-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, I/NvcHBAuUxhLb/WlbmwzAcbiYa8sDUeHaGOtAoP7GcHAWD3bSDPqQHCYqZpxVqq DhNLnbXzcTQic44iiDnBtA== /in/edgar/work/20000710/0000897101-00-000683/0000897101-00-000683.txt : 20000712 0000897101-00-000683.hdr.sgml : 20000712 ACCESSION NUMBER: 0000897101-00-000683 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000531 FILED AS OF DATE: 20000710 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENEX HARVEST STATES COOPERATIVES CENTRAL INDEX KEY: 0000823277 STANDARD INDUSTRIAL CLASSIFICATION: [5150 ] IRS NUMBER: 410251095 STATE OF INCORPORATION: MN FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 333-17865 FILM NUMBER: 669994 BUSINESS ADDRESS: STREET 1: 5500 CENEX DRIVE CITY: INVER GROVE HEIGHTS STATE: MN ZIP: 55077 BUSINESS PHONE: 6129469433 MAIL ADDRESS: STREET 1: 5500 CENEX DRIVE CITY: INVER GROVE HEIGHTS STATE: MN ZIP: 55077 FORMER COMPANY: FORMER CONFORMED NAME: HARVEST STATES COOPERATIVES DATE OF NAME CHANGE: 19961212 10-Q 1 0001.txt ================================================================================ 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 MAY 31, 2000. [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO . COMMISSION FILE NUMBER 333-17865 ------------- CENEX HARVEST STATES COOPERATIVES (Exact name of registrant as specified in its charter) MINNESOTA 41-0251095 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 5500 CENEX DRIVE, (651) 451-5151 INVER GROVE HEIGHTS, MN 55077 (Registrant's telephone number (Address of principal executive offices including area code) and zip 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 May 31, 2000) ================================================================================ INDEX PAGE NO. ---- PART I. FINANCIAL INFORMATION CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES Item 1. Financial Statements Consolidated Balance Sheets as of May 31, 2000 (unaudited), August 31, 1999 and May 31, 1999 (unaudited) ........................................ 2 Consolidated Statements of Operations for the three months and nine months ended May 31, 2000 and 1999 (unaudited) ........................... 3 Consolidated Statements of Cash Flows for the three months and nine months ended May 31, 2000 and 1999 (unaudited) ........................... 4 Notes to Consolidated Financial Statements (unaudited) ................... 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 8 Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 13 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) Item 1. Financial Statements Balance Sheets as of May 31, 2000 (unaudited), August 31, 1999 and May 31, 1999 (unaudited) ................................................. 14 Statements of Operations for the three months and nine months ended May 31, 2000 and 1999 (unaudited) ........................................ 15 Statements of Cash Flows for the three months and nine months ended May 31, 2000 and 1999 (unaudited) ........................................ 16 Notes to Financial Statements (unaudited) ................................ 17 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 18 WHEAT MILLING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) Item 1. Financial Statements Balance Sheets as of May 31, 2000 (unaudited), August 31, 1999 and May 31, 1999 (unaudited) ................................................. 21 Statements of Operations for the three months and nine months ended May 31, 2000 and 1999 (unaudited) ........................................ 22 Statements of Cash Flows for the three months and nine months ended May 31, 2000 and 1999 (unaudited) ........................................ 23 Notes to Financial Statements (unaudited) ................................ 24 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations .................................................... 25 PART II. OTHER INFORMATION Items 1 through 5 have been omitted since all items are inapplicable or answers are negative Item 6. Exhibits and Reports on Form 8-K ................................. 28 SIGNATURE PAGE ............................................................ 29 i PART I. FINANCIAL INFORMATION SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements involve risks and uncertainties that may cause the Company's actual results to differ materially from the results discussed in the forward-looking statements. Factors that might cause such differences include, but are not limited to the following: SUPPLY AND DEMAND FORCES. The Company may be adversely affected by supply and demand relationships, both domestic and international. Supply may be affected by weather conditions, disease, insect damage, acreage planted, government regulation and policies and commodity price levels. Demand may be affected by foreign governments and their programs, relationships of foreign countries with the United States, the affluence of foreign countries, acts of war, currency exchange fluctuations, and substitution of commodities. The current monetary crises in Asia has impacted, and is expected to continue to impact exports of U.S. agricultural products. Reduced demand for U.S. agricultural products may also adversely affect the demand for fertilizer, chemicals and petroleum products sold by the Company and used to produce crops. Demand may also be affected by changes in eating habits, population growth and increased or decreased per capita consumption of some products. PRICE RISKS. Upon purchase, the Company has risks of carrying grain and petroleum, including price changes and performance risks (including delivery, quality, quantity and shipment period), depending upon the type of purchase contract. The Company is exposed to risk of loss in the market value of positions held, consisting of grain and petroleum inventory and purchase contracts at a fixed or partially fixed price, in the event market prices decrease. The Company is also exposed to risk of loss on its fixed price or partially fixed price sales contracts in the event market prices increase. To reduce the price change risks associated with holding fixed priced positions, the Company generally takes opposite and offsetting positions by entering into commodity futures contracts (either a straight futures contract or an option futures contract) on regulated commodity futures exchanges. OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. This industry is highly competitive. Competitors are adding new plants and expanding capacity of existing plants. Unless exports increase or existing refineries are closed, this extra capacity is likely to put additional pressure on prices and erode margins, adversely affecting the profitability of the Oilseed Processing and Refining Defined Business Unit. MILLING BUSINESS COMPETITIVE TRENDS. Certain major durum milling competitors of the Wheat Milling Defined Business Unit have developed long-term relationships with customers by locating plants adjacent to pasta manufacturing plants. This trend could potentially decrease the future demand for semolina from nonintegrated millers. In addition, baking and bread flour demand has declined during a period when the milling industry has been expanding, which will continue to put pressure on gross margins. The forward-looking statements herein are qualified in their entirety by the cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary Statement" to this Quarterly Report on Form 10-Q for the quarter ended May 31, 2000. 1 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ---------- ---------- ---------- (DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED) CURRENT ASSETS: Cash and cash equivalents .................................. $ 42,914 $ 75,667 $ 44,760 Receivables ................................................ 963,705 606,641 678,963 Inventories ................................................ 674,876 549,703 513,815 Other current assets ....................................... 58,620 39,414 86,231 ---------- ---------- ---------- Total current assets ...................................... 1,740,115 1,271,425 1,323,769 INVESTMENTS ................................................. 466,718 427,896 367,369 PROPERTY, PLANT AND EQUIPMENT ............................... 1,025,730 968,333 956,068 OTHER ....................................................... 135,023 120,010 114,423 ---------- ---------- ---------- Total assets .............................................. $3,367,586 $2,787,664 $2,761,629 ========== ========== ========== LIABILITIES AND EQUITIES CURRENT LIABILITIES: Notes payable .............................................. $ 343,037 $ 196,986 $ 170,000 Current portion of long-term debt .......................... 20,602 21,562 19,627 Patrons' credit balances ................................... 36,427 44,970 37,514 Patrons' advance payments .................................. 138,404 127,755 115,680 Checks and drafts outstanding .............................. 58,726 48,605 70,231 Accounts payable ........................................... 758,682 449,774 501,341 Accrued expenses ........................................... 141,092 119,728 103,226 Patronage dividends and equity retirements payable ......... 29,828 43,000 16,894 ---------- ---------- ---------- Total current liabilities ....................... ......... 1,526,798 1,052,380 1,034,513 LONG-TERM DEBT .............................................. 490,359 461,104 466,281 OTHER LIABILITIES ........................................... 79,808 88,173 80,326 MINORITY INTERESTS IN SUBSIDIARIES .......................... 121,851 68,371 62,256 COMMITMENTS AND CONTINGENCIES EQUITIES .................................................... 1,148,770 1,117,636 1,118,253 ---------- ---------- ---------- Total liabilities and equities ............................ $3,367,586 $2,787,664 $2,761,629 ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements (unaudited). 2 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------------ -------------------------- (DOLLARS IN THOUSANDS) 2000 1999 2000 1999 --------- --------- ---------- ---------- REVENUES: Net sales: Grain and oilseed ........................... $ 843,693 $ 625,002 $2,767,198 $2,656,966 Energy ...................................... 759,616 323,590 2,071,648 908,224 Agronomy .................................... 323,600 254,260 552,620 481,547 Feed and farm supplies ...................... 231,412 176,145 439,242 383,679 Processed grain and oilseed ................. 130,450 137,548 396,937 409,358 --------- --------- ---------- ---------- 2,288,771 1,516,545 6,227,645 4,839,774 Patronage dividends ........................... 3,495 1,008 5,019 4,910 Other revenues ................................ 53,786 33,794 98,630 82,165 --------- --------- ---------- ---------- 2,346,052 1,551,347 6,331,294 4,926,849 --------- --------- ---------- ---------- COSTS AND EXPENSES: Cost of goods sold ............................ 2,216,414 1,450,121 6,103,220 4,714,477 Marketing, general and administrative ......... 40,459 42,331 121,850 116,281 Interest ...................................... 16,051 11,509 43,008 31,481 Minority interests ............................ 13,653 4,411 4,487 3,655 --------- --------- ---------- ---------- 2,286,577 1,508,372 6,272,565 4,865,894 --------- --------- ---------- ---------- INCOME BEFORE INCOME TAXES ..................... 59,475 42,975 58,729 60,955 INCOME TAXES ................................... 8,313 4,340 2,576 5,375 --------- --------- ---------- ---------- NET INCOME ..................................... $ 51,162 $ 38,635 $ 56,153 $ 55,580 ========= ========= ========== ==========
The accompanying notes are an integral part of the consolidated financial statements (unaudited). 3 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------------- ------------------------- (DOLLARS IN THOUSANDS) 2000 1999 2000 1999 ---------- ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ..................................................... $ 51,162 $ 38,635 $ 56,153 $ 55,580 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization ................................ 22,724 20,377 66,697 60,523 Noncash net income from joint ventures ....................... (29,848) (15,728) (21,238) (16,995) Minority interests ........................................... 13,653 4,411 4,487 3,655 Adjustment of inventories to market value .................... -- (14,946) -- (10,117) Noncash portion of patronage dividends received .............. (2,294) (3,356) (3,368) (6,822) Loss (gain) on sale of property, plant and equipment ......... 255 (314) (577) (1,635) Other, net ................................................... -- 3,593 378 2,603 Changes in operating assets and liabilities: Receivables ................................................. (256,548) (136,791) (354,411) (207,880) Inventories ................................................. (4,327) 7,450 (70,773) (23,964) Other current assets and other assets ....................... 121,162 38,265 (28,728) (70,572) Patrons' credit balances .................................... (18,783) (15,557) (8,543) (3,810) Patrons' advance payments ................................... (105,509) (45,828) 10,649 (32,341) Accounts payable and accrued expenses ....................... 121,506 179,236 330,272 102,033 Other liabilities ........................................... 1,442 170 (8,365) 4,536 ---------- ---------- ---------- ---------- Net cash (used in) provided by operating activities (85,405) 59,617 (27,367) (145,206) ---------- ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ................ (61,219) (23,782) (121,763) (94,725) Proceeds from disposition of property, plant and equipment .................................................. 3,099 1,496 4,494 6,348 Investments ................................................. (33,620) 2,371 (35,283) (6,839) Investments redeemed ........................................ 7,181 3,707 20,207 9,131 Changes in notes receivable ................................. 457 (176) (1,124) 2,475 Other investing activities, net ............................. (9,954) (62) (14,591) (1,373) ---------- ---------- ---------- ---------- Net cash used in investing activities ..................... (94,056) (16,446) (148,060) (84,983) ---------- ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in notes payable .................................... 117,562 (77,000) 146,051 169,525 Long-term debt borrowings ................................... 45,000 30,000 45,000 40,565 Principal payments on long-term debt ........................ (6,487) (4,514) (17,126) (11,771) Changes in checks and drafts outstanding .................... 21,376 14,034 10,121 15,489 Retirements of equity ....................................... (10,360) (4,518) (23,452) (15,117) Cash patronage dividends paid ............................... 50 (67) (17,920) (43,750) ---------- ---------- ---------- ---------- Net cash provided by (used in) financing activities 167,141 (42,065) 142,674 154,941 ---------- ---------- ---------- ---------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ............................................... (12,320) 1,106 (32,753) (75,248) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............................................ 55,234 43,654 75,667 120,008 ---------- ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT END OF PERIOD ...................................................... $ 42,914 $ 44,760 $ 42,914 $ 44,760 ========== ========== ========== ==========
The accompanying notes are an integral part of the consolidated financial statements (unaudited). 4 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) NOTE 1. ACCOUNTING POLICIES The unaudited consolidated balance sheets as of May 31, 2000 and 1999, and the statements of operations and cash flows for the three months and nine months ended May 31, 2000 and 1999, reflect, in the opinion of management of Cenex Harvest States Cooperatives (the Company), all normal, recurring adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. The consolidated balance sheet data as of August 31, 1999 was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company's current policy in regard to planned major maintenance activities is to accrue for those estimated costs, which primarily consist of direct maintenance expenses. The planned major maintenance activities are primarily related to the Company's petroleum refinery operations. Certain reclassifications have been made to the prior year's financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported net income or equity. These statements should be read in conjunction with the consolidated financial statements and footnotes for the year ended August 31, 1999, included in the Company's Report on Form 10-K previously filed with the Securities and Exchange Commission on November 22, 1999. NOTE 2. RECEIVABLES MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 -------- -------- -------- Trade .................................. $972,865 $595,403 $689,535 Other .................................. 15,002 34,493 12,672 -------- -------- -------- 987,867 629,896 702,207 Less allowance for doubtful accounts ... 24,162 23,255 23,244 -------- -------- -------- $963,705 $606,641 $678,963 ======== ======== ======== NOTE 3. INVENTORIES MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 -------- -------- -------- Energy .............................. $294,622 $209,661 $199,330 Grain and oilseed ................... 208,948 202,166 135,463 Agronomy ............................ 80,684 69,050 85,626 Processed grain and oilseed ......... 21,551 14,342 14,810 Feed and farm supplies .............. 65,447 50,908 75,594 Other ............................... 3,624 3,576 2,992 -------- -------- -------- $674,876 $549,703 $513,815 ======== ======== ======== NOTE 4. COMPREHENSIVE INCOME During the three months ended May 31, 2000 and 1999, total comprehensive income amounted to $51.8 million and $37.5 million, respectively. Total comprehensive income was $55.7 million and $55.8 million for the nine months ended May 31, 2000 and 1999, respectively. Accumulated other comprehensive (loss) income on May 31, 2000 August 31, 1999 and May 31, 1999 was $(1.6) million, $(1.2) million and $0.1 million, respectively. 5 NOTE 5. SEGMENT REPORTING The Company's businesses are organized, managed and internally reported as four segments. These segments, which are based on products and services, include agronomy, energy, grain marketing and farm marketing & supply, and processed grain and consumer products. Due to cost allocations and intersegment activity, management does not represent that these segments if operated independently, would report the income before income taxes and other financial information presented. Segment information for the three months and nine months ended May 31, 2000 and 1999 is as follows:
GRAIN MARKETING PROCESSED GRAIN AND FARM AND CONSUMER AGRONOMY ENERGY MARKETING & SUPPLY PRODUCTS OTHER TOTAL ----------- ----------- ------------------ --------------- ----------- ----------- For the three months ended May 31, 2000: Net sales ................... $ 323,600 $ 759,616 $ 1,075,105 $ 130,450 $ 2,288,771 Patronage dividends ......... 20 191 3,027 100 $ 157 3,495 Other revenues .............. 16,133 875 22,295 10,242 4,241 53,786 ----------- ----------- ----------- ----------- ----------- ----------- 339,753 760,682 1,100,427 140,792 4,398 2,346,052 Cost of goods sold .......... 307,350 720,709 1,066,934 121,421 2,216,414 Marketing, general and administrative ............. 3,637 11,397 15,495 5,737 4,193 40,459 Interest .................... (1,533) 7,899 7,111 2,396 178 16,051 Minority interests .......... 13,620 33 13,653 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes ............... $ 30,299 $ 7,057 $ 10,887 $ 11,238 $ (6) $ 59,475 =========== =========== =========== =========== =========== =========== For the three months ended May 31, 1999: Net sales ................... $ 254,260 $ 323,590 $ 801,147 $ 137,548 $ 1,516,545 Patronage dividends ......... 13 154 2,364 (98) $ (1,425) 1,008 Other revenues .............. 36 21,257 7,348 5,153 33,794 ----------- ----------- ----------- ----------- ----------- ----------- 254,273 323,780 824,768 144,798 3,728 1,551,347 Cost of goods sold .......... 244,075 280,588 793,300 132,158 1,450,121 Marketing, general and administrative ............. 3,915 12,474 16,020 5,292 4,630 42,331 Interest .................... 214 4,729 4,684 1,789 93 11,509 Minority interests .......... 4,361 10 40 4,411 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes ............... $ 6,069 $ 21,628 $ 10,754 $ 5,559 $ (1,035) $ 42,975 =========== =========== =========== =========== =========== ===========
6
GRAIN MARKETING PROCESSED GRAIN AND FARM AND CONSUMER AGRONOMY ENERGY MARKETING & SUPPLY PRODUCTS OTHER TOTAL ----------- ----------- ------------------ --------------- ----------- ----------- For the nine months ended May 31, 2000: Net sales .................... $ 552,620 $ 2,071,648 $ 3,206,440 $ 396,937 $ 6,227,645 Patronage dividends .......... 131 279 4,213 100 $ 296 5,019 Other (losses) revenues ...... (1,676) 2,400 65,341 17,458 15,107 98,630 ----------- ----------- ----------- ----------- ----------- ----------- 551,075 2,074,327 3,275,994 414,495 15,403 6,331,294 Cost of goods sold ........... 517,539 2,024,624 3,192,374 368,683 6,103,220 Marketing, general and administrative .............. 13,688 35,312 44,024 15,790 13,036 121,850 Interest ..................... (1,786) 20,481 16,389 5,841 2,083 43,008 Minority interests ........... 4,403 84 4,487 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes ....................... $ 21,634 $ (10,493) $ 23,207 $ 24,181 $ 200 $ 58,729 =========== =========== =========== =========== =========== =========== Total identifiable assets ... $ 465,891 $ 1,364,749 $ 938,064 $ 377,846 $ 221,036 $ 3,367,586 =========== =========== =========== =========== =========== =========== For the nine months ended May 31, 1999: Net sales .................... $ 481,547 $ 908,224 $ 3,040,645 $ 409,358 $ 4,839,774 Patronage dividends .......... 330 182 5,784 (34) $ (1,352) 4,910 Other revenues ............... 709 61,964 6,311 13,181 82,165 ----------- ----------- ----------- ----------- ----------- ----------- 481,877 909,115 3,108,393 415,635 11,829 4,926,849 Cost of goods sold ........... 451,846 841,473 3,030,277 390,881 4,714,477 Marketing, general and administrative .............. 12,287 38,574 40,006 13,112 12,302 116,281 Interest ..................... 1,083 11,802 13,947 4,728 (79) 31,481 Minority interests ........... 3,481 78 96 3,655 ----------- ----------- ----------- ----------- ----------- ----------- Income (loss) before income taxes ....................... $ 16,661 $ 13,785 $ 24,085 $ 6,914 $ (490) $ 60,955 =========== =========== =========== =========== =========== =========== Total identifiable assets ... $ 427,863 $ 1,095,083 $ 759,719 $ 314,789 $ 164,175 $ 2,761,629 =========== =========== =========== =========== =========== ===========
Assets included in "Other" primarily consisted of intercompany transactions and corporate facilities. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Noel K. Estenson, Chief Executive Officer of the Company announced his retirement effective June 1, 2000. John D. Johnson, previously President and General Manager has been appointed as President and Chief Executive Officer to succeed Mr. Estenson. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED MAY 31, 2000 AND 1999 The Company had consolidated net income for the three months ended May 31, 2000 of $51.2 million compared to net income of $38.6 million for the same three-month period in 1999, which represents a $12.6 million (32%) increase. This increase in profitability is attributable to the majority of operations of the Company, which was offset by a tax expense increase of $4.0 million. Consolidated net sales of $2.3 billion for the three months ended May 31, 2000 increased approximately $772.2 million (51%) compared to the same three months ended in 1999. Grain and oilseed sales of $843.7 million increased $218.7 million (35%) during the three months ended May 31, 2000 compared to the same three months ended in 1999. The primary cause for the increased sales was an increase of 60 cents per bushel in the average sales price of all grain and oilseed marketed by the Company along with a combined grain volume increase of 9% compared to the same period in 1999. Energy sales of $759.6 million increased $436.0 million (135%) during the three months ended May 31, 2000 compared to the same period in 1999. This increase is primarily attributable to the formation of a refinery joint venture whereby the Company, through its 75% ownership in National Cooperative Refining Association (NCRA), which in turn owns approximately 57% of the refining joint venture (Cooperative Refining, LLC), consolidates the sales made to the minority owner. In addition, the average sales price of refined fuels and propane increased by 36 cents and 19 cents per gallon, respectively compared to the same period in 1999. Agronomy sales of $323.6 million increased $69.3 million (27%) during the three months ended May 31, 2000 compared to the same three-month period in 1999. Crop protection sales increased $47.3 million in 2000 compared to 1999 primarily due to increased volumes from new acquisitions. In addition, plant food volumes increased 18% at an average selling price of $2.88 per ton more than a year ago. During the next quarter it is expected that Agriliance, the newly formed wholesale agronomy joint venture, will begin to operate as a principle and the Company will no longer record sales; instead the Company will include in other revenues its 25% share of earnings or losses of Agriliance. Feed and farm supplies sales of $231.4 million increased by $55.3 million (31%) during the three months ended May 31, 2000 compared to the same three months of a year ago, and is primarily due to increased volumes from newly acquired facilities and an earlier spring planting season. Processed grain and oilseed sales of $130.5 million decreased $7.1 million (5%) during the three months ended May 31, 2000 compared to the same three months ended in 1999. Sales of processed soybean products decreased by 17% due to decreases in both price and volume. This decrease was partially offset by an increase in wheat milling sales of 19% due to increases in both price and volume. During the next quarter, processed grain and oilseed sales will include the sales of Sparta Foods, Inc. which was purchased on June 1, 2000. This new business operation primarily includes the manufacturing of tortillas and chips. Patronage dividends of $3.5 million increased by $2.5 million during the three months ended May 31, 2000 compared to the same three months of a year ago. The increase is primarily due to a St. Paul Bank for Cooperatives investment impairment of $3.1 million, which was taken in the three months ended 1999. Other revenues of $53.8 million increased $20.0 million (59%) during the three months ended May 31, 2000 compared to the same three months ended in 1999. The most significant changes within other revenues were the cash receipt and gain of $7.4 million from Land O'Lakes, Inc. (LOL) for the 8 sale of 1.455% of the Company's economic interest in Agriliance and an increase in the Company's share of earnings from both the agronomy and consumer products packaging joint ventures of $7.9 million and $3.1 million, respectively. Cost of goods sold of approximately $2.2 billion increased $766.3 million (53%) during the three months ended May 31, 2000, compared to the same three months ended in 1999. The increase is primarily attributable to the formation of Cooperative Refining, LLC, which was referenced to in the sales section of this analysis and to an increase in the price of petroleum crude oil. During the three months ended May 31, 2000 the average cost of refined fuels and propane increased by 37 cents and 25 cents per gallon, respectively. Also, during the three months ended May 31, 2000, agronomy cost of goods increased by 26% compared to the same three months ended in 1999 primarily due to increased volume because of new acquisitions. The cost of all grains and oilseed procured by the Company through its grain marketing and country elevator operations increased 56 cents per bushel along with a volume increase of 9% compared to the same three months ended in 1999. Within the Company's food processing operations, the average cost of soybeans and volume decreased, which was partially offset by an increase in the average cost and volume of wheat compared to the same three months ended in 1999. Marketing, general and administrative expenses of $40.5 million for the three months ended May 31, 2000 decreased $1.9 million (4%) compared to the same three months ended in 1999. The reduction in expenses is primarily related to Y2K costs, which were incurred in the three-month period ended in 1999 and expense synergies realized from joint ventures during 2000. Interest expense of $16.1 million for the three months ended May 31, 2000 increased by $4.5 million (39%) compared to the same three months ended in 1999. The average seasonal borrowings during 2000 increased as a result of higher working capital needs, and long-term borrowings which reflected financial activities related to the acquisition of property, plant and equipment, generated most of this additional expense. Minority interests in operations for the three-month period ended May 31, 2000 changed by $9.2 million compared to the same three months ended in 1999. Substantially all minority interests is related to NCRA, which operates a petroleum refinery near McPherson, Kansas. This net change in minority interests during the current year is reflective of more profitable operations within the Company's majority owned subsidiaries as compared to the previous years quarter. Income tax expense of $8.3 million and $4.3 million for the three months ended May 31, 2000 and 1999, respectively, resulted in effective tax rates of 14.0% and 10.1%. The increased 2000 effective tax rate is reflective of increased nonpatronage earnings in agronomy. COMPARISON OF NINE MONTHS ENDED MAY 31, 2000 AND 1999 The Company's consolidated net income for the nine months ended May 31, 2000 and 1999 was $56.2 million and $55.6 million, respectively, which represents an $.6 million (1%) increase. This increase in profitability is primarily attributable to the Company's consumer products packaging joint venture and processed grain and agronomy operations. These increases are partially offset by decreases in the energy and grain marketing operations. These decreases are primarily attributable to tight energy margins brought on by high crude oil costs and low grain prices in grain marketing operations. Consolidated net sales of $6.2 billion for the nine months ended May 31, 2000 increased approximately $1.4 billion (29%) compared to the same nine months ended in 1999. Grain and oilseed sales of $2.8 billion increased $110.2 million (4%) during the nine months ended May 31, 2000 compared to the same nine months ended in 1999. Grain volumes increased approximately 8%, which were partially offset by a decline of 8 cents per bushel in the average sales price of all grain and oilseed marketed by the Company. Energy sales of $2.1 billion increased $1.2 billion (128%) during the nine months ended May 31, 2000 compared to the same nine months of a year ago. This increase is primarily attributable to the formation of a refinery joint venture whereby the Company, through its 75% ownership in NCRA, which in turn owns approximately 57% of the refining joint venture (Cooperative Refining, LLC), consolidates the sales made to the minority owner. In addition, there was an increase in the average sales 9 price of refined fuels of 30 cents per gallon with volumes consistent to the same time period of a year ago, which along with an increase in the average sales price of propane of 13 cents per gallon, was partially offset by an 18% decrease in volume. Agronomy sales of $552.6 million increased $71.1 million (15%) compared to the same nine months of a year ago. This increase was primarily attributable to increases in volumes of both crop protection products and plant food. Feed and farm supplies sales of $439.2 million increased $55.6 million (14%) during the nine months ended May 31, 2000 compared to the same nine months of a year ago. The increase in sales is primarily attributable to increased volumes from newly acquired facilities and an earlier spring planting season as compared to the same nine months ended in 1999. Processed grain and oilseed sales of $396.9 million decreased $12.4 million (3%) during the nine months ended May 31, 2000 compared to the same nine months ended in 1999. This decrease was primarily attributable to an 8 cent per pound reduction in the average sales price of refined oils, which was partially offset by an increase in the average sales price and volumes of processed soybean products. The decrease was partially offset with an increase in volumes of milled wheat products. Other revenues of $98.6 million increased $16.5 million (20%) during the nine months ended May 31, 2000 compared to the same nine months ended in 1999. The most significant change within other revenues was an increase in the Company's share of income and losses from joint ventures and the cash receipt and gain of $7.4 million from LOL for the sale of 1.455% of the Company's economic interest in Agriliance. The Company's share of its consumer products packaging and grain marketing joint ventures increased by $11.2 million and $3.8 million, respectively. These increases were partially offset by losses of $9.9 million from the agronomy joint venture during the nine months ended May 31, 2000. Cost of goods sold of approximately $6.1 billion increased $1.4 billion (29%) during the nine months ended May 31, 2000 compared to the same nine months ended in 1999. The increase is primarily attributable to the formation of Cooperative Refining, LLC, which was referenced to in the sales section of this analysis and to an increase in the purchase price of petroleum crude oil. During the nine months ended May 31, 2000, the average cost of refined fuels and propane increased by 31 cents and 14 cents per gallon, respectively as compared to the same nine months ended in 1999. Also, during the nine months ended May 31, 2000, agronomy cost of goods increased by 15% compared to the same nine months ended in 1999, primarily due to increased volume from new acquisitions. The cost of all grains and oilseed procured by the Company through its grain marketing and country elevator operations increased by 5%. Although the cost of grain decreased by 9 cents per bushel, this was offset by a volume increase of 8% compared to the same nine months ended in 1999. These increases were partially offset by a net decrease within the Company's food processing operations. A reduced average costs of soybeans along with a decrease in refining volume was partially offset by an increase in wheat milling expenses, primarily due to volume, compared to the same nine months ended in 1999. Marketing, general and administrative expenses of $121.9 million for the nine months ended May 31, 2000 increased by $5.6 million (5%) compared to the same nine months ended in 1999. This increase is primarily related to additional locations and expansion of many of the Company's business segments, which was partially offset by joint venture expense synergies realized during 2000. Interest expense of $43.0 million for the nine months ended May 31, 2000 increased by $11.5 million (37%) compared to the same nine months ended in 1999. During 2000 the average seasonal borrowings increased as a result of higher working capital needs, and long-term borrowings, which reflected financial activities related to the acquisition of property, plant and equipment, generated most of this additional expense. Minority interests in operations of $4.5 million for the nine months ended May 31, 2000 changed by $0.8 million (23%) compared to the same nine months ended in 1999. Substantially all minority interests is related to NCRA. This net change in minority interests during the current year is reflective of more profitable operations within the Company's majority owned subsidiaries compared to the same period of a year ago. 10 Income tax expense of $2.6 million and $5.4 million for the nine months ended May 31, 2000 and 1999, respectively, resulted in effective tax rates of 4.4% and 8.8%. The decreased 2000 effective tax rate is reflective of nonpatronage losses in agronomy. LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATIONS Operating activities of the Company used net cash of $85.4 million and provided net cash of $59.6 million for the three months ended May 31, 2000 and 1999, respectively. For the period ended in 2000, net income of $51.2 million and net non-cash income and expenses of approximately $4.5 million were offset by increased working capital requirements of approximately $141.1 million. For the three-month period ended May 31, 1999, net income of $38.6 million and decreased working capital requirements of approximately $27.0 million were partially offset by net non-cash income and expenses of approximately $6.0 million. Operating activities of the Company used net cash of $27.4 million and $145.2 million for the nine months ended May 31, 2000 and 1999, respectively. For the nine-month period ended May 31, 2000, net income of approximately $56.2 million and net non-cash income and expenses of approximately $46.3 million were offset by increased working capital requirements of approximately $129.9 million. For the nine-month period ended May 31, 1999, net income of $55.6 million and net non-cash income and expenses of approximately $31.2 million were offset by increased working capital requirements of approximately $232.0 million. CASH FLOWS FROM INVESTING Investing activities of the Company used net cash of $94.1 million during the three-month period ended May 31, 2000. Expenditures for the acquisition of property, plant and equipment of $61.2 million, investments of $33.6 million and other investing activities of $10.0 were partially offset by investments redeemed of $7.2 million, proceeds from the disposition of property plant and equipment of $3.1 million and the net change in notes receivable. Investments for the three months ended May 31, 2000 included the purchase of an additional 10% interest in Ventura Foods, LLC (Ventura Foods), the Company's consumer products and packaging joint venture, for approximately $25.6 million. The Company now has a 50% interest in that joint venture. For the fiscal year ending August 31, 2000, the Company projects that total expenditures for the acquisition of property, plant and equipment will be approximately $139.6 million. Investing activities of the Company used net cash of $16.4 million during the three months ended May 31, 1999. Expenditures for the acquisition of property, plant and equipment of $23.8 million, the net change in notes receivable and other investing activities were partially offset by investments redeemed of $3.7 million, proceeds from the disposition of property plant and equipment of $1.5 million and the net change in investments. Investing activities of the Company used net cash of $148.1 million during the nine months ended May 31, 2000. Expenditures for the acquisition of property, plant and equipment of $121.8 million, investments of $35.3 million, other investing activities of $14.6 million and the net change in notes receivable were partially offset by investments redeemed of $20.2 million and proceeds from the disposition of property, plant and equipment of $4.5 million. Investing activities of the Company used net cash of $85.0 million during the nine-month period ended May 31, 1999. Expenditures for the acquisition of property, plant and equipment of $94.7 million, investments of $6.8 million and other investing activities were partially offset by investments redeemed of $9.1 million, proceeds from the disposition of property, plant and equipment of $6.3 million and the net change in notes receivable. CASH FLOWS FROM FINANCING The Company finances its working capital needs through short-term lines of credit with a syndication of banks. In May 2000, the Company renewed and expanded its 364-day credit facility from $400 million to $500 million committed. In addition to this short-term line of credit, the Company has 11 a 364-day credit facility dedicated to NCRA, with a syndication of banks in the amount of $50.0 million, all of which is committed. On May 31, 2000 and 1999, the Company had total short-term indebtedness on these various facilities and other short-term notes payable totaling $343.0 million and $170.0 million, respectively. On August 31, 1999 the Company had $197.0 million outstanding on its short-term lines of credit and other notes payable. In June 1998, the Company established a five-year revolving credit facility with a syndication of banks, with $200 million committed. As of May 31, 2000, the Company had an outstanding balance of $45 million, categorized as long-term debt. This outstanding balance was drawn during the three months ended May 31, 2000 to finance the purchase of an additional 10% interest in Ventura Foods and other capital expenditures. The Company has financed its long-term capital needs in the past, primarily for the acquisition of property, plant and equipment, with long-term loan agreements through the banks for cooperatives. In June 1998, the Company established a long-term credit agreement through the banks for cooperatives. This facility committed $200.0 million of long-term borrowing capacity to the Company, with repayments through the fiscal year 2009. The commitment expired on May 31, 1999. The amount outstanding on this credit agreement was $159.1 million on May 31, 2000 and $164.0 million on August 31, 1999 and May 31, 1999, respectively, with zero remaining available. Repayments of approximately $1.6 million and $4.9 million were made on this facility during the three months and nine months ended May 31, 2000, respectively. Also in June 1998, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $225 million. Repayments will be made in equal installments of $37.5 million each in the years 2008 through 2013. On May 31, 2000 the Company had total long-term debt outstanding of $511.0 million, of which approximately $262.9 million was bank financing, $225.0 million was private placement proceeds and $23.1 million was industrial revenue bonds, capitalized leases and miscellaneous notes payable. Long-term debt of NCRA represented $51.2 million of the total long-term debt outstanding on May 31, 2000. On August 31, 1999 and May 31, 1999, the Company had long-term debt outstanding of $482.7 million and $485.9 million, respectively. During the nine months ended May 31, 2000 and 1999, the Company repaid long-term debt of $17.1 million and $11.8 million, respectively, and had additional long-term debt borrowings of $45.0 and $40.6 million during those same periods, respectively. During the three-month periods ended May 31, 2000 and 1999, the Company repaid long-term debt of $6.5 million and $4.5 million, respectively, and had additional long-term borrowings of $45.0 million and $30.0 million, respectively. In accordance with the By-Laws and by action of the Board of Directors, annual net savings from patronage sources are distributed to consenting patrons following the close of each year and are based on amounts reportable for federal income tax purposes as adjusted in accordance with the By-Laws. The patronage earnings from the fiscal year ended August 31, 1999 were distributed in January and February 2000. The cash portion of this distribution, deemed by the Board of Directors to be 75% for Equity Participation Units and 30% for regular earnings, was approximately $17.9 million. During the nine months ended May 31, 1999 the Company paid out cash patronage of approximately $43.8 million from the patronage earnings of the former Harvest States Cooperatives fiscal year ended May 31, 1998, the former Cenex, Inc. for the period ended May 31, 1998 and the patronage earnings resulting from the combined operations of the Company for the three months ended August 31, 1998. The current equity redemption policy, as authorized by the Board of Directors, allows for the redemption of capital equity certificates held by inactive direct members and patrons and active members and patrons at age 72 or death who were age 61 or older on June 1, 1998. For active direct members and patrons who were age 60 or younger on June 1, 1998, and member cooperatives, equities will be redeemed annually based on a prorata formula where the numerator is dollars available for such purpose as determined by the Board of Directors, and the denominator is the sum of the patronage certificates held by such eligible members and patrons. Such redemptions related to the year ended August 31, 1999, to be distributed in the current fiscal year, are expected to be approximately $25.7 million, of which approximately $23.5 million was redeemed during the nine months ended 12 May 31, 2000. During the nine months ended May 31, 1999 the Company redeemed approximately $15.1 million of equity. Approximately $10.4 million and $4.5 million of equity was redeemed by the Company during the three-month periods ended May 31, 2000 and 1999, respectively. During the year ended May 31, 1997, the Company offered securities in the form of Equity Participation Units (EPUs) in its Wheat Milling and Oilseed Processing and Refining Defined Business Units. These EPUs give the holder the right and obligation to deliver to the Company a stated number of bushels in return for a prorata share of the undiluted grain based patronage earnings of these respective Defined Business Units. The offering resulted in the issuance of such equity with a stated value of $13,870,000 and generated additional capital and cash of $10,837,000, after issuance cost and conversion privileges. Conversion privileges allowed a member to elect to use outstanding patrons' equities for the payment of up to one-sixth the purchase price of the EPUs. Holders of the EPUs will not be entitled to payment of dividends by virtue of holding such units. However, holders of the units will be entitled to receive patronage refunds attributable to the patronage sourced income from operations of the applicable defined business unit on the basis of wheat or soybeans delivered pursuant to the Member Marketing Agreement. The Board of Directors' goal is to distribute patronage refunds attributable to the EPUs in the form of 75% cash and 25% capital equity certificates, and to retire those capital equity certificates on a revolving basis seven years after declaration. However, the decision as to the percentage of cash patronage will be made each fiscal year by the Board of Directors and will depend upon the cash and capital needs of the respective Defined Business Units and is subject to the discretion of the Board of Directors. The redemption policy will also be subject to change at the discretion of the Board of Directors. EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS The Company's management believes that inflation and foreign currency fluctuations have not had a significant effect on its operations. RECENT ACCOUNTING PRONOUNCEMENTS In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, a new standard related to the accounting for derivative transactions and hedging activities. In June 1999, the FASB issued SFAS No. 137 which defers the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. While management does not believe this standard will materially impact the financial position and results of operations of the Company, it is currently evaluating the reporting requirements under this new standard. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There have been no material changes since the Company's fiscal year end August 31, 1999. 13 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT ITEM 1. FINANCIAL STATEMENTS OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) BALANCE SHEETS
ASSETS MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ------- ---------- ------- (DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED) CURRENT ASSETS: Receivables ................................................. $28,224 $24,650 $28,915 Inventories ................................................. 24,764 17,084 17,221 Other current assets ........................................ 20 ------- ------- ------- Total current assets ....................................... 53,008 41,734 46,136 PROPERTY, PLANT AND EQUIPMENT ................................ 39,750 39,001 38,345 ------- ------- ------- Total assets ............................................... $92,758 $80,735 $84,481 ======= ======= ======= LIABILITIES AND DEFINED BUSINESS UNIT EQUITY CURRENT LIABILITIES: Due to Cenex Harvest States Cooperatives .................... $ 6,673 $ 9,546 $17,270 Accounts payable ............................................ 4,862 5,768 4,478 Accrued expenses ............................................ 5,848 4,227 4,256 ------- ------- ------- Total current liabilities .................................. 17,383 19,541 26,004 COMMITMENTS AND CONTINGENCIES DEFINED BUSINESS UNIT EQUITY ................................. 75,375 61,194 58,477 ------- ------- ------- Total liabilities and defined business unit equity ......... $92,758 $80,735 $84,481 ======= ======= =======
The accompanying notes are an integral part of the financial statements (unaudited). 14 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, -------------------- ---------------------- (DOLLARS IN THOUSANDS) 2000 1999 2000 1999 ------- ------- -------- -------- REVENUES: Processed oilseed sales ....................... $77,319 $93,021 $240,075 $279,794 Other revenue ................................. 232 160 811 232 ------- ------- -------- -------- 77,551 93,181 240,886 280,026 ------- ------- -------- -------- COSTS AND EXPENSES: Cost of goods sold ............................ 70,491 88,801 221,912 265,688 Marketing, general and administrative ......... 1,405 1,435 3,943 4,084 Interest ...................................... 100 694 ------- ------- -------- -------- 71,896 90,336 225,855 270,466 ------- ------- -------- -------- INCOME BEFORE INCOME TAXES ..................... 5,655 2,845 15,031 9,560 INCOME TAXES ................................... 335 50 850 325 ------- ------- -------- -------- NET INCOME ..................................... $ 5,320 $ 2,795 $ 14,181 $ 9,235 ======= ======= ======== ========
The accompanying notes are an integral part of the financial statements (unaudited). 15 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ---------------------- --------------------- 2000 1999 2000 1999 -------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income .......................................... $ 5,320 $ 2,795 $ 14,181 $ 9,235 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation ...................................... 631 388 1,876 1,500 Loss on disposal of property, plant and equipment ........................................ 35 Changes in operating assets and liabilities: Receivables ...................................... (3,590) 318 (3,574) (212) Inventories ...................................... (7,359) 9,210 (7,680) 1,348 Other current assets ............................. 3 (20) Accounts payable and accrued expenses ............ 493 (4,947) 715 (586) -------- -------- -------- -------- Net cash (used in) provided by operating activities .................................... (4,502) 7,764 5,533 11,285 -------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ..... (1,075) (752) (2,683) (4,252) Proceeds from disposition of property, plant and equipment ................................... 23 23 3 -------- -------- -------- -------- Net cash used in investing activities .......... (1,052) (752) (2,660) (4,249) -------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in due to Cenex Harvest States Cooperatives .................................... 5,554 (4,217) (2,873) 2,199 Defined business unit equity distributed to the Company ..................................... (2,795) (9,235) -------- -------- -------- -------- Net cash provided by (used in) financing activities .................................... 5,554 (7,012) (2,873) (7,036) -------- -------- -------- -------- NET INCREASE (DECREASE) IN CASH ...................... -- -- -- -- CASH AT BEGINNING OF PERIOD .......................... -- -- -- -- -------- -------- -------- -------- CASH AT END OF PERIOD ................................ -- -- -- -- ======== ======== ======== ========
The accompanying notes are an integral part of the financial statements (unaudited). 16 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) NOTE 1. ACCOUNTING POLICIES The unaudited balance sheets as of May 31, 2000 and 1999, and the statements of operations and cash flows for the three months and nine months ended May 31, 2000 and 1999 reflect, in the opinion of management of Cenex Harvest States Cooperatives (the Company), all normal, recurring adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. The balance sheet data as of August 31, 1999 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. These statements should be read in conjunction with the financial statements and footnotes included in the Oilseed Processing and Refining Defined Business Unit financial statements for the year ended August 31, 1999, which are included in the Company's Report on Form 10-K previously filed with the Securities and Exchange Commission on November 22, 1999. NOTE 2. RECEIVABLES MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ------- ---------- -------- Trade ................................. $28,619 $25,045 $29,310 Less allowance for doubtful accounts .. 395 395 395 ------- ------- ------- $28,224 $24,650 $28,915 ======= ======= ======= NOTE 3. INVENTORIES MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ------- ---------- ------- Processed oilseed products ............ $18,921 $11,918 11,803 Oilseed ............................... 5,843 5,166 $ 5,418 ------- ------- ------- $24,764 $17,084 $17,221 ======= ======= ======= 17 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the Management Discussion and Analysis for the Company for discussion of new accounting pronouncements. RESULTS OF OPERATIONS Patronage refunds to the Oilseed Processing and Refining Defined Business Unit holders are calculated on the basis of tax earnings per bushel. Because of this, the Company believes that the calculation below is an important measure of the Defined Business Unit's performance.
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- (IN THOUSANDS EXCEPT PER BUSHEL INFORMATION) Income before income taxes ................. $ 5,655 $ 2,845 $15,031 $ 9,560 Income from purchased oil .................. (1,035) (523) (3,851) (1,396) Non-patronage joint venture income ......... (1) (154) Book to tax differences .................... 24 1 69 5 ------- ------- ------- ------- Taxable income ............................. $ 4,643 $ 2,323 $11,095 $ 8,169 ======= ======= ======= ======= Bushels processed .......................... 9,819 9,166 29,064 26,784 Income per bushel .......................... $ 0.473 $ 0.253 $ 0.382 $ 0.305
Certain operating information pertaining to the Oilseed Processing and Refining Defined Business Unit is set forth below, as a percentage of processed oilseed sales.
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------- ------------------- 2000 1999 2000 1999 ------- ------- ------- ------- Gross margin .............................. 8.83% 4.54% 7.57% 5.04% Marketing, general and administrative ..... 1.82% 1.54% 1.64% 1.46% Interest .................................. 0.00% 0.11% 0.00% 0.25%
COMPARISON OF THREE MONTHS ENDED MAY 31, 2000 AND 1999 The Oilseed Processing and Refining Defined Business Unit net income of $5.3 million for the three months ended May 31, 2000 represents a $2.5 million increase (90%) compared to the three-month period ended May 31, 1999. An increase in gross margin for soymeal of approximately $5.90 per ton, and an increase in the refined oil margin of approximately 5 tenths of a cent per pound, along with improved volumes of processed soybean products were the primary factors in this improvement in net income for the three-month period ended May 31, 2000 compared to the three-month period ended May 31, 1999. Net sales of $77.3 million for the three months ended May 31, 2000 decreased by $15.7 million (17%) compared to the three months ended May 31, 1999. A reduction in the sales price for refined oil of approximately $0.07 per pound and a reduction in refined oil sales volume of 34% was partially offset by an increase of approximately $12 per ton for processed soybean products, and a 9% increase in sales volume for processed soybean products during the current three-month period compared to the same period of a year ago. Other revenues increased approximately $72 thousand (45%) during the three months ended May 31, 2000 compared to the three months ended May 31, 1999. During the 2000 period, the Defined Business Unit recognized interest income of $211 thousand, accounting for most of this increase. Cost of goods sold of $70.5 million for the three months ended May 31, 2000 decreased $18.3 million (21%) compared to the three months ended May 31, 1999. Reduced cost for soybeans averaging $0.10 per bushel and reduced cost for crude soybean oil averaging $0.11 per pound during the three months ended May 31, 2000, compared to the three months ended May 31, 1999 and a 16% decrease in refining volume (approximately 26.6 million pounds) were partially offset by a 5% increase in crush volume (approximately 653 thousand bushels). 18 Marketing, general and administrative expenses of approximately $1.4 million for the three months ended May 31, 2000 decreased approximately $30 thousand (2%) compared to the three months ended May 31, 1999. During the three-month period ended May 31, 2000, the Oilseed Processing and Refining Defined Business Unit incurred no net interest expense compared to interest expense of approximately $100 thousand during the same period ended in 1999. This favorable variance is primarily attributable to the lower price of raw material and finished products, which resulted in no excess borrowings based on average outstanding daily balances. Income tax expense of $335 thousand and $50 thousand for the three-month periods ended May 31, 2000 and 1999, respectively, resulted in effective tax rates of 5.9% and 1.8%. The effective tax rate varies from period to period based upon the percentage of non-patronage business activity to total business activity. COMPARISON OF NINE MONTHS ENDED MAY 31, 2000 AND 1999 The Oilseed Processing and Refining Defined Business Unit net income of $14.2 million for the nine months ended May 31, 2000 represents a $4.9 million increase (54%) compared to the nine-month period ended May 31, 1999. This improvement in income during the nine-month period ended May 31, 2000 compared to the nine months ended May 31, 1999 was a result of an increase in gross margin for refined oil of approximately 4 tenths of a cent per pound, an increase in refined oil volume of approximately 3%, and an increase in processed soybean product volume of approximately 9% which was partially offset by a decline in the gross margin for the processed soybean products of $5.74 per ton. Net sales of $240.1 million for the nine months ended May 31, 2000 decreased by $39.7 million (14%) compared to the nine months ended May 31, 1999. A reduction in the sales price for refined oil of approximately $0.08 per pound was partially offset by an increase of approximately $15 per ton for processed soybean products, a 9% increase in sales volume for processed soybean products, and a 3% increase in sales volume for refined oil during the current nine-month period compared to the same period of a year ago. Other revenues increased approximately $.6 million during the nine months ended May 31, 2000 compared to the nine months ended May 31, 1999. During the nine months ended May 31, 2000, the Defined Business Unit recognized interest income of approximately $.7 million, and received approximately $.2 million from an oilseed joint venture. These two income items accounted for nearly all of the change in other revenues between the two periods. Cost of goods sold of $221.9 million for the nine months ended May 31, 2000 decreased $43.8 million (16%) compared to the nine months ended May 31, 1999. Reduced cost for crude soybean oil averaging $0.10 per pound, reduced cost for soybeans averaging $0.37 per bushel, and a 2% decrease in refining volume (approximately 9.1 million pounds) during the nine months ended May 31, 2000, compared to the nine months ended May 31, 1999, were partially offset by a 9% increase in crush volume (approximately 2.3 million bushels). Marketing, general and administrative expenses of approximately $3.9 million for the nine months ended May 31, 2000 declined approximately $141 thousand (3%) compared to the nine months ended May 31, 1999. During the nine-month period ended May 31, 2000, the Oilseed Processing and Refining Defined Business Unit incurred no net interest expense compared to interest expense of approximately $0.7 million during the same period ended in 1999. This favorable variance is primarily attributable to the lower price of raw material and finished products, which resulted in no excess borrowings based on average outstanding daily balances. Income tax expense of $850 thousand and $325 thousand for the nine-month periods ended May 31, 2000 and 1999, respectively, resulted in effective tax rates of 5.7% and 3.4%. The effective tax rate varies from period to period based upon the percentage of non-patronage business activity to total business activity. 19 LIQUIDITY AND CAPITAL RESOURCES The Oilseed Processing and Refining Defined Business Unit's cash requirements relate primarily to capital improvements and a need to finance additional inventories and receivables based on increased raw material costs and levels. These cash needs are expected to be fulfilled by the Company. CASH FLOWS FROM OPERATIONS Operating activities for the three months ended May 31, 2000 used net cash of $4.5 million. Net income of $5.3 million and non-cash expenses of $0.6 million were exceeded by an increase in working capital requirements of $10.4 million to generate this net use of cash. For the three-month period ended May 31, 1999, operating activities provided net cash of $7.8 million. During that period, net income of $2.8 million, non-cash expenses of approximately $0.4 million and reduced working capital requirements of approximately $4.6 million provided this net cash from operating activities. Operating activities for the nine months ended May 31, 2000 provided net cash of $5.5 million. Net income of $14.2 million and non-cash expenses of $1.9 million were partially offset by an increase in working capital requirements of $10.6 million. For the nine-month period ended May 31, 1999, operating activities provided net cash of $11.3 million. During that period, net income of $9.2 million, non-cash expenses of approximately $1.5 million and reduced working capital requirements of approximately $0.6 million provided this net cash. CASH FLOWS FROM INVESTING During the three-month periods ended May 31, 2000 and 1999, the Oilseed Processing and Refining Defined Business Unit used cash for investing activities of $1.1 million and $0.8 million, respectively, primarily for the acquisition of property, plant and equipment. During the nine-month periods ended May 31, 2000 and 1999, the Oilseed Processing and Refining Defined Business Unit used cash for investing activities of $2.7 million and $4.2 million, respectively, primarily for the acquisition of property plant and equipment. CASH FLOWS FROM FINANCING The Oilseed Processing and Refining Defined Business Unit's financing activities are coordinated through the Company's cash management department. Cash from all of the Company's operations is deposited with the Company's cash management department and disbursements are made centrally. As a result, the Oilseed Processing and Refining Defined Business Unit has a zero cash position. Financing is available from the Company to the extent of the Company's working capital position and corporate loan agreements with various banks, and cash requirements of all other Company operations. Working capital requirements for each division and defined business unit of the Company are reviewed on a periodic basis, and could potentially be restricted based upon management's evaluation of the prevailing business conditions and availability of funds. The Oilseed Processing and Refining Defined Business Unit had amounts payable to the Company of $6.7 million on May 31, 2000 compared to $9.5 million on August 31, 1999 and $17.3 million on May 31, 1999. These interest-bearing balances reflect working capital and fixed asset financing requirements, and are influenced by the prices of soybeans and crude soybean oil. 20 WHEAT MILLING DEFINED BUSINESS UNIT ITEM 1. FINANCIAL STATEMENTS WHEAT MILLING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) BALANCE SHEETS
ASSETS MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ------------- ------------ ------------ (DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED) CURRENT ASSETS: Receivables .................................................. $ 31,631 $ 30,960 $ 32,579 Inventories .................................................. 18,691 14,339 15,910 Other current assets ......................................... 144 210 93 -------- -------- -------- Total current assets ........................................ 50,466 45,509 48,582 PROPERTY, PLANT AND EQUIPMENT ................................. 128,745 110,547 111,254 INTANGIBLE ASSETS ............................................. 8,614 9,415 9,681 -------- -------- -------- Total assets ................................................ $187,825 $165,471 $169,517 ======== ======== ======== LIABILITIES AND DEFINED BUSINESS UNIT EQUITY CURRENT LIABILITIES: Due to Cenex Harvest States Cooperatives ..................... $ 81,488 $ 48,938 $ 45,597 Accounts payable ............................................. 8,686 7,238 12,236 Accrued expenses ............................................. 4,210 4,440 2,447 Current portion of long-term debt ............................ 10,005 10,005 10,005 -------- -------- -------- Total current liabilities ................................... 104,389 70,621 70,285 LONG-TERM DEBT, CENEX HARVEST STATES COOPERATIVES ................................................. 21,194 28,510 31,199 COMMITMENTS AND CONTINGENCIES ................................. DEFINED BUSINESS UNIT EQUITY .................................. 62,242 66,340 68,033 -------- -------- -------- Total liabilities and defined business unit equity ......... $187,825 $165,471 $169,517 ======== ======== ========
The accompanying notes are an integral part of the financial statements (unaudited). 21 WHEAT MILLING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ---------------------- ---------------------- (DOLLARS IN THOUSANDS) 2000 1999 2000 1999 ------- ------- -------- -------- REVENUES: Processed grain sales ......................... $53,132 $44,528 $156,862 $129,565 ------- ------- -------- -------- COSTS AND EXPENSES: Cost of goods sold ............................ 50,844 43,356 146,685 125,193 Marketing, general and administrative ......... 3,570 3,580 9,786 8,259 Interest ...................................... 1,805 1,522 4,874 3,601 ------- ------- -------- -------- 56,219 48,458 161,345 137,053 ------- ------- -------- -------- LOSS BEFORE INCOME TAXES ....................... (3,087) (3,930) (4,483) (7,488) INCOME TAXES ................................... (255) (325) (385) (600) ------- ------- -------- -------- NET LOSS ....................................... ($ 2,832) ($ 3,605) ($ 4,098) ($ 6,888) ======= ======= ======== ========
The accompanying notes are an integral part of the financial statements (unaudited). 22 WHEAT MILLING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------------ ----------------------- (DOLLARS IN THOUSANDS) 2000 1999 2000 1999 ------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................... ($ 2,832) ($ 3,605) ($ 4,098) ($ 6,888) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization ............................ 1,687 1,528 5,065 4,146 Changes in operating assets and liabilities: Receivables ............................................. 5,190 186 (671) 2,649 Inventories ............................................. (584) 7,227 (4,352) 2,985 Other current assets .................................... (5) 72 66 337 Accounts payable and accrued expenses ................... (566) (842) 1,218 2,013 ------- ------- -------- -------- Net cash provided by (used in) operating activities ..... 2,890 4,566 (2,772) 5,242 ------- ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment ............... (21,305) (1,937) (22,462) (17,172) ------- ------- -------- -------- Net cash used in investing activities ................. (21,305) (1,937) (22,462) (17,172) -------- ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in due to Cenex Harvest States Cooperatives ......... 20,854 (3,795) 32,550 12,359 Principal payments on long-term debt ....................... (2,439) (2,439) (7,316) (7,317) Defined business unit equity distributed to the Company .... 3,605 6,888 ------- ------- -------- -------- Net cash provided by (used in) financing activities ........................................... 18,415 (2,629) 25,234 11,930 ------- ------- -------- -------- NET INCREASE (DECREASE) IN CASH ............................. -- -- -- -- CASH AT BEGINNING OF PERIOD ................................. -- -- -- -- ------- ------- -------- -------- CASH AT END OF PERIOD ....................................... -- -- -- -- ======= ======= ======== ========
The accompanying notes are an integral part of the financial statements (unaudited). 23 WHEAT MILLING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) NOTE 1. ACCOUNTING POLICIES The unaudited balance sheets as of May 31, 2000 and 1999, and the statements of operations and cash flows for the three months and nine months ended May 31, 2000 and 1999 reflect, in the opinion of management of Cenex Harvest States Cooperatives (the Company), all normal, recurring adjustments necessary for a fair statement of the results of operations and cash flows for the interim periods. The results of operations and cash flows for any interim period are not necessarily indicative of results for the full year. The balance sheet data as of August 31, 1999 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States. These statements should be read in conjunction with the financial statements and footnotes included in the Wheat Milling Defined Business Unit financial statements for the year ended August 31, 1999, which are included in the Company's Report on Form 10-K previously filed with the Securities and Exchange Commission on November 22, 1999. NOTE 2. RECEIVABLES MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ------- --------- ------- Trade ................................... $32,253 $32,274 $33,471 Other ................................... 626 454 1,088 ------- ------- ------- 32,879 32,728 34,559 Less allowance for doubtful accounts .... 1,248 1,768 1,980 ------- ------- ------- $31,631 $30,960 $32,579 ======= ======= ======= NOTE 3. INVENTORIES MAY 31, AUGUST 31, MAY 31, 2000 1999 1999 ------- --------- ------- Grain ................................... $15,450 $11,915 $12,903 Processed grain products ................ 2,630 1,815 2,114 Other ................................... 611 609 893 ------- ------- ------- $18,691 $14,339 $15,910 ======= ======= ======= 24 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS In April 2000, the Wheat Milling Defined Business Unit purchased a mill located near Fairmount, North Dakota at a cost of $19.9 million. The mill has an annual grind capacity of approximately 6.1 million bushels and produces baking flour. In June 2000, the Wheat Milling Defined Business Unit signed a contract to become the major supplier of the flour required to make the pasta for Kraft's blue box macaroni & cheese. The flour will be mainly produced at the Rush City, Minnesota mill. Flour could also be supplied by the Huron, Ohio and Kenosha, Wisconsin mills. See the Management's Discussion and Analysis for the Company for discussion of new accounting pronouncements. RESULTS OF OPERATIONS Patronage refunds to the Wheat Milling Defined Business Unit holders are calculated on the basis of tax earnings per bushel. Because of this, the Company believes that the calculation below is an important measure of the Defined Business Unit's performance.
FOR THE FOR THE THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- (IN THOUSANDS EXCEPT PER BUSHEL INFORMATION) Loss before income taxes ................... $ (3,087) $ (3,930) $ (4,483) $ (7,488) Book to tax differences .................... 102 96 304 289 -------- -------- -------- -------- Taxable loss ............................... $ (2,985) $ (3,834) $ (4,179) $ (7,199) ======== ======== ======== ======== Bushels processed .......................... 10,957 9,719 31,785 26,278 Loss per bushel ............................ $ (0.27) $ (0.39) $ (0.13) $ (0.27) -------- -------- -------- --------
Certain operating information pertaining to the Wheat Milling Defined Business Unit is set forth below, as a percentage of sales.
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ----------------------- ----------------------- 2000 1999 2000 1999 -------- -------- -------- -------- Gross margin .................................. 4.31% 2.63% 6.49% 3.37% Marketing, general and administrative ......... 6.72% 8.04% 6.24% 6.37% Interest ...................................... 3.40% 3.42% 3.11% 2.78%
COMPARISON OF THREE MONTHS ENDED MAY 31, 2000 AND 1999 The Wheat Milling Defined Business Unit incurred a net loss of approximately $2.8 million for the three months ended May 31, 2000 compared to a net loss of $3.6 million during the three months ended May 31, 1999, which resulted in an improvement of approximately $.8 million (21%). This improvement in operating results is primarily attributable to a $0.15 per hundred weight increase in the average gross margin for all products and a 13% increase in volume. Net sales of $53.1 million for the three months ended May 31, 2000 increased approximately $8.6 million (19%) compared to the three-month period ended May 31, 1999. An increase in the average sales price of $0.46 per hundred weight and a .7 million hundred-weight volume increase accounted for these additional sales dollars. Cost of goods sold of $50.8 million for the three months ended May 31, 2000 increased $7.4 million (17%) compared to the three-month period ended May 31, 1999. An increase of $0.26 in the average cost per bushel of raw material and an increase in bushel grind of approximately 1.2 million bushels during the current three-month period produced this additional cost. Mill expenses were essentially unchanged. 25 Marketing, general and administrative expenses of $3.6 million for the three months ended May 31, 2000 were unchanged compared to the three months ended May 31, 1999. Interest expense of $1.8 million during the three months ended May 31, 2000 increased approximately $0.3 million (19%) compared to the three-month period ended May 31, 1999. This increase in interest expense is attributable to the purchase of the Fairmount, North Dakota mill in April 2000, slightly increased working capital requirements and a half a percent increase in the overall effective interest rate on short-term indebtedness. An income tax benefit of $.3 million for the three months ended May 31, 2000 is based upon an effective tax rate of 8.3% applied to the pretax loss of approximately $3.1 million. For the three months ended May 31, 1999, an income tax benefit of $.3 million was based upon an effective tax rate of 8.3% applied to a pretax loss of $3.9 million. The effective tax rate varies from period to period based upon the percentage of non-patronage business activity to total business activity. COMPARISON OF NINE MONTHS ENDED MAY 31, 2000 AND 1999 The Wheat Milling Defined Business Unit incurred a net loss of approximately $4.1 million for the nine months ended May 31, 2000 compared to a net loss of $6.9 million during the nine months ended May 31, 1999, for an improvement of approximately $2.8 million (41%). This improvement in operating results is primarily attributable to a $0.25 per hundred weight increase in the average gross margin for all products and a 21% increase in volume. Net sales of $156.9 million for the nine months ended May 31, 2000 increased approximately $27.3 million (21%) compared to the nine months ended May 31, 1999. A reduction to the average sales price of $0.03 per hundred weight was offset by a 3.4 million hundred weight volume increase. The increased volume is primarily attributable to the Mount Pocono mill which commenced operations in January of 1999, and the Huron mill, which during the 1999 period, was under conversion of one of its lines from semolina to bakery flour. Cost of goods sold of $146.7 million for the nine months ended May 31, 2000 increased $21.5 million (17%) compared to the nine-month period ended May 31, 1999. While the average cost per bushel of raw material declined $0.09 during the nine months ended May 31, 2000 compared to the same nine months of a year ago, increased bushel grind of approximately 5.5 million bushels and increased milling expense of approximately $1.7 million offset this price variance. Essentially all of the increased mill expense is attributable to Mount Pocono, which commenced operations in January, 1999. Marketing, general and administrative expenses of $9.8 million for the nine months ended May 31, 2000 increased approximately $1.5 million (18%) compared to the nine months ended May 31, 1999. Most of this increase is attributable to activities of the Mount Pocono mill, which operated on a limited basis during the 1999 period. Interest expense of $4.9 million during the nine months ended May 31, 2000 increased approximately $1.3 million (35%) compared to the nine-month period ended May 31, 1999. Most of this increase in interest expense is attributable to the capitalized cost for the Mount Pocono mill. An income tax benefit of $.4 million for the nine months ended May 31, 2000 is based upon an effective tax rate of 8.6% applied to the pretax loss of approximately $4.5 million. For the nine months ended May 31, 1999, an income tax benefit of $.6 million was based upon an effective tax rate of 8.0% applied to a pretax loss of $7.5 million. The effective tax rate varies from period to period based upon the percentage of non-patronage business activity to total business activity. LIQUIDITY AND CAPITAL RESOURCES The Wheat Milling Defined Business Unit's cash requirements result from capital improvements and the need to finance additional inventories and receivables based on increased raw material costs and levels. These cash needs are expected to be fulfilled by the Company. CASH FLOWS FROM OPERATIONS Operating activities for the three months ended May 31, 2000 provided net cash of approximately $2.9 million. Non-cash expenses of $1.7 million and reduced working capital requirements of $4.0 million 26 were partially offset by the net operating loss of $2.8 million. Operating activities for the three months ended May 31, 1999 provided net cash of approximately $4.6 million. Non-cash expenses of approximately $1.5 million and decreased working capital requirements of $6.7 million were partially offset by the net operating loss of $3.6 million incurred during that period. Operating activities for the nine months ended May 31, 2000 used net cash of approximately $2.8 million. Non cash expenses of $5.1 million were offset by the net operating loss of $4.1 million and increased working capital requirements of approximately $3.8 million. Increased working capital requirements were primarily attributable to increased volume activity. Operating activities for the nine months ended May 31, 1999 provided net cash of approximately $5.2 million. Non-cash expenses of approximately $4.1 million and reduced working capital requirements of approximately $8.0 million were partially offset by the net operating loss of $6.9 million. CASH FLOWS FROM INVESTING Cash expended for the acquisition of property, plant and equipment during the three-month periods ended May 31, 2000 and 1999, totaled approximately $21.3 million and $1.9 million, respectively. During the three months ended May 31, 2000, the Wheat Milling Defined Business Unit acquired a mill near Fairmount, North Dakota at a total cost of $19.9 million. Cash expended for the acquisition of property, plant and equipment during the nine-month periods ended May 31, 2000 and 1999, totaled approximately $22.5 million and $17.2 million, respectively. The majority of the capital expenditures during the 1999 period were for the completion of the Mount Pocono mill. CASH FLOWS FROM FINANCING The Wheat Milling Defined Business Unit's financing activities are coordinated through the Company's cash management department. Cash from all of the Company's operations is deposited with the Company's cash management department and disbursements are made centrally. As a result, the Defined Business Unit has a zero cash position. Financing is available from the Company to the extent of the Company's working capital position and corporate loan agreements with various banks and cash requirements of all other Company operations. Working capital requirements for each division and defined business unit of the Company are reviewed on a periodic basis, and could potentially be restricted based upon availability of funds. The Wheat Milling Defined Business Unit had amounts payable to the Company of $81.5 million on May 31, 2000 compared to $48.9 million on August 31, 1999, and $45.6 million on May 31, 1999. This increase is primarily attributable to the acquisition of the mill in Fairmount, North Dakota in April 2000, and repayments of long-term debt which effectively transfers long-term debt to short-term debt. The Wheat Milling Defined Business Unit had long-term debt outstanding and payable to the Company of $31.2 million on May 31, 2000 compared with $38.5 million on August 31, 1999, and $41.2 million of May 31, 1999. This debt was originally incurred for the acquisition, expansion, and construction of certain mills within the Wheat Milling Defined Business Unit. Approximately $10.0 million of the current balance is payable within the next twelve months. 27 PART II. OTHER INFORMATION 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 (a) Exhibits EXHIBIT DESCRIPTION ------- ------------------------------------------------------------ 10.41 Second Amendment to Credit Agreement (Revolving Loan) dated May 23, 2000 by and among Cenex Harvest States Cooperatives, CoBank, ACB, Bank of America, Sun Trust Bank and the Syndication Parties 10.42 Second Amendment to Credit Agreement (Term Loan) dated May 23, 2000 by and among Cenex Harvest States Cooperatives, CoBank, ACB, St. Paul Bank for Cooperatives and the Syndication Parties 99 Cautionary Statement 27 Financial Data Schedule (EDGAR filing only) (b) Reports on Form 8-K None. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CENEX HARVEST STATES COOPERATIVES ------------------------------------------- (Registrant) NAME TITLE DATE ---- ----- ---- /S/ JOHN SCHMITZ Executive Vice President and July 10, 2000 - -------------------- Chief Financial Officer John Schmitz 29 EX-10.41 2 0002.txt SECOND AMENDMENT TO CREDIT AGRMT (REVOLVING LOAN) EXHIBIT 10.41 SECOND AMENDMENT TO CREDIT AGREEMENT (REVOLVING LOAN) THIS SECOND AMENDMENT TO CREDIT AGREEMENT (Revolving Loan) ("AMENDMENT AGREEMENT") is made May 23, 2000, to be effective as of the Effective Date, by and among Cenex Harvest States Cooperatives, a Minnesota cooperative corporation ("BORROWER"), CoBank, ACB ("COBANK") as former Co-Lead Arranger, as the Bid Agent, and as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity "ADMINISTRATIVE AGENT"), Bank of America, N.A., as successor by merger to NationsBank, N. A. ("BANK OF AMERICA"), as Co-Lead Arranger, SunTrust Bank ("SUNTRUST") as Co-Lead Arranger, and the Syndication Parties signatory hereto, including CoBank, Bank of America, and SunTrust, in such capacity, (each a "SYNDICATION PARTY" and collectively, the "SYNDICATION PARTIES"). RECITALS A. Borrower, CoBank, St. Paul Bank for Cooperatives, and certain of the present Syndication Parties entered into a Credit Agreement (Revolving Loan) (as amended "CREDIT AGREEMENT") dated as of June 1, 1998. The Credit Agreement provided for a 364-Day Facility and a 5-Year Facility. B. The Credit Agreement was amended by the First Amendment to Credit Agreement (Revolving Loan) effective as of May 28, 1999 ("FIRST AMENDMENT"). C. CoBank, as Administrative Agent, gave written notification ("RENEWAL NOTICE") to those Syndication Parties which had an Individual 364-Day Commitment seeking (i) a renewal of their respective Individual 364-Day Commitments and (ii) consent to an extension of the 364-Day Maturity Date pursuant to the provisions of Section 16.9 of the Credit Agreement. D. All of the Syndication Parties have provided the Administrative Agent with written notice of their agreement to make Individual 364-Day Commitments. E. Certain institutions, which were not Syndication Parties prior to the date hereof, have agreed to become Syndication Parties as indicated on Schedule 1 hereto and by their execution of this Amendment Agreement, and by their execution of a Syndication Adoption Agreement and or a Syndication Acquisition Agreement. F. The parties hereto desire to amend the Credit Agreement to renew the 364-Day Facility and to make certain other changes to the Credit Agreement as hereinafter set forth. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows: 1. DEFINITIONS. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein. 2. RENEWAL OF INDIVIDUAL 364-DAY COMMITMENTS. The Syndication Parties hereby agree to renew or agree to acquire their respective Individual 364-Day Commitments in the amounts set forth beneath their names and signatures on the signature pages hereto and as set forth in Schedule 1 hereto. 3. AMENDMENTS TO CREDIT AGREEMENT. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date: 3.1 SunTrust Bank shall replace CoBank, ACB as a Co-Lead Arranger and shall function as such along with Bank of America, N.A.. 3.2 Subsection 1.11 shall be amended in its entirety to read as follows: 1.11 AGGREGATE 364-DAY COMMITMENT: $500,000,000.00, subject to reduction as provided in Section 2.8 hereof. 3.3 Subsection 1.156 shall be amended in its entirety to read as follows: 1.156 364-DAY MATURITY DATE: May 23, 2001. 3.4 The amount of the Fin-Ag, Inc. loan exception set forth in Section 13.6(d) is increased from $60,000,000 to $75,000,000. 3.5 Schedule 1 is replaced in its entirety by the Schedule 1 attached hereto. 4. BORROWER'S REPRESENTATIONS. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents. 5. EFFECTIVE DATE. This Amendment Agreement shall become effective on May 25, 2000 ("EFFECTIVE DATE"), so long as on or before that date the Administrative Agent receives an original copy of (a) this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto, (b) a Syndication Adoption Agreement (or original counterparts thereof) duly executed by each party identified on Schedule A hereto, and (c) each required new or replacement Promissory Note. Upon the satisfaction of all conditions precedent hereto, the 2 Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith. 6. COSTS; EXPENSES AND TAXES. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder. 7. GENERAL PROVISIONS. 7.1 Borrower agrees to execute such additional documents as the Administrative Agent may require, including, without limitation, new and/or replacement Notes, to carry out or evidence the purposes of this Amendment Agreement. 7.2 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each of the other Loan Documents, are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the "Credit Agreement" shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement. Any direct or indirect reference in the Loan Documents to a "Syndication Party" or to the "Syndication Parties" shall be deemed to be a reference to the Syndication Parties which executed this Amendment Agreement. 8. GOVERNING LAW. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 9. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 3 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Credit Agreement (Revolving Loan) to be executed by their duly authorized officers as of the Effective Date. BORROWER: CENEX HARVEST STATES COOPERATIVES, a cooperative corporation formed under the laws of the State of Minnesota By: ------------------------------------------ Name: John Schmitz Title: Chief Financial Officer ADMINISTRATIVE AGENT, AND BID AGENT: COBANK, ACB By: ------------------------------------------ Name: Greg Somerhalder Title: Vice President CO-LEAD ARRANGER: BANK OF AMERICA, N.A. By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- CO-LEAD ARRANGER: SUNTRUST BANK By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- 4 SYNDICATION PARTIES: COBANK, ACB By: ------------------------------------------ Name: Greg Somerhalder Title: Vice President Contact Name: Greg Somerhalder Title: Vice President Address: 5500 So. Quebec Street Englewood, CO 80111 Phone No.: 303/694-5838 Fax No.: 303/694-5830 Individual 364-Day Commitment: $126,000,000.00 Payment Instructions: CoBank, ACB ABA No.: 307088754 Acct. Name: CoBank, ACB Account No.: 22274433 Attn: Marshall Allen Reference: Cenex Harvest States 5 SYNDICATION PARTIES: BANCA INTESA SPA, F/K/A CARIPLO-CASSA DI RISPARMIO DELLE PROVINCIE LOMBARDE SPA By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Silvano Gaspary Title: Vice President & Representative Address: 10 East 53rd Street, 36th Floor New York, NY 10022 Phone No.: 212/527-8737 Fax No.: 212/527-8777 Individual 364-Day Commitment: $16,666,667.00 Payment Instructions: Citibank - New York ABA - 021000089 For account of Banc Intesa Account No.: 36152989 Attn: M. Greene Ref: Cenex Harvest States Cooperatives 6 SYNDICATION PARTIES: CREDIT AGRICOLE INDOSUEZ By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Theodore D. Tice Title: Vice President Address: 55 E. Monroe Street Chicago, IL 60603-5702 Phone No.: 312/917-7463 Fax No.: 312/372-3455 Individual 364-Day Commitment: $35,000,000.00 Payment Instructions: Citibank - New York, New York ABA - 021-000-089 Acct. Name: Credit Agricole Indoseuz Chgo Branch Account No.: 36023853 Swift Code: CITIUS33 Ref: Cenex Harvest States 7 SYNDICATION PARTIES: SUNTRUST BANK By: ------------------------------------------ Name: ---------------------------------------- Title: Director --------------------------------------- By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Michel A. Odermatt Title: Director Address: 303 Peachtree Street N.E. Third Floor Atlanta, GA 30308 Phone No.: 404/532-0232 Fax No.: 404/230-5305 Individual 364-Day Commitment: $43,000,000.00 Payment Instructions: SunTrust Bank ABA - 061000104 Acct. Name: Corporate Banking Operations General Ledger Account Account No.: 9088000112 Ref: Cenex Harvest States Cooperatives 8 SYNDICATION PARTIES: BANQUE NATIONALE DE PARIS By: ------------------------------------------ Name: Arnaud Collin du Bocage ---------------------------------------- Title: Executive Vice President and General Manager --------------------------------------- Contact Name: Cathy Schaede Title: Vice President Address: 209 South LaSalle Street Chicago, IL 60604 Phone No.: 312/977-1384 Fax No.: 312/977-1380 Individual 364-Day Commitment: $24,666,667.00 Payment Instructions: Banque Nationale de Paris - New York ABA - 0260-0768-9 Acct. Name: Banque Nationale de Paris - Chicago Account No.: 14119400189 9 SYNDICATION PARTIES: COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A., "RABOBANK NEDERLAND", NEW YORK BRANCH By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Tom Kelly Title: Portfolio Manager Address: 300 South Wacker Drive Suite 3500 Chicago, IL 60606-6610 Phone No.: 312/408-8207 Fax No.: 312/408-8240 Individual 364-Day Commitment: $32,000,000.00 Payment Instructions: The Bank of New York (New York, NY 10167) ABA - 021 000 018 Acct. Name: Rabobank Nederland Account No.: 802 6002 533 Attn: Debra Rivers Ref: Cenex Harvest States 10 SYNDICATION PARTIES: THE BANK OF TOKYO-MITSUBISHI, LTD., CHICAGO BRANCH By: ------------------------------------------ Name: Gus C. Browne, II ---------------------------------------- Title: Senior Vice President & Manager --------------------------------------- Contact Name: Gus C. Browne, II Title: Senior Vice President & Manager Address: 90 South Seventh Street, Suite 5100 Minneapolis, MN 55402-4122 Phone No.: 612/333-0505 Fax No.: 612/333-3735 Loan Administration Contact Name: Janice Hennig Address: 227 West Monroe Street Suite 2300 Chicago, Illinois 60606 Phone No.: 312/696-4710 Fax No.: 312/696-4532 Individual 364-Day Commitment: $20,000,000.00 Payment Instructions: The Federal Reserve Bank of Chicago ABA - 071002341 Acct. Name: The Bank of Tokyo- Mitsubishi, Ltd. Attention: Loan Administration Ref: Cenex Harvest States Cooperatives 11 SYNDICATION PARTIES: BANK OF AMERICA, N.A. By: ------------------------------------------ Name: Tom F. Scharfenberg ---------------------------------------- Title: Managing Director --------------------------------------- Contact Name: Laurie Haugh Title: Associate Vice President Address: 231 South La Salle Street Chicago, IL 60697 Phone No.: 312/828-3070 Fax No.: 312/987-1276 Individual 364-Day Commitment: $43,000,000.00 Payment Instructions: Bank of America, N.A. ABA - 11100012 A/C #: 1292000883 Acct. Name: Corporate Loans Attention: Lenor Manhard Ref: Cenex Harvest States 12 SYNDICATION PARTIES: WELLS FARGO BANK, N.A., F/K/A NORWEST BANK MINNESOTA, N.A. By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Christopher Cudak Title: Vice President Address: Sixth and Marquette MAC-N9305-031 Minneapolis, MN 55479-0085 Phone No.: 612/667-3504 Fax No.: 612/667-2276 Individual 364-Day Commitment: $20,000,000.00 Payment Instructions: Norwest Bank Minnesota ABA - 091000019 Acct. Name: Commercial Loan Clearing Account Account No.: 840165 Ref: Cenex Harvest States 13 SYNDICATION PARTIES: DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, AG, CAYMAN ISLAND BRANCH By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Mark Connelly Title: Vice President Address: 609 Fifth Avenue New York, NY 10017 Phone No.: 212/745-1560 Fax No.: 212/745-1556 Individual 364-Day Commitment: $24,666,667.00 Payment Instructions: (1) CHIPS Payments: Bank of New York for Account of DG Bank, NY Account No. 8900433876 Ref: Cenex Harvest States (2) Federal Reserve Payments: Bank of New York ABA #021000018 Account Name: DG Bank, NY Account No. 8900433876 Ref: Cenex Harvest States 14 SYNDICATION PARTIES: U.S. BANK NATIONAL ASSOCIATION By: ------------------------------------------ Name: ---------------------------------------- Title: --------------------------------------- Contact Name: Kathi L. Hatch Title: Commercial Banking Associate Address: 950 17th Street, #350 Denver, CO 80202 Phone No.: 303/585-4926 Fax No.: 303/585-4732 Individual 364-Day Commitment: $20,000,000.00 Payment Instructions: U.S. Bank National Association ABA - 091000022 Acct. Name: Commercial Loans Account No.: 30000472160600 Attn: Karen Johnson Ref: Cenex Harvest States Cooperatives 15 SYNDICATION PARTIES: THE BANK OF NOVA SCOTIA By: ------------------------------------------ Name: Vicki Gibson ---------------------------------------- Title: --------------------------------------- Contact Name: James Belletire Title: Relationship Manager Address: 181 W. Madison Street Ste. 3700 Chicago, IL 60602 Phone No.: 312/201-4185 Fax No.: 312/201-4108 Individual 364-Day Commitment: $32,000,000.00 Payment Instructions: The Bank of Nova Scotia ABA - 026002532 Acct. Name: Atlanta Agency Account No.: 0606634 Attn: Chicago Team Ref: Cenex Harvest States 16 SYNDICATION PARTIES: AGFIRST, FCB By: ------------------------------------------ Name: Bruce B. Fortner ---------------------------------------- Title: Vice President --------------------------------------- Contact Name: Bruce B. Fortner Title: Vice President Address: 1401 Hampton Street, P.O. Box 1499 Columbia, SC 29201 Phone No.: 803/799-5000 x457 Fax No.: 803/254-4219 Individual 364-Day Commitment: $43,000,000.00 Payment Instructions: AgFirst Farm Credit Bank ABA - 053905974 Acct. Name: AgFirst FCB Account No.: N/A Attn: N/A Ref: Cenex Harvest States Coop 17 SYNDICATION PARTIES: NATEXIS BANQUE By: ------------------------------------------ Name: Cliff A. Niebling ---------------------------------------- Title: Vice President, Commodities Group --------------------------------------- Contact Name: Cliff A. Niebling Title: Vice President, Commodities Group Address: 645 Fifth Avenue New York, NY 10022 Phone No.: 212/872-5133 Fax No.: 212/872-5045 Individual 364-Day Commitment: $20,000,000.00 Payment Instructions: Chase Manhattan Bank, NY, NY ABA - 021-000-021 Acct. Name: Natexis Banque, New York Branch Account No.: 544-7-75330 Attn: Ref: Cenex Harvest States Cooperatives 18 EX-10.42 3 0003.txt SECOND AMENDMENT TO CREDIT AGREEMENT (TERM LOAN) EXHIBIT 10.42 SECOND AMENDMENT TO CREDIT AGREEMENT (TERM LOAN) THIS SECOND AMENDMENT TO CREDIT AGREEMENT (Term Loan) ("AMENDMENT AGREEMENT") is made May 23, 2000, to be effective as of the Effective Date ,by and among Cenex Harvest States Cooperatives, a Minnesota cooperative corporation ("BORROWER"), CoBank, ACB ("COBANK") as Co-Lead Arranger, and as the Administrative Agent for the benefit of the present and future Syndication Parties (in that capacity "ADMINISTRATIVE AGENT"), St. Paul Bank for Cooperatives ("ST. PAUL Bank"), as Co-Lead Arranger, and the Syndication Parties signatory hereto, including CoBank and St. Paul Bank in such capacity (each a "SYNDICATION PARTY" and collectively, the "SYNDICATION PARTIES"). RECITALS A. Borrower, CoBank, St. Paul Bank, and the Syndication Parties entered into a Credit Agreement (Term Loan) (as amended, the "CREDIT AGREEMENT") dated as of June 1, 1998. B. The Credit Agreement was amended by the First Amendment to Credit Agreement (Term Loan) effective as of May 31, 1999 ("FIRST AMENDMENT"). C. CoBank is the successor by merger to the interests and obligations of St. Paul Bank under the Credit Agreement. D. The parties hereto desire to amend the Credit Agreement as hereinafter set forth. NOW, THEREFORE, for good and valuable consideration, the receipt of which is hereby acknowledged, including the mutual promises and agreements contained herein, the parties hereto hereby agree as follows: 1. DEFINITIONS. Capitalized terms used herein without definition shall have the definition given to them in the Credit Agreement if defined therein. 2. AMENDMENTS TO CREDIT AGREEMENT. The parties hereto agree that the Credit Agreement shall be amended as follows as of the Effective Date: 2.1 The amount of the Fin-Ag, Inc. loan exception set forth in Section 10.6(d) is increased from $60,000,000 to $75,000,000. 4. BORROWER'S REPRESENTATIONS. Borrower hereby represents and warrants that, after giving effect to this Amendment Agreement and the transactions contemplated hereby, no Potential Default or Event of Default has occurred and is continuing under the Credit Agreement or other Loan Documents. 5. EFFECTIVE DATE. This Amendment Agreement shall become effective on May 25, 2000 ("EFFECTIVE DATE"), so long as on or before that date the Administrative Agent receives an original copy of this Amendment Agreement (or original counterparts thereof) duly executed by each party hereto. Upon the satisfaction of all conditions precedent hereto, the Administrative Agent will notify each party hereto in writing and will provide copies of all appropriate documentation in connection herewith. 6. COSTS; EXPENSES AND TAXES. Borrower agrees to reimburse the Administrative Agent on demand for all out-of-pocket costs, expenses and charges (including, without limitation, all fees and charges of external legal counsel for the Administrative Agent) incurred by the Administrative Agent in connection with the preparation, reproduction, execution and delivery of this Amendment Agreement and any other instruments and documents to be delivered hereunder. 7. GENERAL PROVISIONS. 7.1 Borrower agrees to execute such additional documents as the Administrative Agent may require to carry out or evidence the purposes of this Amendment Agreement. 7.2 The execution, delivery and effectiveness of this Amendment Agreement shall not operate as a waiver of any right, power or remedy of the Administrative Agent or any Syndication Party under any of the Loan Documents, nor constitute a waiver of any provision of any of the Loan Documents, and the Credit Agreement, as expressly modified hereby, and each other Loan Document are hereby ratified and confirmed and shall continue in full force and effect and be binding upon the parties thereto. Any direct or indirect reference in the Loan Documents to the "Credit Agreement" shall be deemed to be a reference to the Credit Agreement as amended by this Amendment Agreement. 8. GOVERNING LAW. This Amendment Agreement shall be governed by and construed in accordance with the laws of the State of Colorado. 9. COUNTERPARTS. This Amendment Agreement may be executed in any number of counterparts and by different parties to this Amendment Agreement in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 2 IN WITNESS WHEREOF, the parties hereto have caused this Second Amendment to Credit Agreement (Term Loan) to be executed by their duly authorized officers as of the Effective Date. BORROWER: CENEX HARVEST STATES COOPERATIVES, a cooperative corporation formed under the laws of the State of Minnesota By: ------------------------------------- Name: John Schmitz Title: Chief Financial Officer ADMINISTRATIVE AGENT: COBANK, ACB By: ------------------------------------- Name: Greg Somerhalder Title: Vice President 3 SYNDICATION PARTIES: COBANK, ACB By: ------------------------------------- Name: Greg Somerhalder Title: Vice President Contact Name: Greg Somerhalder Title: Vice President Address: 5500 South Quebec Street Englewood, CO 80111 Phone No.: 303/694-5838 Fax No.: 303/694-5830 Payment Instructions: CoBank, ACB ABA No.: 307088754 Acct. Name: CoBank, ACB Account No.: 22274433 Attn: Marshall Allen Reference: Cenex Harvest States 4 EX-99 4 0004.txt CAUTIONARY STATEMENT EXHIBIT 99 CAUTIONARY STATEMENT Cenex Harvest States Cooperatives (the "Company"), or persons acting on behalf of the Company, or outside reviewers retained by the Company making statements on behalf of the Company, or underwriters, from time to time, may make, in writing or orally, "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995 (the "Act"). This Cautionary Statement is for the purpose of qualifying for the "safe harbor" provisions of the Act and is intended to be a readily available written document that contains factors which could cause results to differ materially from those projected in such forward-looking statements. These factors are in addition to any other cautionary statements, written or oral, which may be made or referred to in connection with any such forward-looking statement. The following matters, among others, may have a material adverse effect on the business, financial condition, liquidity, results of operations or prospects, financial or otherwise, of the Company. Reference to this Cautionary Statement in the context of a forward-looking statement shall be deemed to be a statement that any one or more of the following factors may cause actual results to differ materially from those which might be projected, forecast, estimated or budgeted by the Company in such forward-looking statement or statements: COMPANY SUBJECT 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. The business is also affected by transportation conditions, including rail, vessel, barge and truck. Demand may be affected by foreign governments and their programs, relationships of foreign countries with the United States, the affluence of foreign countries, acts of war, currency exchange fluctuations and substitution of commodities. The current monetary crises in Asia have impacted, and are expected to continue to impact, exports of U.S. agricultural products. Demand may also be affected by changes in eating habits, by population growth and increased or decreased per capita consumption of some products. The Freedom to Farm Act of 1996 (the Farm Act), enacted in April of 1996, may affect crop production in several ways. The Farm Act more narrowly defines what will qualify as environmentally sensitive acreage for purposes of the conservation reduction program, with the result that 3 to 4 million acres may be put back into agricultural production in the future from a present enrollment of 36.4 million acres. The Farm Act also removes restrictions on the type of crops planted (other than fruit and vegetables), allowing farmers to plant crops having favorable prices and thereby increasing the production of those crops. Increased production may lower prices of certain crops but increase the amount available for export. However, the Farm Act also reduces Export Enhancement Program subsidies, which may adversely affect the ability of the U.S. exports to compete with those of other countries. Reduced demand for U.S. agricultural products may also adversely affect the demand for fertilizer, chemicals, and petroleum products sold by the Company and used to produce crops. COMPANY SUBJECT TO PRICE RISKS. Upon purchase, the Company has risks of carrying grain and petroleum, including price changes and performance risks (including delivery, quality, quantity and shipment period), depending upon the type of purchase contract entered into. The Company is exposed to risks of loss in the market value of positions held, consisting of grain and petroleum inventory and purchase contracts at a fixed or partially fixed price, in the event market prices decrease. The Company is also exposed to risk of loss on its fixed price or partially fixed price sales contracts in the event market prices increase. To reduce the price change risks associated with holding fixed price positions, the Company generally takes opposite and offsetting positions by entering into commodity futures contracts (either a straight futures contract or an options futures contract) on regulated commodity futures exchanges. While hedging activities reduce the risk of loss from changing market values, such activities also limit the gain potential which otherwise could result from changes in market prices. Hedging arrangements do not protect against nonperformance of a contract. The Company's policy is to generally maintain hedged positions in grain and petroleum, which are hedgeable, but the Company can be long or short at any time. The Company's profitability is primarily derived from margins on grain and products merchandised and processed, not from hedging transactions. At any one time, the Company's inventory and purchase contracts for delivery to the Company may be substantial. OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. Competition in the soybean processing and refining business is driven by price, transportation costs, service and product quality. The industry is highly competitive. Competitors are adding new plants and expanding capacity of existing plants. Media newsletters and other publications indicate that new crush plants and refinery operations are being constructed or under strong consideration. The Company estimates that U.S. crushing capacity has increased by about 30% to 35% between 1994 and 1998. Refining capacity has increased by an estimated 25% to 30% between 1996 and 1999. Unless exports increase or existing refineries are closed, this extra capacity is likely to put additional pressure on prices and erode margins, adversely affecting the profitability of the Oilseed Processing and Refining Defined Business Unit. Several competitors operate over various market segments and may be suppliers to, or customers of, other competitors. MILLING BUSINESS COMPETITIVE TRENDS. Certain major durum milling competitors of the Wheat Milling Defined Business Unit have developed long-term relationships with customers by locating plants adjacent to pasta manufacturing plants. This trend could potentially decrease the future demand for semolina from nonintegrated millers. In addition, baking and bread flour demand has declined during a period when the milling industry has been expanding, which will continue to put pressure on gross margins. TAXATION OF COOPERATIVES COULD CHANGE. Although under Subchapter T of the Internal Revenue Code patronage refunds are excluded in determining taxable income of a cooperative and patronage refunds are taxable to the recipient, current income tax laws, regulations and interpretations pertaining to the receipt of patronage refunds could be changed. DEPENDENCE ON CERTAIN CUSTOMERS. Each of the Wheat Milling Defined Business Unit and the Oilseed Processing and Refining Defined Business Unit has certain major customers. Loss of or a decline in the business done with one or more of these customers could have a material adverse effect on the operations of the affected defined business unit. In addition, the Wheat Milling Defined Business Unit would be adversely affected by a decline in pasta production in the United States. The foregoing review of factors pursuant to the Act should not be construed as exhaustive or as any admission regarding the adequacy of disclosures made by the Company prior to the effective date of the Act. EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 9-MOS AUG-31-2000 MAY-31-2000 42,914 0 972,865 24,162 674,876 1,740,115 1,865,517 839,787 3,367,586 1,526,798 853,998 0 0 0 1,148,770 3,367,586 6,227,645 6,331,294 6,103,220 0 0 907 43,008 58,729 2,576 56,153 0 0 0 56,153 0 0
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