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 August 31, 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 41-0251095
(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 (Registrant's telephone number
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
August 31, 1997)
INDEX
PAGE
NO.
PART 1. FINANCIAL INFORMATION
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of May 31, 1997, and August 31, 1997
Consolidated Statements of Earnings for the three months ended August 31,
1996, and August 31, 1997
Consolidated Statement of Capital as of August 31, 1997
Consolidated Statements of Cash Flows for the three months ended August 31,
1996, and August 31, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
Item 1. Financial Statements (Unaudited)
Balance Sheets as of May 31, 1997, and August 31, 1997
Statements of Earnings for the three months ended August 31, 1996,
and August 31, 1997
Statement of Defined Business Unit Equity as of August 31, 1997
Statements of Cash Flows for the three months ended August 31, 1996, and
August 31, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
Item 1. Financial Statements (Unaudited)
Balance Sheets as of May 31, 1997, and August 31, 1997
Statements of Earnings for the three months ended August 31, 1996,
and August 31, 1997
Statement of Defined Business Unit Equity as of August 31, 1997
Statements of Cash Flows for the three months ended August 31, 1996, and
August 31, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
PART 11. 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
PART 1. FINANCIAL INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to:
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 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 priced 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
Defined Business Unit.
MILLING BUSINESS COMPETITIVE TRENDS. Certain major competitors of the Wheat
Milling Defined Business Unit have developed long-term relationships with
customers by locating plants adjacent to pasta manufacturing plants. This
trend could potentially decrease the future demand for semolina from
nonintegrated millers.
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 August
31, 1997.
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, August 31,
1997 1997
------------ ------------
(unaudited)
CURRENT ASSETS:
Cash $ 38,064,191 $ 10,158,109
Receivables 267,517,690 273,332,581
Inventories 248,373,247 167,684,308
Prepaid expenses and deposits 25,562,366 26,956,914
------------ ------------
Total current assets 579,517,494 478,131,912
OTHER ASSETS:
Investments 126,547,616 131,504,965
Other 46,489,678 45,975,821
------------ ------------
Total other assets 173,037,294 177,480,786
PROPERTY PLANT AND EQUIPMENT 224,150,965 233,543,445
------------ ------------
$976,705,753 $889,156,143
============ ============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Notes payable $ 98,000,000 $
Patron credit balances 25,190,513 38,281,915
Advances received on grain sales 125,071,207 138,819,829
Drafts outstanding 32,698,943 26,403,934
Accounts payable and accrued expenses 152,451,010 140,728,856
Patronage dividends payable 13,200,000 15,900,000
Current portion of long-term debt 21,094,774 17,307,648
------------ ------------
Total current liabilities 467,706,447 377,442,182
LONG-TERM DEBT 113,363,692 108,971,646
OTHER LIABILITIES 10,536,301 11,276,880
COMMITMENTS AND CONTINGENCIES
CAPITAL 385,099,313 391,465,435
------------ ------------
$976,705,753 $889,156,143
============ ============
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
Three Months Ended
August 31,
-------------------------------
1996 1997
-------------- --------------
REVENUES:
Sales:
Grain and oilseed $1,875,912,189 $1,030,047,706
Processed grain and oilseed 234,548,425 130,769,655
Feed and farm supplies 61,003,251 55,205,660
-------------- --------------
2,171,463,865 1,216,023,021
Patronage dividends 4,504,239 5,180,428
Other revenues 14,839,801 18,139,088
-------------- --------------
2,190,807,905 1,239,342,537
COSTS AND EXPENSES:
Cost of good sold 2,156,922,994 1,207,436,129
Marketing, general and administrative 19,595,114 16,162,850
Interest 4,621,786 3,135,077
-------------- --------------
2,181,139,894 1,226,734,056
-------------- --------------
EARNINGS BEFORE INCOME TAXES 9,668,011 12,608,481
INCOME TAXES 1,150,000 1,400,000
-------------- --------------
NET EARNINGS $ 8,518,011 $ 11,208,481
============== ==============
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL
OILSEED
WHEAT PROCESSING &
PATRONAGE NONPATRONAGE MILLING REFINING PATRONAGE CAPITAL
TOTAL CERTIFICATES CERTIFICATES EPUS EPUS PAYABLE RESERVE
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT MAY 31, 1997:
Stated as capital $385,099,313 $267,384,011 $ 15,144,440 $ 9,574,000 $ 4,296,000 $ 30,800,000 $ 57,900,862
Stated as current liability 13,200,000 13,200,000
Redemption of capital equity
certificates (unaudited) (2,152,613) (1,922,202) (230,411)
Other (unaudited) 10,254 42,290 (581) (31,455)
Net earnings (unaudited) 11,208,481 9,000,000 2,208,481
Patronage dividends payable
in cash, stated as a current
liability (unaudited) (15,900,000) (15,900,000)
------------ ------------ ------------ ------------ ------------ ------------ ------------
BALANCE AT AUGUST 31, 1997
(unaudited) $391,465,435 $265,504,099 $ 14,913,448 $ 9,574,000 $ 4,296,000 $ 37,100,000 $ 60,077,888
============ ============ ============ ============ ============ ============ ============
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES
CONSOLIDATED CASH FLOW STATEMENTS
(UNAUDITED)
Three Months Ended
August 31,
------------------------------
1996 1997
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 8,518,011 $ 11,208,481
Adjustments to reconcile net earnings to
net cash flows:
Depreciation and amortization 5,713,837 5,911,129
Noncash income from joint venture (1,753,575) (3,152,401)
Noncash portion of patronage dividends received (2,912,654) (3,544,306)
Loss (gain) on sale of property, plant, and
equipment 32,070 (100,051)
Change in assets and liabilities:
Receivables (50,108,075) (5,813,751)
Inventories 261,210,354 80,688,939
Patron credit balances 50,997,174 13,091,400
Advances received on grain and oilseed sales 24,219,643 13,748,623
Accounts payable, accrued expenses, and
drafts outstanding (8,736,938) (17,276,583)
Prepaid expenses, deposits, and other 14,940,372 (1,119,593)
------------- -------------
Total adjustments 293,602,208 82,433,406
------------- -------------
Net cash provided by operating
activities 302,120,219 93,641,887
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant, and
equipment 89,216 499,109
Investments redeemed 1,522,295 1,609,267
Acquisition of property, plant, and equipment (11,407,775) (15,365,269)
Payments on notes receivable 200,095 60,481
Investments (5,000)
Investments in joint ventures 8,515,059
Other 1,003,723 (14,772)
------------- -------------
Net cash used in investing activities (77,387) (13,216,184)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit
agreements (315,000,000) (98,000,000)
Principal payments on long-term debt (3,081,864) (3,304,216)
Principal payments under capital lease obligations (534,917) (4,874,956)
Redemption of capital equity certificates (1,639,244) (2,152,613)
Cash patronage dividends paid
------------- -------------
Net cash used in financing
activities (320,256,025) (108,331,785)
------------- -------------
DECREASE IN CASH (18,213,193) (27,906,082)
CASH AT BEGINNING OF PERIOD 21,426,227 38,064,191
------------- -------------
CASH AT END OF PERIOD $ 3,213,034 $ 10,158,109
============= =============
See notes to consolidated financial statements
HARVEST STATES COOPERATIVES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MAY 31, 1997 AND THREE MONTHS ENDED AUGUST 31,
1997 AND 1996 (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 three-month period ended August 31, 1997 are not necessarily indicative
of the results that may be expected for the year ending May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's financial statements for the year ended May
31, 1997 included in the Company's Form 10-K dated August 26, 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, August 31,
1997 1997
------------- -------------
Trade ................... $ 213,501,012 $ 232,126,549
Elevator accounts ....... 56,172,256 45,072,095
Other ................... 8,819,422 7,473,325
------------- -------------
278,492,690 284,671,969
Less allowance for losses (10,975,000) (11,339,388)
------------- -------------
$ 267,517,690 $ 273,332,581
============= =============
NOTE 3. INVENTORIES
May 31, August 31,
1997 1997
------------ ------------
Grain and oilseed .................... $176,605,333 $126,820,942
Processed grain and oilseed products . 35,139,534 22,147,222
Feed and Farm supplies ............... 36,628,380 18,716,144
------------ ------------
$248,373,247 $167,684,308
============ ============
NOTE 3. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
Additional information concerning supplemental disclosures of cash
flow activities are as follows:
August 31, August 31,
1996 1997
----------- -----------
Net cash paid during the year for:
Interest ................ $ 6,533,042 $ 3,683,691
Income taxes ............ 115,805 95,998
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On October 1, 1997 the boards of directors of the Company and Cenex, Inc.
agreed to explore ways of building a closer working relationship. Future
discussions will likely take a number of months, probably extending into the
third quarter of fiscal year 1998, and are expected to include a number of
possibilities, ranging from strategic alliances to unification. Cenex, Inc. is a
cooperative with operations centering on providing supplies and services to its
members, including refined fuels, propane, lubricants, tires and accessories,
plant food and crop protection products. Cenex has annual sales of approximately
$3 billion and has equity of approximately $600 million. The Company already has
close ties with Cenex, since it is one of Cenex's largest customers for agronomy
products. The two cooperatives also have nearly identical membership areas, and
have many members in common.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED AUGUST 31, 1997 WITH 1996
The Company's consolidated net earnings for the three months ended August
31, 1997 and 1996 were $11,200,000 and $8,500,000, respectively, which
represents a $2,700,000 (32%) increase for the period ended in 1997. This
increase in net earnings is primarily the result of improved grain margins in
the 1997 period compared to 1996.
Consolidated net sales of $1,216,000,000 decreased $955,000,000 (44%) during
the three-month period ended August 31, 1997 compared to the same period in
1996. This decrease is related to both volume and sale price. Grain volume of
250,000,000 bushels during the three months ended August 31, 1997 decreased
75,000,000 bushels (23%) compared to 1996. During the same periods, the average
weighted sales price for all commodities decreased $1.78 a bushel, from $5.74
for the 1996 three-month period to $3.96 in 1997.
Patronage dividends received increased $700,000 (16%) for the three months
ended August 31, 1997 compared to 1996 resulting from higher patronage earnings
distributed by cooperative customers suppliers.
Other revenue of $18,100,000 for the three months ended August 31, 1997
increased $3,300,000 (22%) compared to the same period in 1996. This increase
was primarily due to the recognition of $2,100,000 of income from the Company's
nonconsolidated consumer products packaging joint venture, and the recognition
of a gain of $450,000 on the sale of equipment within the Oilseed Processing and
Refining Defined Business Unit.
Cost of goods sold of $1,207,000,000 decreased $950,000,000 (44%)
for the three months ended August 31, 1997 compared to the same period in 1996.
This decrease is the result of a 75,000,000 bushel decline in volume, as well as
a decrease in the weighted average purchase price for all commodities of $1.81 a
bushel.
Marketing and administrative expenses declined by $3,400,000 (17%) during the
three months ended August 31, 1997 compared to the same period in 1996. This
decrease is primarily the result of the elimination of such costs related to the
consumer products packaging division of the Company which was transferred to a
nonconsolidated joint venture on August 30, 1996. These costs for the three
months ended August 31, 1996 were approximately $4,000,000.
Interest expense of $3,100,000 for the three months ended August 31, 1997
represents a decrease of $1,500,000 (33%) compared to the same period in 1996.
This reduced expense is the result of reduced grain volume and lower grain
prices.
Income tax expense of $1,400,000 and $1,150,000 for 1997 and 1996,
respectively, results in effective tax rates of 11.1% and 11.8%.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company provided net cash of $93,600,000 and
$302,100,000 for the three-month periods ended August 31, 1997 and 1996,
respectively. Net cash provided by operations during both of these two periods
is primarily attributable to the reduction of working capital requirements with
such balances decreasing $83,300,000 and $292,500,000 in 1997 and 1996,
respectively.
CASH FLOWS FROM INVESTING
Net cash used for the Company's investing activities were approximately
$13,200,000 and $100,000 for the three months ended August 31, 1997 and 1996,
respectively. Acquisitions of property, plant and equipment comprise the
principal use of cash in each of these periods. Such expenditures totaled
approximately $15,400,000 and $11,400,000 for the three-month periods ended
August 31, 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 then owned by the Company
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. Of this debt transfer,
$9,000,000 was related to non-current assets transferred and is reflected as a
source of cash from investing
activities for the three-month period ended August 31, 1996.
CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit with the banks for cooperatives and commercial banks. As of August 31,
1997 the Company had short-term lines of credit totaling $550,000,000, all of
which is committed, with no balance outstanding. On May 31, 1997, the Company
had $98,000,000 of this credit line outstanding. This decrease in short-term
borrowing is attributable to decreased grain volume and lower prices.
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 $122,000,000 and $125,000,000 on August
31, 1997 and May 31, 1997, respectively. The Company also had long-term debt in
the form of capital leases, industrial development revenue bonds and
miscellaneous notes payable totaling approximately $4,300,000 and $9,500,000 on
August 31, 1997 and May 31, 1997, respectively.
The Company repaid long-term debt totaling $8,200,000 and $3,600,000 during
the three-month periods ended August 31, 1997 and 1996, respectively, and did
not borrow any additional long-term money in either of the two periods.
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.
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. Cash patronage
for fiscal year 1997, yet to be distributed in fiscal year 1998, is expected to
be approximately $13,200,000 and is classified as a current liability on both
the May 31, 1997 and August 31, 1997 balance sheets.
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 three months ended August 31, 1997 and 1996. These amounts
totaled $2,150,000 and $1,650,000, respectively.
During the year ended May 31, 1997, the Company offered registered
securities in the form of Equity Participation Units in its Wheat Milling and
Oilseed Processing and Refining divisions. These equity participation
units give the holder the right and the obligation to deliver to Harvest States
a stated number of bushels in return for a prorata share of the undiluted grain
based patronage earnings of these respective divisions. The offering resulted in
the issuance of such equity with a stated value of $13,870,000 and generated
additional capital and cash of $10,836,690, after issuance cost and conversion
privileges.
Holders of the Units will not be entitled to payment of dividends by virtue
of holding such Units. However, holders of the Units will be entitled to receive
patronage refunds attributable to the patronage sourced income from operations
of the applicable Defined Business Unit on the basis of wheat or soybeans
delivered pursuant to the Marketing Agreement. The Board of Directors' goal is
to distribute patronage refunds attributable to the Units in the form of 75%
cash and 25% Patrons' Equities, and to retire those Patron Equities on a
revolving basis seven years after declaration. However, the decision as to the
percentage of cash patronage will be made each fiscal year by the Board of
Directors and will depend upon the cash and capital needs of the respective
Defined Business Units and is subject to the discretion of the Board of
Directors. The redemption policy will also be subject to change at the
discretion of the Board of Directors.
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
MAY 31, AUGUST 31,
1997 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
Receivables $34,169,676 $27,236,349
Inventories 22,850,699 8,597,711
Prepaid expenses and deposits 2,310,163 2,689,345
----------- -----------
Total current assets 59,330,538 38,523,405
PROPERTY, PLANT AND EQUIPMENT 33,085,560 40,840,799
----------- -----------
$92,416,098 $79,364,204
=========== ===========
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Harvest States Cooperatives $25,584,178 $15,315,742
Accounts payable and accrued expenses 13,440,922 10,657,464
----------- -----------
Total current liabilities $39,025,100 $25,973,206
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY 53,390,998 53,390,998
----------- -----------
$92,416,098 $79,364,204
=========== ===========
See notes to financial statements
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31,
----------------------------
1996 1997
------------ ------------
REVENUES:
Processed oilseed sales $113,145,890 $ 86,349,147
Other revenue 599,421 1,204,155
------------ ------------
113,745,311 87,553,302
COSTS AND EXPENSES:
Cost of goods sold 107,833,751 82,461,185
Marketing, general, and administrative 1,194,870 1,247,279
Interest 19,100 9,451
------------ ------------
109,047,721 83,717,915
------------ ------------
EARNINGS BEFORE INCOME TAXES 4,697,590 3,835,387
INCOME TAXES 350,000 675,000
------------ ------------
NET EARNINGS $ 4,347,590 $ 3,160,387
============ ============
See notes to financial statements
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF DEFINED BUSINESS UNIT EQUITY
BALANCE AT MAY 31, 1997 $ 53,390,998
Net earnings (unaudited) 3,160,387
Defined Business Unit equity distributed (unaudited) (3,160,387)
------------
BALANCE AT AUGUST 31, 1997 (UNAUDITED) $ 53,390,998
============
See notes to financial statements
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31,
-----------------------------
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 4,347,590 $ 3,160,387
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 412,040 471,819
Gain on disposal of property,
plant, and equipment (456,102)
Changes in assets and liabilities:
Receivables (2,424,278) 6,933,327
Inventories 13,821,066 14,252,988
Prepaid expenses and deposits (1,374,395) (379,182)
Accounts payable and accrued
expenses 561,648 (2,783,458)
------------ ------------
Total adjustments 10,996,081 18,039,392
Net cash provided by
------------ ------------
operating activities 15,343,671 21,199,779
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceed from disposition of property,
plant, and equipment 456,102
Acquistion of property, plant, and
equipment (2,713,730) (8,227,058)
------------ ------------
Net cash used in investing activities (2,713,730) (7,770,956)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from Harvest
States Cooperatives (8,282,351) (10,268,436)
Defined business unit equity distributed (4,347,590) (3,160,387)
------------ ------------
Net cash used in
financing activities (12,629,941) (13,428,823)
------------ ------------
INCREASE (DECREASE) IN CASH 0 0
CASH AT BEGINNING OF PERIOD -- --
------------ ------------
CASH AT END OF PERIOD -- --
============ ============
See notes to financial statements
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited Defined Business Unit 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 Defined
Business Unit financial statements include all adjustments (consisting of only
normal, recurring accruals) necessary for a fair presentation thereof. Operating
results for the three-month period ended August 31, 1997 are not necessarily
indicative of the results that may be expected for the year end May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in the Defined Business Unit financial statements for the
year ended May 31, 1997 which is included in the Harvest States Cooperatives'
Form 10-K dated August 26, 1997, previously filed with the Commission.
NOTE 2. INVENTORIES
May 31, August 31,
1997 1997
----------- -----------
Oilseed.................................. $11,740,227 $ 1,682,570
Processed Oilseed Products............... 11,110,472 6,915,141
----------- -----------
$22,850,699 $ 8,597,711
=========== ===========
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Patronage refunds to the Oilseed Processing and Refining Defined Business
Unit holders will be calculated on the basis of tax earnings per bushel. Because
of this, the Company believes that the calculation below is an important measure
of the Defined Business Unit's performance.
THREE MONTHS ENDED
AUGUST 31,
---------------------------
1996 1997
----------- -----------
Pretax Earnings $ 4,697,590 $ 3,835,387
Earnings from purchased oil (1,239,925) (1,928,819)
Nonpatronage joint venture income (567,093) (737,836)
Book to tax differences
----------- -----------
Tax basis earnings $ 2,890,572 $ 1,168,732
=========== ===========
Bushels Processed 8,237,817 4,607,366
Earnings per Bushel $ 0.35 $ 0.25
=========== ===========
Certain operating information pertaining to the Oilseed Processing and
Refining Defined Business Unit is set forth below, as a percentage of sales.
THREE MONTHS ENDED
AUGUST 31,
---------------------------
1996 1997
----------- -----------
Gross Margin percentage 4.69% 4.50%
Marketing and Administrative 1.06% 1.44%
Interest 0.02% 0.01%
COMPARISON OF THREE MONTHS ENDED AUGUST 31, 1997 AND 1996
The Oilseed Processing and Refining Defined Business Unit's net earnings of
$3,200,000 for the three months ended August 31,1997 represents a $1,100,000
decrease (26%) compared to the same period in 1996. This decrease is primarily
attributable to the crushing plant shutdown for 41 days during the 1997 quarter
to allow for the installation of new equipment.
Net sales of $86,300,000 for the three-month period ended August 31, 1997
decreased by $26,800,000 (24%) compared to the same period in 1996. Volume
decreases in processed soybean products, primarily soymeal and soyflour, due to
the crushing plant shutdown accounted for $19,400,000 of this decrease.
$5,400,000 of the decrease is the result of reduced refined oil volume, with the
balance of the change related to finished product sales prices.
Other revenues increased $600,000 (100%) for the three-month period ended
August 31, 1997 compared to 1996, which is primarily the result of a gain of
$450,000 on replaced equipment sold for salvage value, and an increase of about
$150,000 in income from an oilseed joint venture.
Cost of goods sold for the three months ended August 31, 1997 decreased
$25,300,000 (23%) compared to the same period ended August 31, 1996. The primary
cause of this decrease was the crushing plant shutdown to allow for the
installation of new equipment. During the three months ended August 31, 1997,
the Oilseed Processing and Refining Defined Business Unit crushed approximately
4,600,000 bushels of soybeans, compared to about 8,200,000 bushels for the same
period in 1996.
Marketing and administrative expenses increased $50,000 (4%) for the
three-month period ended August 31, 1997 compared to 1996.
Income tax expenses of $675,000 and $350,000 for the three months ended
August 31, 1997 and 1996 respectively, results in effective tax rates of 17.6%
and 7.5%. The increase in the effective tax rate is the result of the temporary
crushing plant shutdown in 1997, which necessitated the purchase of a
proportionately larger amount of nonpatronage crude oil to fulfill the
requirement of the refining plant.
LIQUIDITY AND CAPITAL RESOURCES
The Oilseed Processing and Refining Defined Business Unit's cash
requirements fluctuate depending upon capital improvement needs and from needs
to finance additional inventories and receivables based on raw material costs or
levels. These cash needs are expected to be fulfilled by the Company.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended August 31,1997 and 1996,
respectively, provided cash of $21,200,000 and $15,300,000 due to net earnings
of $3,200,000 and $4,300,000 and decreased working capital requirements of
$18,000,000 and $11,000,000.
CASH FLOWS USED FOR INVESTING
The Oilseed Processing and Refining Defined Business Unit used $8,200,000
and $2,700,000 during the three months ended August 31, 1997 and 1996,
respectively, for the purchase of property, plant and equipment.
During the second quarter of fiscal year 1998 the Oilseed Processing and
Refining Defined Business Unit received cash of approximately $10,267,000 for
the sale of soybean processing equipment, and will lease the equipment back from
the purchaser under an operating lease. This sale leaseback transaction resulted
in the conversion of construction in progress to cash, and will require
primarily annual cash payments to the purchaser under the operating lease
ranging from approximately $300,000 to $1,500,000. The lease term is 10 years,
with the option to purchase the equipment back at the end of the lease term at
fair market value.
CASH FLOWS USED FOR FINANCING ACTIVITIES
The Oilseed Processing and Refining Defined Business Unit's financing
activities are coordinated through the Company's cash management department.
Cash from all of the Company's operations is deposited with the Company's cash
management department and disbursements are made centrally. As a result, the
Oilseed Processing and Refining Defined Business Unit has a zero cash position.
Financing is available from the Company to the extent of the Company's working
capital position and corporate loan agreements with various banks and cash
requirements of all other Company operations.
Working capital requirements for each division and Defined Business Unit of
the Company are reviewed on a periodic basis, and could potentially be
restricted based upon management's evaluation of the prevailing business
conditions and availability of funds.
The Oilseed Processing and Refining Defined Business Unit had debt
outstanding to the Company of $15,300,000 on August 31, 1997, which represents a
decrease of $10,300,000 (60%) from May 31, 1997, caused primarily by reduced
inventory levels as a result of the crushing plant shutdown during this
three-month period.
WHEAT MILLING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
MAY 31, AUGUST 31,
1997 1997
------------ ------------
(Unaudited)
CURRENT ASSETS:
Receivables $ 26,860,772 $ 38,279,324
Due from Harvest States Cooperatives 8,838,871
Inventories 12,271,615 13,549,511
Prepaid expenses and deposits 840,730 303,555
------------ ------------
Total current assets 39,973,117 60,971,261
OTHER ASSETS 11,814,555 11,547,885
PROPERTY, PLANT AND EQUIPMENT 69,130,520 70,472,298
------------ ------------
$120,918,192 $142,991,444
============ ============
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Harvest States Cooperatives $ 22,413,445 $
Accounts payable and accrued expenses 9,493,405 17,868,851
Current portion of long-term debt 10,005,000 10,005,000
------------ ------------
Total current liabilities 41,911,850 27,873,851
LONG-TERM DEBT 51,209,270 48,520,521
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY 27,797,072 66,597,072
------------ ------------
$120,918,192 $142,991,444
============ ============
See notes to financial statements
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31,
-------------------------
1996 1997
----------- -----------
REVENUES:
Processed grain sales $55,647,949 $44,420,508
Other income 286,767
----------- -----------
55,647,949 44,707,275
COSTS AND EXPENSES:
Cost of goods sold 51,323,046 40,570,296
Marketing, general, and administrative 1,104,186 1,641,583
Interest 1,411,133 1,079,412
----------- -----------
53,838,365 43,291,291
----------- -----------
EARNINGS BEFORE INCOME TAXES 1,809,584 1,415,984
INCOME TAXES 125,000 125,000
----------- -----------
NET EARNINGS $ 1,684,584 $ 1,290,984
=========== ===========
See notes to financial statements
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENT OF DEFINED BUSINESS UNIT EQUITY
BALANCE AT MAY 31, 1997 $27,797,072
Harvest States capital contributed (unaudited) 38,800,000
Net earnings (unaudited) 1,290,984
Defined Business Unit equity distributed (unaudited) (1,290,984)
-----------
BALANCE AT AUGUST 31, 1997 (UNAUDITED) $66,597,072
===========
See notes to financial statements
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
THREE MONTHS ENDED
AUGUST 31,
----------------------------
1996 1997
------------ ------------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 1,684,584 $ 1,290,984
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 997,533 1,218,342
Changes in assets and liabilities:
Receivables 429,312 (11,418,552)
Inventories (5,809,177) (1,277,896)
Prepaid expenses and deposits (110,711) 537,175
Accounts payable and accrued
expenses 7,422,329 8,375,446
------------ ------------
Total adjustments 2,929,286 (2,565,485)
Net cash provided by (used in)
------------ ------------
operating activities 4,613,870 (1,274,501)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of property, plant, and
equipment (4,085,136) (2,293,449)
------------ ------------
Net cash used in investing activities (4,085,136) (2,293,449)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments to)
Harvest States Cooperatives 1,155,850 (31,252,316)
Capital from Harvest States Cooperatives 38,800,000
Principal payments on long-term debt (2,688,750)
Defined business unit equity distributed (1,684,584) (1,290,984)
------------ ------------
Net cash (used in) provided by
financing activities (528,734) 3,567,950
------------ ------------
INCREASE (DECREASE) IN CASH 0 0
CASH AT BEGINNING OF PERIOD -- --
------------ ------------
CASH AT END OF PERIOD -- --
============ ============
See notes to financial statements
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited Defined Business Unit 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 Defined
Business Unit financial statements include all adjustments (consisting of only
normal, recurring accruals) necessary for a fair presentation thereof. Operating
results for the three-month period ended August 31, 1997 are not necessarily
indicative of the results that may be expected for the year end May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in the Defined Business Unit's financial statements for the
year ended May 31, 1997 which is included in the Harvest States Cooperatives'
Form 10-K dated August 26, 1997, previously filed with the Commission.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Patronage refunds to the Wheat Milling Defined Business Unit holders will be
calculated on the basis of tax earnings per bushel. Because of this, the Company
believes that the calculation below is an important measure of the Defined
Business Unit's performance.
THREE MONTHS ENDED
AUGUST 31
----------------------------
1996 1997
----------- ----------
Pretax Earnings $ 1,809,584 $1,415,984
Book to tax differences
----------- ----------
Tax basis earnings $ 1,809,584 $1,415,984
=========== ==========
Bushels Milled 6,971,473 7,099,685
Earnings per Bushel $ 0.26 $ 0.20
=========== ==========
Certain operating information pertaining to the Wheat Milling Defined
Business Unit is set forth below, as a percentage of sales.
THREE MONTHS ENDED
AUGUST 31
--------------------
1996 1997
---- ----
Gross Margin percentage 7.77% 8.67%
Marketing and Administrative 1.98% 3.70%
Interest 2.54% 2.43%
COMPARISON OF THREE MONTHS ENDED AUGUST 31, 1997 WITH 1996
The Wheat Milling Defined Business Unit's net earnings of $1,300,000 for the
three months ended August 31, 1997 decreased $400,000 (24%) compared to the same
period in 1996. While total volume and the spread between sales price and
material has improved slightly, operating expenses at Houston and Rush City
resulted in a deterioration of gross margins.
Net sales for the three-month period ended August 31, 1997 of $44,400,000
decreased $11,200,000 (20%) compared to the same period in 1996. Essentially all
of this decrease is attributable to declining prices, as overall volume was
nearly the same as a year ago.
Interest income of $300,000 was generated during the three months ended
August 31, 1997 on the Wheat Milling Defined Business Unit's working capital
account with Harvest States. This income was primarily the result of the
additional capital of $38,800,000 contributed by Harvest States on June 1, 1997
for the purpose of constructing the mill at Mt. Pocono, Pennsylvania.
Construction at Mt. Pocono commenced in early September, and as disbursements
are made for that purpose, interest generating funds are anticipated to decline.
Cost of goods sold of $40,600,000 for the three months ended August 31, 1997,
decreased $10,700,000 (21%) compared to the same period in 1996. The raw
material component of cost of goods sold decreased $11,300,000 for the 1997
period compared with 1996, primarily because of a favorable price variance. The
plant expense component of cost of goods sold increased $600,000 in 1997, which
was primarily the result of additional run time at Kenosha, and the commencement
of operations at Houston in June, offset partially by reduced variable costs at
Rush City. The Rush City, Minnesota mill was closed throughout the month of June
and early July, and the Company has operated the mill at approximately one-third
of its normal production capacity since that time.
Marketing and administrative expenses were $1,600,000 during the three months
ended August 31, 1997, an increase of $500,000 (45%) compared to 1996. This
increase is primarily attributable to additional staffing and system expansion
costs related to the Houston mill, and in anticipation of future volumes from
the Mt. Pocono mill.
The Wheat Milling Defined Business Unit incurred interest expense of
$1,100,000 and $1,400,000 during the three months ended August 31, 1997 and
1996, respectively. This decrease of approximately $300,000 (21%) in 1997 is
primarily the result of additional capital contributed by Harvest States on June
1, which decreased short term borrowing requirements.
LIQUIDITY AND CAPITAL RESOURCES
The Wheat Milling Defined Business Unit's cash needs are primarily the
result of continued capital additions. The Kenosha plant, which began operations
in late 1995, represented an investment of $39,000,000. The Wheat Milling
Defined Business Unit's Houston plant, which began limited operations in June
1997, is expected to represent an investment of $17,700,000. In addition, the
Harvest states Board of Directors has authorized expenditures for the Mt. Pocono
plant of $41,350,000. The Wheat Milling Defined Business Unit expects capital
additions to all 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 Wheat Milling Defined Business Unit's financing needs are
expected to be met by the Company through either borrowings or capital
contributions.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended August 31, 1997 used net
cash of $1,300,000, and for the three months ended August 31,1996 provided net
cash of $4,600,000. For the three-month period ended in 1997, net cash was
provided by earnings of $1,300,000 and non-cash depreciation and amortization of
$1,200,000, offset by increased working capital requirements of $3,800,000. For
the same period ended in 1996,
net cash was provided by earnings of $1,700,000, noncash depreciation and
amortization of $1,000,000, and reduced working capital requirements of
$1,900,000.
CASH FLOWS USED FOR INVESTING
Cash expended for the acquisition of property, plant and equipment during
the three-month periods ended August 31, 1997 and 1996, respectively, totaled
$2,300,000 and $4,100,000.
CASH FLOWS USED FOR FINANCING ACTIVITIES
The Wheat Milling Defined Business Unit's Financing activities are
coordinated through the Company's cash management department. Cash from all of
the Company's operations is deposited with the Company's cash management
department and disbursements are made centrally. As a result, the Wheat Milling
Defined Business Unit has a zero cash position. Financing is available from the
Company to the extent of the Company's working capital position and corporate
loan agreements with various banks and cash requirements of all other Company
operations.
Working capital requirements for each division and Defined Business Unit of
the Company are reviewed on a periodic basis, and could potentially be
restricted based upon management's evaluation of the prevailing business
conditions and availability of funds.
On August 31, 1997, the Wheat Milling Defined Business Unit had surplus
funds with Harvest States of $12,800,000, compared with short-term debt of
$22,400,000 due to Harvest States on May 31, 1997. This change is primarily the
result of $38,800,000 in additional capital contributed by Harvest States for
the construction of the Mt. Pocono plant.
On May 31, 1997 the Wheat Milling Defined Business Unit had long-term debt
of $61,200,000 which was incurred for the acquisition, expansion and
construction of its various plants since 1990. During the three months ended
August 31, 1997, this balance was reduced by repayments of $2,700,000.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- -----------------------
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)
October 10, 1997 /s/ T. F. Baker
---------------- ------------------------------
(Date) T. F. Baker
Group Vice-President - Finance