,000 on
February 28, 1997 and May 31, 1996, respectively. The Company also had long-term
debt in the form of capital leases, industrial development revenue bonds and
miscellaneous notes payable totaling approximately $9,400,000 and $11,900,000 on
February 28, 1997 and May 31, 1996, respectively.
The Company borrowed on a long-term basis $29,000,000 during the three
months ended February 28, 1996. The Company borrowed no additional funds on a
long term-basis during that same period ended in 1997. The Company repaid
long-term debt of $3,600,000 and $2,400,000 during the three months ended
February 28, 1997 and 1996, respectively.
The Company borrowed on a long-term basis $10,000,000 and $54,400,000 during
the nine-month periods ended February 28, 1997 and 1996, respectively, and
repaid long-term debt totaling $10,500,000 and $6,100,000 during the nine-month
periods ended February 28, 1997 and 1996, respectively.
The Company anticipates further short-term financing needs to fund increases
in the volume of grain handled and further long-term needs to fund acquisitions
of grain facilities and for the expansion and development of existing
value-added businesses. Management believes such needs can be financed with a
combination of debt and equity, including the results of the offering of Equity
Participation Units in its Wheat Milling and Oilseed Processing and Refining
Defined Business Units.
In accordance with the bylaws and by action of the Board of Directors,
annual net earnings 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 bylaws. The cash portion
of this distribution, deemed by the Board of Directors to be 30% of such
earnings for fiscal year 1996, totaled $11,000,000.
The Board of Directors authorized the redemption of patronage certificates
held by patrons who were 72 years of age and those held by estates of deceased
patrons during the nine months ended February 28, 1997 and 1996. These amounts
totaled $4,300,000 and $4,400,000, respectively, of which $1,100,000 and
$1,300,000 were redeemed during the three months ended February 28, 1997 and
1996, respectively.
OILSEED PROCESSING AND
REFINING DIVISION
ITEM 1. FINANCIAL STATEMENTS
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
MAY 31, FEBRUARY 28,
1996 1997
--------------------------
(Unaudited)
CURRENT ASSETS:
Receivables $22,795,612 $31,769,322
Inventories 26,235,220 21,629,586
Prepaid expenses and deposits 310,692 1,826,008
--------------------------
Total current assets 49,341,524 55,224,916
PROPERTY, PLANT AND EQUIPMENT 24,771,413 31,922,758
--------------------------
$74,112,937 $87,147,674
==========================
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Due to Harvest States Cooperatives $ 9,482,351 $19,693,173
Accounts payable and accrued expenses 11,239,588 14,063,503
--------------------------
Total current liabilities $20,721,939 $33,756,676
COMMITMENTS AND CONTINGENCIES
DIVISIONAL EQUITY 53,390,998 53,390,998
--------------------------
$74,112,937 $87,147,674
==========================
See notes to financial statements
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
REVENUES:
Processed oilseed sales $ 95,521,420 $ 117,617,535 $ 293,384,676 $ 326,969,828
Other revenue 736 (430,661) 1,399,766 145,826
-----------------------------------------------------------------
95,522,156 117,186,874 294,784,442 327,115,654
COSTS AND EXPENSES:
Cost of goods sold 87,033,882 107,203,129 273,061,744 302,508,583
Marketing, general, and administrative 1,268,250 1,291,563 3,713,971 3,733,026
Interest 85,200 173,700 85,200 209,200
-----------------------------------------------------------------
88,387,332 108,668,392 276,860,915 306,450,809
-----------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 7,134,824 8,518,482 17,923,527 20,664,845
INCOME TAXES 575,000 850,000 1,775,000 2,050,000
-----------------------------------------------------------------
NET EARNINGS $ 6,559,824 $ 7,668,482 $ 16,148,527 $ 18,614,845
=================================================================
See notes to financial statements
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF DIVISIONAL EQUITY
BALANCE AT MAY 31, 1996 $53,390,998
Net earnings (unaudited) 18,614,845
Divisional equity distributed (unaudited) (18,614,845)
--------------
BALANCE AT FEBRUARY 28, 1997 (UNAUDITED) $53,390,998
==============
See notes to financial statements
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 6,559,824 $ 7,668,482 $ 16,148,527 $ 18,614,845
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 376,792 467,265 1,135,774 1,291,222
Gain (loss) on disposal of property,
plant, and equipment (1,013) (458,024) (32,778) (469,756)
Changes in assets and liabilities:
Receivables 3,145,456 2,159,021 (1,218,327) (8,973,710)
Inventories 35,453 8,412,758 (3,764,644) 4,605,634
Prepaid expenses and deposits (416,953) 69,757 (1,390,777) (1,515,316)
Accounts payable and accrued
expenses 6,690,714 (6,559,199) 7,471,268 2,823,915
--------------------------- ---------------------------
Total adjustments 9,830,449 4,091,578 2,200,516 (2,238,011)
Net cash provided by --------------------------- ---------------------------
operating activities 16,390,273 11,760,060 18,349,043 16,376,834
--------------------------- ---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of property, plant, and
equipment (1,978,049) (804,135) (5,016,945) (7,972,811)
--------------------------- ---------------------------
Net cash used in investing activities (1,978,049) (804,135) (5,016,945) (7,972,811)
--------------------------- ---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments to)
Harvest States Cooperatives (7,852,400) (3,287,443) 2,816,429 10,210,822
Divisional equity distributed (6,559,824) (7,668,482) (16,148,527) (18,614,845)
Net cash used in --------------------------- ---------------------------
financing activities (14,412,224) (10,955,925) (13,332,098) (8,404,023)
--------------------------- ---------------------------
INCREASE (DECREASE) IN CASH 0 0 0 0
CASH AT BEGINNING OF PERIOD -- -- -- --
--------------------------- ---------------------------
CASH AT END OF PERIOD -- -- -- --
=========================== ===========================
See notes to financial statements
OILSEED PROCESSING AND REFINING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited divisional financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, such unaudited divisional financial statements
include all adjustments (consisting of only normal, recurring accruals)
necessary for a fair presentation thereof. Operating results for the nine-month
period ended February 28, 1997 are not necessarily indicative of the results
that may be expected for the year end May 31, 1997.
These statements should be read in conjunction with the financial statements and
footnotes included in the Division's financial statements for the year ended May
31, 1996 which is included in the Harvest States Cooperatives' Prospectus dated
February 14, 1997, previously filed with the Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Certain events and circumstances of which management has become aware of
during or after the three months ended February 28, 1997 which could negatively
impact future earnings and liquidity include the following:
Margins during the month of March 1997 have declined in this industry. The
duration and extent of these depressed margins and consequently the
financial impact on the Processing and Refining Division is unpredictable.
The Processing and Refining Division has scheduled facility maintenance and
new equipment installation for the first quarter of fiscal 1998. (The first
quarter of fiscal 1998 is June 1, 1997 through August 31, 1997) This will
involve disruption of production at the crushing portion of the business for
approximately six weeks, and will have a negative impact on earnings for
that period, the extent of which is unknown at this time.
RESULTS OF OPERATIONS
Certain operating information pertaining to the Processing and Refining
Division is set forth below, as a percentage of sales, except for margins.
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
---------------------- -----------------------
1996 1997 1996 1997
---- ---- ---- ----
Gross Margin percentage 8.89% 8.49% 7.40% 7.53%
Marketing and Administrative 1.33% 1.10% 1.27% 1.14%
Interest 0.09% 0.15% 0.03% 0.06%
Processing Margins
Crushing/bu $0.70 $0.68 $0.55 $0.56
Refining/lb $0.0135 $0.0214 $0.0112 $0.0151
Because of the volatility of commodity prices, the Company believes that
processing margins are a better measure of the Division's performance than gross
margin percentages.
COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
The Processing and Refining Division's net earnings of $7,700,000 for the
three months ended February 28, 1997 represents a $1,100,000 (17%) increase
compared to the same period in 1996. This increase is primarily attributable to
improved processing margins for refined oil products.
Net sales of $117,600,000 for the three-month period ended February 28, 1997
increased by $22,100,000 (23%) compared to the same period in 1996. Volume
increases in processed soybean products, primarily soymeal and soyflour,
contributed $800,000 to sales and increased volumes of refined oil contributed
$4,900,000. Increased sales prices for soymeal and soyflour contributed
$5,000,000 while increased sales prices for refined oil contributed $11,400,000.
Cost of goods sold for the 1997 period of $107,200,000 increased by
$20,200,000 (23%) compared to the same three-month period of 1996. Of this
increase, $13,700,000 is attributable to increased prices for purchased crude
oil, $4,000,000 is due to higher prices per bushel for soybeans, and $3,100,000
is attributable to a volume increase in purchased crude soybean oil. These
increases were offset slightly by a decline in purchased soybean quantities
(about $100,000) and a reduction in plant operating expenses of $500,000.
Marketing and administrative expenses were unchanged for the 1997 period
compared to the 1996 period.
Interest expense increased $89,000 for the three-month period ended February
28, 1997 compared to the same period ended in 1996. This increase was the result
of the higher raw material costs which translated to slightly greater working
capital requirements.
Income tax expense for the three months ended February 28, 1997 of $850,000
increased $275,000 (48%) compared to the same period of a year ago. This
increase was the result of slightly greater nonpatronage earnings for the
current three months compared to the same period ended in 1996.
COMPARISON OF NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
The Processing and Refining Division's net earnings of $18,600,000 for the
nine months ended February 28, 1997 represents a $2,500,000 (15%) increase
compared to the same period in 1996. This increase is primarily attributable to
increased volumes of refined oil sales and slightly improved processing margins
over those for the same period ended in 1996.
Net sales of $327,000,000 for the nine months ended February 28, 1997
increased $33,600,000 (11%) compared to the same period ended 1996. Price
increases for processed soybean products, primarily soymeal and soyflour,
contributed $33,900,000 to sales and increased volumes for the same products
contributed $4,200,000. Increased refined oil sales volumes contributed
$10,000,000 while decreased sales prices for refined oil offset these increases
by $14,500,000.
Other revenues of $150,000 decreased $1,250,000 (90%) for the nine months
ended February 28, 1997 compared to the same period ending in 1996. This
decrease was due primarily to a reduction in revenue from an oilseed joint
venture of about $800,000.
Cost of goods sold for the nine months ended February 28, 1997 of
$302,500,000 increased $29,400,000 (11%) compared to the same period ended in
1996. Of this increase $5,700,000 is attributable to additional soybean
processing volume (24,000,000 bushels compared to 23,100,000 bushels) and
$27,600,000 is the result of higher average cost per bushel. Increased amounts
of purchased crude oil contributed $1,400,000 to the cost, but was offset by
lower prices for the crude oil amounting to $4,500,000. Plant expense reductions
further offset costs by $800,000.
Marketing and administrative expenses were unchanged for the nine months
ended February 28, 1997 compared to the same period ended in 1996.
Interest expense increased $124,000 (146%) for the nine-month period ended
February 28, 1997 compared to the same period ended in 1996. This increase was
the result of higher raw material costs which translated to slightly greater
working capital requirements.
Income tax expense for the nine months ended February 28, 1997 of $2,050,000
increased $275,000 (15%) compared to the same period of a year ago. This
increase was the result of slightly greater nonpatronage earnings for the
current nine months compared to the same period ended in 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Processing and Refining Division's cash requirements result from capital
improvements and from a need to finance additional inventories and receivables
based on increased raw material costs or levels. These cash needs are expected
to be fulfilled by the Company, which includes equity from the results of the
offering of the Equity Participation Units in the Division.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended February 28, 1997 and 1996,
respectively, provided cash of $11,800,000 and $16,400,000 due to net earnings
of $7,700,000 and $6,600,000 and decreased working capital requirements of
$3,600,000 and $9,500,000.
For the nine months ended February 28, 1997 and 1996, the Processing and
Refining Division's operating activities provided cash of $16,400,000 and
$18,300,000, respectively. Net earnings of $18,600,000 and $16,100,000 for the
nine months ended February 28, 1997 and 1996, respectively, contributed cash.
Noncash expenses deducted from these net earnings of $1,300,000 and $1,100,000
for the nine months ended February 28, 1997 and 1996, respectively, represent
additional cash for these periods. Increased working capital requirements for
this period ended in 1997 decreased cash $3,500,000, while decreased working
capital requirements for the period ended in 1996 increased cash $1,100,000.
CASH FLOWS USED FOR INVESTING
The Processing and Refining Division used $800,000 and $2,000,000 during the
three months ended February 28, 1997 and 1996 respectively, for the purchase of
property, plant, and equipment.
Net cash used by the Division for the purchase of property, plant, and
equipment during the nine months ended February 28, 1997 and 1996, were
$8,000,000 and $5,000,000 respectively.
CASH FLOWS FROM FINANCING ACTIVITIES
The Processing and Refining Division'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 Division 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 of the Company are reviewed
on a periodic basis, and could potentially be restricted based upon availability
of funds.
The Processing and Refining Division had debt of $19,700,000 on February 28,
1997, an increase of $10,200,000 from May 31, 1996, which reflects working
capital and fixed asset financing requirements.
Debt outstanding and payable to the Company as of May 31, 1996 was
$9,500,000, which represents working capital and fixed asset financing
requirements through that date.
WHEAT MILLING DIVISION
ITEM 1. FINANCIAL STATEMENTS
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
MAY 31, FEBRUARY 28,
1996 1997
----------------------------
(Unaudited)
CURRENT ASSETS:
Receivables $ 43,749,134 $ 47,651,612
Inventories 9,308,275 11,258,956
Prepaid expenses and deposits 149,873 201,768
----------------------------
Total current assets 53,207,282 59,112,336
OTHER ASSETS 12,881,236 12,081,225
PROPERTY, PLANT AND EQUIPMENT 59,233,046 70,244,648
----------------------------
$125,321,564 $141,438,209
============================
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Due to Harvest States Cooperatives $ 31,044,150 $ 39,646,885
Accounts payable and accrued expenses 12,480,342 15,523,263
Current portion of long term debt 6,344,584 9,330,000
----------------------------
Total current liabilities 49,869,076 64,500,148
LONG-TERM DEBT 47,655,416 49,140,989
COMMITMENTS AND CONTINGENCIES
DIVISIONAL EQUITY 27,797,072 27,797,072
----------------------------
$125,321,564 $141,438,209
============================
See notes to financial statements
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
REVENUES:
Processed grain sales $ 47,538,934 $ 48,878,729 $119,349,973 $160,305,189
COSTS AND EXPENSES:
Cost of goods sold 44,185,038 44,689,634 111,164,551 147,064,882
Marketing, general, and administrative 1,026,345 1,320,751 2,682,093 3,824,406
Interest 1,565,200 1,472,690 3,410,808 4,298,669
------------------------------------------------------------
46,776,583 47,483,075 117,257,452 155,187,957
------------------------------------------------------------
EARNINGS BEFORE INCOME TAXES 762,351 1,395,654 2,092,521 5,117,232
INCOME TAXES 75,000 150,000 200,000 400,000
------------------------------------------------------------
NET EARNINGS $ 687,351 $ 1,245,654 $ 1,892,521 $ 4,717,232
============================================================
See notes to financial statements
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENT OF DIVISIONAL EQUITY
BALANCE AT MAY 31, 1996 $27,797,072
Net earnings (unaudited) 4,717,232
Divisional equity distributed (unaudited) (4,717,232)
--------------
BALANCE AT FEBRUARY 28, 1997 (UNAUDITED) $27,797,072
==============
See notes to financial statements
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
----------- -----------
1996 1997 1996 1997
---- ---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 687,351 $ 1,245,654 $ 1,892,521 $ 4,717,232
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 992,065 1,045,636 2,415,150 3,072,700
Changes in assets and liabilities:
Receivables (13,368,917) (8,636,263) (18,775,239) (3,902,478)
Inventories 4,693,249 (1,080,755) (4,227,650) (1,950,681)
Prepaid expenses and deposits 19,494 49,392 (76,134) (51,895)
Accounts payable and accrued
expenses 5,707,068 1,519,220 9,694,468 3,042,921
----------------------------- -----------------------------
Total adjustments (1,957,041) (7,102,770) (10,969,405) 210,567
Net cash (used in) provided by ----------------------------- -----------------------------
operating activities (1,269,690) (5,857,116) (9,076,884) 4,927,799
----------------------------- -----------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of property, plant, and
equipment (2,003,054) (4,162,057) (14,555,602) (13,284,291)
----------------------------- -----------------------------
Net cash used in investing activities (2,003,054) (4,162,057) (14,555,602) (13,284,291)
----------------------------- -----------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments to)
Harvest States Cooperatives (839,905) 13,521,546 5,275,007 8,602,735
Long term debt borrowings 5,518,750 22,606,250 10,000,000
Principal payments on long term debt (718,750) (2,256,719) (2,356,250) (5,529,011)
Divisional equity distributed (687,351) (1,245,654) (1,892,521) (4,717,232)
Net cash provided by ----------------------------- -----------------------------
financing activities 3,272,744 10,019,173 23,632,486 8,356,492
----------------------------- -----------------------------
INCREASE (DECREASE) IN CASH 0 0 0 0
CASH AT BEGINNING OF PERIOD -- -- -- --
----------------------------- -----------------------------
CASH AT END OF PERIOD -- -- -- --
============================= =============================
See notes to financial statements
WHEAT MILLING DIVISION
(A DIVISION OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited divisional financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of management, such unaudited divisional financial statements
include all adjustments (consisting of only normal, recurring accruals)
necessary for a fair presentation thereof. Operating results for the nine-month
period ended February 28, 1997 are not necessarily indicative of the results
that may be expected for the year end May 31, 1997.
These statements should be read in conjunction with the financial statements and
footnotes included in the Division's financial statements for the year ended May
31, 1996 which is included in the Harvest States Cooperatives' Prospectus dated
February 14, 1997, previously filed with the Commission.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Certain events and circumstances of which management has become aware during
or after the three months ended February 28, 1997 which could negatively impact
future earnings and liquidity include the following:
In March 1997, it was reported that Borden (which represented 23.8% of the
Milling Division's semolina and durum flour sales in the year ended May 31,
1996) was closing five of its ten North American pasta manufacturing plants.
Four of the plants to be closed are customers of the Milling Division. For
the years ended May 31, 1995 and 1996, shipments to those four plants were
16% and 22%, respectively, of total semolina and durum flour shipments and
for the nine months ended February 28, 1997, were 22% of the total semolina
and durum flour shipments. Because overall domestic demand for pasta remains
strong and durum milling capacity is fixed, the Company believes that sales
made to these closed plants can be replaced by sales to the purchaser or
purchasers of one or more of the closed plants, should Borden determine to
sell such plants, increased sales to Borden's remaining plants or increased
sales to other pasta manufacturers (either current or new customers of the
Milling Division). Alternatively, excess durum milling capacity could be
converted to other types of wheat milling, such as specialty or blended
flours or bakery flour. A substantial portion (31.5% in the year ended May
31, 1996) of the production of the Company's Rush City facility is sold to
one of the plants to be closed. Because there are no other large pasta
manufacturing plants located in geographical proximity to Rush City, the
Company could be forced to close that facility and possibly to relocate it's
machinery to a different location.
The Company is unable to predict the effect of disruption in sales because
of the closing of the plants, including a temporary disruption while the
Company locates alternative customers.
Completion of the Houston plant, which was projected to commence operations
in March of 1997, has been slower than anticipated. It is now projected that
operations will begin sometime in April, 1997.
The intent to expand wheat flour milling capacity has recently been
announced by certain competing milling companies. This expansion will
increase the supply of product, and could negatively impact gross margins in
this industry.
RESULTS OF OPERATIONS
Certain operating information pertaining to the Milling Division is set
forth below, as a percentage of sales, except for margins/cwt.
THREE MONTHS ENDED NINE MONTHS ENDED
FEBRUARY 28 FEBRUARY 28
--------------------- --------------------
1996 1997 1996 1997
---- ---- ---- ----
Gross Margin percentage 7.06% 8.57% 6.86% 8.26%
Marketing and Administrative 2.16% 2.70% 2.25% 2.39%
Interest 3.29% 3.01% 2.86% 2.68%
Margins/cwt 1.18 1.20 1.11 1.24
Because of the volatility of commodity prices, the Company believes that
margins per hundred weight (manufacturing margins) are a better measure of the
Division's performance than gross margin percentages.
COMPARISON OF THREE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
The Milling Division's net earnings of $1,200,000 for the three months ended
February 28, 1997 increased $500,000 (81%) over the same period in 1996. This
increase in net earnings is attributable primarily to higher volumes of
production at slightly improved manufacturing margins compared to the same
period of a year ago.
Net sales for the three-month period ended February 28, 1997 of $48,900,000
increased $1,300,000 (3%) from the same period in 1996 primarily because of an
increase in shipments of semolina and flour from 2,800,000 hundred weights to
3,500,000 hundred weights (25%). The effect of this volume increase in sales was
largely offset by the average sales price of such product which decreased from
$15.43 for the three months ended February 28,1996 to $12.68 per hundred weight
for the current three month period.
Cost of goods sold for the three months ended February 28, 1997 of
$44,700,000 increased $500,000 (1%). Although raw material purchased increased
l,200,000 bushels for the current three-month period compared to the same period
of a year ago, the average price paid for a bushel of grain declined from $6.71
per bushel for the three months in 1996 to $5.55 per bushel during the current
three-month period. Consequently, the dollars expended for raw material remained
essentially unchanged when comparing the two periods. Plant expense increases of
$500,000 are attributable to the higher production level, and were incurred
principally at Kenosha.
Marketing and administrative expenses were $1,300,000 for the three-month
period ended February 28, 1997, compared to $1,000,000 for the same period in
1996. This increase is attributable to staff and system expansion to handle the
volume increases already experienced, and anticipated future volumes from the
Houston mill which will begin operations later this spring.
Interest expense of $1,500,000 for the 1997 period decreased by $100,000
compared to the same period a year ago. This decrease is reflective of the
decline in grain prices which are a component of inventory and eventually
accounts receivable.
COMPARISON OF NINE MONTHS ENDED FEBRUARY 28, 1997 AND 1996
The Milling Division's net earnings of $4,700,000 for the nine months ended
February 28, 1997 represents a $2,800,000 (149%) increase from the same period
in 1996 due to an increase in manufacturing margins per hundred weight milled
and an increase in volume of production.
Net sales of $160,300,000 for the nine months ended February 28, 1997
increased $41,000,000 (34%) from the same period in 1996 due to an increase in
shipments from 7,400,000 hundred weights to 10,700,000 hundred weights as the
Division's Kenosha mill came on line in November of 1995, offset slightly by a
decrease in the average price per hundred weight from $15.11 to $13.64.
Cost of goods sold of $147,100,000 for the nine months ended February 28,
1997 increased by $35,900,000 (32%) from the same period in 1996. Raw material
costs increased by $32,700,000 due to an increase in bushels milled (22,000,000
bushels in the 1997 period and 15,500,000 bushels in the 1996 period). The
impact of this volume increase was offset partially by a decline in the average
cost per bushel from $6.61 in the 1996 period to $6.14 in the 1997 period. Plant
expenses increased $3,200,000 in the 1997 period, essentially all of which is
attributable to the Kenosha mill which commenced operation in November of 1995.
Marketing and administrative expenses were $3,800,000 for the nine months
ended February 28, 1997, compared to $2,700,000 for the same period of 1996.
This increase is attributable to an increase in staff and system expansion to
handle the additional volumes generated by the Kenosha mill.
Interest expense of $4,300,000 for the 1997 period increased $900,000 (26%)
compared to the same period in 1996. This increase is attributable to additional
short-term borrowings necessary to carry increased inventories and receivables
resulting from the production at the Kenosha mill, and additional interest
expense on the long-term debt used to finance the construction of the Kenosha
mill.
LIQUIDITY AND CAPITAL RESOURCES
The Milling Division's cash needs are primarily the result of continued
capital additions. The Division's Kenosha plant, which began operations in late
1995, represented an investment of $39,000,000. The Division's Houston plant,
which is expected to begin operations in April 1997, is expected to represent an
investment of $17,300,000. In addition, if the Pocono facility is constructed,
the Division expects capital additions of $38,800,000. The Division anticipates
capital additions to all of its facilities.
Commencement of operations at a particular facility involves increased
working capital to fund required inventories and receivables related to
increased sales. In addition, increased carrying value of inventories and
receivables because of higher prices, increased receivables because of slow
collections or increased inventories above historical levels requires additional
financing.
All of the Milling Division's financing needs are expected to be met by the
Company, which includes equity from the results of the offering of the Equity
Participation Units in the Division.
CASH FLOWS FROM OPERATIONS
Operating activities used net cash of $5,900,000 for the three months ended
February 28, 1997 and used net cash of $1,300,000 for the same three months a
year ago. The usage is generally attributable to working capital needs, namely
an increase in working capital of $8,100,000 for the three-month period ended
February 28, 1997 and an increase of $3,000,000 in working capital for the same
period a year ago. Cash requirements were offset by net earnings of $1,200,000
and $700,000 for the three months ended February 28, 1997 and 1996 respectively,
as well as by noncash depreciation and amortization expenses of $1,000,000 for
each of these periods.
Operating activities for the nine months ended February 28, 1997 provided
net cash of $4,900,000 due to net earnings of $4,700,000, noncash expenses such
as depreciation and amortization of $3,100,000, offset by increased working
capital requirements of $2,900,000. For the same period in 1996, operating
activities used net cash of $9,100,000 due to increased working capital
requirements of $13,400,000, partially offset by net earnings of $1,900,000 and
noncash expenses of $2,400,000.
CASH FLOWS USED FOR INVESTING
Cash expended for the acquisition of property, plant and equipment during
the three-month periods ended February 28, 1997 and 1996 totaled $4,200,000 and
$2,000,000 respectively.
Cash expended for the acquisition of property, plant and equipment during
the nine-month periods ended February 28, 1997 and 1996 totaled $13,300,000 and
$14,600,000 respectively.
CASH FLOWS FROM FINANCING ACTIVITIES
The Milling Division'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 Division 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 of the Company are reviewed
on a periodic basis, and could potentially be restricted based upon availability
of funds.
The Milling Division has short-term debt of $39,600,000 on February 28,
1997, an increase of $8,600,000 which is primarily attributable to an increase
in working capital requirements of $2,900,000, long term-debt repayments of
$5,500,000, and partial financing of fixed asset additions which includes the
Houston mill of $3,200,000. These cash requirements were partially covered by
cash generated from operations.
The Milling Division incurred additional long term-debt during the
nine-month period ended February 28, 1997 in the amount of $10,000,000 as
partial financing of the construction of the Houston mill.
The Milling Division had short-term debt outstanding and payable to the
Company of $31,000,000 on May 31, 1996. This interest bearing balance reflects
working capital and fixed asset financing requirements.
On May 31, 1996 the Milling Division had long-term debt of $54,000,000 which
had been incurred primarily with the acquisition of the Huron facility in 1990,
to expand the Huron facility in 1990 and 1991, and to construct the Kenosha mill
in the 1995 and 1996 fiscal years.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit Description
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99 Cautionary Statement
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
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.
HARVEST STATES COOPERATIVES
(Registrant)
April 11, 1997 /s/ T. F. Baker
-------------- ---------------
(Date) T. F. Baker
Group Vice-President - Finance
EXHIBIT INDEX
Page No. in
Sequentially
Exhibit Description of Exhibit Numbered Order
- ------- ---------------------- --------------
99 Cautionary Statement . . . . . . . . . . Filed Electronically
27 Financial Data Schedule. . . . . . . . . Filed Electronically