-----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, Rmx60DVc2IYl5IvvteXfl9AEnbPXLfABawKqcHZBXmm1Us15EXr9chb3sBthe/+z saP3Upah9CuuOYFt2/acxg== 0000897101-01-000029.txt : 20010123 0000897101-01-000029.hdr.sgml : 20010123 ACCESSION NUMBER: 0000897101-01-000029 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20001130 FILED AS OF DATE: 20010110 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENEX HARVEST STATES COOPERATIVES CENTRAL INDEX KEY: 0000823277 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [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: 1506107 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 November 30, 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 (Address of principal executive offices and zip code) number including area code) ------------- Include by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES __X__ NO _____ Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. NONE NONE ---- ---- (Class) (Number of shares outstanding at November 30, 2000) ================================================================================ INDEX
PAGE NO. ---- PART I. FINANCIAL INFORMATION ......................................................... 1 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES Item 1. Financial Statements Consolidated Balance Sheets as of November 30, 2000 (unaudited), August 31, 2000 and November 30, 1999 (unaudited) ............................................ 2 Consolidated Statements of Operations for the three months ended November 30, 2000 and 1999 (unaudited) .............................................................. 3 Consolidated Statements of Cash Flows for the three months ended November 30, 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 ................ 12 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) Item 1. Financial Statements Balance Sheets as of November 30, 2000 (unaudited), August 31, 2000 and November 30, 1999 (unaudited) ..................................................... 13 Statements of Operations for the three months ended November 30, 2000 and 1999 (unaudited) .............................................................. 14 Statements of Cash Flows for the three months ended November 30, 2000 and 1999 (unaudited) .............................................................. 15 Notes to Financial Statements (unaudited) ......................................... 16 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................................... 17 WHEAT MILLING DEFINED BUSINESS UNIT (A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES) Item 1. Financial Statements Balance Sheets as of November 30, 2000 (unaudited), August 31, 2000 and November 30, 1999 (unaudited) ..................................................... 2O Statements of Operations for the three months ended November 30, 2000 and 1999 (unaudited) .............................................................. 21 Statements of Cash Flows for the three months ended November 30, 2000 and 1999 (unaudited) .............................................................. 22 Notes to Financial Statements (unaudited) ......................................... 23 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ..................................................................... 24 PART II. OTHER INFORMATION Items 1 through 3 have been omitted since all items are inapplicable or answers are negative Item 4. Submission of Matters to a Vote of Security Holders ....................... 27 Item 5 has been omitted since the answer is negative Item 6. Exhibits and Reports on Form 8-K .......................................... 27 SIGNATURE PAGE ........................................................................ 28
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. The current short supply and high demand for natural gas will impact the supply of fertilizer. 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 inventories 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 November 30, 2000. 1 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES ITEM 1. FINANCIAL STATEMENTS CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
ASSETS November 30, August 31, November 30, (DOLLARS IN THOUSANDS) 2000 2000 1999 ---------------------------------------------- (Unaudited) (Unaudited) Current assets: Cash and cash equivalents $ 87,537 $ 56,393 $ 56,142 Receivables 839,826 834,743 721,771 Inventories 686,308 602,385 673,647 Other current assets 50,377 37,777 40,030 ---------------------------------------------- Total current assets 1,664,048 1,531,298 1,491,590 Investments 454,233 451,211 416,966 Property, plant and equipment 1,035,722 1,034,768 978,815 Other 196,015 155,403 119,676 ---------------------------------------------- Total assets $ 3,350,018 $ 3,172,680 $ 3,007,047 ============================================== LIABILITIES AND EQUITIES Current liabilities: Notes payable $ 308,055 $ 217,926 $ 229,354 Current portion of long-term debt 28,573 30,173 21,221 Patrons' credit balances 73,863 36,779 47,639 Patrons' advance payments 129,077 131,935 250,552 Checks and drafts outstanding 72,774 84,086 36,900 Accounts payable 645,349 624,772 473,030 Accrued expenses 136,308 147,710 133,522 Patronage dividends and equity retirements payable 67,957 43,694 36,089 ---------------------------------------------- Total current liabilities 1,461,956 1,317,075 1,228,307 Long-term debt 473,384 480,327 455,601 Other liabilities 92,265 84,929 79,697 Minority interests in subsidiaries 126,800 125,923 121,165 Commitments and contingencies Equities 1,195,613 1,164,426 1,122,277 ---------------------------------------------- Total liabilities and equities $ 3,350,018 $ 3,172,680 $ 3,007,047 ==============================================
The accompanying notes are an integral part of the consolidated financial statements (unaudited). 2 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For the Three Months Ended November 30, ------------------------------- (DOLLARS IN THOUSANDS) 2000 1999 ---- ---- REVENUES: Net sales $ 2,168,782 $ 2,018,758 Patronage dividends 425 258 Other revenues 30,130 25,980 ------------------------------- 2,199,337 2,044,996 ------------------------------- COSTS AND EXPENSES: Cost of goods sold 2,110,960 1,984,813 Marketing, general and administrative 38,410 39,292 Interest 15,572 12,956 Minority interests 3,733 537 ------------------------------- 2,168,675 2,037,598 ------------------------------- INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 30,662 7,398 Income taxes (32,123) (1,721) ------------------------------- NET INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 62,785 9,119 Cumulative effect of accounting change, net of income tax benefit (3,263) ------------------------------- NET INCOME $ 59,522 $ 9,119 ===============================
The accompanying notes are an integral part of the consolidated financial statements (unaudited). 3 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months Ended November 30, ------------------------------- (DOLLARS IN THOUSANDS) 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 59,522 $ 9,119 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Cumulative effect of accounting change, net of income tax benefit 3,263 Depreciation and amortization 24,755 22,178 Noncash net (income) loss from joint ventures (2,360) 823 Minority interests 3,733 537 Noncash portion of patronage dividends received (151) (70) Gain on sale of property, plant and equipment (626) (76) Changes in operating assets and liabilities: Receivables (5,018) (115,292) Inventories (83,923) (69,545) Other current assets and other assets (57,936) (1,068) Patrons' credit balances 37,084 2,669 Patrons' advance payments (2,858) 122,797 Accounts payable and accrued expenses 9,175 37,050 Other liabilities 7,336 (8,476) ------------------------------- Net cash (used in) provided by operating activities (8,004) 646 ------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (24,412) (31,854) Proceeds from disposition of property, plant and equipment 1,515 456 Investments (7,481) (3,164) Investments redeemed 7,733 11,589 Changes in notes receivable (32) 53 Distribution to minority owners (3,988) (1,248) Other investing activities, net 1,076 689 ------------------------------- Net cash used in investing activities (25,589) (23,479) ------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in notes payable 90,129 32,368 Long-term debt borrowings 565 Principal payments on long-term debt (9,108) (5,844) Changes in checks and drafts outstanding (11,312) (11,705) Retirements of equity (5,537) (11,511) ------------------------------- Net cash provided by financing activities 64,737 3,308 ------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 31,144 (19,525) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 56,393 75,667 ------------------------------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 87,537 $ 56,142 ===============================
The accompanying notes are an integral part of the consolidated financial statements (unaudited). 4 CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (DOLLARS IN THOUSANDS) NOTE 1. ACCOUNTING POLICIES The unaudited consolidated balance sheets as of November 30, 2000 and 1999, and the statements of operations and cash flows for the three months ended November 30, 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 financial position and 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, 2000 was derived from audited consolidated financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The 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. 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, 2000, included in the Company's Report on Form 10-K previously filed with the Securities and Exchange Commission on November 22, 2000. EQUITIES The Company's Board of Directors approved a resolution to compute patronage distributions based on audited earnings for financial statement purposes rather than tax basis earnings effective September 1, 2000. The resolution was ratified by the Company's members on December 1, 2000 at the Company's annual meeting. Beginning in fiscal year 2001 patronage distributions will be based on audited financial statement earnings. ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES The Company adopted SFAS No. 133, as amended, a standard related to the accounting for derivative transactions and hedging activities, effective September 1, 2000. The effect of adoption was a loss of $3.6 million ($3.3 million net of income tax benefit), relating to the energy segment. All of the Company's derivatives are designated as non-hedge derivatives. The futures, options, and forward contracts utilized by the Company are discussed below. Although the contracts are effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments. The Company, as part of its trading activity, utilizes futures and option contracts offered through regulated commodity exchanges to reduce risk. The Company is exposed to risk of loss in the market value of inventories and fixed or partially fixed purchase and sale contracts. To reduce that risk, the Company generally takes opposite and offsetting positions using future contracts or options. Certain commodities cannot be hedged with future or option contracts because such contracts are not offered for these commodities by regulated commodity exchanges. Inventories and purchase contracts for those commodities are hedged with forward sales contracts to the extent practical so as to arrive at a net commodity position within the formal position limits set by the Company and deemed prudent for each of those commodities. Commodities for which future contracts and options are available are also typically hedged first in this manner, with futures and options used to hedge within position limits that portion not covered by forward contracts. Unrealized gains and losses on futures contracts and options used to hedge grain and oilseed inventories and fixed priced contracts are recognized currently for financial reporting, and the inventories 5 and fixed priced contracts are marked to market so that gains and losses on the derivative contracts are offset by gains and losses on inventories and fixed priced contracts during the same accounting period. Unrealized gains and losses on futures contracts and options used to hedge energy inventories and fixed priced contracts are also recognized currently for financial reporting. The inventories hedged with these derivatives are valued at the lower of cost or market, and the fixed priced contracts are marked to market. RECENT ACCOUNTING PRONOUNCEMENTS In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements". The SAB summarizes certain of the SEC staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. In June 2000, the SEC issued SAB 101B, which delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not believe that adoption of this SAB will materially impact its financial statements. NOTE 2. RECEIVABLES November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ Trade $ 830,540 $ 834,349 $ 739,048 Other 32,478 23,643 6,399 ------------ ------------ ------------ 863,018 857,992 745,447 Less allowances for doubtful accounts 23,192 23,249 23,676 ------------ ------------ ------------ $ 839,826 $ 834,743 $ 721,771 ============ ============ ============ NOTE 3. INVENTORIES November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ Energy $ 289,398 $ 286,276 $ 319,992 Grain and oilseed 299,289 215,570 207,662 Agronomy -- -- 80,943 Processed grain and oilseed 24,558 32,993 11,066 Feed and farm supplies 69,210 63,909 50,953 Other 3,853 3,637 3,031 ------------ ------------ ------------ $ 686,308 $ 602,385 $ 673,647 ============ ============ ============ NOTE 4. INVESTMENTS The following provides summarized unuadited financial information for Ventura Foods, LLC and Agriliance, LLC for the three month periods indicated below. VENTURA FOODS, LLC November 30, November 30, 2000 1999 ------------ ------------ Net sales $ 223,922 $ 224,475 Gross profit 33,877 35,744 Net income 11,464 12,787 AGRILIANCE, LLC November 30, 2000 ------------ Net sales $ 660,881 Gross profit 56,998 Net loss (22,637) 6 NOTE 5. COMPREHENSIVE INCOME During the three months ended November 30, 2000 and 1999, total comprehensive income amounted to $60.9 million and $9.2 million, respectively. Accumulated other comprehensive loss on November 30, 2000, August 31, 2000 and November 30, 1999 was $(1.0) million, $(2.4) million and $(1.1) million, respectively. NOTE 6. SEGMENT REPORTING Effective September 1, 2000, the Company's management reorganized the way its businesses are managed and internally reported. A new segment called Country Operations was created. This new segment includes the former Farm Marketing & Supply business previously included in the Grain Marketing and Farm Marketing & Supply segment, and also the Country Services, Hedging and Insurance services formerly included in Other. With the reorganization there are now five segments. These segments, which are based on products and services, include Agronomy, Energy, Grain Marketing, Country Operations, and Processed Grain and Consumer Products. Reconciling items represent the elimination of intra-company sales between segments. Intra-company sales from Country Operations to Grain Marketing were $205.5 million and $182.4 million for the three months ended November 30, 2000 and 1999, respectively. Intra-company sales from Energy to Country Operations were $20.0 million and $11.4 million for the three months ended November 30, 2000 and 1999, respectively. The prior year's segment information has been restated to reflect the change in segments. Due to cost allocations and intersegment activity, management does not represent that these segments if operated independently, would report the income before income taxes and other financial information presented. Segment information for the three months ended November 30, 2000 and 1999 is as follows:
PROCESSED GRAIN GRAIN COUNTRY AND CONSUMER RECONCILING AGRONOMY ENERGY MARKETING OPERATIONS PRODUCTS OTHER AMOUNTS TOTAL -------- ------ --------- ---------- -------- ----- ------- ----- FOR THE THREE MONTHS ENDED NOVEMBER 30, 2000 Net sales $ 873,396 $ 967,490 $ 401,885 $ 151,539 $(225,528) $2,168,782 Patronage dividends $ 268 9 57 33 $ 58 425 Other revenues (5,229) 902 7,260 20,426 5,733 1,038 30,130 ---------------------------------------------------------------------------------------------------- (4,961) 874,307 974,807 422,344 157,272 1,096 (225,528) 2,199,337 Cost of goods sold 830,386 965,302 400,979 139,821 (225,528) 2,110,960 Marketing, general and administrative 1,790 9,750 5,508 12,208 7,377 1,777 38,410 Interest (1,171) 7,080 2,165 3,737 3,708 53 15,572 Minority interests 3,730 3 3,733 ---------------------------------------------------------------------------------------------------- (Loss) income before income taxes and cumulative effect of accounting change $ (5,580) $ 23,361 $ 1,832 $ 5,417 $ 6,366 $ (734) $ -- $ 30,662 ==================================================================================================== Total identifiable assets $ 220,982 $ 1,379,552 $ 336,740 $ 786,490 $ 407,392 $ 218,862 $ -- $3,350,018 ==================================================================================================== FOR THE THREE MONTHS ENDED NOVEMBER 30, 1999 Net sales $ 102,063 $ 670,619 $ 956,343 $ 347,380 $ 136,152 $(193,799) $2,018,758 Patronage dividends 111 15 29 44 $ 59 258 Other revenues (7,810) 639 7,283 19,088 5,246 1,534 25,980 ---------------------------------------------------------------------------------------------------- 94,364 671,273 963,655 366,512 141,398 1,593 (193,799) 2,044,996 Cost of goods sold 95,570 655,351 953,859 347,935 125,897 (193,799) 1,984,813 Marketing, general and administrative 4,412 11,634 5,456 11,830 4,635 1,325 39,292 Interest 1,331 5,215 2,219 2,124 1,536 531 12,956 Minority interests 515 22 537 ---------------------------------------------------------------------------------------------------- (Loss) income before income taxes $ (6,949) $ (1,442) $ 2,121 $ 4,601 $ 9,330 $ (263) $ -- $ 7,398 ==================================================================================================== Total identifiable assets $ 393,150 $ 1,206,680 $ 352,784 $ 567,272 $ 322,006 $ 165,155 $ -- $3,007,047 ====================================================================================================
Assets included in "Other" primarily consisted of corporate facilities and assets not allocated to business segments. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Effective September 1, 2000, the Board of Directors approved a resolution requiring the Company to compute patronage distributions using audited earnings for financial statement purposes rather than tax basis earnings. The resolution was ratified by the members on December 1, 2000 at the Company's annual meeting. Beginning in fiscal year 2001, patronage distributions will be based on audited financial statement earnings. The Company adopted SFAS No. 133, as amended, a standard related to the accounting for derivative transactions and hedging activities, effective September 1, 2000. The effect of adoption was a loss of $3.6 million ($3.3 million net of income tax benefit) related to the energy segment. All of the Company's derivatives are designated as non-hedge derivatives. The Company utilizes futures, options and forward contracts related to grain and energy inventories. Although the contracts are effective economic hedges of specified risks, they are not designated as and accounted for as hedging instruments. RESULTS OF OPERATIONS COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 Consolidated net income for the three months ended November 30, 2000 was $59.5 million compared to net income of $9.1 million for the same three-month period in 1999, which represents a $50.4 million increase. This increase in profitability is primarily attributable to an increase in net income from the Company's energy segment of $21.2 million and a change in the tax rate applied to the Company's cumulative temporary differences between earnings for financial statement purposes and tax basis earnings resulting in an increase in deferred tax assets of approximately $34.2 million during the current quarter, which was partially offset by current income tax expense of $1.7 million. The Company's calculation of its patronage distribution using audited earnings for financial statement purposes rather than tax earnings prompted the rate change. Consolidated net sales of $2.2 billion for the three months ended November 30, 2000 increased approximately $150.0 million (7%) compared to the same three months ended in 1999. Company-wide grain and oilseed net sales of $1.0 billion increased $17.5 million (2%) during the three months ended November 30, 2000 compared to the same three months ended in 1999. Sales for the three months ended November 30, 2000 were $967.5 million and $258.4 million from Grain Marketing and Country Operations, respectively. Sales for the three months ended November 30, 1999 were $956.3 million and $229.0 million from Grain Marketing and Country Operations, respectively. The Company eliminated all intra-company sales from Country Operations to its Grain Marketing segments, of $205.5 million and $182.4 million, for the three months ended November 30, 2000 and 1999, respectively. The increase in sales was primarily due to an increase in grain volume of approximately 9%, which was partially offset by a decrease of $0.20 per bushel in the average sales price of all grain and oilseed marketed by the Company compared to the same three months ended in 1999. Energy sales of $873.4 million increased $202.8 million (30%) during the three months ended November 30, 2000 compared to the same period in 1999. This increase is primarily attributable to an increase in the average sales price of refined fuels of $0.33 per gallon, which was partially offset by a volume decrease of 9% compared to the same three months ended in 1999. In addition, the average sales price of propane increased by $0.20 per gallon and volume increased by 32% compared to the same three months ended in 1999. Effective August 30, 2000, National Cooperative Refining Association (NCRA) gave notice of its intent to terminate and dissolve Cooperative Refining Association, LLC (CRLLC), in accordance with the agreements no later than September 1, 2001. The Company owns 58% of CRLLC through its 75% ownership in NCRA and therefore will consolidate CRLLC's business activity up to the time of dissolution. The dissolution will tentatively occur in the second quarter of fiscal year 2001. The Company did not record Agronomy sales during the three months ended November 30, 2000 compared to $102.1 million for the same three-month period in 1999. Effective January 1, 2000, the Company exchanged its agronomy operations for an ownership interest in Agriliance, LLC (owned 8 indirectly through United Country Brands, LLC). As of July 31, 2000, the Company recorded the results of its 25% ownership in Agriliance, LLC on the equity method, and as such, income or losses are reflected in other revenues. Country Operations feed and farm supply sales of $143.5 million increased by $25.1 million (21%) during the three months ended November 30, 2000 compared to the same three months ended in 1999. This increase is primarily due to additional volume from new acquisitions and price increases primarily in agronomy and energy products. Processed Grain and Consumer Products sales of $151.5 million increased $15.4 million (11%) during the three months ended November 30, 2000 compared to the same three months ended in 1999. Sales of processed oilseed increased by $4.6 million due to volume and price increases compared to the same three months ended in 1999. Sales of processed wheat increased by $1.7 million compared to the same three months ended in 1999, primarily due to increased volume. The addition of tortilla operations as the result of the acquisition of Sparta Foods, Inc. on June 1, 2000 added $9.1 million of sales to the first quarter of fiscal year 2001. Other revenues of $30.1 million increased $4.2 million (16%) during the three months ended November 30, 2000 compared to the same three months ended in 1999. The most significant change within other revenues was a decrease in the losses from the agronomy segment of $2.6 million. The Company records its 25% share of Agriliance, LLC, on the equity method as discussed above. In addition, service and other revenues increased $1.6 million, primarily at the Company's Country Operations facilities. Cost of goods sold of approximately $2.1 billion increased $126.1 million (6%) during the three months ended November 30, 2000, compared to the same three months ended in 1999. During the three months ended November 30, 2000 the average cost of refined fuels and propane increased by $0.28 and $0.21 per gallon, respectively compared to the same three months ended in 1999. Country Operations cost of goods sold increased by $53.0 million compared to the same three months ended in 1999 primarily due to increased purchases related to new acquisitions and cost increases primarily in agronomy and energy products. Within the Company's food processing operations the volume of processed soybeans and wheat increased and additional costs were reported due to the addition of the tortilla operation compared to the same three months ended in 1999. These increases were partially offset by the impact of recording the Company's share of its agronomy operation on the equity method as described in the sales analysis above, which caused a reduction in cost of good sold of $95.6 million compared to the three months ended in 1999. Marketing, general and administrative expenses of $38.4 million for the three months ended November 30, 2000 were essentially unchanged from the same three months ended in 1999. Interest expense of $15.6 million for the three months ended November 30, 2000 increased by $2.6 million (20%) compared to the same three months ended in 1999. Although the average level of short-term borrowings was slightly less during the three months ended November 30, 2000 compared to the same period of a year ago, such borrowings were at a 1.25% greater interest rate than a year ago. Minority interests in operations of $3.7 million for the three months ended November 30, 2000 increased by $3.2 million compared to the same three months ended in 1999. Substantially all minority interests is related to NCRA. This net change in minority interests during the current year was reflective of more profitable operations within the Company's majority owned subsidiaries as compared to the same three months ended in 1999. Income tax benefits of $32.1 million and $1.7 million were reported for the three months ended November 30, 2000 and 1999, respectively. An income tax benefit of $34.2 million for the three-month period ended November 30, 2000 resulted due to a change in the tax rate applied to the Company's cumulative temporary differences between income for financial statement purposes and income used for tax reporting purposes. The Company's calculation of its patronage distribution using audited earnings for financial statement purposes rather than tax basis earnings prompted the rate change. The benefit was offset by tax expense for the three months ended November 30, 2000 of $1.7 million, which compares to a $1.7 million tax benefit for the same period in 1999. The income tax benefit or expense and effective 9 tax rate varies from period to period based upon the profitability and non-patronage business activity during each of the comparable periods. A cumulative effect of an accounting change was incurred due to the adoption of SFAS No. 133, as amended, related to the energy segment. The loss incurred was $3.6 million ($3.3 million net of income tax benefit). LIQUIDITY AND CAPITAL RESOURCES CASH FLOWS FROM OPERATIONS Operating activities of the Company used net cash of $8.0 million and provided net cash of $0.6 million for the three months ended November 30, 2000 and 1999, respectively. For the period ended in 2000, net income of $59.5 million and net non-cash income and expenses of approximately $28.6 million were offset by increased working capital requirements of approximately $96.1 million. For the three-month period ended November 30, 1999, net income of $9.1 million and net non-cash income and expenses of approximately $23.4 million were partially offset by increased working capital requirements of approximately $31.9 million. CASH FLOWS FROM INVESTING Investing activities of the Company used net cash of $25.6 million during the three-month period ended November 30, 2000. Expenditures for the acquisition of property, plant and equipment of $24.4 million, investments of $7.5 million, distributions to minority owners of $4.0 million and the net change in notes receivable were partially offset by investments redeemed of $7.7 million, proceeds from the disposition of property plant and equipment of $1.5 million and other investing activities. For the fiscal year ending August 31, 2001, the Company projects that total expenditures for the acquisition of property, plant and equipment will be approximately $104.3 million. Investing activities of the Company used net cash of $23.5 million during the three months ended November 30, 1999. Expenditures for the acquisition of property, plant and equipment of $31.9 million, investments of $3.2 million and distributions to minority owners of $1.2 million were partially offset by investments redeemed of $11.6 million, proceeds from the disposition of property plant and equipment of $0.5 million, the net change in notes receivable and other investing activities. CASH FLOWS FROM FINANCING The Company finances its working capital needs through short-term lines of credit with a syndication of banks. In May 2000, the Company renewed and expanded its 364-day credit facility from $400.0 million to $500.0 million committed. In addition to this short-term line of credit, the Company has a 364-day credit facility dedicated to NCRA, with a syndication of banks in the amount of $50.0 million, all of which is committed. On November 30, 2000, August 31, 2000 and November 30, 1999, the Company had total short-term indebtedness on these various facilities and other short-term notes payable totaling $308.1 million, $217.9 million and $229.4 million, respectively. In June 1998, the Company established a five-year revolving credit facility with a syndication of banks, with $200.0 million committed. On November 30, 2000 and August 31, 2000 the Company had outstanding balances of $45.0 million and $45.0 million, respectively, categorized as long-term debt. The outstanding balance was drawn during the third quarter of the fiscal year ended August 31, 2000. The Company has financed its long-term capital needs, 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 fiscal year 2009. The commitment expired on May 31, 1999. The amount outstanding on this credit facility was $155.8 million on November 30, 2000, $157.4 million on August 31, 2000 and $162.4 million on November 30, 1999, respectively, with zero remaining available. Repayments of approximately $1.6 million were made on this facility during each of the three months ended November 30, 2000 and 1999. 10 Also in June 1998, the Company entered into a private placement with several insurance companies for long-term debt in the amount of $225.0 million. Repayments will be made in equal installments of $37.5 million each in the years 2008 through 2013. On November 30, 2000 the Company had total long-term debt outstanding of $502.0 million, of which approximately $256.3 million was bank financing, $225.0 million was private placement proceeds and $20.7 million was industrial revenue bonds, capitalized leases and other notes payable. Long-term debt of NCRA represented $44.9 million of the total long-term debt outstanding on November 30, 2000. On August 31, 2000 and November 30, 1999, the Company had long-term debt outstanding of $510.5 million and $476.8 million, respectively. During the three-month periods ended November 30, 2000 and 1999, the Company repaid long-term debt of $9.1 million and $5.8 million, respectively, and had additional long-term borrowings of $0.6 million during the three months ended November 30, 2000. In accordance with the By-Laws and by action of the Board of Directors, annual net earnings from patronage sources are distributed to consenting patrons following the close of each year. Effective September 1, 2000, patronage refunds are calculated based on audited earnings for financial statement purposes rather than based on amounts reportable for federal income tax purposes as had been the practice prior to this date. This change was authorized through a By-Law amendment at the Company's annual meeting on December 1, 2000. The patronage earnings from the fiscal year ended August 31, 2000 are expected to be distributed during the second quarter of the current fiscal year. The cash portion of this distribution, deemed by the Board of Directors to be 75% for Equity Participation Units and 30% for other patronage earnings, is expected to be approximately $26.2 million and is classified as a current liability on the November 30, 2000 and the August 31, 2000 balance sheets. The current equity redemption policy, as authorized by the Board of Directors, allows for the redemption of capital equity certificates held by inactive direct members and patrons and active 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, 2000, to be distributed in the current fiscal year, are expected to be approximately $17.5 million, of which approximately $5.5 million was redeemed during the three months ended November 30, 2000. During the three months ended November 30, 1999 the Company redeemed approximately $11.5 million of equity. 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. 11 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 December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements". The SAB summarizes certain of the SEC staff's views in applying accounting principles generally accepted in the United States of America to revenue recognition in financial statements. In June 2000, the SEC issued SAB 101B, which delays the implementation date of SAB 101 until no later than the fourth fiscal quarter of fiscal years beginning after December 15, 1999. The Company does not believe that adoption of this SAB will materially impact its financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Effective September 1, 2000, unrealized gains and losses on futures contracts and options used to hedge energy inventories and fixed priced contracts are recognized currently for financial reporting. The inventories hedged with these derivatives are valued at the lower of cost or market, and the fixed priced contracts are marked to market. The effect of this change was a loss of $3.6 million ($3.3 million net of income tax benefit). There have been no other changes since the Company's fiscal year end August 31, 2000 that are considered material. 12 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 November 30, August 31, November 30, (DOLLARS IN THOUSANDS) 2000 2000 1999 ------------ ------------ ------------ (Unaudited) (Unaudited) Current assets: Receivables $ 40,283 $ 30,011 $ 26,876 Inventories 22,458 25,449 16,016 Other current assets 651 18 25 ------------ ------------ ------------ Total current assets 63,392 55,478 42,917 Property, plant and equipment 40,766 40,270 39,060 Other assets 378 ------------ ------------ ------------ Total assets $ 104,536 $ 95,748 $ 81,977 ============ ============ ============ LIABILITIES AND DEFINED BUSINESS UNIT EQUITY Current liabilities: Due to Cenex Harvest States Cooperatives $ 24,046 $ 15,891 $ 9,537 Accounts payable 5,335 9,028 5,380 Accrued expenses 6,461 5,976 5,866 ------------ ------------ ------------ Total current liabilities 35,842 30,895 20,783 Commitments and contingencies Defined business unit equity 68,694 64,853 61,194 ------------ ------------ ------------ Total liabilities and defined business unit equity $ 104,536 $ 95,748 $ 81,977 ============ ============ ============
The accompanying notes are an integral part of the financial statements (unaudited). 13 OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT (A Defined Business Unit of Cenex Harvest States Cooperatives) STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended (DOLLARS IN THOUSANDS) November 30, --------------------------- 2000 1999 ---- ---- REVENUES: Processed oilseed sales $ 88,193 $ 83,557 Other revenues 14 329 --------------------------- 88,207 83,886 --------------------------- COSTS AND EXPENSES: Cost of goods sold 83,602 77,364 Marketing, general and administrative 1,346 1,356 Interest 289 --------------------------- 85,237 78,720 --------------------------- INCOME BEFORE INCOME TAXES 2,970 5,166 (Benefit) provision for income taxes (871) 300 --------------------------- NET INCOME $ 3,841 $ 4,866 ===========================
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 CASH FLOWS (Unaudited)
For the Three Months Ended (DOLLARS IN THOUSANDS) November 30, --------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,841 $ 4,866 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation 692 624 Loss on sale of property, plant and 35 equipment Changes in operating assets and liabilities: Receivables (10,272) (2,226) Inventories 2,991 1,068 Other current assets and other assets (1,011) (25) Accounts payable and accrued expenses (3,208) 1,251 --------------------------- Net cash (used in) provided by operating activities (6,967) 5,593 --------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (1,188) (718) --------------------------- Net cash used in investing activities (1,188) (718) --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Changes in due to Cenex Harvest States Cooperatives 8,155 (9) Defined Business Unit Equity distributed to the Company (4,866) --------------------------- Net cash provided by (used in) financing activities 8,155 (4,875) --------------------------- 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). 15 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 November 30, 2000 and 1999, and the statements of operations and cash flows for the three months ended November 30, 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 financial position and 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, 2000 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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, 2000, which are included in the Company's Report on Form 10-K previously filed with the Securities and Exchange Commission on November 22, 2000. NOTE 2. RECEIVABLES November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ Trade $ 40,678 $ 30,406 $ 27,271 Less allowances for doubtful accounts 395 395 395 ------------ ------------ ------------ $ 40,283 $ 30,011 $ 26,876 ============ ============ ============ NOTE 3. INVENTORIES November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ Processed oilseed products $ 16,544 $ 22,075 $ 9,272 Oilseed 5,914 3,374 6,744 ------------ ------------ ------------ $ 22,458 $ 25,449 $ 16,016 ============ ============ ============ 16 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's Board of Directors adopted a resolution to issue, at no charge, to each Defined Member of the Oilseed Processing and Refining Defined Business Unit an additional 1/4 Equity Participation Unit (EPU) for each EPU held, due to increased crush volume. At the time of issuance, the Oilseed Processing and Refining EPUs were based on a normal crush of 30,500,000 bushels, and since the date of issuance, the actual annual crush has expanded and is projected to be 38,100,000 bushels in the fiscal year ending August 31, 2001. See the Management's Discussion and Analysis for the Company in regard to new accounting pronouncements. RESULTS OF OPERATIONS Effective September 1, 2000, patronage refunds from the Oilseed Processing and Refining Defined Business Unit were calculated on the basis of financial statement earnings per bushel. Prior to September 1, 2000 patronage refunds from the Oilseed Processing and Refining Defined Business Unit were calculated on the basis of tax earnings per bushel. The Company believes the calculation below is an important measure of the Defined Business Unit's performance. (IN THOUSANDS EXCEPT PER Three months ended BUSHEL INFORMATION) November 30, ------------ 2000 1999 ---- ---- Income before income taxes $2,970 $5,166 Income from purchased oil (610) (1,541) Non-patronage joint venture income (153) Book to tax differences -- 24 ------ ------ Patronage income from processed soybeans $2,360 $3,496 ====== ====== Bushels processed 9,870 9,227 Patronage income per bushel $0.239 $0.379 Certain operating information pertaining to the Oilseed Processing and Refining Defined Business Unit is set forth below, as a percentage of processed oilseed sales, except processing margins. Three months ended November 30, ------------ 2000 1999 ---- ---- Gross margin 5.21% 7.41% Marketing, general and administrative 1.53% 1.62% Interest 0.33% 0.00% Processing margins Crushing/bushel $ 0.16 $ 0.16 Refining/pound $.0103 $.0170 Because of the volatility of commodity prices, the Company believes that processing margins are a better measure of the Defined Business Unit's performance than gross margin percentages. COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 The Oilseed Processing and Refining Defined Business Unit net income of $3.8 million for the three months ended November 30, 2000 represents a $1.0 million decrease (21%) compared to the three-month period ended November 30, 1999. A decrease in the refined oil margin of approximately 7 tenths of a cent per pound was the primary factor in this net decrease in net income for the three-month period ended November 30, 2000, compared to the three-month period ended November 30, 1999. The three-month period ended November 30, 2000 included an increase in deferred tax assets of $1.0 million related to the Company's Bylaws amended to calculate patronage on audited earnings for financial statement purposes. 17 Net sales of $88.2 million for the three months ended November 30, 2000 increased by $4.6 million (6%) compared to the three months ended November 30, 1999. An increase in the sales price for processed soybeans of approximately $23 per ton, a 5% increase in sales volume of refined oil, and a 6% increase in sales volume for processed soybean products, was partially offset by $0.02 per pound reduction in the sales price for refined oil during the three-month period compared to the same period of a year ago. Other revenues decreased approximately $315 thousand (96%) during the three months ended November 30, 2000 compared to the three months ended November 30, 1999. During the three months ended November 30, 1999, the Defined Business Unit recognized interest income of $197 thousand, accounting for most of this decrease. Cost of goods sold of $83.6 million for the three months ended November 30, 2000 increased $6.2 million (8%) compared to the three months ended November 30, 1999. Increases in refining volume (approximately 17.1 million pounds), a 7% increase in crush volume (approximately 643 thousand bushels), higher plant expense of $1.0 million, and an increase in cost for soybeans averaging $0.27 per bushel was partially offset by a decrease in crude soybean oil averaging $0.02 per pound during the three months ended November 30, 2000, compared to the three months ended November 30, 1999. Marketing, general and administrative expenses of $1.3 million for the three months ended November 30, 2000 was unchanged as compared to the three months ended November 30, 1999. The Oilseed Processing and Refining Defined Business Unit incurred $289 thousand of interest expense for the three-month period ended November 30, 2000, compared to interest income, included with other revenue, for the same period ended in 1999. This unfavorable variance is primarily attributable to additional borrowings due to increased working capital needs during this period in 2000 as compared to the same period in 1999. Income tax benefit of $871 thousand for the three-month period ended November 30, 2000 was primarily due to a change in the tax rate applied to the Oilseed Processing and Refining Defined Business Unit's cumulative temporary differences between income for financial statement purposes and income used for tax reporting purposes. The Oilseed Processing and Refining Defined Business Unit's calculation of its patronage distribution using audited earnings for financial statement purposes rather than tax basis earnings prompted this rate change. The benefit was offset with tax expense for the three-month period ending November 30, 2000 of $144 thousand, which compares to $300 thousand for the same period in 1999. The effective tax rates exclusive of the tax benefit during the three-month period ended November 30, 2000 were 4.9% as compared to 5.8% for the three-month period ended November 30, 1999. 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 Oilseed Processing and Refining Defined Business Unit's cash requirements result from capital improvements and a need to finance inventories and receivables based on 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 November 30, 2000 used net cash of $7.0 million. Net income of $3.8 million and non-cash expenses of $0.7 million were exceeded by an increase in working capital requirements of $11.5 million to generate this net use of cash. For the three-month period ended November 30, 1999, operating activities provided net cash of $5.6 million. During that period, net income of $4.9 million, non-cash expenses of approximately $0.6 million and decreased working capital requirements of approximately $0.1 million provided this net cash from operating activities. CASH FLOWS FROM INVESTING During the three-month periods ended November 30, 2000 and 1999, the Oilseed Processing and Refining Defined Business Unit used cash for investing activities of $1.2 million and $0.7 million, respectively, for the acquisition of property, plant and equipment. 18 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 the cash requirements of all other Company operations. Working capital requirements for a Defined Business Unit of the Company are reviewed on a periodic basis, and could potentially be restricted based upon management's evaluation of the prevailing business conditions and availability of funds. The Oilseed Processing and Refining Defined Business Unit had debt outstanding to the Company of $15.9 million on August 31, 2000 compared with $24.0 million on November 30, 2000. These interest-bearing balances reflect working capital and fixed asset financing requirements at the end of the respective periods. 19 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 (DOLLARS IN THOUSANDS) November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ (Unaudited) (Unaudited) Current assets: Receivables $ 40,585 $ 33,737 $ 38,115 Inventories 22,233 19,537 21,386 Other current assets 529 83 267 ------------ ------------ ------------ Total current assets 63,347 53,357 59,768 Property, plant and equipment 127,710 128,151 109,569 Other assets 8,218 8,348 9,148 ------------ ------------ ------------ Total assets $ 199,275 $ 189,856 $ 178,485 ============ ============ ============ LIABILITIES AND DEFINED BUSINESS UNIT EQUITY Current liabilities: Due to Cenex Harvest States Cooperatives $ 66,118 $ 67,956 $ 56,138 Accounts payable 17,430 5,201 15,542 Accrued expenses 4,036 3,462 4,388 Current portion of long-term debt 7,397 7,410 10,005 ------------ ------------ ------------ Total current liabilities 94,981 84,029 86,073 Long-term debt 38,509 40,100 26,072 Commitments and contingencies Defined Business Unit equity 65,785 65,727 66,340 ------------ ------------ ------------ Total liabilities and Defined Business Unit equity $ 199,275 $ 189,856 $ 178,485 ============ ============ ============
The accompanying notes are an integral part of the financial statements (unaudited). 20 WHEAT MILLING DEFINED BUSINESS UNIT (A Defined Business Unit of Cenex Harvest States Cooperatives) STATEMENTS OF OPERATIONS (Unaudited)
For the Three Months Ended (DOLLARS IN THOUSANDS) November 30, --------------------------- 2000 1999 ---- ---- REVENUES: Processed grain sales $ 54,295 $ 52,594 --------------------------- COSTS AND EXPENSES: Cost of goods sold 49,971 48,533 Marketing, general and administrative 2,647 2,733 Interest 2,077 1,495 --------------------------- 54,695 52,761 --------------------------- LOSS BEFORE INCOME TAXES (400) (167) Income tax benefit (458) (15) --------------------------- NET INCOME (LOSS) $ 58 $ (152) ===========================
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 CASH FLOWS (Unaudited)
For the Three Months Ended (DOLLARS IN THOUSANDS) November 30, --------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 58 $ (152) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 1,995 1,690 Changes in operating assets and liabilities: Receivables (6,848) (7,155) Inventories (2,696) (7,047) Other current assets and other assets (582) (57) Accounts payable and accrued expenses 12,803 8,252 --------------------------- Net cash provided by (used in) operating activities 4,730 (4,469) --------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Acquisition of property, plant and equipment (1,288) (445) --------------------------- Net cash used in investing activities (1,288) (445) --------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Change in due to Cenex Harvest States Cooperatives (1,838) 7,200 Long-term debt borrowings 436 Principal payments on long-term debt (2,040) (2,438) Defined Business Unit equity distributed to the Company 152 --------------------------- Net cash (used in) provided by financing activities (3,442) 4,914 --------------------------- 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). 22 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 November 30, 2000 and 1999, and the statements of operations and cash flows for the three months ended November 30, 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 financial position and 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, 2000 was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. 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, 2000, which are included in the Company's Report on Form 10-K previously filed with the Securities and Exchange Commission on November 22, 2000. NOTE 2. RECEIVABLES November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ Trade $ 41,336 $ 34,576 $ 39,715 Other 958 810 228 ------------ ------------ ------------ 42,294 35,386 39,943 Less allowances for doubtful accounts 1,709 1,649 1,828 ------------ ------------ ------------ $ 40,585 $ 33,737 $ 38,115 ============ ============ ============ NOTE 3. INVENTORIES November 30, August 31, November 30, 2000 2000 1999 ------------ ------------ ------------ Grain $ 15,314 $ 9,610 $ 19,593 Processed grain products 6,037 9,288 1,125 Other 882 639 668 ------------ ------------ ------------ $ 22,233 $ 19,537 $ 21,386 ============ ============ ============ 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See the Management's Discussion and Analysis for the Company in regard to new accounting pronouncements. RESULTS OF OPERATIONS Effective September 1, 2000, patronage refunds from the Wheat Milling Defined Business Unit are calculated on the basis of financial statement earnings per bushel rather than the tax basis, as had been the practice prior to this date. This change was authorized through By-Law amendment at the Company's annual meeting on December 1, 2000. The Company believes the calculation below is an important measure of the Defined Business Units performance. (IN THOUSANDS EXCEPT PER Three months ended BUSHEL INFORMATION) November 30, ------------ 2000 1999 ---- ---- Loss before income taxes $ (400) $ (167) Book to tax differences 101 ------- ------- Patronage loss $ (400) $ (66) ======= ======= Bushels processed 12,009 10,868 Patronage loss per bushel $(0.033) $(0.006) Certain operating information pertaining to the Wheat Milling Defined Business Unit is set forth below, as a percentage of sales. Three months ended November 30, ------------ 2000 1999 ---- ---- Gross margin 7.96% 7.72% Marketing, general and administrative 4.88% 5.20% Interest 3.83% 2.84% COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999 The Wheat Milling Defined Business Unit reported net income of $58 thousand for the three months ended November 30, 2000 compared to a net loss of $152 thousand for the three months ended November 30, 1999, for an improvement of $210 thousand. This improvement is primarily attributable to a change in the tax rate applied to the Wheat Milling Defined Business Unit's cumulative temporary differences between earnings for financial statement purposes and tax basis earnings and resulted in an increase in deferred tax assets of approximately $406 thousand during the three months ended November 30, 2000, and was partially offset by an increase in interest costs. The Wheat Milling Defined Business Unit's calculation of its patronage distribution using audited earnings for financial statement purposes rather than tax basis earnings prompted this rate change. Effective September 1, 2000, the Company's Board of Directors approved a resolution to compute patronage distributions based on audited earnings for financial statement purposes rather than tax basis earnings. The resolution was ratified by the members at the Company's December 2000, annual meeting. Net sales of $54.3 million for the three months ended November 30, 2000 increased $1.7 million (3%) compared to the three months ended November 30, 1999. This increase is attributable to a 10% increase in volume, resulting primarily through business generated at the Fairmount, North Dakota mill, which was acquired in April 2000. The average sales price per hundred weight of all products decreased $0.50 per hundred weight in the three months ended November 30, 2000 compared to the same period in 1999. Cost of goods sold of $50.0 million for the three months ended November 30, 2000 increased $1.4 million (3%) compared to the three months ended November 30, 1999. An increase in bushel volume of 1.1 million bushels was partially offset by a $0.38 per bushel decline in the average price for these bushels, compared with the business activity conducted during the three months ended November 30, 24 1999. Milling expense attributable to this additional volume increased $1.5 million in the three months ended November 30, 2000 compared to the same period in 1999, primarily attributable to the operation of the Fairmount mill. Marketing, general and administrative expenses of $2.6 million for the three months ended November 30, 2000 decreased $86 thousand (3%) compared to the same period ended in 1999. Interest expense of $2.1 million for the three months ended November 30, 2000 increased approximately $600 thousand (39%) compared to the three months ended November 30, 1999. Most of this increase is attributable to the acquisition of the Fairmount mill, purchased in April 2000 for approximately $19.9 million and a 1.25% increase in short-term borrowing rates. The income tax benefit of $458 thousand for the three months ended November 30, 2000 was primarily due to a change in the tax rate applied to the Wheat Milling Defined Business Unit cumulative temporary differences between income for financial statement purposes and income used for tax reporting purposes. The Wheat Milling Defined Business Unit's calculation of its patronage distribution using audited financial statement earnings rather than tax basis earning prompted this rate change. An additional tax benefit for the three-month period in 2000 of $51 thousand was recorded based on a pretax loss of $400 thousand. This compares to a $15 thousand tax benefit for the same period in 1999 on a pretax loss of $167 thousand. The effective tax rates of the income tax benefit for the three months ended November 30, 2000 and 1999 were 12.8% and 8.9%, respectively. 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 a need to finance inventories and receivables based on raw material costs and levels. These cash needs are expected to be fulfilled by the Company. CASH FLOWS FROM OPERATIONS Operating activities for three months ended November 30, 2000 provided net cash of $4.7 million. Net income of $58 thousand, noncash expenses of $2.0 million and decreased working capital requirements of $2.7 million all contributed to this net cash provided by operating activities. Operating activities for the three months ended November 30, 1999 used net cash of $4.5 million. The net loss of $152 thousand and increased working capital requirements of $6.0 million were offset by non-cash expenses of $1.7 million. CASH FLOWS FROM INVESTING Cash flows expended for the acquisition of property, plant, and equipment during the three months ended November 30, 2000 and 1999 totaled $1.3 million and $0.4 million, respectively. 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 Wheat Milling Defined Business Unit has a zero cash position. Financing is available from the Company to the extent of the Company's working capital position and corporate loan agreements with various banks, and the cash requirements of all other Company operations. Working capital requirements for a 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 condition and availability of funds. The Wheat Milling Defined Business Unit had short-term debt outstanding and payable to the Company of $66.1 million on November 30, 2000, compared to $68.0 million on August 31, 2000. This reduction is primarily attributable to reduced working capital requirements. The Wheat Milling Defined Business Unit had long-term debt outstanding to the Company of $45.9 million on November 30, 2000 compared with $47.5 million on August 31, 2000. During the 25 three-month period ended November 30, 2000 the Wheat Milling Defined Business Unit made principal payments to the Company of $2.0 million. During this same period the Company, on behalf of the Wheat Milling Defined Business Unit assumed an 'interest free' Rural Economic Development Loan in conjunction with the Fairmount, North Dakota mill acquisition totaling $450 thousand. This non-interest bearing loan, payable in monthly installments over nine years, has been discounted at 8% to reflect a present value principal balance due of $320 thousand and an interest discount of $130 thousand. In addition to this loan, the Company also incurred long-term debt during the quarter on behalf of the Defined Business Unit in the amount of $116 thousand, payable to the Minnesota Department of Transportation quarterly over 120 months at 5.7% interest for the purpose of rail track rehabilitation at the Rush City mill. 26 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 1) At the Company's Annual Meeting held on November 30 - December 1, 2000, the following directors were re-elected to the Board of Directors: Duane Stenzel, Elroy Webster, Leonard Larsen, Merlin Van Walleghen, James Kile and Robert Elliott. The following directors' terms of office continued after the meeting: Steven Burnet, Bruce Anderson, Michael Toelle, Robert Bass, Curt Eischens, Robert Grabarski, Jerry Hasnedl, Glen Keppy, Gerald Kuster, Richard Owen and Richard Traphagen. 2) The Company's Board of Directors approved a resolution to compute patronage distributions based on audited earnings for financial statement purposes rather than tax basis earnings effective September 1, 2000. The resolution was ratified by the Company's members on December 1, 2000 at the Company's annual meeting. Beginning in fiscal year 2001 patronage distributions will be based on audited financial statement earnings. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT DESCRIPTION ------- ------------------------------------------------------------ 10.1 Resolution of the Board of Directors of Cenex Harvest States Cooperatives 99 Cautionary Statement (b) Reports on Form 8-K None. 27 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) January 10, 2001 /s/ John Schmitz ---------------- ---------------- (Date) John Schmitz Executive Vice President and Chief Financial Officer 28 EX-10.1 2 0002.txt RESOLUTION OF THE BOARD OF DIRECTORS EXHIBIT 10.1 RESOLUTION OF THE BOARD OF DIRECTORS OF CENEX HARVEST STATES COOPERATIVES WHEREAS, at the time of issuance, Oilseed Processing & Refining Equity Participation Units (EPUs) were based on a normal crush of 30,500,000 bushels; and WHEREAS, since the date of issuance, actual annual crush has expanded and is projected to be 38,100,000 bushels in the fiscal year ending August 31, 2001; and WHEREAS, the cost for this expanded crush volume has been and will be charged to all bushels crushed, including the EPU bushels; and WHEREAS, the Board has the discretion, but not the obligation, to issue additional EPUs and, given all of the circumstances, this Board has determined that it is in the best interest of this Company and the Oilseed Processing & Refining Defined Members to issue additional EPUs. NOW, THEREFORE, BE IT RESOLVED, That the Company will issue, at no charge, to each Defined Member of the Oilseed Processing & Refining Defined Business Unit an additional 1/4 EPU (which would include delivery rights of 1/4 bushel) for each EPU held. RESOLVED FURTHER, That Management of this Association be and it hereby is authorized to take all action and execute and deliver all documents, agreements, certificates, instruments and writings necessary or appropriate to carry out the foregoing resolution. Adopted: 8/9/00 EX-99 3 0003.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 current short supply and high demand for natural gas will impact the supply of fertilizer. 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 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 acres were put back into agricultural production, with a present enrollment of 31.4 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. Media newsletters and other publications indicate that construction of new crush plants are under strong consideration. The Company estimates that U.S. crushing capacity has increased by about 30% to 35% between 1994 and 1999. 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. WHEAT 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 of America. 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. -----END PRIVACY-ENHANCED MESSAGE-----