SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended July 31, 1996
OR
/ / Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
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COMMISSION FILE NUMBER 33-99834
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DAKOTA GROWERS PASTA COMPANY
(Exact name of registrant as specified in its charter)
NORTH DAKOTA 45-0423511
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
ONE PASTA AVENUE, P.O. BOX 21
CARRINGTON, ND 58421-0021 (701) 652-2855
(Address of principal executive offices) (Registrant's telephone number)
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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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in part III of this Form 10-K or any amendment to
this Form 10-K. / /
The number of shares outstanding of the issuer's classes of common
stock was 1,084 shares of membership stock, par value $125.00, and 4,904,034
shares of equity stock, par value $3.85, outstanding as of October 17, 1996.
As there is only a limited, private market for shares of the Registrant's
stock and the Registrant does not obtain information regarding the transfer
price in transactions between its members, the Registrant is not able to
estimate the aggregate market value of the Registrant's shares held by non-
affiliates.
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DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits to this Report are incorporated by reference from the
Company's Registration Statement on Form S-1 (File number 33-99834), declared
effective on January 26, 1996.
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PART I
ITEM 1. BUSINESS
Introduction -
Dakota Growers Pasta Company is a North Dakota agricultural cooperative
which was incorporated on December 16, 1991. The Company owns and operates
integrated facilities at Carrington, North Dakota at which durum wheat
provided by the Company's members is milled into durum flour and semolina,
which are then used in subsequent production of a variety of pasta products.
In addition to marketing its pasta products, the Company distributes semolina,
first clear flour and by-products of the milling process, such as second clear
flour and mill feed. The Company's facilities began full operations on
January 1, 1994.
With membership limited to agricultural producers, the Company has a
total of 1,084 members whose operations are located in North Dakota, Minnesota
or Montana. Each member of the Company must enter into a "Growers Agreement"
with the Company. Under that agreement, subject to adjustment, the member is
obligated to deliver one bushel of durum wheat to the Company during each
processing year for each share of Equity Stock owned by that member, subject
to a pro-rata downward adjustment depending on the production needs of the
Company.
The Markets for Pasta and Durum Products -
Pasta
American consumers have increased their consumption of pasta during the
past ten years at a growth rate of between two and three percent per annum.
As a result, production of pasta products has also increased at a significant
rate during the last decade. The Company expects the trends related to
consumption and production of pasta to continue during the next few years.
The Company believes that the growth in domestic consumption of pasta products
has occurred as a result of a variety of factors. Those factors include
consumer perception of pasta as a "healthy" food, ease of preparation, low
cost in comparison to other types of foods, and flexibility of pasta products
as an ingredient in salads and entrees.
Based upon information available in trade and industry sources and the
Company's own analysis, the Company estimates that the demand for dry pasta in
the United States approximates 4.5 billion pounds. In addition to the
domestic market for dry pasta, much smaller domestic markets exist for
refrigerated and frozen pasta and on-site preparation and use of pasta by
restaurants and households.
The domestic dry pasta market into which the Company sells its pasta
products consists of four basic areas, each presenting different product and
sales and distribution requirements. The applicable market areas and
estimated size are "Retail (1.7 billion pounds)," "Ingredient (1.9 billion
pounds)," "Foodservice (.4 billion pounds)," and "Government Bid (.5 billion
pounds)."
The retail area includes sales to supermarkets, warehouse clubs,
discount stores, drug stores, and other consumer retail operations. Roughly
80% of the retail segment is represented by established national or regional
pasta manufacturer brands, including imports; the remaining 20% of the retail
portion of the market consists of retail sales under various private labels.
The Company is focusing a substantial portion of its marketing efforts on
private label sales.
Ingredient customers use dry pasta as an ingredient or component in a
further-processed or combination food product, such as dry pasta dinners,
including macaroni and cheese, frozen entrees, refrigerated salads, canned
entrees, baby food, and canned and dry soups. Roughly three quarters of the
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dry pasta used in the ingredient market is believed to be manufactured by end-
product marketers for use in their own products; therefore, the Company is
focusing its marketing efforts on those companies that do not also manufacture
the dry pasta ingredient for their end-products. This portion of the
ingredient market segment represents approximately 500 million pounds of dry
pasta.
The foodservice area consists of sales of dry pasta to food preparation
operations such as restaurants, hotels, colleges and universities, elementary
and secondary schools, airlines, in-plant and in-office cafeteria facilities
and transportation services. Marketing dry pasta to this segment of the
marketplace generally consists of selling to a network of competitive
distribution organizations and buying groups, and selling dry pasta to
individual restaurant chains and other operator organizations.
The Company believes that federal and state government bid opportunities
for the delivery of dry pasta represent about 10% of the total domestic dry
pasta market. The United States Department of Agriculture has approved the
Company to bid on government contracts for pasta production.
A portion of each end-user market segment is supplied under "co-pack"
arrangements between pasta manufacturers. Those agreements involve the sale
of dry pasta products between pasta manufacturers in order to supply short-
term volume deficiencies such manufacturers suffer from time to time in
meeting customer requirements. Opportunities for co-pack arrangements have
decreased in recent periods due to the excess production capacity in the
United States pasta production industry. As described below, the Company's
business involves co-pack arrangements, although at a lower level than earlier
in the Company's operational history.
Durum Products
The semolina and durum wheat flour required by United States pasta
manufacturers and for other uses is supplied by 15 to 17 domestic milling
operations, which are expected to grind approximately 67 million bushels of
durum wheat into over 3 billion pounds of semolina and durum wheat flour. The
volume difference between estimated total domestic semolina and durum wheat
flour demand and estimated total pasta demand is represented by (1) the use of
wheat flour other than durum wheat in the production of pasta, (2) imported
dry pasta, and (3) the shrinkage which occurs during the dry pasta
manufacturing process.
The Company markets its semolina and durum wheat flours in excess of its
internal demand for pasta production to other pasta manufacturers. The
Company believes that its relationship with its members provides a reliable
and consistent source of supply of milling quality durum. With the expansion
of it milling operations, scheduled for completion in late 1996, the Company
anticipates having excess semolina and durum wheat flour available for several
years until internal pasta production demand reaches the new capacity.
Changes in trade policies may affect these markets. See "Government
Regulation, Trade Policies."
Products and Production -
Pursuant to "Growers Agreements" with the Company, the Company's members
are obligated to deliver durum wheat to the Company's mill in Carrington,
North Dakota for use in the production of semolina which is then used by the
Company to produce the Company's dry pasta products. In addition to the
semolina, other products result from the overall durum wheat milling and
blending process: granulars, first clear (higher grade) flour, second clear
(lower grade) flour, semolina/durum wheat flour blends, and millfeed.
Millfeed and most second clear flour is sold primarily for animal feed.
Pasta production is basically a mixing, extrusion and drying process.
Individual shapes are the result of extruding pasta "dough" through different
dies. Consistent monitoring and control is a key element in this process.
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Each pasta production line operates independently and produces either long or
short good items, the difference being in the way they are conveyed through
the drying operation. The long good items are conveyed while hanging on
poles; the short good items are conveyed on screens. Both processes utilize
continuous ultra high temperature dryers and coolers. The entire pasta
production process is controlled by programmable logic controllers, which
allows for all of the production lines to be operated and monitored by minimal
staff.
The finished dry pasta is packed to meet different market segment and
customer requirements, ranging from macaroni and cheese dinners in 7 1/4 ounce
boxes to dry pasta in containers ranging from 8 ounces to 2,000 pounds. The
packaged product is conveyed through metal detectors, check weighers and
automatic case packers.
The pasta products manufactured by the Company consist of over 55
different shapes and are sold to customers in all market segments. In
addition to the dry pasta produced by the Company, the Company purchases
approximately 10 additional dry pasta shapes from other manufacturers and
resells them. This practice is widely followed by many pasta manufacturers
for efficiency reasons and allows distribution of wider product lines to the
Company's customers. Pasta products purchased from other manufacturers has
historically represented less than 3% of the Company's total sales, with most
such pasta products manufactured from semolina provided by the Company. Due
to increasing demand for the Company's pasta products, the Company is
expanding its pasta production capacity. It is anticipated this expansion
project will be completed by July 1997. The Company anticipates an increase
in the need to purchase pasta to meet growing demands during this expansion
project.
The cost of production of dry pasta is significantly impacted by changes
in durum wheat prices. The cost of milling quality durum wheat steadily
increased since the Company was organized and remained at historically high
levels through July 1996. There has been a decrease in durum prices with the
1996 harvest, although they remain significantly higher than in 1993 prior to
the commencement of the Company's operations. The Company does not anticipate
any significant change in durum prices into 1997.
The Company believes that pasta manufacturers were unable to implement
price increases for their dry pasta products sufficient to offset these higher
durum prices because of intense price competition in the market for dry pasta
and excess capacity in the production of dry pasta. As a result, profit
margins for pasta manufacturers have remained thin.
Sales, Marketing and Customers
The Company markets its products through direct sales, supplemented by
the efforts of brokers retained by the Company. These brokers receive a
modest commission upon sale of the Company's products. Since its full
operations began in 1994, the Company's customer base for pasta products has
continuously expanded.
The Company's pasta products are currently distributed on a broad basis
throughout the United States. The Company does not directly export its pasta
products, although several of its customers have exported minor quantities.
Within its pasta operation, the Company has steadily reduced the level of
volume concentration among its top customers since it began operations. At
the present time, sales to no one customer account for more than 10% of the
Company's net revenues.
Semolina and durum wheat flour not used for internal pasta manufacturing
products are sold to other pasta manufacturers throughout the United States.
Current trends show the Company's sales in the retail segment to be
approaching 50% of total sales while sales to foodservice and ingredient
customers represent approximately twenty-five percent (25%) each. A remaining
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small portion of the Company's sales result from government bids or co-pack
arrangements. The current distribution of the Company's sales reflects
significant growth in the Company's retail sales and a reduction
in the Company's involvement in government and co-pack sales, which
represented a significant portion of the Company's sales during the early part
of 1994.
Growers Agreement -
The durum wheat purchased and used in the Company's operation is obtained
through the delivery of grain pursuant to the Growers Agreements between the
Company and its members. The contractual obligations imposed on each member
under the Growers Agreement are intended to insure the availability of
sufficient quantities of durum wheat for use in the Company's processing
operations.
The impact of weather on the quality characteristics of each year's
harvest of durum wheat has been and will continue to be of concern to the
Company and its competitors in the milling and pasta industries. However, the
Company feels it is in a better position to maintain quality standards than
many or most other U.S. milling and/or pasta manufacturers, due to the
relationship between the Company and its member-shareholders who provide a
consistent supply of quality durum wheat to the Company.
The Growers Agreement is paired with ownership of the Equity Stock. For
each share of Equity Stock held by a member, that member is obligated to
deliver to the Company one bushel of durum wheat, of a quality specified by
the Company. The Company may, depending on the marketing needs of the
Company, reduce on a pro rata basis to all members the quantity of durum wheat
to be delivered. For fiscal year 1996, the delivery obligation was one
annualized bushel per equity share for the first two marketing periods and
.931 annualized bushels per equity share for the third marketing period. For
fiscal 1995, the obligation was .979 bushels per equity share owned.
The term of the Growers Agreement is indefinite and may be terminated by
the member only upon 18 months advance notice; however, no termination can
become effective prior to July 31, 1999. The Company reserves the right to
terminate the Growers Agreement and a grower's membership if the member does
not comply with the obligations of the Agreement or otherwise fails to meet
the criteria for membership in the Company. Upon termination of membership in
the Company, the member will cease to have voting rights and other rights of
membership.
The Company has implemented a grain delivery system which is intended to
ensure an adequate supply of durum wheat for the Company's operational needs.
However, the delivery policies are also intended to allow as much flexibility
as is practical for the Company's members consistent with the Company's needs
and the active involvement of the Company's members. The Company's grain
delivery policies are determined by the Company's Board of Directors and are
subject to modification from time to time at the Board's discretion.
A member may arrange for the delivery of durum wheat at any time
throughout the Company's marketing year, which runs from August 1 to July 31,
provided that the wheat delivered to the Company complies with the quality
specifications and production needs of the Company. The member may deliver
the member's durum wheat to the Company's facility or through any entity with
which the Company has contracted for the delivery of grain.
In the event that a member is not able to grow and deliver the required
quality durum, the member must either (i) purchase the required quantity and
quality of durum wheat from other agricultural producers for delivery to the
Company or (ii) following purchase of the required durum wheat on the member's
behalf, account for the wheat purchased on the member's behalf. As a result,
a member not able to produce durum wheat for delivery to the Company would be
exposed to the risk that the price of acquiring durum wheat for delivery to
the Company would be in excess of the price to be paid for that durum wheat by
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the Company under the Growers Agreement. The member is responsible for
establishing the terms of any arrangements which do not involve delivery of
the required quantities of durum wheat directly to the Company's facility.
If a member has not arranged for delivery to the Company of quantities of
durum wheat sufficient to satisfy that member's delivery obligation for the
marketing year, the member may be assessed an administrative fee on each
bushel of durum wheat procured on behalf of that member. Such fees are
established in the discretion of the Company's Board of Directors and may be
modified by the Board upon notice to the Company's members.
The quantities of durum wheat due from each member and the costs
associated with that wheat are calculated on a "Settlement Date" assigned to
each member during each of the three periods (August 1 through November 30;
December 1 through March 31; and April 1 through July 31) into which each
Company marketing year is divided. On the applicable Settlement Date, the
member's obligation to deliver durum wheat is satisfied by the Company from
commingled inventories of members' durum wheat. The member is invoiced for
(i) the Company's price per bushel for durum wheat (with such market price
established by the Company at the beginning of each marketing period for that
period) and (ii) the administrative fee described above applicable to durum
wheat acquired on behalf of a member. The member is then credited for the
sale of durum to the Company, less an amount, currently 15%, retained by the
Company as established by the Board of directors. The amount retained by the
Company from each member on the member's Settlement Date is, in the discretion
of the Board of Directors, either refunded to the member at the close of the
applicable marketing period or retained by the Company as "unit retains."
The per bushel administrative fees charged to each member for fulfilling the
member's delivery obligation from the Company's inventories of durum wheat are
refunded if the member arranges for delivery of durum wheat during the
marketing year to satisfy the member's obligation to the Company under the
Growers Agreement.
Competition -
Overview
The markets for semolina/durum wheat flour and pasta are highly
competitive in most segments and geographic regions. In all, there are an
estimated 60 to 65 significant plants in the U.S. which manufacture dry pasta.
The intensity of competition varies from time to time as a result of a number
of factors, including: (1) the degree of industry capacity utilization, (2)
comparative product distribution costs, (3) ability to render distinctive
service to customers, and (4) a distinguishing or unique ability to provide
consistent product quality in line with customer specifications. The Company
believes that, in a broad sense, the single most influential factor on the
intensity of competitive conditions is industry capacity utilization. It
should be noted that detailed information regarding both pasta production and
milling capacity is often proprietary information of the closely-held
companies which are active in such markets.
Pasta
The pasta market is highly competitive and includes several well-
established enterprises. Those competitors are both independent companies and
divisions or subsidiaries of other, larger, food products companies. In
addition, according to United States government data, the overall U.S. pasta
market has experienced rapid penetration by foreign suppliers, particularly in
the last three to four years.
Total domestic industry capacity, including self-supply capabilities
within the ingredient segment, is broadly estimated at over 4.6 billion pounds
of pasta per year. The Company presently represents less than 3% of total
U.S. industry capacity, and its market share is also rated at less than 3%.
With its pasta expansion projects, the Company's share of domestic capacity
will grow to approximately 6%.
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The Company's top competitors in the open market include Borden Pasta
Division ("Borden"), Hershey Pasta Group Division ("Hershey"), American
Italian Pasta Co. ("AIPC"), Philadelphia Macaroni Co. Inc., A. Zerega's Sons,
Inc. ("Zerega"), and Gilster-Mary Lee Corp. Together with the Company, these
organizations represent in the aggregate approximately 54% of total industry
production capacity. These companies market under their own labels and also
supply private label customers. An additional 25% of total domestic industry
production capacity is represented by the largest self suppliers, which
include Kraft, General Foods, Inc., American Home Foods Products, Inc.,
Campbell Soup Co., Inc., and Stouffers Corp.
The Company markets in the retail area primarily as a private label
supplier. The Company's "Pasta Growers" label to date has most effectively
penetrated local area markets in the Dakotas and Minnesota, while its "Pasta
Sanita" label is sold in niches ranging from Montana, Minnesota, Illinois and
Ohio to select markets in the northeast United States and "Zia Bella" is
marketed through club stores on the west coast.
The pasta manufacturing industry has experienced capacity changes and
restructuring in recent years. Overall industry capacity during the past two
years is believed to have increased slightly. The Company believes that
current pasta production capacity exceeds the current demand for pasta.
Semolina and Durum Wheat Flour
Given the commodity nature of the market for semolina and durum flour,
sales volume is largely dependent on delivered price when adequate supply
conditions exist. Italgrani USA, Inc., Harvest States Cooperatives and Miller
Milling all have two or more active mills, and collectively are believed to
represent more than 60% of total domestic milling capacity; the Company's
current milling operation represents about 4% of total domestic milling
capacity, and will increase to over 7% with its expansion. Some of the mills
operated by the Company's competitors have established integrated pasta
production capabilities or have developed alliances with pasta manufacturers.
The Company believes that the integration of its milling and pasta production
facilities enables the Company to compete more effectively with those
competitors who also have integrated facilities.
Government Regulation -
Trade Policies
The operations of the Company may be affected by governmental policies
and regulations, including those impacting the amount of durum wheat imported
from Canada and the volume of pasta imports.
Pricing policy actions by the Canadian Wheat Board ("CWB") have continued
to prevent large quantities of Canadian durum wheat from entering the United
States domestic market. However, if the CWB alters its current position on
durum wheat pricing, it could result in increased sales of Canadian durum
wheat in the United States and lower durum wheat prices. Such events could
impact both the milling and pasta areas of the Company's business operations.
Lower durum wheat prices could favorably affect durum wheat flour usage
by leading to durum wheat's return as the preferred ingredient within the
pasta manufacturing industry replacing non-durum wheat flours. Lower durum
wheat prices should ultimately lead to reduced pasta production costs and
provide opportunity for profit improvements for pasta manufacturers without
requiring price increases for finished pasta products.
In early 1995 three major U.S. pasta manufacturers filed lawsuits against
certain Italian and Turkish pasta producers, charging those producers with
unfair trade practices involving illegal government subsidies and dumping
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policies. In October, 1995, the Commerce Department issued an initial ruling
on the subsidy impact of the case, and ordered that duties be imposed on the
firms found to have engaged in the contested activities. In July, 1996, the
International Trade Commission (ITC) authorized the imposition of antidumping
and countervailing duties on these imports after finding that the imports
injure U.S. producers. These duties will likely result in lower sales volume
in the United States for the foreign suppliers most penalized. Lower imported
volume could result in higher domestic pasta plant capacity utilization and a
corresponding increase in pasta market (price) stability.
There could be a similar impact in the demand for domestic semolina and
durum wheat flour if current imported pasta volume is reduced, as it would
likely be replaced by a domestic supplier, resulting in an increase for the
semolina and durum wheat flour market.
Food and Drug Administration Regulation
As a producer of products intended for human consumption, the Company's
operations are subject to certain federal and state regulations, including
regulations promulgated by the United States Food and Drug Administration.
The Company believes that it is in material compliance with the applicable
regulatory requirements.
Environmental Regulation
Dakota Growers is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste
disposal and odor and noise control. The Company conducts an on-going control
program designed to meet these environmental laws and regulations. There are
no pending regulatory enforcement actions and the Company believes that it is
in substantial compliance with applicable environmental laws and regulations.
The Company cannot predict whether future changes in environmental laws
or regulations might increase the cost of operating its facilities and
conducting its business. Any such changes could have adverse financial
consequences for the Company and its members.
Intellectual Property Rights -
The Company relies on a combination of trade secret, and trademark law,
nondisclosure agreements and technical measures to establish and protect its
proprietary rights to its products and processes. The Company owns two
trademarks that have been registered with the United States Patent and
Trademark Office, including the corporate logo, Dakota Growers Pasta Company,
and the design on its packaging.
Research and Development -
The Company supports research and development programs in North Dakota
which focus on improved varieties of durum wheat, including the Company's
Durum Education Research and Marketing Committee. The Company is not
presently participating in any formal, independent research and development
programs for pasta products. The Company, however, as part of its operations,
maintains a modern, well-equipped laboratory facility designed primarily to
evaluate and maintain high quality standards for incoming raw materials,
ongoing product manufacturing, and development of new pasta shapes.
Employees -
As of October 11, 1996, Dakota Growers had 204 full-time employees, of
which 168 were hourly and 36 were salaried. It also employs 17 hourly part-
time workers. Qualified full-time employees are provided health insurance,
vacation and holiday plans and are eligible to participate in the Company's
401(k) savings plans. The Company considers its employee relations to be
excellent. There are no collective bargaining agreements in existence, and
none are foreseen. The Company anticipates that it will add approximately
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five full-time employees upon the completion of the mill expansion.
ITEM 2. PROPERTIES
Property and Processing Facilities -
Dakota Growers owns and operates a single vertically integrated, state of
the art durum milling and pasta manufacturing plant at Carrington, North
Dakota. The plant, which was fully operational in January 1994, has the
design capacity to grind 3,200,000 bushels of grain each year. It has grain
silos with a capacity to hold 370,000 bushels. The plant contains four pasta
production lines, two of which are operated as long goods lines and two of
which are short goods lines. Total pasta manufacturing capacity is 120
million pounds annually.
With the expansion of the mill, anticipated to be completed in December,
1996, the plant is projected to have the minimum capacity to mill
approximately 18,500 bushels of durum per day. With the addition of two new
pasta lines, one short goods and one long goods, scheduled to be installed by
July 1997, the Company's pasta production capacity will increase to 250
million pounds annually. The Company anticipates that it will spend
approximately $300,000 in each fiscal year for routine mill and pasta
productivity enhancement equipment and new customer development.
Primary Company warehouses for pasta products are maintained at the
Carrington plant and in leased facilities in Fargo, North Dakota. These
facilities are supplemented by various public warehouses where inventory is
maintained and redistributed for the needs of specific customers.
ITEM 3. LEGAL PROCEEDINGS
From time to time and in the ordinary course of its business, the Company
is named as a defendant in legal proceedings related to various issues,
including worker's compensation claims, tort claims and contractual disputes.
Other than as provided herein, the Company is not currently involved in legal
proceedings which have arisen in the ordinary course of its business and the
Company is also unaware of other potential claims which could result in the
commencement of legal proceedings. The Company carries insurance, which
provides protection against certain types of claims.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during
the quarter ended July 31, 1996.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is only a limited, private market for shares of the Company's
Common or Preferred Stock, as such shares may be held only by farmer-producers
who are eligible for membership in the Company. The Company's shares are not
listed for trading on any exchange or quotation system. Although transfers of
the Company's shares may occur only with the consent of the Company's Board of
Directors, the Company does not obtain information regarding the transfer
price in connection with such transfers. As a result, the Company is not able
to provide information regarding the prices at which the Company's shares have
be transferred.
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ITEM 6. SELECTED FINANCIAL DATA
Selected Financial Data -
The selected financial data of the Company should be read in conjunction
with the financial statements and related notes included elsewhere in this
Form 10-K.
<TABLE>
<CAPTION>
Fiscal year ended July 31, (1)
--------------------------------------------
1996 1995 1994 1993 1992
<C> <C> <C> <C> <C>
<S>
FINANCIAL DATA
(In Thousands, except ratios)
Net Revenue 49,640 40,791 19,706 0 0
Net Income (Deficit) 2,618 1,436 ( 206) ( 423) ( 96)
Patronage Dividends Per Share
Declared (2) .30 0 0 0 0
Distributed (2) .30 0 0 0 0
Total Assets 49,894 47,842 45,215 24,818 12,181
Long-term Debt (including current
maturities) and Redeemable
Preferred Stock 19,752 29,097 28,477 11,557 0
Members' Investment (3) 24,866 13,497 12,107 12,183 12,177
Property and Equipment Additions,
net of Retirements 1,624 1,580 12,526 22,680 1,600
Working Capital 8,184 2,400 2,001 ( 1,638) 10,559
Ratio of Long-Term Debt to Members'
Investment (4) .76 1.84 2.15 0.85 0
Ratio of Earnings to Fixed
Charges (5) 2.24 1.68 0.45 ( 4.06) N/A
</TABLE>
(1) The Company was formed on December 16, 1991, and was in the development
stage through July 31, 1993. Full operations commenced on January 1, 1994,
and, thus, the financial statements contain only seven months of operations
for the year ended July 31, 1994. Accordingly, the financial statements for
the years ended July 31 may not be comparable.
(2) The patronage dividends of $935,000 or $.308 per bushel (based on .979
bushels per share of equity stock) represents the allocation of the 1995
fiscal earnings authorized by the Board of Directors. The patronage dividends
were distributed on November 3, 1995. On October 17, 1996, the Board of
Directors authorized a distribution of 1996 fiscal earnings totalling
$1,800,000 or $.50 per bushel (based on one annualized bushel per equity share
for the first two marketing periods and .931 annualized bushels per equity
share for the third marketing period) to be distributed November 8, 1996.
(3) Members' investment includes membership and equity stock, additional
paid-in capital, and accumulated unallocated earnings (deficit).
(4) Calculated by dividing long-term debt, exclusive of the current
maturities of debt, by members' investment.
(5) Computed by dividing (i) the sum of net income (deficit) plus fixed
charges, plus amortization of capitalized interest by (ii) the sum of interest
expense and interest capitalized. The company does lease certain items, such
as office equipment and fork lifts. Due to the proportionately small amounts
involved, an interest factor on lease payments has not been included in the
total of the Company's fixed charges or the calculation of this ratio.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
The Company was formed on December 16, 1991, and was in the development
stage through July 31, 1993. Full operations commenced on January 1, 1994,
and thus the financial statements contain only seven months of operations for
the year ended July 31, 1994. Accordingly, the financial statements for the
years ended July 31, 1995 and 1994 may not be comparable.
The cost of durum, ingredients, packaging and freight constitute a major
portion of the cost of product sold. These costs will increase or decrease
with changes in sales volumes. The cost of production is also significantly
impacted by changes in durum wheat prices.
Comparison of the Years Ended July 31, 1996 and 1995 -
Net Revenues
Net revenues increased 22%, or $8,849,000, coinciding with a 20% increase
in pasta volumes sold.
Retail sales increased 41% over the same period last year and represented
40% of total sales for the year, up from 34% in 1995. The increased sales
were the result of the roll out of six new significant private label accounts
(three in the latter part of last fiscal year and three in fiscal year 1996),
increased government bid sales and increased co-pack opportunities, partially
offset by reduced sales to two major private label accounts. Pricing in the
retail markets remained competitive; the average prices were off 11% from last
year.
Food service sales were up 5%, representing 34% of total sales in 1996
(39% in 1995). The food service increase was predominantly the result of
sales growth by existing customers; the roll out of four new significant
accounts in the latter part of fiscal year 1995 and early in fiscal year 1996
was offset by the loss of two significant accounts and reduced co-pack
opportunities.
While ingredient sales increased by 24% for the year, they remained
relatively constant as a percentage of total sales at 26%. Most of the
increase resulted from a new customer added in the first quarter of fiscal
year 1996. The average price for ingredient sales was essentially unchanged
from 1995.
Overall, revenues were up by approximately $8.0 million due to pasta
sales volume increases. Lower average revenue per pound of pasta, on the
other hand, reduced revenues by $600,000.
Sales of flour and by-products were up 18%. The market prices for by-
products was significantly higher in 1996 than in 1995 due to higher prices
for competing grains. These higher prices added about $1.0 million in
revenues, while the increased volume sold increased revenues by approximately
$700,000.
Cost of Product Sold
Increased pasta production, with its resulting increase in durum bushels
ground, contributed $6.0 million of the $7.4 million increase in cost of
product sold. Durum represented 48% of the total cost of product sold in
1996. A 10% increase in the average cost per bushel of durum added an
additional $1.6 million in expense. With the increased sales and production,
however, the company was able to implement cost savings and gain efficiencies
which partially offset this cost increase.
11
<PAGE> 12
Marketing and General and Administrative Expenses
Due to settling an insurance claim for less than previously anticipated
and increased marketing personnel costs, partially offset by reduced bad debt
expense, marketing and general and administrative expenses increased by
$219,000, or 15%.
Interest Expense, Net
Interest expense for the year has increased by $42,000 as the result of
higher average interest rates, predominantly during the first quarter. The
average outstanding debt balance was $3.9 million lower in 1996 than in 1995.
Net Income
As a result of the above, net income increased $1,182,000, or 82%, over
last year.
Comparison of the Years Ended July 31, 1995 and 1994 -
Net Revenue
Net revenue rose from $19.7 million in 1994 (a partial year) to $40.8
million in 1995. Pasta volumes sold were up 142%, while semolina and by-
products sales were up 112%. The average sales price of pasta increased 13%
between the periods, reflecting a shift from lower cost customers such as co-
packing and government to higher cost customers in the retail and food service
segments. Additionally, selected price increases were implemented to
partially offset higher durum wheat costs.
Cost of Product Sold
Cost of product sold increased from $18.0 million in 1994 to $36.0
million in 1995. This was primarily due to a 110% increase in pasta
production. Packaging and ingredient costs were up due to the level of
production and the shift in sales more toward the retail segment.
Depreciation and amortization was almost double, reflecting the months in
operation.
Marketing and General and Administrative Expenses
Marketing and administrative expenses increased $.2 million from 1994 to
1995. Although 1994 was a partial year of production, marketing efforts were
in progress prior to start up.
Interest Expense, Net
Net interest expense increased $1.2 million from 1994 to 1995 due to the
timing of the placement of long-term debt and interest capitalized during
construction in 1994.
Net Income
Net income rose from the $.2 million net loss for the partial year of
operations in 1994 to a profit of $1.4 million in 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company has utilized substantial outside financing on both a seasonal
and long-term basis to fund its operations. The majority of such financing
has been provided by the St. Paul Bank for Cooperatives (the "Bank"). The
Company has a short-term line of credit with the Bank of $5,000,000 as of July
31, 1996. Borrowings against the line are secured by cash, receivables and
inventories. There were no outstanding borrowings of short-term debt at July
31, 1996.
12
<PAGE> 13
Effective with the new loan agreement dated April 25, 1996, between the
Bank and the Company, the Company is obligated to maintain or achieve certain
financial ratios. The Company is required to maintain a current ratio of not
less than 1.25:1, a net ownership ratio of not less than 40% and a debt
service coverage ratio of not less than 1.0 at the end of fiscal year-end 1996
and 1.25 thereafter.
With the new loan agreement, provisions were modified allowing for
interest rate breaks and more flexibility as long as certain equity, working
capital and cash flow ratios continue to be maintained.
Operating Activities
The Company commenced full operations on January 1, 1994. Therefore, the
Company's results reflect only seven months of full operations for the fiscal
year ended July 31, 1994. Fiscal year 1994 reflects a significant expenditure
to build up receivables and inventories reflective of the commencement of
operations.
Operating activities
Cash flow provided by operations was $3.6 million in 1996 and $1.3
million in 1995. Fiscal year 1994 had net cash used in operations of $4.3
million. Trade receivables increased $1.4 million in 1996 reflective of the
increase in revenues, while inventories were relatively unchanged. Earnings
before depreciation and amortization increased significantly in 1996 compared
to 1995 due to the sales volume increase. 1995's earnings before depreciation
and amortization was up significantly compared to 1994 due to the months of
operation as well as overall profitability. This was offset by an increase in
inventories.
Investing Activities
The cash flows for fiscal year 1994 reflects significant capital
expenditures for the initial construction of the Company's facilities.
Capital expenditures in 1995 were primarily for additional expenditures
related to the initial construction and new product development. In 1996,
$800,000 was expended on the mill expansion project, with an additional
$200,000 on pasta operation expansion. Further expenditures were made for
automating packaging function and on new product development. Capital
expenditures for the years ended July 31, 1996, 1995 and 1994 were $1.6
million, $1.6 million and $12.3 million.
In fiscal year 1997, the Company anticipates routine capital
expenditures, including expenditures for new product development, to total
less than $500,000. Further, it expects to spend an additional $4.2 million
to complete the mill expansion and $15.3 million to add additional pasta lines
and expand its building. These expansions will double the Company's milling
and pasta capacities.
Financing Activities
The Company received $9.7 million in net proceeds from its stock
offering, which was terminated on April 18, 1996. With the proceeds from this
offering, the Company has accelerated the pay down of long-term debt. This
has decreased liabilities from $33.4 million at July 31, 1995 to $24.2 million
at July 31, 1996, and has increased equity as a percentage of total
capitalization to 58%. In fiscal year 1997, the Company anticipates issuing
approximately $19 million in additional debt financing for the mill and pasta
expansions which will significantly impact these financial ratios.
The Company issued $2.1 and $16.9 million in long-term debt in the years
ended July 31, 1995 and 1994, respectively. Quarterly debt service payments
to the Bank commenced in March 1995.
A patronage allocation of $935,000, $.308 per bushel, representing the
allocation of 1995 fiscal earnings authorized by the Board of Directors in
13
<PAGE> 14
October 1995, was distributed November 3, 1995.
FINANCIAL CONDITION
Total assets increased $2.1 million or 4% during the fiscal year ended
July 31, 1996. Current assets increased $2.6 million due to increased
receivables and cash. Working capital at July 31, 1996 was $8.2 million, due
to the increase in current assets and the accelerated pay down of long-term
debt with the proceeds of the stock offering. Working capital will decrease
as the Company completes its expansion projects financed with new debt
placements.
14
<PAGE> 15
EIDE HELMEKE PLLP
Certified Public Accountants & Consultants
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
To the Members of
Dakota Growers Pasta Company
Carrington, North Dakota
We have audited the accompanying balance sheets of Dakota Growers Pasta
Company (a North Dakota Cooperative) as of July 31, 1996, and 1995, and the
related statements of operations, changes in members' investments and cash
flows for the years ended July 31, 1996, 1995, and 1994. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit included examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. an audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. we believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dakota Growers Pasta Company
as of July 31, 1996, and 1995, and the results of its operations and its cash
flows for the years ended July 31, 1996, 1995, and 1994, in conformity with
generally accepted accounting principles.
/s/ Eide Helmeke PLLP
August 27, 1996, except for Note 15, as to
which the date is October 17, 1996
Fargo, North Dakota
EIDE HELMEKE PLLP
Certified Public Accountants & Consultants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
- ------------------------------------------------------------------------------
We consent to the use of our report dated August 27, 1996, with respect to the
financial statements of Dakota Growers Pasta Company for the year ended July
31, 996, in this Form 10-K (file number 33-99834).
/s/ Eide Helmeke PLLP
October 23, 1996
Fargo, ND
15
<PAGE> 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
DAKOTA GROWERS PASTA COMPANY
BALANCE SHEETS
JULY 31, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<C> <C>
<S>
ASSETS
Current assets:
Cash and cash equivalents ......................... $ 1,448 $ 155
Receivables:
Trade accounts receivable, less allowance for
cash discounts and doubtful accounts of
$70,000 and $46,000............................ 4,874 3,470
Accounts receivable from growers ................ 207 122
Other receivables ............................... 116 489
---------- ----------
Total receivables ............................... 5,197 4,081
Inventories ....................................... 6,737 6,687
Prepaid expenses .................................. 150 30
---------- ----------
Total current assets ............................ 13,532 10,953
Property and equipment:
Property & equipment in service ................... 39,167 38,668
Construction in process ........................... 1,152 27
Accumulated depreciation and amortization ......... ( 5,964) ( 3,548)
---------- ----------
34,355 35,147
Investment in St. Paul Bank for Cooperatives ........ 1,710 1,402
Other assets ........................................ 297 340
---------- ----------
Total assets .................................... $ 49,894 $ 47,842
========== ==========
</TABLE>
See notes to financial statements.
16
<PAGE> 17
DAKOTA GROWERS PASTA COMPANY
BALANCE SHEETS
JULY 31, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<C> <C>
<S>
LIABILITIES AND MEMBERS' INVESTMENT
Current liabilities:
Notes payable and current portion of long-term
debt ............................................ $ 72 $ 3,305
Accounts payable .................................. 2,889 2,753
Accrued grower payments ........................... 1,845 1,583
Dividends payable ................................. 8 116
Accrued liabilities ............................... 534 796
---------- ----------
Total current liabilities ....................... 5,348 8,553
Commitments and contingencies .......................
Long-term debt, net of current portion .............. 18,860 24,822
---------- ----------
Total liabilities ............................... 24,208 33,375
---------- ----------
Redeemable preferred stock:
Series A, 6%, $100 par value, issued 5,500
shares in 1996 and 7,000 shares in 1995 ......... 550 700
Series B, 2% non-cumulative, $100 par value,
issued 2,700 shares ............................. 270 270
---------- ----------
Total redeemable preferred stock ................ 820 970
---------- ----------
Members' investment:
Membership stock, $125 par value, issued 1,082
shares in 1996 and 979 shares in 1995 ........... 135 122
Equity stock, $3.85 par value, issued 4,904,034
shares in 1996 and 3,116,026 shares in 1995 ..... 18,881 11,997
Additional paid in capital ........................ 3,610 782
Accumulated unallocated earnings .................. 2,240 596
---------- ----------
Total members' investment ....................... 24,866 13,497
---------- ----------
Total liabilities and members' investment ....... $ 49,894 $ 47,842
========== ==========
</TABLE>
See notes to financial statements.
17
<PAGE> 18
DAKOTA GROWERS PASTA COMPANY
STATEMENTS OF OPERATIONS
TWELVE MONTHS ENDED JULY 31, 1996, 1995 AND 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<C> <C> <C>
<S>
Net revenues (net of discounts and allowances of
$5,370,000, $5,300,000 and $1,438,000 for 1996,
1995 and 1994, respectively).................... $ 49,640 $ 40,791 $ 19,706
Cost of product sold ............................. 43,360 35,945 17,954
-------- -------- --------
Gross proceeds ................................. 6,280 4,846 1,752
Marketing and general and administrative expenses 1,636 1,417 1,181
-------- -------- --------
Operating proceeds ............................. 4,644 3,429 571
Other income (expense):
Interest income ................................ 70 36 14
Other income ................................... 31 24
Interest expense, net .......................... ( 2,123) ( 2,081) ( 794)
-------- -------- --------
Income (deficit) before income taxes ............. 2,622 1,408 ( 209)
Expense of (benefit from) income taxes ........... 4 ( 28) ( 3)
-------- -------- --------
Net income (deficit) from patronage and non-
patronage business ............................. 2,618 1,436 ( 206)
Dividends on preferred stock ..................... 39 42 42
-------- -------- --------
Earnings (loss) from patronage and non-patronage
business available for members ................. $ 2,579 $ 1,394 $( 248)
======== ======== ========
Average equity shares outstanding ................ 3,712 3,116 3,116
Earnings (loss) from patronage and non-patronage
business per average equity share outstanding... $ .69 $ .45 $( .08)
======== ======== ========
</TABLE>
See notes to financial statements.
18
<PAGE> 19
DAKOTA GROWERS PASTA COMPANY
STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED JULY 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<C> <C> <C>
<S>
Cash flows from operating activities:
Net income ..................................... $ 2,618 $ 1,436 $( 206)
Add (deduct) non-cash items:
Depreciation and amortization ................ 2,430 2,375 1,197
Non-cash portion of patronage dividends ...... ( 274) ( 383) ( 497)
Changes in assets and liabilities:
Trade receivables ............................ ( 1,404) ( 198) ( 3,271)
Accounts receivable from growers ............. ( 85) 189 ( 311)
Other receivables ............................ 373 ( 337) ( 81)
Inventories .................................. ( 50) ( 2,357) ( 4,330)
Prepaid expenses ............................. ( 120) ( 9) ( 19)
Accounts payable ............................. 136 867 1,065
Excess outstanding checks over cash on deposit ( 542) 542
Grower payables .............................. 262 326 1,257
Retainage payable ............................ ( 169) ( 128)
Other accrued liabilities .................... ( 262) 92 518
-------- -------- --------
Net cash from (used in) operating activities . 3,624 1,290 ( 4,264)
-------- -------- --------
Cash flows from investing activities:
Purchases of property and equipment ............ ( 1,624) ( 1,582) (12,289)
Proceeds from sale of property and equipment ... 2
Purchase of other assets ....................... ( 5) ( 1)
Investment in St. Paul Bank for Cooperatives ... ( 171) ( 382)
-------- -------- --------
Net cash used in investing activities ........ ( 1,629) ( 1,752) (12,671)
-------- -------- --------
Cash flows from financing activities:
Issuance of long-term debt ..................... 2,078 16,891
Payments on long-term debt ..................... ( 9,195) ( 1,458) ( 15)
Proceeds (payment) from issuance (retirement) of
preferred stock .............................. ( 150) 50
Dividends paid on preferred stock .............. ( 147)
Membership stock issued ........................ 14 2
Membership stock retired ....................... ( 1) ( 5) ( 4)
Equity stock issued ............................ 9,834
Subscriptions forfeited ........................ 2
Expenses of stock offering ..................... ( 124)
Patronage distributions ........................ ( 935)
-------- -------- --------
Net cash from financing activities ........... ( 702) 617 16,922
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents .................................... 1,293 155 ( 13)
Cash and cash equivalents, beginning of period ... 155 13
-------- -------- --------
Cash and cash equivalents, end of period ......... $ 1,448 $ 155 $
======== ======== ========
</TABLE>
(continued on next page)
19
<PAGE> 20
DAKOTA GROWERS PASTA COMPANY
STATEMENTS OF CASH FLOWS
TWELVE MONTHS ENDED JULY 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<C> <C> <C>
<S>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest .................................... $ 2,556 $ 2,561 $ 1,657
======== ======== ========
Income taxes ................................ $( 72)$ 55 $ 105
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Accrued dividends on Series A preferred stock . $ 8 $ 42 $ 42
======== ======== ========
Capitalization of financing fees .............. $ $ $ 67
======== ======== ========
Revaluation of development site ............... $ $ $ 170
======== ======== ========
Adjustment to capitalize items previously
expensed in prior periods ................... $ $ $ 256
======== ======== ========
</TABLE>
See notes to financial statements.
20
<PAGE> 21
DAKOTA GROWERS PASTA COMPANY
STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS
TWELVE MONTHS ENDED JULY 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
Preferred Stock
--------------------- Membership Equity
Series A Series B Stock Stock
---------- ---------- ---------- ----------
<C> <C> <C> <C>
<S>
Balance, July 31, 1993 .......... $ 700 $ 225 $ 129 $ 11,997
Proceeds from series
B preferred stock ........... 45
Dividends accrued .............
Net membership stock issued
(redeemed) .................. ( 4)
Contribution of capital .......
Net deficit for the year ended
July 31, 1994 ...............
---------- ---------- ---------- ----------
Balance, July 31, 1994 .......... 700 270 125 11,997
Dividends accrued .............
Net membership stock issued
(redeemed) .................. ( 3)
Net income for the year ended
July 31, 1995 ...............
---------- ---------- ---------- ----------
Balance, July 31, 1995 .......... 700 270 122 11,997
Redemption of series A
preferred stock ............. ( 150)
Dividends accrued .............
Net membership stock issued
(redeemed) .................. 13
Equity stock issued ........... 6,884
Subscriptions forfeited .......
Expenses of stock offering ....
Net income for the year ended
July 31, 1996 ...............
Patronage allocations .........
---------- ---------- ---------- ----------
Balance, July 31, 1996 .......... $ 550 $ 270 $ 135 $ 18,881
========== ========== ========== ==========
</TABLE>
(continued on next page)
21
<PAGE> 22
DAKOTA GROWERS PASTA COMPANY
STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS
TWELVE MONTHS ENDED JULY 31, 1996, 1995 AND 1994
(in thousands)
<TABLE>
<CAPTION>
Accumulated Earnings
Additional (Deficit) Unallocated
Paid-in ---------------------
Capital Patronage Non-member Total
---------- ---------- ---------- ----------
<C> <C> <C> <C>
<S>
Balance, July 31, 1993 .......... $ 607 $( 739) $ 189 $ 13,308
Proceeds from series
B preferred stock ........... 5 5
Dividends accrued ............. ( 42) ( 42)
Net membership stock issued
(redeemed) .................. ( 4)
Contribution of capital ....... 170 170
Net deficit for the year ended
July 31, 1994 ............... ( 180) ( 26) ( 206)
---------- ---------- ---------- ----------
Balance, July 31, 1994 .......... 782 ( 919) 121 13,076
Dividends accrued ............. ( 42) ( 42)
Net membership stock issued
(redeemed) .................. ( 3)
Net income for the year ended
July 31, 1995 ............... 1,432 4 1,436
---------- ---------- ---------- ----------
Balance, July 31, 1995 .......... 782 513 83 14,467
Redemption of series A
preferred stock ............. ( 150)
Dividends accrued ............. ( 39) ( 39)
Net membership stock issued
(redeemed) .................. 13
Equity stock issued ........... 2,950 9,834
Subscriptions forfeited ....... 2 2
Expenses of stock offering .... ( 124) ( 124)
Net income for the year ended
July 31, 1996 ............... 2,635 ( 17) 2,618
Patronage allocations ......... ( 935) ( 935)
---------- ---------- ---------- ----------
Balance, July 31, 1996 .......... $ 3,610 $ 2,213 $ 27 $ 25,686
========== ========== ========== ==========
</TABLE>
See notes to financial statements.
22
<PAGE> 23
DAKOTA GROWERS PASTA COMPANY
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JULY 31, 1996, 1995 AND 1994
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -
Dakota Growers Pasta Company ("the Company" or "the Cooperative") is
organized as a farmers' cooperative for purposes of manufacturing food for
human consumption from durum and other grain products. Net proceeds are
allocated to patrons who are members on the basis of their participation in
the cooperative.
The ownership of membership stock, which signifies membership in the
Cooperative, is restricted to producers of agricultural products. The
ownership of equity stock is restricted to members of the Cooperative.
Preferred stock may be held by persons who are not members of the Cooperative.
Equity requirements, as determined by the board of directors, may be
retained from amounts due to patrons and credited to members' investments in
the form of unit retains or allocated patronage.
The Cooperative reserves the right to acquire any of its stock offered
for sale and the right to recall the stock of any stockholder. In the event
this right is exercised, the consideration paid for such stock shall be the
fair market value at that point in time.
Trade accounts receivable and revenue -
Trade accounts receivable are presented net of allowances for cash
discounts and bad debts which totalled $70,000 and $46,000 as of July 31, 1996
and 1995, respectively. Revenues are presented net of discounts and
allowances of $5,370,000, $5,300,000 and $1,438,000 for the years ended July
31, 1996, 1995 and 1994, respectively.
The Cooperative grants credit to its customers located throughout the
United States. No customer represented greater than 10% of revenues for the
year ended July 31, 1996.
Accounts receivable from growers -
Accounts receivable from growers represents amounts billed to members
under the delivery policy but unpaid at the balance sheet date.
Inventories -
Finished goods, mill by-products and durum are valued at estimated net
realizable value. Packaging and ingredient inventories are valued at the
lower of cost or market.
Property and equipment -
Property and equipment are stated at cost. Expenditures for renewals and
improvements that significantly add to the productive capacity or extend the
useful life of an asset are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred. When depreciable properties are
retired or sold, the cost and related accumulated depreciation are eliminated
from the accounts and the resultant gain or loss is reflected in income.
Land is stated at the estimated fair value of the land at acquisition.
Depreciation is provided for over the estimated useful lives of the
individual assets using the straight-line method. The estimated useful lives
23
<PAGE> 24
used in the computation of depreciation expense range from 3 to 39.5 years.
The Company has been granted a complete property tax exemption on real
property (excluding land) in service prior to 1994 for the five years
beginning in 1993 and a partial exemption for an additional four years
thereafter.
Investments in the St. Paul Bank for Cooperatives (the "Bank") -
Investments in the St. Paul Bank for Cooperatives are stated at cost,
plus unredeemed patronage refunds received in the form of capital stock.
Patronage refunds estimated to be received are shown as other receivables or
other assets.
Other assets -
Other assets represent capitalized financing fees, organizational,
syndication and trademark costs, the long-term portion of estimated patronage
refunds not yet allocated and long-term receivables. The financing fees,
organizational, syndication and trademark costs are recorded at cost and are
being amortized on a straight-line basis over five years beginning at the
commencement of operations on January 1, 1994.
Accrued grower payments -
Accrued grower payments represent amounts due to growers for amounts
withheld from durum purchases pursuant to the growers agreement and delivery
policy.
Interest, net -
The Company earns patronage dividends from the St. Paul Bank for
Cooperatives based on its share of the net interest income earned by the
Bank. These patronage dividends are applied against interest expense.
Income taxes -
The Company is a non-exempt cooperative for federal income tax purposes.
Business conducted with its members constitutes patronage business as defined
by the Internal Revenue Code. The Company is subject to income taxes on
earnings from non-patronage sources. The provision for income taxes relates
to the results of operations from non-patronage business, state income taxes
and certain other permanent differences between financial and income tax
reporting. For the years ended July 31, 1996, 1995 and 1994, net income
(loss) allocable to patronage business totalled $2,638,000, $1,433,000 and
$(179,000), respectively.
Members' investment and preferred stock -
The Cooperative is a nonprofit membership corporation, organized with
capital stock. The Company has authorized capital stock of 2,000 shares of
membership stock with a par value of $125 per share, six million (6,000,000)
shares of equity stock with a par value of $3.85 and 50,000 shares of
preferred stock with a par value of $100 per share.
At July 31, 1996, the Company had issued and outstanding 1,082 shares of
membership stock, 4,904,034 shares of equity stock (see note 7, Stock
Offering), and 8,200 shares of preferred stock (see note 8, Redeemable
Preferred Stock).
Accumulated earnings/deficit represents cumulative net income/loss which
has not been allocated to members.
Estimates -
The preparation of financial statements in conformity with generally
24
<PAGE> 25
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Financial statement presentation -
Certain amounts previously reported in the financial statements for the
years ended July 31, 1995 and 1994 have been reclassified to facilitate
comparability with the year ended July 31, 1996. Such reclassifications have
no effect of the net result of operations.
The Company allocates its patronage earnings and patronage distributions
based on patronage business (bushels of durum delivered, which approximates
one bushel of durum per equity share). For presentation purposes only, it has
calculated net income per share by dividing earnings from patronage and non-
patronage business available for members (net income less preferred dividends)
by the weighted average number of equity shares outstanding during the period.
A patronage allocation of $935,000, $.308 per bushel, representing the
allocation of 1995 fiscal earnings authorized by the Board of Directors in
October 1995, was distributed November 3, 1995.
NOTE 2. DEVELOPMENT OF THE COMPANY
The Company was formed on December 16, 1991, and was in the development
stage through July 31, 1993. Operations commenced on January 1, 1994 and thus
the financial statements contain only seven months of operations for the year
ended July 31, 1994. Accordingly the financial statements for the years ended
July 31, 1996 and 1995 may not be comparable with those for the year ended
July 31, 1994.
NOTE 3. INVENTORIES
The major components of inventories as of July 31, 1996 and 1995 are as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<C> <C>
<S>
Durum .............................................. $ 535 $ 609
Finished goods and by-products ..................... 4,353 4,150
Packaging and ingredients .......................... 1,849 1,928
---------- ----------
$ 6,737 $ 6,687
========== ==========
</TABLE>
NOTE 4. PROPERTY AND EQUIPMENT
The composition of the Company's property and equipment is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<C> <C>
<S>
Land and improvements .............................. $ 457 $ 447
Buildings .......................................... 11,049 11,001
Equipment .......................................... 27,661 27,220
---------- ----------
Total property and equipment in service .......... 39,167 38,668
Construction in process ............................ 1,152 27
---------- ----------
Total property and equipment ..................... 40,319 38,695
Accumulated depreciation ........................... ( 5,964) ( 3,548)
---------- ----------
$ 33,355 $ 35,147
========== ==========
</TABLE>
25
<PAGE> 26
Depreciation expense totalled $2,416,000, $2,360,000 and $1,188,000 for
the years ended July 31, 1996, 1995 and 1994, respectively.
Labor capitalized totalled $7,000 for the year ended July 31, 1996 and
$226,000 for the year ended July 31, 1994. No labor was capitalized for the
year ended July 31, 1995.
NOTE 5. SHORT-TERM DEBT
The Cooperative has a $5.0 million seasonal line of credit with the St.
Paul Bank for Cooperatives, which is secured by property and equipment and
current assets of the company.
The seasonal line of credit has a variable interest rate and matures on
March 31, 1997. There was no outstanding balance as of July 31, 1996 or 1995.
Maximum borrowings, average borrowing levels and average interest rates
for short-term debt for the years ended July 31, 1996, 1995 and 1994 are as
follows (in thousands, except interest rates):
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<C> <C> <C>
<S>
Maximum borrowings .............................. $ 4,700 $ 2,500 $
======== ======== ========
Average borrowing levels ........................ $ 1,268 $ 850 $
======== ======== ========
Average interest rates .......................... 8.89% 9.15% %
======== ======== ========
</TABLE>
NOTE 6. LONG-TERM DEBT
Information regarding long-term debt at July 31, 1996 and 1995 is as
follows (in thousands):
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<C> <C>
<S>
Term loans from the St. Paul Bank for Cooperatives
due in installments through 2003, interest at
8.02% to 10.22%, with first lien on substantially
all property and equipment ....................... $ 18,409 $ 26,030
Term loan from the St. Paul Bank for Cooperatives
due in installments through 1998. The interest
rate on this loan is variable, 9.65% as of July
31, 1995, collateralized by property and
equipment ........................................ 1,500
Term loan from the City of Carrington, due in
installments through 2003, interest rate of 4% ... 383 437
Convertible debt from Tri-County Electric
Cooperative, due in installments through 2003,
non-interest bearing ............................. 70 80
Convertible debt from Dakota Central
Telecommunications, due in installments through
2003, non-interest bearing ....................... 70 80
---------- ----------
18,932 28,127
Current maturities ................................. ( 72) ( 3,305)
---------- ----------
Total long-term debt ............................... $ 18,860 $ 24,822
========== ==========
</TABLE>
26
<PAGE> 27
Aggregate future maturities required on long-term debt are as follows (in
thousands):
<TABLE>
<S> <C>
Twelve months ending
July 31,
--------------------
1997 $ 72
1998 747
1999 2,816
2000 2,819
2001 2,821
Thereafter 9,657
----------
$ 18,932
==========
</TABLE>
The Company has a loan agreement with the Bank containing certain
covenants related to, among other matters, the maintenance of certain working
capital, ownership and debt service ratios. As of July 31, 1996 and 1995, the
Company has met or obtained waivers for these loan covenants. The loan
agreement contains a repayment provision requiring quarterly principal
payments of $685,000.
With the proceeds from the stock offering (see Note 7, Stock Offering),
the Company has accelerated the pay down of long-term debt pending the
issuance of debt financing for the expansion of its mill and pasta operations
(see Note 13, Commitments and Contingencies). Under the current loan
agreement, the Company will not have a quarterly principal payment due until
the second quarter of 1998.
The Company has convertible debt related to two non-interest bearing
notes with annual installments of $10,000 each. Per the loan agreements, from
March 1, 1995 through February 1, 2003, the borrower shall have the privilege
of converting the unpaid balance of indebtedness into series B preferred
stock. The holders of the debt do not have the option to convert this debt.
The Company incurred $2,485,000, $2,591,000 and $1,790,000 of interest on
long and short-term debt and other obligations in fiscal years 1996, 1995 and
1994, respectively. $622,000 of interest was capitalized in 1994, including
$85,000 of interest incurred in fiscal year 1993. Patronage income from the
Bank of $362,000, $510,000 and $374,000 has been netted for the years ended
July 31, 1996, 1995 and 1994, respectively.
NOTE 7. STOCK OFFERING
Effective January 24, 1996, the Company was authorized by the Securities
and Exchange Commission to offer for sale up to 500 shares of membership stock
at $125 per share and up to 2,070,000 shares of equity stock ($3.85 par
value), at $5.50 per share.
A total of 81 membership shares and 1,788,008 equity shares were sold.
The Company received net proceeds of $9,720,000 (net of $124,000 expenses of
the offering). All shares sold were made effective April 1, 1996, for
patronage participation.
The board of directors elected on April 18, 1996, to terminate the stock
offering. On July 3, 1996, the Company filed a post-effective amendment to
the registration statement to deregister the remaining 419 membership shares
and 281,992 equity shares.
The Company has used the proceeds of the sale for mill expansion
expenditures and temporary debt reduction.
NOTE 8. REDEEMABLE PREFERRED STOCK
Each share of preferred series A stock entitles its holder to receive a
27
<PAGE> 28
6% cumulative dividend accrued from the date of issuance and payable upon
declaration of the board of directors.
Pursuant to an agreement with the holder of series A preferred stock, on
August 1, 1995, the Company paid all accrued dividends and, effective
quarterly beginning November 1, 1995, shall redeem 500 shares at par value of
$100 per share, plus accrued dividends. The Company, at its discretion, may
increase the number of shares redeemed at any quarterly installment. The
Company may postpone quarterly redemptions if the equity level falls below an
acceptable level set by the Bank, shortages in working capital or for
unforeseen short-term business opportunities.
Each share of preferred series B stock entitles its holder to receive an
annual cash dividend at the rate of $2.00 per share, when and as declared by
the board of directors. Dividends on the preferred series B stock shall not
accumulate if not declared by the board.
Two thousand two hundred fifty (2,250) shares of the preferred series B
stock may be redeemed, in whole or in part, at the option of the Company at
any time after August 1, 1997, at the redemption price of $100 per share, plus
any declared but unpaid dividends. On or after August 1, 1997, the
stockholder may require the Company to redeem all or a said portion of the
shares for $100 per share, plus any declared but unpaid dividends, if both (1)
the equity exclusive of the preferred series A and B stock is 40% or greater
of the total capital as of July 31, 1997, and (2) the Company made dividend
payments on the equity stock for the year ended July 31, 1997.
Four hundred fifty (450) shares of the preferred series B stock are
governed by a repurchase agreement obligating the Company to repurchase their
shares as of September 1, 1998, at the par value of $100 per share, plus any
declared but unpaid dividends. These shares may be redeemed by the
Cooperative on or after August 1, 1997, in agreement with the terms stated
above.
NOTE 9. EMPLOYEE BENEFIT PLAN
Effective January 1, 1994, the Company implemented a 401 (k) plan
covering employees who have reached 21 years of age and who have completed
three months of service. Effective January 1, 1995, the eligibility
requirement to the plan was amended to cover all employees who have reached 21
years of age and completed one year of service as defined in the plan
document. The amount to be contributed annually by the Company is
discretionary. Contributions by the Company were $28,000, $25,000 and $8,000
for the years ended July 31, 1996, 1995 and 1994, respectively.
NOTE 10. INCOME TAXES
The Company is a non-exempt cooperative as defined by Section 1381(a)(2)
of the Internal Revenue Code. Accordingly, net margins from business done
with member patrons which are allocated and paid as prescribed in Section 1382
of the code will be taxable to the members and not to the Cooperative. Net
margins and member allocations are determined on the basis of accounting used
for financial reporting purposes. To the extent that net margins are not
allocated and paid as stated above or arise from business done with non-
members, the Cooperative shall have taxable income subject to corporate income
tax rates.
Tax expense in 1996 represents taxes paid to various states pursuant to
their respective tax provisions. The benefit from income taxes in 1995 and
1994 represents amounts refunded due to the carryback of a non-member
operating loss.
Certain temporary differences exist between financial statement and
income tax reporting purposes that also create a difference in the amount of
patronage income determined on either basis. As these differences are
ultimately allocated to the members through patronage allocations, no deferred
28
<PAGE> 29
taxes are provided for these temporary differences.
NOTE 11. FAIR VALUE OF FINANCIAL INSTRUMENTS -
The fair value of a financial instrument is generally defined as the
amount at which the instrument could be exchanged in a current transaction
between willing parties, other than in a forced liquidation sale. Quoted
market prices are generally not available for the Company's financial
instruments. Accordingly, fair values are based on judgements regarding
anticipated cash flows, future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates involve uncertainties and matters of judgement, and
therefore cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
The carrying amount of cash and cash equivalents, receivables, payables,
short-term debt and other current liabilities approximates fair value because
of the short maturity and/or frequent repricing of those instruments.
The Company believes it is not practical to estimate the fair value of
the securities of non-subsidiary cooperatives without incurring excessive
costs because there is no established market for these securities and it is
inappropriate to estimate future cash flows which are largely dependent on
future patronage earnings of the non-subsidiary cooperatives.
Based upon current borrowing rates with similar maturities, the fair
value of the long-term debt approximates the carrying value as of July 31,
1996.
NOTE 12. OPERATING LEASES
The Company leases warehouse facilities in North Dakota. These leases
call for monthly payments of $18,000 per month, with expirations in 1998. It
has signed a binding letter of intent to lease additional warehouse facilities
currently under construction. It is anticipated to occupy these facilities in
late 1996, with additional lease payments scheduled at $24,000 per month, with
expiration in 2001.
The Company also leases various items of equipment which call for monthly
payments of $7,000 and expiration dates ranging from 1997 to 2001. Future
obligations for the above leases for the fiscal years ended July 31 are as
follows (in thousands):
<TABLE>
<S> <C>
Twelve months ending
July 31,
--------------------
1997 $ 482
1998 540
1999 375
2000 319
2001 302
</TABLE>
Lease expense totalled $304,000, $169,000 and $48,000 for the years ended
July 31, 1996, 1995 and 1994, respectively.
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company has mill and pasta expansion projects aggregating $20
million, scheduled for completion from September 1996 through July 1997. It
has signed commitments for the construction of additional facilities and the
purchase of equipment necessary for these expansions. Term debt will be
issued to finance these expansions. The company has been granted a complete
property tax exemption on real property constructed in this expansion for five
years beginning in 1997 and a partial exemption for an additional four years
thereafter.
29
<PAGE> 30
The Company has an agreement to engage another pasta company as a co-
packer for up to seven million pounds of pasta annually for two years
commencing June 15, 1996.
On January 1, 1996, the Company became self-insured with respect to
certain employee medical costs. Terms of the plan include a stop-loss
provision which limits the Company's liability to $20,000 per claim with an
aggregate stop-loss maximum totalling approximately $300,000.
The Cooperative is subject to various lawsuits and claims which arise in
the ordinary course of its business. While the results of such litigation and
claims cannot be predicted with certainty, management believes the disposition
of all such proceedings, individually or in aggregate, should not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
NOTE 15. SUBSEQUENT EVENT
Subsequent to July 31, 1996, the Board of Directors authorized a
qualified patronage allocation to members in the amount of $1,799,806, a non-
qualified patronage allocation to members of $413,377 and the recovery of the
prior years' accumulated unallocated deficit of $421,352. The total amount of
the qualified patronage allocation is intended to be paid in cash.
Cooperative organizations have 8 1/2 months after their fiscal year-end
to make such allocations in the form of written notices of allocation or cash.
As such, these allocations are normally reflected in the financial statements
in the period in which such allocations are declared by the Board of
Directors. Accordingly, the allocations noted above are not reflected in the
accompanying financial statements.
30
<PAGE> 31
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Board of Directors
The Board of Directors consists of a member/director from each of the
Company's nine geographic districts, elected by other holders of membership
stock from that district. Officers are elected annually by the Board of
Directors. In preparation for the 1997 members' meeting, and triennially
thereafter, the Bylaws require that the incumbent Board of Directors appoint a
redistricting committee to review and recommend changes in the boundaries of
the districts necessary or appropriate to maintain equitable representation of
not more than a fifteen percent variance of the number of members in each
district. If the Board of Directors approves the recommendations of the
committee, the recommendation will be submitted to the members for approval,
rejection or modification.
The table below lists the current directors of the Company. The
directors have been elected to serve three-year terms expiring at the annual
meeting in the years indicated in the table below.
<TABLE>
<CAPTION>
Name and Address Age District Term Expires
<C> <C> <C>
<S>
John S. Dalrymple, III 48 Cass-Barnes 1997
P.O. Box 220 Number 4
Casselton, ND 58012
Allyn K. Hart 56 Northeast 1999
RR 1, Box 61 Number 6
Wales, ND 58281
Roger A. Kenner (1) 46 Lake Region 1998
RR 2, Box 53 Number 8
Leeds, ND 58346
James F. Link 68 Southeast 1997
1304 4th Street North Number 3
Wahpeton, ND 58075
Eugene J. Nicholas 50 North Central 1998
RR 1 Number 7
Cando, ND 58324
John D. Rice, Jr. (1) 41 Durum Triangle 1997
RR 2, Box 104 Number 9
Maddock, ND 58348
Jeffrey O. Topp 37 South Central 1998
RR 1, Box 23 Number 2
Grace City, ND 58445
Curtis R. Trulson 44 Western 1999
RR 1, Box 62 Number 1
Ross, ND 58776
Michael E. Warner 46 East Central 1999
RR 2, Box 119 Number 5
Hillsboro, ND 58045
</TABLE>
(1) Mr. Kenner and Mr. Rice are first cousins.
31
<PAGE> 32
John S. Dalrymple III has been chairman of the Board of Directors of the
Company since 1991. He has been a state representative since 1984. Mr.
Dalrymple also is Chairman of the House Appropriations Committee and Chairman
of the Budget Section of the North Dakota House of Representatives. Mr.
Dalrymple also serves on the board of directors of U.S. Durum Growers
Association. He has been a farmer in the Casselton area since 1971. He
received a bachelor of arts in American Studies from Yale University.
Allyn K. Hart has been a director of the Company since 1991. He has been
a farmer in the Cavalier area since 1961. He is secretary and a member of the
board of directors of Cavalier County Job Development Authority. Mr. Hart
also serves on the board of directors of Maple Manor Nursing Home. Mr. Hart
received a bachelor of science from North Dakota State University.
Roger A. Kenner has been a director of the Company since 1991. He is the
State Chairman of the North Dakota Simmental Association. He also serves on
the board of directors of North Dakota State University President's Advisory
Council and the North Dakota Certified Seed Producer. He has been a farmer in
Leeds since 1964. Mr. Kenner received a bachelor of science in 1971 from
North Dakota State University.
James F. Link has been a director of the Company since 1991. Mr. Link
has served on the boards of directors of Farm Credit and Minn-Dak Farmers
Cooperative. Mr. Link served on the Pro-Gold Corn Plan Development Committee.
He has been a farmer in the Wahpeton area since 1947.
Eugene J. Nicholas has been a director of the Company since 1991. Mr.
Nicholas has been a state representative since 1974. He serves as chairman of
the North Dakota House of Representatives Agriculture Committee. Mr Nicholas
also serves on the boards of directors of the U.S. Durum Growers Association,
Towner County Bank, Cando, and the Durum Triangle Economic Development
Committee. Mr. Nicholas received a bachelor of science in Business Economics
from North Dakota State University.
John D. Rice, Jr. is the vice chairman of the Board of Directors of the
Company and has been a director of the Company since 1991. Mr. Rice currently
serves on the board of directors of the National Bank, Harvey, N.D., and as
clerk of the Educational Trust. He also served on the boards of directors of
National Pasta Association and U.S. Durum Growers Association. Mr Rice also
serves as a trustee for Maddock Zion Lutheran Church. He has been a farmer in
the Maddock area since 1968. Mr. Rice received an associate of science in
agricultural economics from North Dakota State University.
Jeffrey O. Topp has been a director of the Company since 1991. He is
also president of the Eddy County Agriculture Improvement Association. He is
a partner of T-T Ranch. He has been a farmer in the Grace City area since
1978.
Curtis R. Trulson has been secretary/treasurer of the Board of Directors
and a director of the Company since 1991. He serves on the board of directors
of the North Dakota Grain Growers Association and previously served on the
board of directors of the National Association of Wheat Growers. He has been
a farmer in Montrail County, North Dakota, since 1975. Mr. Trulson received a
bachelor of science in Business Administration from the University of North
Dakota.
Michael E. Warner has been a director of the Company since 1992. Mr.
Warner has been a farmer since 1967 and is currently owner/operator of Mike
Warner Farm near Hillsboro, North Dakota. Mr. Warner is chairman of the board
of directors of Northern Plains Consortium, a regional development group. He
also serves on the boards of directors of American Crystal Sugar Company of
Moorhead, Minnesota, Warner Equipment Co., and Meritcare Health Systems of
Fargo, North Dakota. Mr. Warner received a bachelor of science in pharmacy
from North Dakota State University.
32
<PAGE> 33
Directors Compensation
The Board of Directors meets monthly. The Company provides its
directors with compensation consisting of (i) a per diem payment of $200 ($250
for the Chairman of the Board) for any day on which a director partakes of
activities on the Company's behalf, including board meetings and other Company
functions, (ii) a monthly stipend of $200, and (iii) reimbursement for out-of-
pocket expenses incurred on behalf of the Company.
Company Management and Key Employees
The table below lists the principal managers of the Company, none of
whom owns any Membership Stock or Equity Stock.
<TABLE>
<CAPTION>
Name Age Position
<C> <C>
<S>
Timothy J. Dodd 41 President and General Manager
Thomas P. Friezen 37 Vice President, Finance
Gary E. Mackintosh 44 Vice President, Sales and Marketing
David E. Tressler 42 Plant Superintendent
Harlan W. Jemison 67 Vice President, Ingredient and
Foodservice Sales
</TABLE>
Timothy J. Dodd is the President and General Manager of the Company.
Prior to joining the Company in December 1991, he had been since 1988 the vice
president of manufacturing of the American Italian Pasta Co., a durum milling
and pasta production company located in Missouri. He received a bachelor of
science in Milling Science and Management from Kansas State University.
Thomas P. Friezen joined the Company in April 1995. From 1991 to April
1995 he was the Accounting Supervisor at Arizona Electric Power Cooperative,
an electricity generation and transmission company. Prior to that Mr. Friezen
was the Accounting Manager at Williston Basin Interstate Pipeline, a natural
gas transmission company. He received a bachelor of science in accounting
from University of Mary, Bismarck, North Dakota and is a certified public
accountant.
Gary E. Mackintosh has been with the Company since December 1991. From
1988 to 1991 he was director of retail sales at American Italian Pasta Co.
From 1978 to 1988 he was regional sales manager for The Prince Company, a
pasta manufacturer. He received a bachelor of business in administration from
The Barney School, University of Hartford, Connecticut.
David E. Tressler joined the Company in February 1992 as Project
Engineer. He received a bachelor of science degree in Industrial Engineering
from Iowa State University at Ames, Iowa. Prior to joining the Company, Mr.
Tressler worked as a director of engineering at American Italian Pasta Co.,
where he was responsible for monitoring the completion of the initial pasta
plant. From 1977 to 1988 he was plant engineer at International Multi-Foods,
Inc.
Harlan W. Jemison has been involved in ingredient and foodservice sales
for the Company since September, 1992. Prior to joining the Company, from
1991 to 1992 he was national sales manager for Shade Pasta Company. In 1990
he was director of Foodservice Sales at American Italian Pasta Co. From 1969
to 1990 Mr. Jemison was national sales manager - food service for CPC
International, a food products manufacturer. He attended the University of
Washington and Syracuse University Advanced Business Management and Marketing
School.
33
<PAGE> 34
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the amount of compensation paid to the
Company's President and General Manager for services rendered to the Company
during the fiscal years ended July 31, 1996, 1995 and 1994. No other manager
or employee of the Company has cash compensation during fiscal year ended July
31, 1996 which exceeded $100,000.
<TABLE>
<CAPTION>
Other Annual
Name Year Salary Bonus Compensation (1)
<C> <C> <C> <C>
<S>
Timothy J. Dodd, 1996 $120,000 $ 1,426 $ 1,800
President and 1995 120,000 561 1,182
General Manager 1994 120,000 2,000 1,349
</TABLE>
(1) Includes the Company's 401(k) matching contribution.
Mr. Dodd's compensation is set by a sub-committee of the Board of
Directors.
Compensation Plans
The Board has considered, but not yet adopted a compensation plan for
certain of its key employees. Precise terms have not yet been determined.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As a cooperative, each member (represented by ownership of one share of
membership stock) has equal voting rights regardless of the number of equity
shares owned. As of October 17, 1996, no director (or member designating a
director) owns beneficially more than .75% of the Company's issued and
outstanding membership stock and such directors, as a group, beneficially own
2.3%.
As of October 17, 1996, no director (or member designating a director)
owns beneficially more than three and one-half percent of the Company's issued
and outstanding Equity Stock and such directors, as a group, beneficially own
less than nine percent of the Company's issued and outstanding Equity Stock.
To the best of the Company's knowledge, no other party beneficially owned
more than five percent of the Company's Membership (Voting) Stock or Equity
Stock.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of the Company's directors is also an agricultural producer and a
member of the Company. By virtue of their status as such members of the
Company, each director sells durum wheat to the Company and receives payments
for that durum wheat, including payments for wheat delivered in excess of the
member's obligation to deliver durum wheat by virtue of the member's ownership
of shares of Equity Stock. In prior years, such payments for durum wheat
often exceed $60,000. However, such payments are received by the directors or
the entities they represent on exactly the same basis as payments are received
by other members of the Company for the delivery of their durum wheat. Except
for the durum wheat sales described in the preceding sentences, none of the
directors or executive officers of the Company have engaged in any other
transactions with the Company involving amounts in excess of $60,000.
34
<PAGE> 35
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
Financial Statement Schedules
None.
Reports on Form 8-K
The Company was not required to and did not file any reports on Form 8-K
during the three months ended July 31, 1996.
Exhibits
* 3.1 Certified Articles of Incorporation of Dakota Growers Pasta Company
* 3.2 Bylaws of Dakota Growers Pasta Company
10.1 Loan Agreement in the aggregate amount of $24,409,007.58 dated April
25, 1996, between the Company and St. Paul Bank for Cooperatives.
10.2 Nonnegotiable Note of Dakota Growers Pasta Company in the principal
amount of $5,000,000.00 dated April 25, 1996.
*10.3 Series A Preferred Stock Purchase Agreement dated October 28, 1992
between the Company and the State of North Dakota acting by and
through North Dakota Future Fund, Inc., including Amendment to
Preferred Stock Purchase Between Dakota Growers Pasta Company and
North Dakota Future Fund dated August 26, 1995.
*10.4 Loan Agreement in the aggregate amount of $100,000 dated February 5,
1993 between the Company and Dakota Central Telecommunications
Cooperative.
*10.5 Promissory Note in the principal amount of $100,000 dated February 5,
1993 between the Company and Dakota Central Telecommunications
Cooperative.
*10.6 Loan Agreement in the aggregate amount of $100,000 dated February 5,
1993 between the Company and Tri-county Electric Cooperative, Inc.
*10.7 Promissory Note in the principal amount of $100,000 dated February 5,
1993 between the Company and Tri-county Electric Cooperative, Inc.
**10.8 Indenture of Lease between RLN Leasing, Inc. and Dakota Growers Pasta
Company, dated October 15, 1995
10.9 Binding Letter of Intent to Lease between RLN Leasing, Inc. and Dakota
Growers Pasta Company, dated July 24, 1996
**10.10 Lease Agreement between Congress, Inc. and Dakota Growers Pasta
Company, dated March 13, 1995
*10.11 Sample Broker Agreement between Dakota Growers Pasta Company and
Sinco, Inc. dated May 1, 1995
23.1 Consent of Independent Auditors, see Independent Auditor's Report on
page 15.
27 Financial Data Schedule, which is submitted electronically for
information only and not filed.
* Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-99834), declared effective January 26, 1996.
** Incorporated by reference from the Company's Registration Statement on
Form S-1 (File No. 33-99834), declared effective January 26, 1996.
Confidential treatment was granted with respect to portions of these
agreements.
35
<PAGE> 36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dakota Growers Pasta Company
<TABLE>
<S> <C>
Date: October 17, 1996 /s/ Timothy J. Dodd
---------------- ----------------------------------
Timothy J. Dodd (President and
General Manager, and Principal
Executive Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<C> <C>
<S>
/s/ Timothy J. Dodd
- ------------------------
Timothy J. Dodd President and General Manager October 17, 1996
(Principal Executive Officer)
/s/ Thomas P. Friezen
- ------------------------
Thomas P. Friezen Vice President, Finance October 17, 1996
(Principal Financial and
Accounting Officer)
/s/ John S. Dalrymple III
- ------------------------
John S. Dalrymple III Director October 17, 1996
/s/ John D. Rice Jr.
- ------------------------
John D. Rice Jr. Director October 17, 1996
/s/ Curt R. Trulson
- ------------------------
Curt R. Trulson Director October 17, 1996
/s/ Allyn K. Hart
- ------------------------
Allyn K. Hart Director October 17, 1996
/s/ Roger A. Kenner
- ------------------------
Roger A. Kenner Director October 17, 1996
/s/ James F. Link
- ------------------------
James F. Link Director October 17, 1996
/s/ Eugene J. Nicholas
- ------------------------
Eugene J. Nicholas Director October 17, 1996
/s/ Jeffrey O. Topp
- ------------------------
Jeffrey O. Topp Director October 17, 1996
/s/ Michael E. Warner
- ------------------------
Michael E. Warner Director October 17, 1996
</TABLE>
36
<PAGE> 37
Exhibit 10.1
Date Approved 04/25/96
ST. PAUL BANK FOR COOPERATIVES
Loan Agreement
Borrower: Application No. S-26214
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
New Loan Present Loans
$5,000,000 - Seasonal Loan
$16,487,656.44 - Term Loan
2,921,351.14 - Term Loan
Total Loans
$ 5,000,000.00 - Seasonal Loan, Note No. 22140
16,487,656.44 - Term Loan, Note No. 33060
2,921,351.14 - Term Loan, Note No. 33070
-------------
$24,409,007.58 - Total
The St. Paul Bank for Cooperatives (the "Bank") and Borrower agree to the
above loans (the "Loans") to the Borrower. The Borrower's present
indebtedness to the Bank and/or commitments outstanding (entitled Present
Loans in the above heading) are consolidated and are made subject to all the
terms and conditions of this loan agreement.
I. NOTES AND SECURITY
Advances under this loan agreement, together with any existing
indebtedness of the Borrower to the Bank, shall be evidenced by a promissory
note or notes acceptable to the Bank, and shall be secured to the extent of
all collateral presently held by the Bank, including but not limited to all
real estate mortgages and security agreements. All property under lien to the
Bank as security for the Loans shall be collateral for all indebtedness of the
Borrower to the Bank.
II. LIMITATION ON ADVANCES
A. The total Seasonal Loan outstanding under this or any loan agreement
between the Bank and the Borrower shall not exceed the amount shown in the
above heading.
B. Advances on the Seasonal Loan shall not exceed the sum of the
following collateral values based on collateral reports to be submitted
monthly (or more often at Borrower's discretion) in such form as required by
the Bank:
1. One hundred percent (100%) of cash on hand.
2. Eighty percent (80%) of accounts receivable acceptable to the
Bank and not older than forty-five (45) days from the date of invoice.
3. Sixty-five percent (65%) of the net market value (market value
less selling expenses) of owned inventories of grain, semolina, flours,
millfeeds, and finished pasta.
III. INTEREST
All outstanding balances hereunder shall bear a rate of interest as the
Bank shall from time to time prescribe, provided, however, the fixed amounts
shall bear such rates of interest as described in the statements (as defined
in the "FIXED RATE SEASONAL ADVANCES AND MATURITIES" and "CUSTOMER MANAGED
FIXED RATE TERM ADVANCES AND MATURITIES" sections of this loan agreement).
Interest on the Loans shall be payable on the last day of each calendar
quarter or as the Bank may specify.
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IV. FIXED RATE SEASONAL ADVANCES AND MATURITIES
In accordance with and subject to the Bank's Fixed Rate Seasonal Loan
Program, and subject to the Bank's overall program funding limitations, it is
agreed the interest rate may be fixed on any seasonal loan indebtedness (the
"fixed amount") made under this loan agreement as follows:
A. The minimum fixed amount shall be $100,000.
B. Each fixed amount and each selected pricing maturity date will be
treated as a separate indebtedness for interest rate designation and interest
billing purposes.
C. Fixed amount pricing maturities shall not be less than 15 days nor
greater than 180 days from the day of advance to be based on the maturity
selection of the Borrower, however, all fixed amounts shall have pricing
maturities no later than September 30, 1997.
D. The Borrower may receive same day interest rate quotes if a firm
request is placed and accepted by the Bank before 12:01 p.m. (Central Time) on
any business day. A firm request is one placed by telephone or in writing by
an authorized representative of the Borrower.
E. Fixed amounts shall be automatically converted to the variable rate
seasonal loan at maturity.
F. Fixed amounts cannot be repaid or repriced by the Borrower prior to
their respective pricing maturity dates without being subject to prepayment
penalties. Such penalties shall be determined according to a methodology
specified by the Bank which preserves the Bank's yield on the fixed amount
prepaid or repriced and which is based upon the difference between the Bank's
cost of like funds to pricing maturity at the time of prepayment and the
existing fixed rate on the fixed amount.
G. Each fixed amount shall be summarized in the Daily Activity
Statement (the "statement") to the Borrower. Each statement shall reference
and confirm at least the following:
1. Note No. 22140.
2. The fixed amount and its Contract No.
3. The rate of interest.
4. The effective date.
5. The pricing maturity date.
H. The Borrower agrees that the statement shall verify the
understanding reached by the parties, and that the Borrower shall be bound by
the statement without its signature; provided, however, if there is an error
reflected in the statement, the Borrower shall notify the Bank of the error
within five days after receipt of the statement and an appropriate correction
will be made.
I. If there is a question on the interest rate applicable to the fixed
amount, the rate as established by the Bank for such amounts shall be
controlling.
V. CUSTOMER MANAGED FIXED RATE TERM ADVANCES AND MATURITIES
In accordance with and subject to the Bank's Customer Managed Fixed Rate
Term Program and subject to the Bank's overall program funding limitations, it
is agreed the interest rate may be fixed on any term loan indebtedness (the
"fixed amount") under this loan agreement as follows:
A. The minimum fixed amount shall be $1,000,000.
B. Each fixed amount and each selected pricing maturity date shall be
treated as a separate indebtedness for interest rate designation and interest
billing purposes.
C. Fixed amount pricing maturities shall be for a minimum maturity of
30 days and a maximum of ten years.
D. The Borrower shall have indebtedness under the variable rate term
interest rate program or priced maturing fixed amounts against which to apply
scheduled term loan payments as set forth in the "REPAYMENT" section of this
loan agreement.
E. The Borrower's selection of loan interest rate quotes and pricing
maturities must be communicated to the Bank by 2:00 p.m. (Central Time) on the
day prior to the fixed amount advance. If this selection deadline is not met,
maturing fixed amounts shall automatically convert to the variable rate term
loan.
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F. Fixed amounts cannot be repaid or repriced by the Borrower prior to
their respective pricing maturity dates without being subject to prepayment
penalties. Such penalties shall be determined according to a methodology
specified by the Bank which preserves the Bank's yield on the fixed amount
prepaid or repriced and which is based upon the difference between the Bank's
cost of like funds to pricing maturity at the time of prepayment and the
existing fixed rate on the fixed amount.
G. Each fixed amount shall be summarized in the Daily Activity
Statement (the "statement") to the Borrower. Each statement shall reference
and confirm at least the following:
1. Note Nos. 33060 or 33070.
2. The fixed amount and its Contract No.
3. The rate of interest.
4. The effective date.
5. The pricing maturity date.
H. The Borrower agrees that the statement shall verify the
understanding reached by the parties, and that the Borrower shall be bound by
the statement without its signature; provided, however, if there is an error
reflected in the statement, the Borrower shall notify the Bank of the error
within five days after receipt of the statement and an appropriate correction
will be made.
I. If there is a question on the interest rate applicable to the fixed
amount, the rate as established by the Bank for such amounts shall be
controlling.
VI. BANK OF NORTH DAKOTA PARTICIPATION
The Bank of North Dakota (the "BND") shall purchase all advances and
shall receive all principal and interest repayments on Term Loan, Note No.
33070 in accordance with the Participation Agreement between the Bank and the
BND. Term Loan, Note No. 33070 shall be a non-patronage loan and the Borrower
will not be required to purchase equities in the Bank nor be entitled to
patronage refunds from the Bank as a result of the balances on Term Loan, Note
No. 33070.
VII. FINANCIAL CONDITIONS
While this loan agreement is in effect, the Borrower agrees to comply
with the following financial conditions:
A. Cash Patronage: The Borrower will pay cash patronage in amounts
necessary to qualify its patronage refunds as a qualified patronage dividend
as defined in the Internal Revenue Code.
B. Dividends: The Borrower will not pay cash dividends n capital stock
in excess of minimum requirements, as stated in the Borrower's by-laws and/or
stock certificates, without the prior written consent of the Bank, which will
not be unreasonably withheld.
C. Revolvement of Equities: The Borrower may not revolve, or otherwise
pay out, any owner equity if such action would cause one or more of the
"FINANCIAL CONDITIONS D, E, or F" under this loan agreement to be in a
noncompliance position without the prior written consent of the Bank, which
will not be unreasonably withheld.
D. Current Ratio: The Borrower will maintain a current ratio (current
assets:current liabilities) of not less than 1.25:1.
E. Net Ownership Ratio: The Borrower will maintain a net ownership
ratio (total equity divided by the sum of current assets minus current
liabilities plus net fixed assets plus other assets) of not less than forty
(40) percent.
F. Debt Service Coverage Ratio: The Borrower will maintain a debt
service coverage ratio of not less than 1.0 calculated at fiscal year-end 1996
and maintain a debt service coverage ratio of not less than 1.25, thereafter.
The debt service coverage ratio shall be calculated as follows:
After-tax net income
Add: Depreciation and Amortization Expense
Less: Deferred Patronage Received
Cash Patronage Declared Payable
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Extraordinary Gains
Equal to: Adjusted Income from Operations
Divided by: Current Maturities of Long-Term Liabilities
(including principal on capitalized and operating leases)
Equals: Debt Service Coverage Ratio
VIII. GENERAL CONDITIONS
While this loan agreement is in effect, the Borrower agrees to comply
with the following conditions:
A. Eligibility Status: The Borrower will maintain its status as an
eligible borrower as defined in the Farm Credit Act of 1971, as amended (12
U.S.C. 2129).
B. Stock Investment: The Borrower will purchase equities of the Bank
in such amounts as prescribed by the Bank's capital plan and any amendments to
the plan.
C. Insurance: The Borrower will maintain business and property
insurance with financially sound insurers, in amounts sufficient to protect
the Loans. The Borrower will maintain all appropriate grain licenses and all
required grain buyers' and warehouse bonds.
D. Financial Information: The Borrower will furnish the Bank audited
annual financial statements prepared in accordance with GAAP, and acceptable
auditors' reports, within 120 days after the end of each fiscal year, annual
operating budgets within 60 days after the end of each fiscal year, monthly
financial statements prepared in accordance with GAAP within 30 days after the
end of each month, and such other information as the Bank may request relative
to the Borrower's business, and permit such examination of its books and
records as the Bank may specify. The Borrower also agrees that parties
preparing such financial information are authorized to release to the Bank
such financial information as the Bank may request.
E. Collateral Reports: The Borrower will furnish the Bank collateral
reports to be submitted in such form and frequency as required by the Bank.
F. Negative Pledge: The Borrower will not mortgage, pledge, assign, or
grant security interests in any assets to any other party without the prior
written consent of the Bank, which will not be unreasonably withheld.
G. Corporate Documents: The Borrower will not amend its articles of
incorporation, by-laws, growers agreement, nor its grain delivery payment
policies without the consent of the Bank, which will not be unreasonably
withheld.
H. Environmental Representations, Conditions, and Indemnity Clause:
Except as disclosed in writing to the Bank, the Borrower represents and agrees
to the following:
1. Hazardous Material Notice: The Borrower represents that it has
not received a notice from any governmental agency or other persons nor is
there any present or threatened suit, investigation, or other proceeding, with
regard to Hazardous Materials (defined in paragraph 7 below) on, in, or
affecting its owned or leased property. It shall immediately give the Bank
oral and written notice if it receives such a notice.
2. No Violation of Environmental Laws: The Borrower has not and
will not violate any federal, state, or local environmental laws relating to
or affecting its owned or leased property, which violation would have a
material affect on the Borrower's business or materially affects the value of
the collateral.
3. No Releases of Hazardous Material: There has been no release,
nor shall the Borrower permit any release, of such nature requiring
notification to proper authorities of any Hazardous Material onto the
Borrower's owned or leased property.
4. Storage Tank Registered; No Leaks: All above ground and
underground storage tanks have been duly registered with all applicable
federal, state and local government authorities. The Borrower has no
knowledge of any leaks from any of its above ground or underground storage
tanks.
5. Investigation of Released Hazardous Materials: If there is a
suspected release of Hazardous Materials, the Borrower shall, at its own
expense conduct all investigations, testing, and other actions, including an
environmental audit made at the Bank's request, necessary to determine the
extent (if any) of the release of Hazardous Materials and to clean up and
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remove all Hazardous Material in accordance with environmental laws.
6. Indemnity: The Borrower agrees to indemnify, hold harmless, and
defend the Bank against all claims of whatever kind (including attorneys'.
consultants', and experts' fees) paid or asserted against the Bank as a direct
result of the Borrower's violation of any environmental law. This indemnity
shall continue for the benefit of the Bank after the termination of this loan
agreement or other loan or security documents.
7. Definition: Hazardous Material is defined as any toxic,
radioactive, or hazardous substance, material, waste, pollutant, emission, or
contaminant, including but not limited to : (a) asbestos, (b) urea
formaldehyde, (c) the group of organic compounds known as polychlorinated
biphenyls (PCBs), (d) any petroleum product and byproduct including but not
limited to gasoline, fuel oil, crude oil, and the various constituents of such
products, and (e) pesticides, fertilizers, and other agricultural chemicals.
IX. REPAYMENT
The indebtedness arising from the Loans shall be repaid as follows:
A. The Seasonal Loan, Note No. 22140, of not to exceed $5,000,000 shall
mature on March 31, 1997; provided, however, the Borrower shall make such
payments from time to time as may be required to maintain the loan within the
limits set forth in the "LIMITATION ON ADVANCES" section of this loan
agreement; provided further, any balances outstanding under the fixed rate
seasonal loan provisions shall mature as specified in the statement. Any
outstanding fixed amounts as of March 31, 1997 shall be repaid no later than
September 30, 1997.
B. The Term Loan Note Nos. 33060 and 33070, of $19,409,007.58 shall be
repaid by quarterly principal payments of Six Hundred Eighty-Five Thousand
Dollars ($685,000) each, to be remitted to the Bank on or before March 31,
June 30, September 30, and December 31 of each year; provided, however, that
if the Borrower is not in default, it shall not be required to make payments
that would accelerate the repayment of fixed interest rate balances.
Repayment shall be pro rated eighty-five percent (85%) to Term Loan, Note No.
33060 and fifteen percent (15%) to Term Loan, Note No. 33070. All outstanding
balances shall be repaid by December 31, 2004.
In the absence of instructions from the Borrower, or if the Borrower is
in default, the Bank at its discretion, may apply repayments to the reduction
of any of the indebtedness outstanding between the Bank and the Borrower.
X. LATE FEE PENALTY
Payments received fifteen (15) calendar days after the scheduled
repayment date are subject to a late payment penalty equal to 1% of the past
due amount but not less than $25.00 per transaction.
XI. EXPIRATION
The unadvanced portion of the Loans shall be cancelled as indicated
below; provided, however, the Bank may, at its option, extend the expiration
date of the Loans and the maturity date of the Seasonal Loan without notice to
or consent of the Borrower.
Seasonal Loan, Note No. 22140 - March 31, 1997
XII. REINSTATEMENT
In order to facilitate repayments and reborrowings under this loan
agreement, the bank is authorized to reinstate all sums repaid on the Seasonal
Loan through the expiration date specified in this loan agreement; provided,
however, that the total amount outstanding under this loan agreement shall not
exceed the face amount of the Seasonal Loan, and provided, further, that the
right of the Borrower to such reinstatement may be denied and cancelled at any
time at the option of the Bank.
XIII. DEFAULT PROVISION
If the Borrower shall fail to pay when due any amount on any of the
Loans under this loan agreement, or on any other indebtedness of the Borrower
secured hereby, or fail to observe or perform any of the provisions or
representations of this loan agreement, or of any security agreement or
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mortgage, or shall be subject to the jurisdiction of a bankruptcy court
whether by a voluntary filing or involuntary action, the Borrower shall be in
default. When the Borrower is in default, the Bank may declare by written
notice to the Borrower that the Loans and other indebtedness are immediately
due and payable. The Bank may then terminate its commitment to lend and
cancel any reinstatement rights provided to the Borrower under this loan
agreement, and proceed to enforce payment and exercise any or all of the
rights afforded to the Bank by law or agreement. Upon demand, and as
permitted by law, the Borrower shall reimburse the Bank for all attorneys'
fees and costs incurred by the Bank in protecting or enforcing its rights or
collateral, including reasonable attorneys' fees incurred by the Bank in a
bankruptcy or receivership proceeding or in enforcing any judgment against the
Borrower.
XIV. ACCEPTANCE
This loan agreement is the full agreement under the terms and
conditions of the Loans. It shall not be modified except in writing, and
shall not become effective unless the Borrower shall, within 60 days from
date, signify its acceptance of these terms and conditions by signing and
returning a copy of this loan agreement to the Bank.
BY DIRECTION of the loan committee this 25th day of April, 1996.
ST. PAUL BANK FOR COOPERATIVES
By /s/ Marvin L. Lindo
Its Senior Vice President
ACCEPTED AND AGREED TO:
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
By /s/ Tim Dodd
Its President
Date 4/26/96
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Exhibit 10.2
NONNEGOTIABLE NOTE OF
DAKOTA GROWERS PASTA COMPANY
CARRINGTON, NORTH DAKOTA
Note No. 22140
$5,000,000.00 April 25, 1996
For value received, the undersigned ("Maker") promises to pay to the St.
paul Bank for Cooperatives ("Bank"), at its office in the City of St. Paul,
Minnesota, the sum of Five Million and no/100 Dollars ($5,000,000.00) with
interest on the unpaid balance at a variable rate of interest which may
increase or decrease as the Bank may, from time to time, determine as provided
in the Loan Agreement of even date between the Maker and the Bank. The unpaid
balance of this note, with accrued interest, and required equity purchases,
may be paid at any time subject to a prepayment penalty, if any, in accordance
with the terms of the Loan Agreement between the Bank and Maker.
This note shall at all times evidence and constitute prima facie proof of
the indebtedness of the Maker to the bank or its successors or assigns, of
such amount of money (not in excess of the amount of the principal
indebtedness stated above plus accrued interest and required equity purchases)
as shown to be owing by the records of the Bank, or its successors or assigns.
In the event that suit is brought on this note, the Maker agrees to pay
such reasonable attorneys' fees and costs of collection as permitted by law to
be charged.
The maker hereby waives presentment for payment, demand, protest, notice
of protest, and notice of dishonor and nonpayment of this note.
If requested by the Bank, its successors or assigns, the Maker agrees to
deliver in substitution for this note, a negotiable note for the amount of the
unpaid balance of Maker's indebtedness, plus accrued interest and required
equity purchases.
DAKOTA GROWERS PASTA COMPANY
By /s/ Timothy J. Dodd
Its President
By /s/ Thomas P. Friezen
Its Vice President, Finance
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Exhibit 10.9
Binding Letter of Intent to Lease
July 24, 1996
Landlord: RLN Leasing, Inc.
2719 40th Avenue North
Fargo, North Dakota 58102
Tenant: Dakota Growers Pasta Company
One Pasta Avenue
Carrington, North Dakota 58421
Premises: 94,380 Square Feet, made up of:
One contiguous section 450' long by 200' wide (90,000 sq. ft.);
a connecting section of 120' long by 36.5' wide (4,380 sq. ft.).
This section is an addition to the warehouse located at:
4001 32nd Street North, Fargo, North Dakota.
Term: 60 months from date of occupancy.
Rate: xxxx per square foot, on an annual basis.
xxxx annually, with monthly installments of xxxx due and
payable on the first day of each month. If the first month is a
partial month, the rent will be prorated accordingly.
RE Taxes: Landlord to pay said taxes.
Insurance: Landlord to insure the building.
Tenant to insure contents.
Use: Storage of Pasta, pasta related products, and other related food
items.
Utilities: Landlord to pay for the electrical charges for heating and
warehouse lighting, up to, but not in excess of the agreed upon
annual maximum. Tenant and Landlord agree to set a reasonable
annual maximum on electrical usage for the warehouse portion.
Landlord to pay for water and sewer for normal warehouse uses.
Tenant shall pay for electrical usage for any office and or
manufacturing processing. Tenant to pay for all garbage charges.
Tenant shall pay for telephone services and alarm services.
With regard to such items as care of premises, hazardous
materials, restrictions, repairs and maintenance, alterations, assignments,
and subleases, trade fixtures, additional insurance inspection by landlord,
fire and casualty, eminent domain, terms of default, mortgage subordination,
sale of landlord's interest, waiver of subrogation, remedies, and other
contract details, these items will be similar, if not exact to the Indenture
of Lease presently enforce between the aforementioned parties, on the 43,200
square feet of warehouse at the above listed address.
IN WITNESS WHEREOF, Landlord and Tenant have executed this binding letter of
intent as of July 24, 1996.
LANDLORD: TENANT:
RLN LEASING, INC. DAKOTA GROWERS PASTA COMPANY
By: /s/ Robert Nelson By: /s/ Tim Dodd
Its: President Its: President/General Manager
Date: 7/24/96 Date: 7/24/96
44
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEETS AND STATEMENTS OF INCOME FILED AS PART OF THE ANNUAL REPORT ON FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-END> JUL-31-1996
<CASH> 1,448
<SECURITIES> 0
<RECEIVABLES> 5,267
<ALLOWANCES> 70
<INVENTORY> 6,737
<CURRENT-ASSETS> 13,532
<PP&E> 40,319
<DEPRECIATION> 5,964
<TOTAL-ASSETS> 49,894
<CURRENT-LIABILITIES> 5,348
<BONDS> 18,860
550
270
<COMMON> 19,016
<OTHER-SE> 5,850
<TOTAL-LIABILITY-AND-EQUITY> 49,894
<SALES> 49,640
<TOTAL-REVENUES> 49,640
<CGS> 43,360
<TOTAL-COSTS> 43,360
<OTHER-EXPENSES> 1,636
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,123
<INCOME-PRETAX> 2,622
<INCOME-TAX> 4
<INCOME-CONTINUING> 2,618
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,618
<EPS-PRIMARY> .69
<EPS-DILUTED> .69
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