-----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, QGufmITsOj913RN/3YiVE7Rhpeplq6hOIkXkqcb56ZJdwR2mgeMBHa/bDMqLAsnu LxHNTUA+F/jOQjB7VRYDow== 0000897101-98-000714.txt : 19980716 0000897101-98-000714.hdr.sgml : 19980716 ACCESSION NUMBER: 0000897101-98-000714 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980531 FILED AS OF DATE: 19980715 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MINN DAK FARMERS COOPERATIVE CENTRAL INDEX KEY: 0000948218 STANDARD INDUSTRIAL CLASSIFICATION: AGRICULTURE PRODUCTION - CROPS [0100] IRS NUMBER: 237222188 STATE OF INCORPORATION: ND FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 033-94644 FILM NUMBER: 98666255 BUSINESS ADDRESS: STREET 1: 7525 RED RIVER RD CITY: WAHPETON STATE: ND ZIP: 58075-9698 BUSINESS PHONE: 7016428411 MAIL ADDRESS: STREET 1: 7525 RED RIVER RD CITY: WAHPETON STATE: ND ZIP: 58075-9698 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(b) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED: MAY 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE SECURITES EXCHANGE ACT OF 1934 Commission file: No. 33-94644 MINN-DAK FARMERS COOPERATIVE (Exact named of registrant as specified in its charter) North Dakota 23-7222188 - ------------------------------- ------------------- (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 7525 Red River Road Wahpeton, North Dakota 58075 - ---------------------- ---------- (Address of principal (Zip Code) executive offices) (701) 642-8411 ---------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate 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, 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. Outstanding at Class of Common Stock July 13 , 1998 --------------------- -------------- $250 Par Value 484 MINN-DAK FARMERS COOPERATIVE CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS (IN THOUSANDS)
MAY 31, 1998 AUGUST 31, 1997 ASSETS (UNAUDITED) (AUDITED) - ------ --------- --------- CURRENT ASSETS: Cash $ 507 $ 1,235 --------- --------- Current portion of long-term note receivable 216 216 --------- --------- Receivables: Trade accounts 15,891 12,649 Growers 3,583 2,819 --------- --------- 19,474 15,468 --------- --------- Advances to affiliate 1,893 1,910 --------- --------- Inventories: Refined sugar, pulp and molasses to be sold on a pooled basis 57,288 21,576 Nonmember refined sugar 711 112 Yeast 76 89 Materials and supplies 3,967 4,699 Beet Inventory 0 -- Other 950 82 --------- --------- 62,991 26,558 --------- --------- Deferred charges 849 1,249 --------- --------- Prepaid expenses 258 2,402 --------- --------- Property and equipment available for sale 616 616 --------- --------- Total current assets 86,806 49,653 --------- --------- PROPERTY, PLANT AND EQUIPMENT: Land and land improvements 20,087 16,546 Buildings 34,736 30,259 Factory equipment 103,904 82,002 Other equipment 3,310 2,810 Construction in progress 1,278 24,157 --------- --------- 163,315 155,773 Less accumulated depreciation (54,686) (51,524) --------- --------- 108,629 104,249 --------- --------- LONG-TERM NOTES RECEIVABLE, NET OF CURRENT PORTION 2,381 2,381 --------- --------- OTHER ASSETS: Investments restricted for capital lease projects 5 4,058 Investment in stock of other corporations, unconsolidated marketing subsidiaries and other cooperatives 9,621 9,425 Deferred income taxes 3,450 3,450 Other 952 923 --------- --------- 14,027 17,856 --------- --------- See Notes to Consolidated Financial Statements $ 211,842 $ 174,141 ========= =========
MINN-DAK FARMERS COOPERATIVE CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND STOCKHOLDERS' EQUITY (IN THOUSANDS)
MAY 31, 1998 AUGUST 31, 1997 (UNAUDITED) (AUDITED) --------- --------- LIABILITIES AND MEMBERS' INVESTMENT CURRENT LIABILITIES: Short-term notes payable $ 34,930 $ 19,890 --------- --------- Current portion of long-term debt 2,263 2,513 --------- --------- Accounts payable: Trade 2,080 4,229 Growers 14,351 8,335 --------- --------- 16,432 12,564 --------- --------- Advances from affiliate 178 1,793 --------- --------- Accrued liabilities 2,890 2,731 --------- --------- Total current liabilities 56,692 39,490 LONG-TERM DEBT, NET OF CURRENT PORTION 46,039 47,798 OBLIGATION UNDER CAPITAL LEASE 12,000 12,000 OTHER 980 689 COMMITTMENTS AND CONTINGENCIES -- 0 --------- --------- Total liabilities 115,710 99,977 --------- --------- MINORITY INTEREST IN EQUITY OF SUBSIDIARY 682 518 --------- --------- MEMBERS' INVESTMENT: Preferred stock: Class A - 100,000 shares authorized, $105 par value; 72,200 shares issued and outstanding at May 31, 1998 and 66,967 at August 31, 1997 7,581 7,032 Class B - 100,000 shares authorized, $75 par value; 72,200 shares issued and outstanding at May 31, 1998 and 66,967 at August 31, 1997 5,415 5,023 Class C - 100,000 shares authorized, $76 par value; 72,200 shares issued and outstanding at May 31, 1998 and 66,967 at August 31, 1997 5,487 5,089 --------- --------- 18,483 17,144 Common stock, 600 shares authorized, $250 par value; issued and outstanding, 481 shares at May 31, 1998 and 481 shares at August 31, 1997 121 120 Paid in capital in excess of par value 32,094 23,753 Unit retention capital 7,588 6,740 Qualified allocated patronage 4,076 4,081 Nonqualified allocated patronage 33,585 22,497 Retained earnings (deficit) (498) (689) --------- --------- 95,450 73,646 --------- --------- See Notes to Consolidated Financial Statements $ 211,842 $ 174,141 ========= =========
PART I. FINANCIAL INFORMATION ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MINN-DAK FARMERS COOPERATIVE CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED MAY 31, MAY 31, ------------------------ ------------------------ 1998 1997 1998 1997 --------- --------- --------- --------- REVENUE: From sales of sugar, by-products, yeast and resale commodities, net of discounts $ 39,972 $ 32,076 $ 141,912 $ 133,631 Other income 764 (145) 111 (638) --------- --------- --------- --------- 40,736 31,931 142,023 132,993 --------- --------- --------- --------- EXPENSES: Production costs of sugar, by-products, yeast and resale commodities sold 9,483 8,260 34,568 28,272 Marketing (includes freight and storage) 5,717 5,198 16,422 16,092 General and administrative 1,455 1,117 3,732 3,369 Interest 1,602 1,339 4,186 3,953 (Gain) loss on disposition of property and equipment 41 38 140 138 --------- --------- --------- --------- 18,298 15,952 59,048 51,825 --------- --------- --------- --------- NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS $ 22,438 $ 15,979 $ 82,975 $ 81,168 ========= ========= ========= ========= DISTRIBUTION OF NET PROCEEDS: Credited to members' investment: Components of net income: Income (loss) from non-member business $ 143 $ (365) $ 93 $ (942) Patronage income 2,625 1,212 11,134 12,683 --------- --------- --------- --------- Net income 2,767 847 11,226 11,741 Unit retention capital 0 0 861 753 --------- --------- --------- --------- Net credit to members' investment 2,767 847 12,087 12,494 Payments to members for sugarbeets, net of unit retention capital 19,670 15,132 70,887 68,674 --------- --------- --------- --------- NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS $ 22,438 $ 15,979 $ 82,975 $ 81,168 ========= ========= ========= =========
See Notes to Consolidated Financial Statements. MINN-DAK FARMERS COOPERATIVE CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
NINE MONTHS ENDED MAY 31, ----------------------- 1998 1997 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Income allocated to members' investment $ 10,668 $ 11,741 Add (deduct) noncash items: Depreciation and amortization 4,326 3,367 Equipment disposals - loss 140 138 Discount on estate payout (23) Net loss allocated from unconsolidated marketing subsidiaries 559 0 Noncash portion of patronage capital credits (732) (593) Retention of nonqualified unit retains 861 753 Changes in operating assets and liabilities: Accounts receivable and advances (3,990) (2,120) Inventory and prepaid expenses (34,289) (41,771) Deferred charges 400 271 Other assets (29) 370 Accounts payable, advances, and accrued liabilities 6,207 4,676 ----------------------- NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (15,901) (23,168) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposition of property, plant and equipment 16 5 Capital expenditures (4,848) (12,814) Investment in stock of other corporations, unconsolidated marketing subsidiaries and other cooperatives 299 51 Minority interest in equity of subsidiaries 164 105 -------- -------- NET CASH USED IN INVESTING ACTIVITIES (4,369) (12,653) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from issuance of short-term debt 15,040 39,505 Payment of long-term debt (2,010) (21,509) Payment of unit retains and allocated patronage (3,440) (2,870) Issuance of long-term debt 0 4,500 Provision for long-term tax 272 0 Sale and repurchase of common stock, net 1 0 Issuance of stock 9,681 15,619 Issuance of long term tax-exempt bonds 0 0 -------- -------- NET CASH PROVIDED BY FINANCING ACTIVITIES 19,543 35,245 -------- -------- NET INCREASE (DECREASE) IN CASH (727) (576) CASH, BEGINNING OF YEAR 1,235 853 -------- -------- CASH, END OF QUARTER $ 507 $ 277 ======== ======== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Cash payments for: Interest $ 4,620 $ 2,646 ======== ======== Income taxes, net of refunds $ 12 $ 33 ======== ========
See Notes to Consolidated Financial Statements. MINN-DAK FARMERS COOPERATIVE NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. The condensed consolidated financial statements for the three months and nine month periods ended May 31, 1998 and May 31, 1997 are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report to Stockholders previously submitted in the Company's Annual 10-K for the fiscal year ended August 31, 1997. The results of operations for the nine months ended May 31, 1998, are not necessarily indicative of the results for the entire fiscal year ending August 31, 1998. 2. In August 1997, the company declared a revolvement of the remaining 1989 crop per unit retains and allocated patronage. That amount, $2.7 million, was paid to the stockholders on October 17, 1997. In August 1997 the company declared a revolvement of 35% of the 1996 crop allocated patronage. On January 2, 1998, that payment was made to the stockholders in the amount of $.7 million. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION FOR THE THREE MONTHS ENDED AND NINE MONTHS ENDED MAY 31, 1998 AND 1997 The following discussion and analysis relates to the financial condition and results of operations of Minn-Dak Farmers Cooperative ("the Company") for the three months ended May 31, 1998 (the third quarter of the Company's 1997-1998 fiscal year) and 1997 (the third quarter of the Company's 1996-1997 fiscal year). The Company's fiscal year runs from September 1 to August 31. This discussion contains the Company's current estimates of the financial results to be obtained from the Company's processing of the 1997 sugar beet crop. Given the nature of the estimates required in connection with the payments to members for their sugar beets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 1997 sugar beet crop, the net selling price for the sugar and by-products produced by the Company and the Company's operating costs. These forward-looking statements are based largely upon the Company's expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties. Some of those estimates, such as the selling price for the Company's products and the quantity of sugar produced from the sugar beet crop are beyond the Company's control. The actual results experienced by the Company could differ materially from the forward-looking statements contained herein. RESULTS FROM OPERATIONS COMPARISON OF THE THREE MONTHS ENDED MAY 31, 1998 AND 1997 Revenue for the three months ended May 31, 1998 increased $8.8 million from the 1997 period, an increase of 28%. Revenue from the sale of finished goods increased $4.8 million, while the change in the value of finished goods inventory increased $3.1 million. Other income increased $0.9 million. Revenue from the sales of sugar increased $5.7 million, or 20%, reflecting a 26% increase in volume, and offset by a 5% decrease in the price for sugar. The increase in volume is the result of a return to more normal levels of prior-year carry-over sugar inventory, increased production of sugar resulting from a larger volume 1997 sugarbeet crop and seasonal demand from customers. Based on marketing information developed by United Sugars Corporation, the Company's marketing agent, the Company's current estimate is that the average net selling price of the Company's sugar will be approximately $23.21 per hundredweight (CWT.), a decrease of 5% from the prior year. Revenue from pulp (wet and dry pelleted) sales decreased $0.8 million or 28%, reflecting a 12% increase in sales volume (3,400 tons), and a 36% decrease in the average gross selling price. The increase in sales volume is attributable to an increase in wet pulp shipments of 4,000 tons. Wet pulp sales are a relatively new market that was developed starting with the 2nd quarter of fiscal year 1996-1997 and continues to build as new customers are found. Based upon marketing information developed by Midwest Agri-Commodities Company, the Company's marketing agent, the Company's current estimate is that the average net selling price of the Company's pulp will be approximately $57.00 per ton, a decrease of 34% from the prior year (a year where returns for pulp were at historical highs). The expected decrease in pulp prices is attributable to a combination of excess supply of competing products, lower demand in Europe because of reduced cattle and swine herds, a stronger US dollar and poor economic conditions in Japan. Midwest Agri-Commodities Company is also projecting that prices for pulp will continue to trend down for next year and beyond until the symptoms causing the soft market prices are eliminated. Midwest Agri-Commodities Company has developed both short and long-range marketing initiatives to counteract the downward trending pulp prices. These initiatives are currently being finalized and implementation will start before the end of the Company's fiscal year. However, going forward there can be no certainty that these short and long-term marketing initiatives will result in a return to more historical price levels for pulp. Revenue from beet molasses sales decreased $0.2 million or 15%, reflecting a 2% decrease in sales volume, and a 14% decrease in the average gross selling price. Based upon marketing information developed by Midwest Agri-Commodities Company, the Company's marketing agent, the Company's current estimate is that the average net selling price of the Company's beet molasses will be approximately $60.50 per ton, a decrease of 20% from the prior year (a year where returns for molasses were at historical highs). The expected decrease in beet molasses prices is attributable to abundant, low-priced competing product, uncertain corn markets and lower initial demand conditions in the beet molasses marketplace. Midwest Agri-Commodities Company is also projecting that prices for beet molasses will continue to trend down for next year and beyond until the symptoms causing the soft market prices are eliminated. These symptoms are similar in nature to the pulp price problems - lack of demand in Europe due to abundant supplies of competing product, a lack of demand in Japan and other Pacific Rim countries due to economic problems and therefore making the US a "market of choice," which in turn provides for more competition and lower prices. Midwest Agri-Commodities Company has developed both short and long-range marketing initiatives to counteract the downward trending beet molasses prices. These initiatives are currently being finalized and implementation will start before the end of the Company's fiscal year. However, going forward there can be no certainty that these short and long-term marketing initiatives will result in a return to more historical price levels for beet molasses. Revenues from yeast sales from the Company's subsidiary yeast production facility, Minn-Dak Yeast Company ("MDYC") increased $0.1 million or 7%, reflecting a 14% increase in sales volume, offset by a 6% decrease in the average selling price. Sales volume is up due to seasonal demand (Memorial Day holiday) and generally good customer demand for the period. Selling prices are lower due to aggressive competitive pricing and factors affecting the formula for pricing yeast to MDYC's only buyer, Universal Foods, Inc. Universal Foods, Inc. is a minority shareholder in MDYC. The other contributing factor to the change in revenues results from the increase or decrease in finished goods inventories. The increase in the value of finished goods inventories for the three months ended May 31, 1998 amounted to $.6 million or $3.1 million more than the decrease in the value of finished goods inventories for May 31, 1997. In the consolidated statements of operations, Expenses section, Production costs of sugar, by-products and yeast sold increased $1.2 million, or 15%. There were a number of factors contributing to the increase in FY 1998 versus the prior year. First, because of the completion of the recent expansion of the plant capacity, the Company sliced 12% more beets in the same number of slicing days for the three months ended May 31st. That in turn caused operating costs to increase proportionally. Second, the plant expansion meant the addition of fixed assets, and with that comes additional depreciation expense. Depreciation and interest expenses for fiscal year 1997-1998 are expected to be higher than fiscal year 1996-1997 due to more fixed asset purchases and more long-term debt, both associated with the Company's plant expansion plan activities (see the Liquidity and Capital Resources section). Depreciation expense is expected to increase approximately $1.0 million to $1.5 million, while Interest expense is expected to increase approximately $0.75 million to $1.0 million. General and Administrative costs increased $0.3 million for FY 1998, an increase of 30% from the prior period. The increase is attributable to income tax expense generated from the yeast operations. Prior to FY 1998 no income tax expense had been due because of the yeast operations' start-up losses. In the section Distribution of Net Proceeds, payments to members for sugarbeets, net of unit retention capital, increased $4.5 million or 30% from the 1996-1997 period. For fiscal year 1997-1998 the Company is projecting a payment to growers for sugarbeets totaling $71.7 million, which is $0.8 million or 1% more than the prior fiscal year. The payment is based upon (i) an average delivered sugar content of 17.94%, (ii) a total sugarbeet crop of 1.72 million tons and (iii) the Company's projected selling price for its sugar, which is currently estimated at $23.21 per CWT. This forward-looking material is based on the Company's expectations regarding the processing of the 1997 sugar beet crop. As of May 31st, 1998 the Company had completed its processing season for the 1997 crop. Actual production results obtained from the processing of the 1997 crop did not materially differ from estimates, therefore the Company continues to project a payment to growers that is similar to its original estimate of $71.7 million. COMPARISON OF THE NINE MONTHS ENDED MAY 31, 1998 AND 1997 Revenue for the nine months ended May 31, 1998 increased $9.0 million from the 1997 period, an increase of 7%. Revenue from the sale of finished goods increased $14.6 million, while the change in the value of finished goods inventory decreased $6.3 million. Other income decreased $0.7 million. Revenue from the sales of sugar increased $14.6 million, or 19%, reflecting a 23% increase in volume, and offset by a 3% decrease in the price for sugar. The increase in volume is the result of a return to more normal levels of prior-year carry-over sugar inventory, and increased production of sugar resulting from a larger volume 1997 sugarbeet crop. Based on marketing information developed by United Sugars Corporation, the Company's marketing agent, the Company's current estimate is that the average net selling price of the Company's sugar will be approximately $23.21 per hundredweight (CWT.), a decrease of 5% from the prior year. Revenue from pulp (wet and dry pelleted) sales decreased $0.5 million or 9%, reflecting a 35% increase in sales volume (19,000 tons), and offset by a 32% decrease in the average gross selling price. The increase in sales volume is attributable to wet pulp shipments which increased 13,800 tons, while pelleted pulp shipments increased 5,300 tons. The decrease in the pulp average gross selling price is mostly a result of the greater volume of wet pulp versus pelleted pulp that was marketed during this period versus last. Wet pulp unit selling prices are approximately 89% lower than pelleted pulp prices. Wet pulp sales are a relatively new market that was developed starting with the 2nd quarter of fiscal year 1996-1997. The larger volume of wet and pelleted pulp sales for this period is also the result of the larger volume 1997 beet crop delivered for processing. Based upon marketing information developed by Midwest Agri-Commodities Company, the Company's marketing agent, the Company's current estimate is that the average net selling price of the Company's pulp will be approximately $57.00 per ton, a decrease of 34% from the prior year. The expected decrease in pulp prices is attributable to a combination of excess supply of competing products, lower demand in Europe because of reduced cattle and swine herds, a stronger US dollar and poor economic conditions in Japan. Midwest Agri-Commodities Company is also projecting that prices for pulp will continue to trend down for next year and beyond until the symptoms causing the soft market prices are eliminated. Midwest Agri-Commodities Company has developed both short and long-range marketing initiatives to counteract the downward trending pulp prices. These initiatives are currently being finalized and implementation will start before the end of the Company's fiscal year. However, going forward there can be no certainty that these short and long-term marketing initiatives will result in a return to more historical price levels for pulp. Revenue from beet molasses sales decreased $0.3 million or 5%, reflecting a 10% increase in sales volume, offset by a 14% decrease in the average gross selling price. The increase in molasses sales volume is due to an estimated 22% more production of beet molasses for fiscal year 1997-1998 versus the previous year. The larger volume of beet molasses is the result of the larger volume 1997 beet crop delivered for processing. Based upon marketing information developed by Midwest Agri-Commodities Company, the Company's marketing agent, the Company's current estimate is that the average net selling price of the Company's beet molasses will be approximately $60.50 per ton, a decrease of 20% from the prior year. The expected decrease in beet molasses prices is attributable to abundant, low-priced competing product, uncertain corn markets and lower initial demand conditions in the beet molasses marketplace. Midwest Agri-Commodities Company is also projecting that prices for molasses will continue to trend down for next year and beyond until the symptoms causing the soft market prices are eliminated. These symptoms are similar in nature to the pulp price problems - lack of demand in Europe due to abundant supplies of competing product, a lack of demand in Japan and other Pacific Rim countries due to economic problems and therefore making the US a "market of choice," which in turn provides for more competition and lower prices. Midwest Agri-Commodities Company has developed both short and long-range marketing initiatives to counteract the downward trending beet molasses prices. These initiatives are currently being finalized and implementation will start before the end of the Company's fiscal year. However, going forward there can be no certainty that these short and long-term marketing initiatives will result in a return to more historical price levels for beet molasses. Revenues from yeast sales from the Company's subsidiary yeast production facility, Minn-Dak Yeast Company ("MDYC") increased $0.6 million or 15%, reflecting a 24% increase in sales volume, offset by a 7% decrease in the average selling price. Sales volume is up due to overall strong demand from customers for the period. Selling prices are lower due to aggressive competitive pricing and factors affecting the formula for pricing yeast to MDYC's only buyer, Universal Foods, Inc. Universal Foods, Inc. is a minority shareholder in MDYC. The other contributing factor to the change in revenues results from the increase or decrease in finished goods inventories. The increase in the value of finished goods inventories for the nine months ended May 31, 1998 amounted to $35.7 million or $6.3 million less than the increase in the value of finished goods inventories for May 31, 1997. In the consolidated statements of operations, Expenses section, Production costs of sugar, by-products and yeast sold increased $6.3 million, or 22%. There were a number of factors contributing to the increase in FY 1998 versus the prior year. First, because of the completion of the recent expansion of the plant capacity, the Company sliced 18% more beets in the same number of slicing days for the nine months ended May 31st. That in turn caused operating costs to increase proportionally. Second, the plant expansion meant the addition of fixed assets, and with that comes additional depreciation expense. Third, the Company's payment to its growers for trucking beets at harvest time increased $0.7 million due to a change in the payment formula. And finally, Production costs reflect the cost of sugarbeets purchased from another sugarbeet processing company during this period. There were no sugarbeets purchased in the prior fiscal year. Depreciation and interest expenses for fiscal year 1997-1998 are expected to be higher than fiscal year 1996-1997 due to more fixed asset purchases and more long-term debt, both associated with the Company's plant expansion plan activities (see the Liquidity and Capital Resources section). Depreciation expense is expected to increase approximately $1.0 million to $1.5 million, while Interest expense is expected to increase approximately $0.75 million to $1.0 million. In the section Distribution of Net Proceeds, payments to members for sugarbeets, net of unit retention capital and unprocessed sugarbeet inventory, increased $2.2 million or 3% from the 1996-1997 period. For fiscal year 1997-1998 the Company is projecting a payment to growers for sugarbeets totaling $71.7 million, which is $0.8 million or 1% more than the prior fiscal year. The payment is based upon (i) an average delivered sugar content of 17.94%, (ii) a total sugarbeet crop of 1.72 million tons and (iii) the Company's projected selling price for its sugar, which is currently estimated at $23.21 per CWT. This forward-looking material is based on the Company's expectations regarding the processing of the 1997 sugar beet crop. The actual production results obtained by processing those sugar beets could differ materially from the Company's current estimate as a result of factors such as changes in production efficiencies and storage conditions for the Company's sugar beets. As of May 31st, 1998 the Company had completed its processing season for the 1997 crop. Actual production results obtained from the processing of the 1997 crop did not materially differ from estimates, therefore the Company continues to project a payment to growers that is similar to its original estimate of $71.7 million. ESTIMATED FISCAL YEAR 1998 INFORMATION The agreements between the Company and its members regarding the delivery of sugar beets to the Company require payment for members' sugar beets in several installments throughout the year. As only the final payment is made after the close of the fiscal year in question, the first payments to members for their sugar beets are based upon the Company's then-current estimates of the financial results to be obtained from processing the crop in question and the subsequent sale of the products obtained from processing those sugar beets. This discussion contains a summary of the Company's current estimates of the financial results to be obtained from the Company's processing of the 1997 sugar beet crop. Given the nature of the estimates required in connection with the payments to members for their sugar beets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 1997 sugar beet crop, the net selling price for the sugar and by-products produced by the Company and the Company's operating costs. These forward-looking statements are based largely upon the Company's expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties. Some of those estimates, such as the selling price for the Company's products and the quantity of sugar produced from the sugar beet crop are beyond the Company's control. The actual results experienced by the Company could differ materially from the forward-looking statements contained herein. The harvest of the sugar beet crop grown during 1997 produced a total of 1,721,240 tons of sugar beets. The sugar content on the 1997 crop is 17.94%. The Company produced a total of approximately 4,800,000 CWT. of sugar from the 1997 sugar beet crop and sugarbeets purchased from another sugarbeet processing company. The factory averaged a sugarbeet slice rate of 7,596 tons per day, 596 tons per day above the 7,000 tons per day rate expected under the expansion plan. Other parts of the factory affected by the expansion are also performing as planned, with the exception of the pulp dryer particulate emissions control equipment. Company personnel and hired consultants have continued to work on solutions for this area. During the last reporting period, the Company did resolve the problem of particulate emissions in the dryer area, and did pass the particulate emissions test as established by the State of North Dakota and the Federal Environmental Protection Agency in the Company's air quality operating permit. The Company has continued to be in compliance since the test was administered, and will continue to monitor the process to stay in compliance. However, the Company did receive a Notice of Violation (NOV) issued by the State of North Dakota (Administrative No. 97-677 APC N.D.C.C. 23-25) in March, 1997 relative to emissions from its main boilers, the pulp dryer and the sugar dryer system. The NOV levied a civil penalty for the emissions violations but also agreed to suspend and ultimately dismiss the penalty if certain conditions were met as outlined in a consent agreement issued by the State of North Dakota on May 26, 1997 (Consent Agreement No. 97-164). For the processing season just ended, the Company was successful in demonstrating compliance with all but two of the conditions in the consent agreement. As a result the Company has agreed to pay $40,000 in civil penalties to the State of North Dakota for non-compliance of these conditions. In addition the Company also entered into another consent agreement with the State of North Dakota (amended Consent Agreement No. 97-164) dated May 26, 1998 which levied a civil penalty totaling $110,000 for violations of the consent agreement and judgement entered on May 26, 1997. The civil penalty was suspended and can ultimately be dismissed upon meeting certain conditions outlined by the State of North Dakota in its amended Consent Agreement. The Company believes that it can and will comply with the conditions as outlined, and is preparing to demonstrate that in the upcoming 1998-1999 processing season. From the revenues generated from the sale of products produced from each ton of sugar beets, the Company's operating and fixed costs must be deducted, which are currently estimated to be $26.61 per ton. The deduction of those operating costs results in an estimated gross beet payment of $41.68 per ton of sugar beets. LIQUIDITY AND CAPITAL RESOURCES Because the Company operates as a cooperative, payments for member-delivered sugar beets, the principal raw material used in producing the sugar and agri-products it sells, are subordinated to all member business expenses. In addition, actual cash payments to members are spread over a period of approximately one year following delivery of sugar beet crops to the Company and are net of unit retains and patronage allocated to them, all three of which remain available to meet the Company's capital requirements. This member financing arrangement may result in an additional source of liquidity and reduced outside financing requirements in comparison to a similar business operated on a non-cooperative basis. However, because sugar is sold throughout the year (while sugar beets are processed primarily between September and April) and because substantial amounts of equipment are required for its operations, the Company has utilized substantial outside financing on both a seasonal and long-term basis to fund such operations. The financing has been provided by the St. Paul Bank for Cooperatives (the "Bank"). The Company has a short-term line of credit with the St. Paul Bank for Cooperatives for calendar 1998 of $55.0 million. The loan agreements between the Bank and the Company obligate the company to maintain the following financial covenants in accordance with GAAP: 1. Maintain working capital of not less than $6.8 million. Working capital may be adjusted to include unadvanced solid waste disposal bond funds. 2. Maintain a long-term debt and capitalized leases to equity ratio of not greater than 1:1. Long-term debt is adjusted for the unadvanced solid waste disposal bond funds. 3. Maintain a current ratio of not less than 1.0:1.0 based on monthly financial statements and attain a current ratio of not less than 1.2:1.0 based on fiscal year end audits. As of May 31, 1998 the Company was in compliance with its loan agreements with the bank. Working capital increased $20.0 million for the nine months ended May 31, 1998. Increased working capital is a result of $9.7 million of stock sales in addition to normal financing, operational and capital expenditure activities of the Company. The targeted working capital for August 31, 1998 is approximately $7.0 million dollars and, in the Company's opinion, will be attained. The primary factor for the changes in the Company's financial condition for the nine months ended May 31, 1998 was due to the seasonal needs of the 1997/1998 sugarbeet-processing season. The cash used to provide for operations of $15.9 million and for investing activities of $4.3 million was funded through cash flow financing activities, and a reduction in cash. The net cash provided through financing activities was primarily provided through proceeds from the issuance of short term debt of $15.0 million; net of repayment of long term debt of $2.0 million, payment of the remaining 1989 crop unit retains and allocated patronage of $3.4 million and stock sales of $9.7 million. Working capital as of May 31, 1998 totals $30.1 million compared to $10.2 million at August 31, 1997. Capital expenditures for the nine months ended May 31, 1998 totaled $4.8 million. Capital expenditures for fiscal year 1998 are currently estimated at $11.2 million, $9.0 million resulting from the Company's strategy of expanding capacity and improving operating efficiencies. The $9.0 million capital expenditure is a continuation of the strategy to improve operating efficiencies and the Company's announced plan to expand the capacity of its manufacturing and agricultural receiving facilities. The funds necessary to finance the Company's expansion plan, environmental and general capital expenditures for the prior three years, current year and next fiscal year, which is estimated to total $86.2 million, are expected to be derived from working capital totaling $1.0 million, the sale of its common and preferred stock (net of stock offering costs of $0.1 million) totaling $37.3 million and the balance, or $50.0 million, from long-term debt secured from the St. Paul Bank for Cooperatives (the Bank) and/or through the use of a lease (through Richland County, North Dakota) financed by the issuance of solid waste disposal revenue and industrial development revenue bonds. As of May 31, 1998, the expansion plan was on schedule and projected to be under budget. The Company anticipates that the funds necessary for compliance with the Bank's working capital requirements and future capital expenditures will be derived from the net proceeds of a stock offering that was completed in 1996, Company depreciation, unit retains, non-patronage income, and long-term borrowing. Those costs not covered through the stock offering will be funded through a long-term debt agreement, with the Bank who is the principal lender. The long-term debt created by this expansion will be repaid with funds generated through depreciation, income tax savings, and reduced costs per cwt of production. (Depreciation expense is a non-cash expense that under the Company's accounting procedures reduces the amounts available for payments to the Company's members. The resources represented by such non-cash expenses are available as a source of working capital for the Company, which may be used for payment of long-term debt.) In fiscal 1996, the company was able to secure a lease from Richland County, North Dakota funded by low interest, fifteen year tax exempt solid waste disposal bonds in the amount of $12.0 million with zero principle amortization for the first three years, and $1.0 million per year of principle amortization for the next 12 years. These bonds were required to be secured by a Letter of Credit from a non-government agency bank (Norwest Bank North Dakota) who in turn was secured by a Letter of Credit from the St. Paul Bank for Cooperatives, the Company's primary lender. Solid waste disposal bonds are available under certain conditions where a by-product of manufacturing must be further manufactured or refined to produce a salable product. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K None SIGNATURES Pursuant to the requirement 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. MINN-DAK FARMERS COOPERATIVE ------------------------------------- (Registrant) Date: May 14, 1998 /s/ LARRY D. STEWARD -------------------- ------------------------------------- Larry D. Steward President and Chief Executive Officer Date: May 14, 1998 /s/ STEVEN M. CASPERS -------------------- ------------------------------------- Steven M. Caspers Executive Vice President, and Chief Financial Officer EX-27 2 FINANCIAL DATA SCHEDULE
5 0000948218 MINN DAK FARMERS COOP. 1,000 3-MOS AUG-31-1998 MAR-01-1998 MAY-31-1998 507 0 19,474 0 62,991 86,806 163,315 (54,686) 211,842 56,692 12,000 0 18,483 121 95,329 211,842 141,912 142,023 50,991 50,991 3,872 0 4,186 12,087 0 12,087 0 0 0 12,087 0 0
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