UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________ to _________
COMMISSION FILE NO. 333-71213
MINNESOTA CORN PROCESSORS, LLC
(Exact name of registrant as specified in its charter)
COLORADO 41-1928467
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
901 NORTH HIGHWAY 59, MARSHALL, MN 56258-2744
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (507) 537-2676
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes __X__ No _____
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not 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. [X]
No voting or nonvoting equity securities of the registrant are currently
outstanding. It is expected that, on July 1, 2000, the registrant will issue
Class A voting units and Class B nonvoting units in connection with the
conversion of Minnesota Corn Processors, Inc., a Minnesota cooperative, into the
registrant, a Colorado limited liability company. There is no established public
market for the Minnesota cooperative's voting and nonvoting equity securities.
However, there is a limited private market for the voting units of equity
participation of the Minnesota cooperative. As of June 22, 2000, the aggregate
market value of voting units of equity participation of the Minnesota
cooperative held by nonaffiliates was approximately $153,062,092.29, (based on
the average sale price of $1.17684 per unit on such date). The number of voting
units of equity participation of the Minnesota cooperative outstanding as of
June 22, 2000 was 195,555,037. The number of nonvoting units of equity
participation of the Minnesota cooperative outstanding as of June 22, 2000 was
58,622,430, all of which were held by Archer Daniels Midland Company.
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Minnesota Corn Processors, Inc. ("MCP"), a Minnesota Cooperative, is in
the process of converting from a cooperative form of corporate entity into a
Colorado limited liability company. The Minnesota cooperative is expected to
convert to a limited liability company on July 1, 2000 with the new entity being
named Minnesota Corn Processors, LLC (also referred to as "MCP"). This Form 10-K
includes business information about MCP as a cooperative as well as information
relating to the limited liability company. All financial information relates to
MCP as a cooperative.
OVERVIEW
MCP has operated as an agricultural processing and marketing
cooperative that operates corn wet milling facilities in Minnesota and Nebraska.
Formed in 1980, MCP began wet milling operations in Marshall, Minnesota in 1983.
During the mid-1990s, MCP experienced significant growth, spending approximately
$337 million for expansion of existing processing facilities and acquisition of
storage and distribution facilities.
Based on total production capacity, MCP is one of the largest corn wet
millers in the United States. In addition, MCP is the second largest producer of
ethanol in the United States, and a leading producer of high quality corn
sweetener products for the soft drink and food industries. Our primary products
include corn sweeteners, corn starch, ethanol and feed co-products. MCP supplies
a broad range of customers in a variety of industries.
MCP has over 5,300 members. MCP generally distributes its net income
each year to members as patronage or value-added payments. Each member's payment
is based on MCP's earnings attributed to the corn delivered by the member.
Currently, MCP is required to withhold a portion of its annual earnings to meet
loan covenant obligations.
THE CORN SWEETENER AND ETHANOL MARKETS
HIGH FRUCTOSE CORN SYRUP AND CONVENTIONAL CORN SYRUP
Since the invention of starch-based sweeteners in the early 1800's,
researchers have tried to develop a starch-based sweetener that is as sweet as
cane or beet sugar. After years of research, the desired result was achieved
through the process of rearranging glucose molecules into the chemical isomer
fructose, known as "glucose isomerization." As a result of the development of
glucose isomerization, the corn refining industry now produces a sweetener --
high fructose corn syrup -- that has a sweetness level equivalent to that of
sucrose. Since the development of high fructose corn syrup, the corn sweetener
industry has grown rapidly. According to the USDA, per capita consumption of
corn sweeteners grew at a compounded annual growth rate of 2.54% between 1985
and 1996 as compared to a growth rate of 0.51% for sugar.
In recent years, there has been good market growth for both high
fructose corn syrup and the more traditional corn sweeteners conventional corn
syrup and dextrose. While much of this growth is attributable to the soft drink
industry's switch from sucrose to high fructose corn syrup, the baking industry
has also contributed to the industry's growth in its switch from primarily dry
sucrose to 42 High Fructose Corn Syrup. While corn sweeteners are priced
competitively with sugar, they have earned their place in the baking industry
through other advantages and are likely to retain their place in the foreseeable
future with continued growth of 3% to 4% per year. Corn sweeteners are more
consistent in quality than sucrose and are expected to continue to replace
sucrose due to the savings in labor cost generated by the ease of use and
adaptability of corn sweeteners in today's highly automated baking industry.
Based on continued strong domestic demand and the anticipation of
increased exports to Mexico, significant expansion of high fructose corn syrup
capacity was completed during the last few years. Archer Daniels Midland
Company, Cargill, A.E. Staley Manufacturing Company and others joined MCP in
expanding their production capacities. In total, 55 high fructose corn syrup
production capacity throughout the industry increased from 12.5 billion pounds
dry in 1995 to approximately 15.6 billion pounds dry in 1997, an increase of
approximately 25%. The 42 high fructose corn syrup segment also expanded by
approximately 25% over that time period from 7.9 billion pounds to 9.9 billion
pounds.
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As a result of the recent industry-wide expansions, the high fructose
corn syrup industry entered a period of supply and demand imbalance in 1996 and
1997, resulting in a decline in the industry capacity utilization rate to around
70%. Industry analysts have estimated that the industry is currently operating
at levels ranging from approximately 80% to 85% of capacity. The rebound in the
capacity utilization rate is due to (1) continued growth in domestic
consumption, and (2) shuttered capacity when Golden Technologies shut down its
Johnstown, Colorado operations which were reportedly producing approximately 228
million pounds (dry) of high fructose corn syrup and Cargill shut down its 55
High Fructose Corn Syrup facility in Dayton, Ohio. MCP is not aware of any
additional capacity expansions currently underway in the domestic high fructose
corn syrup industry, indicating that over the next few years, supply and demand
should rebalance as demand grows and industry production should reach almost
full capacity.
As industry capacity utilization rates dropped dramatically in 1996,
major high fructose corn syrup users were able to negotiate advantageous
contracts for the 1997 calendar year, gaining significant price reductions. In
1998, prices began to stabilize and many industry experts expect pricing to
increase in 2001 and 2002, to reflect a more balanced supply/demand situation.
The USDA has estimated that in 2000 the 55 High Fructose Corn Syrup
segment will grow at approximately 1% to 2% and the 42 High Fructose Corn Syrup
segment will grow approximately 4% in the United States. Soft drink firms will
drive much of this growth as they continue to position themselves as "total
beverage companies," as evidenced by the introduction of over 200 new soft
drinks, juices, teas and punches over the last two years alone. In addition, the
Mexican market offers the opportunity for dramatic volume growth during the next
1 to 2 years.
According to the USDA, U.S. exports of high fructose corn syrup to
Mexico rose to 78,000 metric tons (dry basis) in 1996 from only 9,000 tons in
1991. Under NAFTA, the Mexican import tariff on U.S. high fructose corn syrup
fell to 9% in 1997, and is scheduled to decrease by 1.5% each year thereafter to
zero in 2003. Mexican demand for high fructose corn syrup is growing as bottlers
adopt new technology to handle liquid sweeteners. While none of the major soft
drink bottlers have announced a complete switch to using high fructose corn
syrup in their Mexican soft drinks, some of the smaller brands apparently have
switched. World demand for high fructose corn syrup sweetener is expected to
increase from 20 billion pounds in 1995 to 26.6 billion pounds by the year 2000.
ETHANOL
Ethanol has important applications and is used primarily as a high
quality octane enhancer and an oxygenate capable of reducing air pollution and
improving automobile performance. As a fuel additive, the demand for ethanol is
derived from the overall demand for gasoline, as well as the competition of
ethanol versus competing oxygenate products and technologies. Motor vehicles in
the United States consume more than 130 billion gallons of gas every year.
MCP currently benefits from the economic incentives to produce ethanol.
In Minnesota, there is a state producer payment of 20 cents per gallon for the
first 15 million gallons per plant for a total of $3 million annually to ethanol
producers for ten years. MCP's producer payment is due to expire June 30, 2000.
Ethanol blenders can claim a 5.4 cents per gallon exemption from the federal
gasoline excise tax. This federal ethanol tax subsidy, which was set to expire
in 2000, has been extended through December 31, 2007. The exemption will
gradually drop to 5.1 cents in 2005.
A large jump in corn prices in 1996 caused ethanol production variable
costs to exceed selling prices, resulting in a sharp reduction in production as
corn processors sought to curtail losses. MCP shut down its Marshall ethanol
production plant from July 14, 1996 until September 12, 1996.
If the federal ethanol tax incentive or state incentive payments are
eliminated or sharply curtailed, management believes that decreased demand for
ethanol will result. MCP's management is pursuing a strategy to reduce MCP's
reliance on ethanol through growth in other product lines. Evidence of these
efforts can be seen in the portion of MCP's total sales represented by ethanol.
In fiscal year 1993, ethanol sales represented 41% of MCP's total sales, while
in fiscal year 2000, ethanol sales generated only 21% of MCP's total sales.
CORN PROCUREMENT
Each unit of equity participation held by a member obligates the member
to deliver annually one bushel of corn to MCP as part of MCP's Corn Delivery
Program. The Corn Delivery Program has been modified by MCP so that corn
delivery is now on a voluntary rather than mandatory basis. Members of the new
Colorado limited liability company will not be obligated to produce or deliver
corn.
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Following the conversion, the Colorado limited liability company will
continue to require the same quantities of corn for processing as are currently
required. In order to fulfill those requirements, the Colorado limited liability
company will be required to acquire substantial quantities of corn in the
marketplace. To reduce the price risk of fluctuations in the corn market, MCP
has established a policy of hedging corn to cover fixed price and volume sales
contracts for its finished products. MCP may also hedge a portion of its
anticipated production requirements. The instruments used are principally
readily marketable exchange traded futures contracts. The changes in market
value of the contracts have a high correlation to the price changes of the base
commodity. In order to match revenue and expense, any gains or losses arising
from open and closed hedging transactions are included, through inventory, in
cost of goods sold at the time the product is sold. See Item 7A of this Form
10-K.
WET MILLING OPERATIONS
Corn wet milling increases the nutritional and economic value of the
corn by separating it into homogeneous fractions. Although the wet milling
process was originally designed to produce relatively pure starch for industrial
food uses, the process now results in the optimum use and maximum value for each
fraction of the corn kernel.
A typical bushel of corn weighs 56 pounds and contains approximately
72,800 kernels. Most of the weight is the starch, oil, protein and fiber, with
some natural moisture. Each bushel of corn can yield:
* 31.5 pounds of starch or
* 34.0 pounds of sweetener or
* 2.5 gallons of fuel ethanol and
* 12.1 pounds of gluten feed and
* 2.7 pounds of gluten meal and
* 1.8 pounds of corn oil
A kernel of corn sliced lengthwise from top to bottom will disclose the
following primary components:
HULL. The hull is the fine skin on the outside of the kernel that
protects it from deterioration. It is water resistant and is undesirable to
insects and micro-organisms. Hulls go mostly into corn gluten feed for
livestock, poultry feeds and pet foods.
STARCH. Starch is found at the top, middle and on the sides of the
kernel. This is the most abundant constituent and is used in making starches and
sweeteners.
GLUTEN. Gluten is the dark portion inside the kernel, although some
gluten is mixed with the starch granules. Gluten contains the majority of the
protein found in a kernel of corn. Separated and purified, gluten becomes corn
gluten meal which is used in animal feeds.
GERM. Germ is the seed-like pod at the bottom of the kernel in the
center and is the source of corn oil. The germ is important for food, drug and
industrial uses. About 50% of the germ is corn oil. After removal of the oil,
germ becomes a component of corn gluten meal or corn gluten feed and small
amounts of oil are included in the various feed products.
WATER. Approximately 15% of the kernel is water. It becomes part of the
steepwater in which the refining is initiated. Steepwater is rich in vitamins,
especially the B complex vitamins, and is used in animal feed. Corn steepwater
is also used in the manufacture of antibiotics.
Corn is run through a process which generates the germ, gluten feed,
gluten meal, and finally starch. The starch is then converted into ethanol or
dry starch, or further processed into sweeteners or other starch-based products.
RECEIVING. MCP receives its corn by truck. Before accepting a
truck-load, the corn is tested for quality. MCP has the right to refuse any
shipment of corn if it does not meet its quality standards. Receiving staff
inspect arriving corn shipments and clean them twice to remove dust, chaff, and
foreign materials before steeping. Each facility has on-site storage capacity
for approximately 1 million bushels of corn.
STEEPING. Each steep, a stainless steel vat, holds corn for 30 to 40
hours soaking in 125 degree Fahrenheit water, increasing the corn's moisture
levels from 15% to 45% and causing the corn to more than double in size. The
addition of
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0.2% sulfur dioxide to the water prevents excessive bacterial growth in the warm
environment. As the corn swells and softens, the mild acidity of the steepwater
begins to loosen the gluten bonds within the corn and release the starch. After
steeping, the corn is coarsely ground to break the germ loose from other
components. Steepwater is condensed to capture nutrients in the water for use in
animal feeds. The ground corn, in a water slurry, flows to the germ separators.
GERM SEPARATION. Cyclone separators spin the low density corn germ out
of the slurry. The germs, containing about 85% of corn's oil, are pumped onto
screens and washed repeatedly to remove any starch left in the mixture. MCP
sells its germ on a contract basis to other oil processors, who then extracts
the oil from the germ. The oil is then refined and filtered into finished corn
oil. The germ residue is saved as another useful component of animal feeds.
GRINDING AND SCREENING. The corn and water slurry leaves the germ
separator for a second, more thorough grinding in an impact or attrition-impact
mill to release the starch and gluten from the fiber in the kernel. The
suspension of starch, gluten and fiber flows over fixed concave screens which
catch fiber but allow starch and gluten to pass through. The fiber is collected,
slurried, and screened again to reclaim any residual starch or protein, then
piped to the feed house as a major ingredient of animal feeds. The starch-gluten
suspension, called mill starch, is piped to the starch separators.
STARCH SEPARATION. Gluten has a lower density than mill starch. By
passing mill starch through a centrifuge, the gluten is readily spun out for use
in animal feeds. The starch, with just four to five percent protein remaining,
is diluted, washed 8 to 14 times in hydro clones to remove the last trace of
protein and produce high quality starch, typically more than 99.5% pure. Some of
the starch is dried and marketed as unmodified corn starch and some is slightly
modified, but most is converted into corn sweeteners and ethanol.
STARCH CONVERSION. Starch, suspended in water, is liquefied in the
presence of acid and/or enzymes which convert the starch to a low-dextrose
solution. Treatment with another enzyme continues the conversion process.
Throughout the process, refiners can halt acid or enzyme actions at key points
to produce the right profile of sugars like dextrose and maltose to meet
different needs. In some sweeteners the conversion of starch to sugars is halted
at an early stage to produce low-to medium sweetness. In others, the conversion
is allowed to proceed until the sugar is nearly all dextrose. The sweetener
product is refined in filters, centrifuges and ion-exchange columns, and excess
water is evaporated. Corn sweeteners are sold directly in the form of heavy corn
syrup or high fructose corn syrup.
FERMENTATION. In yet another application to corn refining, enzymes
modify cornstarch to produce feedstock suitable for traditional fermentation
methods. The result of the fermentation is ethanol, which corn refiners distill
to remove excess water and sell for a variety of uses. Carbon dioxide, a
by-product of fermentation, also may be sold to beverage manufacturers as the
"fizz" in soft drinks.
PRODUCTS
MCP's primary products groups include corn sweeteners, ethanol, corn
starches and feed products. Information about each of the product groups is
provided below. For the fiscal year ended March 31, 2000, the approximate
percentages of MCP's total sales associated with each of these product groups
were: corn sweeteners - 52%; ethanol - 21%; corn starches - 5% and feed products
- 22%.
CORN SWEETENERS
HFCS. MCP produces two types of high fructose sweeteners: 42 and 55
High Fructose Corn Syrup. Both syrups share advantages -- stability, high
osmotic pressure, and crystallization control -- but each offers special
qualities to food and beverage manufacturers and consumers. 42 High Fructose
Corn Syrup is popular in canned fruits, condiments and other processed foods
which need mild sweetness that won't mask natural flavors. 55 High Fructose Corn
Syrup has earned a commanding role in soft drinks, ice cream and frozen
desserts.
SYRUPS. Corn syrup is used in a variety of ways in food products. The
most common use for corn syrup is as a sweetener for food products. However,
corn syrups are adaptable to many uses and therefore have other less known
advantages. Corn syrups can depress the freezing point of frozen products to
prevent crystal formation in ice cream and other frozen desserts. Because of its
effect on viscosity, corn syrup is added to salad dressings and condiments to
ensure the product pours at manageable rates. In lunch meat and hot-dogs, corn
syrups provide the suspension to keep other ingredients evenly mixed, and, like
other corn products, the basic syrups can improve textures and enhance colors
without masking natural flavors, as in canned fruits and vegetables. MCP
manufactures a number of corn syrups which offer a broad range of
functionalities.
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ETHANOL
Ethanol has several major applications including an octane enhancer in
fuels; an oxygenated fuel additive for the purpose of reducing ozone and carbon
monoxide vehicle emissions; and a non-petroleum-based gasoline substitute.
Approximately 95% of all ethanol is used in its primary form for blending with
unleaded gasoline and other fuel products. The implementation of the Federal
Clean Air act has made ethanol fuels the most important domestic renewable fuel,
allowing the country to meet its environmental goals and reduce imports of
petroleum based fuels. Ethanol used as a fuel oxygenate provides one of the
easier, less expensive means to control carbon monoxide in problem areas.
STARCHES
Starch is one of nature's major renewable resources, and a mainstay of
our food and industrial economy. Starches have a wide variety of uses. On
average, each ton of paper produced in the United States uses 28 pounds of corn
starch. Corn starches, and their cousins dextrins (a roasted starch), are used
in hundreds of adhesive applications. Special types of starches are used in oil
exploration as part of the "drilling mud" which cools down super heated oil
drilling bits. Starches are used as flocculating agents, anti-caking agents,
mold-release agents, dusting powder and thickening agents. Literally thousands
of supermarket staples are produced using both regular and specially modified
starches. Many of today's instant and ready-to-eat foods are produced using
starches which enable them to maintain the proper textural characteristics
during freezing, thawing and heating. Starches are converted to sugar by
breweries and used as the feedstock in beer production. Other starches are
important ingredients for instant pie and pudding fillings which require little
or no cooking compared to traditional formulations. The most promising new
market for corn starches is as a raw material for the production of industrial
chemicals and plastics which are today made from petroleum feedstocks. MCP
manufactures and sells unmodified and slightly-modified corn starches, with the
majority of sales going into the corrugated, paper, brewing and food industries.
FEEDS PRODUCTS AND GERM
MCP produces three major feed products: gluten meal, gluten feed and
condensed fermented corn extractives (steepwater). Corn gluten meal supplies
vitamins, minerals, and energy in poultry feeds, while pet food processors value
it for its high digestibility and low residue. Steepwater is a liquid protein
supplement for cattle and is also used as a binder in feed pellets. MCP also
produces germ which is sold to edible oils manufacturers for further processing
into corn oil and gluten feed.
PRODUCT QUALITY
MCP believes that its ability to produce high quality products is a key
competitive advantage over other industry participants. The American Institute
of Baking ("AIB") annually inspects each production facility in the industry and
numerically rates the plants so that industry users of corn products can measure
and compare the quality of facilities. In 1999, each of MCP's plants earned a
"Superior" rating for its overall food safety levels, placing each among the top
5% within the food processing industry. In addition, customers have acknowledged
MCP's superior quality through presentation of several quality awards.
SALES AND DISTRIBUTION
MCP's products are sold directly by a staff of sales personnel located
regionally across the United States. MCP also employs third-party resellers,
primarily in the eastern and midwestern portions of the United States. MCP owns
and operates an extensive distribution network which is located primarily west
of the Mississippi River, providing MCP with cost and service advantages in this
strategic geographic region. MCP's combined sales and distribution network
allows it to effectively distribute its products to most areas of the United
States by either rail or truck.
MCP supplies a broad range of customers throughout the United States.
No customer accounted for 10% or more of MCP's total net sales for the fiscal
year ended March 31, 2000.
The majority of MCP's corn sweetener and starch sales are made on an
annual basis under contracts fixed as to price and volume. MCP sells its germ
and steepwater on a contract basis. Gluten meal is sold on both a contract basis
and on the spot market. Feed product prices typically reflect the general price
of other comparable feedstuffs, such as soybean meal, soybean oil, other edible
oils and similar products. Feed demand is primarily driven by the domestic
population of animals being raised for slaughter and by export demand.
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The realized sales price of ethanol is driven by gasoline demand,
overall oxygenate program requirements, and the price of oxygenate alternatives
such as Methyl Tertiary Butyl Ether ("MTBE"), a petroleum-based fuel oxygenate
substitutable for ethanol. The majority of MCP's ethanol sales are made on a
spot basis, with most other sales comprising business contracted for sale during
non-attainment periods, which is approximately September through February. MCP's
ability to produce ethanol provides an important mitigant against the
seasonality inherent in the high fructose corn syrup industry. Since soft drinks
are an important user of high fructose corn syrup, its production peaks in the
spring and early summer months in anticipation of the peak in soft drink demand.
On the other hand, ethanol demand peaks in the winter, when many cities
institute their oxygenated fuel programs mandated by the Federal Clean Air Act.
MCP has indoor rail car and truck loading capabilities at both plants
which minimize the negative effects of harsh weather and help to maintain strict
product quality standards. MCP leases in excess of 2,000 rail cars for terms of
up to 15 years. In March 1996, MCP acquired Liquid Sugars, Inc., a sweetener
blending, storage and distribution operation with headquarters in Oakland,
California, which serves various customers located in the western United States
and southwestern Canada. Liquid Sugars has 18 regional storage and transfer
stations which allow MCP to economically effect deliveries of products to many
regions of the country.
MCP's acquisition of Liquid Sugars involved the stock of several
California companies including Liquid Sugars. All of these companies were
involved in the sweetener distribution business, and all were owned by key
employees of Liquid Sugars and their family members. The acquisition also
involved the purchase by one of the related companies of real estate that was
owned by some of the key employees and leased to Liquid Sugars. The total
purchase price of the acquisition was $16,500,000 which MCP paid in three
installments. After the acquisition, on July 31, 1996, all of the acquired
companies were consolidated into Liquid Sugars.
COMPETITION
MCP faces intense competition from other corn processors, including
Archer Daniels Midland, Cargill, and A.E. Staley Manufacturing. Most of MCP's
products compete with virtually identical products and derivatives manufactured
by other companies. Many of these competitors are substantially larger and have
greater financial resources than MCP. Competition is generally based on price,
product quality and customer service.
Several of MCP's products also compete with products made from raw
materials other than corn. High fructose corn syrup competes with cane and beet
sugar products. Ethanol competes with MTBE and other oxygenate alternatives.
Corn gluten meal competes with soybean meal. Fluctuations in prices of these
substitute products may affect the prices of and profits derived from MCP's
products.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
As a producer of food items for human consumption and items for use in
the pharmaceutical industry, MCP is subject to various federal, state and local
laws relating to the operation of its processing facilities, product quality,
purity and labeling. The failure to comply with one or more regulatory
requirements can result in a variety of sanctions, including monetary fines.
The operations of MCP also are subject to various federal, state and
local laws and regulations with respect to environmental matters, including air
and water quality and underground fuel storage tanks. MCP believes it is
currently in substantial compliance with environmental laws and regulations.
Protection of the environment requires MCP to incur expenditures for equipment
or processes. MCP is involved at various times in environmental inquiries or
proceedings, none of which have been or are believed to be material to our
business. If MCP were found to have violated federal state or local
environmental regulations, MCP could incur liability for cleanup costs, damage
claims from third parties and civil or criminal penalties that could materially
adversely affect its business.
PRODUCTION FACILITIES
MCP owns two processing facilities. The facility in Marshall, Minnesota
has the capacity to grind approximately 56 million bushels of corn per year and
is a major supplier of corn syrup. The facility in Columbus, Nebraska has the
capacity to grind approximately 70 million bushels of corn per year and is a
major supplier of 55 High Fructose Corn Syrup. Each facility also produces
starch, 42 High Fructose Corn Syrup and ethanol.
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During the past few years, MCP has modernized and expanded its
facilities. During 1995 and 1996, MCP spent approximately $320 million to:
* increase the corn syrup production capacity of the Minnesota facility;
* build a refinery capable of producing 42 High Fructose Corn Syrup at the
Minnesota facility;
* increase the 42 High Fructose Corn Syrup production capacity of the Nebraska
facility; and
* build a refinery capable of producing 55 High Fructose Corn Syrup at the
Nebraska facility.
MCP believes that the capital expansion program completed in 1996 will
allow MCP to operate highly efficient facilities for the foreseeable future
without incurring significant additional capital expenditures.
EMPLOYEES
At March 31, 2000, the total number of employees for MCP was 646 and
Liquid Sugars, Inc. was 210, for a total of 856 employees. Approximately 18% of
Liquid Sugars, Inc.'s employees are covered by five collective bargaining
agreements, one expiring in February 2001, one expiring in April 2001, one
expiring in March 2002 and one expiring in August 2003. The 5th contract is
currently under negotiation.
ITEM 2. PROPERTIES
MCP
MCP's principal headquarters are located in Marshall, Minnesota
situated on approximately 40 acres of land owned by MCP. In addition, MCP owns
and operates two corn wet milling facilities located in Marshall, Minnesota and
Columbus, Nebraska. The Marshall, Minnesota facility has the capacity to grind
approximately 56 million bushels of corn per year and is a major supplier of
corn syrup. The Columbus, Nebraska facility has the capacity to grind
approximately 70 million bushels of corn per year and is a major supplier of 55
High Fructose Corn Syrup. Each facility produces corn starch, 42 High Fructose
Corn Syrup and ethanol.
LIQUID SUGARS, INC.
Liquid Sugars, Inc., headquartered in Oakland, California, is a
subsidiary of MCP. Liquid Sugars, Inc. has 18 regional storage and transfer
stations, of which 9 are owned and 9 are leased. These stations are located in
California, Oregon, Washington, Utah, Arizona, Texas, Missouri, Louisiana, New
Jersey, Colorado and Idaho and Calgary, Alberta, and Winnipeg, Manitoba in
Canada.
ITEM 3. LEGAL PROCEEDINGS
From time to time MCP is subject to litigation incidental to its
business. MCP is not currently a party to any material legal proceedings.
ENVIRONMENTAL MATTERS
MCP received a Notice of Violation ("NOV") from U.S. EPA Region VII
dated October 29, 1999, concerning operations at the Columbus, Nebraska
facility. The NOV alleged that MCP was in violation of five environmental laws.
The alleged violations relate to the maintenance of ethanol storage tanks, the
failure to obtain necessary permits for the construction and operation of a
starch dryer, violation of permit conditions regarding in-coming truck traffic,
and the failure to perform "increment consumption" analysis in connection with
its 1996 air permit application. MCP has responded to the alleged violations and
has specifically defined the allegations relating to the failure to obtain the
air permits required for the starch dryer and the failure to perform "increment
consumption" analysis. MCP has also offered substantial mitigating evidence with
respect to the other charges. MCP is now in negotiations with EPA to resolve the
alleged violations. MCP does not expect the resolution of these matters to have
a material adverse effect upon MCP's capital expenditures or net earnings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting was held on February 4, 2000 to consider and vote
upon a proposal to approve (1) a plan of merger by and between MCP, the
Minnesota cooperative, and MCP Colorado, a newly formed Colorado cooperative,
and (2) the amended and restated transaction agreement, dated as of May 17,
1999, by and among the Colorado cooperative and MCP, a newly formed Colorado
limited liability company. These two proposals were embodied as one vote. The
total number of votes cast was 2680.The number of votes for the proposal was
2,415. The number of votes against the proposal was 265. The proposal passed
with a favorable 90.1%.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
DESCRIPTION OF UNITS OF EQUITY PARTICIPATION UNDER THE COOPERATIVE
The equity held by members of the cooperative is in the form of Units
of Equity Participation (Units). Each Unit represents one bushel of corn a
member is obligated to deliver to MCP. When the corn is delivered to MCP, the
Uniform Marketing Agreement between the member and MCP obligates MCP to make an
initial payment to the member of at least eighty percent (80%) of the loan value
per bushel of corn. This procedure was changed when MCP formed the Grower's
Procurements Agency, formed in August of 1995, to procure corn for the
membership, eliminating their delivery obligations. Members of MCP, after
delivering corn to MCP, are also eligible to receive "value added" payments
resulting from net proceeds earned by MCP from the processing of raw corn into
products. As of March 31, 2000 there were 5,386 holders of Units.
The cooperative has also issued Common Stock which allows the member
voting rights. As of March 31, 2000 there were 5,386 holders of Common Stock.
There is no established public trading for the members' Units.
Ownership of Units are restricted to eligible agricultural producers. The Units
may not be transferred without the approval of MCP's Board of Directors. Members
are allowed to transfer Units by first generation transfers or by a right of
first refusal sale process. The right of refusal permits a seller to seek a bid
from another member. Any subsequent bid is then posted in the monthly MCP
newsletter and if the bid is not increased then the original bidder is the
successful purchaser of the Units. If the bid is increased, the highest bidder
becomes the purchaser.
Archer Daniels Midland Company (ADM) on August 27, 1997 purchased from
MCP 58,622,340 Units. This represents 30% of MCP's total issued Units. The Units
are non-voting Units and were purchased by ADM for an amount of $119,700,000.
These funds were utilized to pay down debt, from $410 million to $290 million,
and to refinance existing short-term debt with long-term debt. The amount paid
by ADM amounts to $2.04 per non-voting Unit. ADM is entitled to take into income
any distributions with respect to MCP's patronage which are made in the form of
written notices of allocation. ADM is treated for all other purposes as a
non-member patron of MCP. As of March 31, 2000 ADM held this same amount of
Units.
The range of high and low bid information for the Units for each full
quarterly period within the two most recent fiscal years is reflected in the
following chart. Since there is an absence of an established public trading
market the amounts in the following chart are supplied by MCP's Grower Relations
Department.
1999 2000
---- ----
High Low High Low
---- --- ---- ---
1st Qtr. $2.00 $1.00 $2.20 $1.75
2nd Qtr. $2.25 $1.50 $2.20 $0.50
3rd. Qtr. $2.36 $0.60 $2.25 $0.50
4th Qtr. $2.17 $0.50 $1.75 $0.50
DESCRIPTION OF MEMBERSHIP UNITS OF THE COLORADO LIMITED LIABILITY COMPANY
INTRODUCTION
On July 1, 2000, the Units will automatically become Member Units
in the new Colorado limited liability company. What follows is a discussion of
the Member Units. There is no established public trading market for the Member
Units.
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GENERAL
The Colorado limited liability company has two classes of membership:
Class A membership, which has voting rights, and Class B membership, which has
no voting rights. Class A memberships are represented by Class A units. A Class
A Unit is the holder's share of the profits and losses of the Colorado limited
liability company and the holder's right to receive distributions of cash or
assets. Class B memberships are represented by Class B units, which also
represent the right to share in the profits and losses and distributions of the
Colorado limited liability company. The Colorado limited liability company is
authorized to issue 350,000,000 Class A units and 150,000,000 Class B units.
The operating agreement authorizes the Colorado limited liability
company to issue additional units to:
* fund expansion or maintain and repair its corn wet milling facilities and
related facilities,
* fund construction or acquisition of facilities or any related or
complementary business,
* fund losses which cannot be reasonably expected to be funded with future
earnings, or
* fund equity contributions to joint ventures related or complementary to the
Colorado limited liability company's existing business. If the Colorado
limited liability company issues additional units in the future, members
will have the right to subscribe for additional units in order to permit
members to maintain their percentage of units owned at a constant level.
QUALIFICATIONS FOR MEMBERSHIP
CLASS A MEMBERSHIP
A Class A membership is available to any individuals and Family Farm
Corporations, who are (1) currently or formerly engaged in the priduction of one
or more agricultural products, including tenants of land used for the production
of any such product, and lessors of such land who receive as rent part of the
produce of such land, and associations of such producers, (2) owners of voting
stock of a Family Farm Corporation, (3) members of the immediate family (i.e., a
spouse, parent, brother or sister, child or grandchild) of any Member, and (4)
current or former employees or agents of MCP. For this purpose, a "Family Farm
Corporation" means any corporation, limited partnership, limited liability
company, trust or similar entity founded for the purpose of ownership and
operation of agricultural land, if a majority of the voting power and equity
interests are held by related individuals or their spouses, and at least one of
the related individuals is residing on or actively involved in the corporation
or other entity's operations, and none of the holders of voting power or equity
interests are held by corporations. This membership is available to those who
acquire a minimum of 1,000 Class A units. The initial Class A members of the
Colorado limited liability company will be members of MCP who receive Class A
units upon completion of the conversion. Class A membership is also limited to
agricultural producers. These are persons or entities who have been, or who are
presently engaged in the production of agricultural products, members of those
persons' immediate family or current or former employees of the Colorado limited
liability company. Competitors of the Colorado limited liability company are not
eligible to purchase or own Class A units. The Colorado limited liability
intends to enforce its policy against competitors owning Class A units. At the
time of the conversion, competitors would include, Cargill, Corn Products and
A.E. Staley Manufacturing Company, Cerestar USA, National Starch and Chemical
Company, Penford Products Company, Roquette America, Inc., any officers or
directors of those companies, and any other entity identified by MCP as a
competitor.
Transfers of the Class A units are subject to the prior consent of the
board of directors as well as other procedural requirements including receipt of
evidence that the transferee is not a competitor of the Colorado limited
liability company. These procedural requirements will allow the Colorado limited
liability company to monitor and enforce its policy that competitors are not
eligible to purchase Class A units.
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CLASS B MEMBERSHIP
Upon completion of the conversion, the initial Class B member will be
Archer Daniels Midland Company, which will receive 58,622,340 Class B units,
constituting 100% of the outstanding Class B units. As the owner of the Class B
units, Archer Daniel Midland Company will be entitled to approximately 30% of
the Colorado limited liability company's profits and losses and 30% of any cash
distributions made to members.
CLASS A UNITS
VOTING RIGHTS
Although Class A members are required to own a minimum of 1,000 Class A
units, only members holding 5,000 or more Class A units are entitled to vote.
Holders of 5,000 or more Class A units are entitled to one vote on all matters
to be voted upon by the members. The Colorado limited liability company has the
right to purchase the Class A units of any member owning less than 1,000 Class A
units at the established value (as defined below), following written notice of
the deficiency to the member and expiration of a one-year cure period within
which the member can buy additional Class A units. Any member owning at least
1,000 Class A units, but less than 5,000 units, is not entitled to vote. Class A
units held by any member not entitled to vote will be excluded in determining
the total number of Class A units required for action to be taken by the
members.
MAXIMUM OWNERSHIP LIMITATION
No member can own more than 2% of the total issued and outstanding
Class A units. For purposes of calculating the 2% limitation, the number of
Class A units owned by a member includes any Class A units owned by that
member's spouse, children, parents, brothers and sisters, and any Class A units
owned by any corporation, partnership or other entity in which the member or the
member's family members owns or controls a majority of the voting power. Any
Class A member owning more than 2% of the outstanding Class A units is not
entitled to vote until the member disposes of the excess Class A units. In
addition, the Colorado limited liability company has the right to purchase the
number of Class A units in excess of the 2% limitation at the established value,
following written notice of the excess ownership to the member and expiration of
a one-year cure period within which the member can dispose of the excess Class A
units.
Under the operating agreement, the established value means the per unit
purchase price set by the board of directors based on 75% of the fair market
value of the Class A units, as determined by the board using reasonable
valuation methods, or the book value of the Class A units, whichever is less. At
the option of the Colorado limited liability company, the purchase price may be
made in one lump sum or in equal installments over a five-year period, with
interest.
CLASS B UNITS
Class B units are nonvoting membership interests. However, the Colorado
limited liability company may not, without the prior consent of Archer Daniels
Midland Company so long as it holds one-third of the outstanding Class B units:
(1) materially change its principal business,
(2) sell, lease or otherwise transfer substantially all of its
assets, or
(3) incur capital expenditures in excess of $250,000, except
capital expenditures which are required by law, including but
not limited to capital expenditures necessary to achieve or
maintain compliance with the applicable environmental laws.
The Colorado limited liability company has the right to purchase the
Class B units of any member owning less than 1,000 Class B units at the
established value, following written notice and expiration of the one-year cure
period. There is no maximum limit on the ownership of Class B units. Holders of
Class B units are also entitled to receive distributions of cash as may be
declared by the board of directors, on the same basis as holders of Class A
Units.
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DISTRIBUTIONS
Unit holders are entitled to receive distributions of cash as may be
declared by the board of directors. Distributions of cash will be made to unit
holders in proportion to the number of units owned by each member. The holders
of Class A units and Class B units are entitled to equivalent per unit
distributions. The board of directors has the discretion to make distributions
to holders of special financial interests in the aggregate amount of the stated
amount of such interests.
CAPITAL ACCOUNTS AND CONTRIBUTIONS
The original price of Class A units and Class B units constituted a
capital contributions to the Colorado limited liability company for purposes of
becoming a member of the Colorado limited liability company. The operating
agreement does not require any member to make additional capital contributions
to MCP, except that the board of directors may require any member who owes a tax
withholding obligation to MCP to reimburse MCP for that liability. Except as
otherwise provided in the operating agreement, interest will not accrue on
capital contributions, and members will have no right to withdraw or be repaid
any capital contribution.
ALLOCATION OF PROFITS AND LOSSES; SPECIAL ALLOCATION RULES
ALLOCATION OF PROFITS AND LOSSES
Except as otherwise provided in special allocations, profits and losses
realized by the Colorado limited liability company will be allocated to the
members in proportion to the number of units held by each member. Profits and
losses will be determined by the board of directors on either a daily, monthly,
or other basis permitted under the tax code and corresponding Treasury
regulations.
SPECIAL ALLOCATION RULES
The general rule for profit and loss allocations is subject to a number
of exceptions referred to as special allocations. The most relevant of the
special allocations is the special allocation of profits that will be made if
distributions are made to the holders of special financial interests. The other
special allocations are required by Treasury regulations and are aimed at highly
leveraged partnerships that allocate taxable losses in excess of the partner's
actual capital contributions. These circumstances are highly unlikely to occur
in the Colorado limited liability company.
TRANSFER AND RESTRICTIONS OF TRANSFER OF UNITS
Transferability of units is restricted to ensure that the Colorado
limited liability company is not deemed a "publicly traded partnership" and thus
taxed as a corporation. Under the operating agreement, no transfers may occur
without the approval of the board of directors. The board of directors will
permit transfers that fall within "safe harbors" contained in the publicly
traded partnership rules under the tax code. These include transfers by gift,
transfers upon the death of a member, intra family transfers and other transfers
during the tax year that in the aggregate do not exceed 2% of the total
outstanding Class A and Class B units.
In addition, the board may give non-transferring members a right of
first refusal with respect to transfers of units. In the future, the Colorado
limited liability company may consider establishing a qualified matching service
to facilitate trading in the Class A units. If anyone transfers units in
violation of the publicly traded partnership requirements of the tax code or
without the prior consent of the board, the Colorado limited liability company
will consider the purported transfer to be null and void, and will not recognize
any voting and distribution rights for those units.
The board of directors may, in its discretion, establish other
conditions and procedures for transfers of units as long as they are reasonably
related to tax or securities limitations. These may include: delivery of a legal
opinion to MCP; delivery of transfer instruments to MCP; delivery of financial
information sufficient to enable MCP to file all necessary tax returns; and
repayment of any indebtedness owed by the transferring member to the Colorado
limited liability company.
All transfers of Class B units also must be approved by the board of
directors. The pledge of, or granting of a security interest in, lien or other
encumbrance in or against a member's units does not constitute a transfer of the
units. A transfer of units as a result of foreclosure or transfer in lieu of
foreclosure does constitute a transfer of units, and is subject to the
restrictions on transfers of units. The transfer of all of a member's units to a
transferee terminates the transferring member's membership in MCP.
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As of July 1, 2000, Class A Units may be transferred by first
generation transfers and by a procedure whereby bids are posted on a web page on
MCP's website and posted in a newsletter. Purchasers need to contact MCP to
obtain the name and address of the seller or interested buyer (which may also be
posted). Sellers and buyers will be obligated to sign authorization forms.
Monies will be handled by an escrow agent who will also be responsible for
distributing sale proceeds.
DISTRIBUTION OF ASSETS UPON LIQUIDATION
MCP's operating agreement establishes the following order and priority
for distribution of MCP's assets upon dissolution, each category to be satisfied
in full before any distribution is made to the next: first, all debts and
liabilities of MCP must be paid; second, reserves for contingent liabilities
must be set aside; third, the value of Class A and Class B units, as determined
by the board of directors must be paid pro rata to the unit holders; fourth, the
stated amount of special financial interests, reduced by previous distributions
with respect to these interests, must be paid; and fifth, all remaining property
and assets of MCP are then to be distributed among the unit holders pro rata in
amount equal to the unit holders' respective capital accounts.
AMENDMENTS TO OPERATING AGREEMENT
The operating agreement may be amended by the vote of 66.67% of the
members voting, either in person or, if authorized by the board, by proxy or
mail ballot, at any regular or annual meeting of the members at which a quorum
is present. In the case of any amendment which modifies the rights and benefits
afforded to holders of Class B units, the consent of 66.67% of the holders of
Class B units is required.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth selected financial data of MCP. MCP has
derived this information from its consolidated financial statements. The audited
financial statements have been audited by Clifton Gunderson L.L.C., independent
auditors.
<TABLE>
<CAPTION>
Period Ended
Year Ended March 31,
September 30, (six months) Year Ended March 31,
------------- ------------ --------------------
1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
(In Millions)
STATEMENT OF OPERATIONS DATA:
Net Revenues .............................. $ 327 $ 420 $ 237 $ 563 $ 599 $ 584
Cost of product sold ...................... 256 441 207 525 526 492
Gross proceeds (loss) ..................... 71 (21) 30 38 73 92
Selling, general and
administrative expenses ................. 14 26 20 46 50 60
Operating income (loss) ................... 57 (47) 10 (8) 23 32
Interest expenses ......................... 11 19 20 32 23 22
Other income (expense) .................... 1 3 -- (5) 6 1
Net income (loss) ......................... 47 (63) (10) (45) 6 11
Outstanding units of equity
participation at year end ............... 76.3 76.2 136.7 195.7 195.6 195.6
BALANCE SHEET DATA:
Working capital (deficit) ................. (31) (363) (352) 43 65 71
Total assets .............................. 491 662 672 650 619 608
Long-term debt ............................ 164 6 1 295 291 271
Members' equity ........................... 201 201 212 287 289 291
OTHER DATA:
EBITDA .................................... 78 (16) 28 30 73 79
Cash flow from (for)
operations .............................. 76 (94) (4) (3) 35 46
Investing ................................. (159) (206) (15) (13) (16) (19)
Financing ................................. 91 281 25 9 (12) (25)
Capital expenditures ...................... 172 208 12 13 16 19
</TABLE>
Fiscal year 1997 was a six-month period because MCP changed its fiscal
year end from September 30 to March 31.
You should read the financial data presented above along with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," contained in Item 7 of this Form 10-K as well as the consolidated
financial statements and related notes that MCP includes in Item 8 of this Form
10-K. In reviewing the financial information, you should consider:
* EBITDA represents earnings (loss) before interest, income taxes,
depreciation and amortization. It is presented to enhance an
understanding of our operating results and ability to service debt
and is not intended to represent cash flow or net earnings under
U.S. GAAP. Our use of EBITDA may not be comparable to similarly
titled measures used by other companies.
(1) Earnings before interest taxes and depreciation is pre-tax profit before
depreciation and amortization. EBITDA supplements, and is not intended to
represent a measure of performance in accordance with disclosures required by
generally accepted accounting principles. It is included as a tool for analyzing
our results.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND OUTLOOK
Following several years of attractive growth, MCP sustained major
losses in fiscal years ending in 1996, 1997 and 1998. The primary reason for the
losses was a significant expansion of corn wet milling capacity in North America
ahead of industry demand. The 55 high fructose demand, however, had been growing
at approximately 5% per year in the period of 1991 to 1998. The supply/demand
imbalance caused sweetener prices to fall sharply and made the corn processing
industry unprofitable in 1996 and 1997. Since corn wet milling capacity
utilization dropped to 76% in 1996, some withdrawal of capacity and the
continuing demand growth has returned the industry capacity utilization to as
much as a 86-87% rate. This recovery has been in line with the industry's
history in dealing with these imbalances that occur approximately every 8-10
years. The recovery is generally fairly quick.
The other major factor contributing to the losses sustained during 1996
- 1997 was a sharply higher corn cost. Corn reached a historical high, with the
average cost of fiscal 1996 corn increasing by 76%. In late 1997, corn returned
to more normal levels and has actually fallen in late 1998 below normal lows.
This has helped us to return to profitability at the present time.
In fiscal years 1999 and 2000, MCP has addressed those items within its
control in order to be properly positioned when industry prices rebounded to
normal levels. MCP increased volume to virtually full capacity, while reducing
operating costs per bushel to target levels, and increasing efficiency. As a
result in fiscal years 1999 and 2000, MCP returned to profitability.
Concentration on customer service and quality of products will continue to
establish an outstanding customer base. Capital expenditures were directed to
cost reduction projects at the processing facilities.
Please note that net sales figures shown below include storage and
handling income generated by Liquid Sugars, Inc. This income is earned by
storing and repackaging third party product. Liquid Sugars, Inc. does not take
ownership of this product at any time during this process. It acts as a through
put facility for a third party. In any one year the storage and handling income
generated by Liquid Sugars is less than 1% of MCP's and Liquid Sugars' total
revenues on a consolidated basis, and therefore, is not disclosed separately.
The financial statements are presented on a consolidated basis to
include the accounts and transactions of MCP, Liquid Sugars, Inc. ("LSI"), a
wholly owned subsidiary, and Growers' Procurement Agency, an agency of the
members of MCP. All significant inter-company accounts and transactions have
been eliminated.
RESULTS OF OPERATIONS
FISCAL YEAR ENDED MARCH 31, 2000 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1999
NET SALES. MCP's net revenues for fiscal year 2000 were $583.9 million.
This compares to $598.8 million of net revenues in fiscal year 1999, or a
decrease of $14.9 million. Increased revenues of $12.9 million in sweetener
sales, due primarily to price increases, were offset by reduced revenues from
ethanol and feed co-products of $23.3 million. Reduced sweetener volumes and
margins through the LSI bulk terminals account for the majority of the remaining
decrease in revenues.
COSTS OF PRODUCT SOLD. Cost of product sold decreased $33.4 million
from $525.7 million in fiscal year 1999 to $492.3 million in fiscal year 2000.
Decreases in corn costs of $42.0 million were offset by increases in other
manufacturing costs, including utilities, natural gas and labor. Costs for the
bulk terminals remained relatively flat from year to year.
SELLING, GENERAL, & ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased from $50.5 million in 1999 to $59.9 million in
2000, an increase of $9.4 million. Increases in rents, wages and benefits,
professional fees, travel expense and the reserve for bad debts account for over
70% of the overall increase.
NET OPERATING INCOME. Net operating income increased $9.1 million from
$22.6 million in 1999 to $31.7 million in 2000. The decrease in sales revenues
of $14.9 million, the increase in selling, general and administrative expenses
of $9.4 million, and the decrease in cost of goods sold, account for the
improvement in operating income.
INTEREST AND OTHER INCOME /EXPENSE. Other expense increased from $16.8
million in 1999 to $20.3 million in 2000. In 1999 MCP recorded the reversal of a
loss estimate on a sales contract in the amount of $3.3 million. There was no
similar income item recorded in 2000. Interest expense decreased $1.2 million in
fiscal 2000 as a result of prepaying $20 million of debt. Interest and other
income decrease $1.4 million from 1999 to 2000. This was primarily due to MCP no
longer receiving a patronage dividend from the St. Paul Bank for Cooperatives.
NET PROCEEDS. Net proceeds increased from $5.8 million in 1999 to $11.1
million in 2000, or an increase of $5.3 million. The increase in net operating
income of $9.1 million was offset by the increase of $3.5 million in other
income, and $0.3 million in income taxes.
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FISCAL YEAR ENDED MARCH 31, 1999 COMPARED TO FISCAL YEAR ENDED MARCH 31, 1998
NET SALES. Net sales increased 6.3% from $563 million to $599 million,
while grind, which constitutes total bushels processed, increased 13.2 million
bushels or 12.0%. Total sweetener sales increased by $60 million, with price
increases accounting for $12 million and additional sales volume accounting for
$48 million. Lower starch sales of $4 million, due primarily to reduced sales
volumes, and decreased ethanol sales of $17 million, of which approximately 80%
was due to lower prices, offset the increase in sweetener revenues. Decreased
feed co-product sales of approximately $3 million also offset the increase in
sweetener sales, primarily due to price declines in wet feed and gluten meal.
COST OF PRODUCT SOLD. Cost of product sold remained relatively flat.
Corn costs increased $1 million from 1998 to 1999, with increases in grind
accounting for a $34 million increase which was offset by a savings of $33
million due to a lower per bushel cost. The ethanol producer credit recognized
in 1999 was $3 million greater than in 1998, which offset slight increases in
labor and other manufacturing costs.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased by $5 million. Leased railcar costs accounted
for $3 million (60%) of the overall increase. Other administrative costs
increased $2 million primarily due to higher labor costs and retirement costs.
NET OPERATING INCOME. Net operating income increased from a loss of $8
million to a profit of $22 million, or an improvement of $30 million. The
increase in net sales of $36 million, with relatively flat production costs,
offset by the increase in general and administrative expense of $5 million,
account for the improvement in net operating income.
INTEREST AND OTHER INCOME/EXPENSE. Other expense decreased from $37.4
million in fiscal year 1998 to $16.8 million in fiscal year 1999, a decline of
$20.6 million. A decrease in interest expense made up $8.7 million of this
decline. Fiscal year 1999 represents a full year of refinanced debt as a result
of Archer Daniels Midland Company's equity infusion of $119.7 million in August
1997, and the restructuring of our long-term debt. "Loss on sales contract" was
estimated at $7.9 million for fiscal year 1998. The actual loss on the sales
contract was $4.5 million, resulting in a reversal of expense of $3.4 million in
fiscal year 1999, or an $11.3 million change from year to year.
NET PROCEEDS. Net proceeds improved from a loss of $45 million to a
profit of $6 million, an improvement of $51 million. Improvement of $30 million
in net operating income and the decrease of $21 million in other expense
accounts for the majority of the increase in net proceeds.
LIQUIDITY AND CAPITAL RESOURCES
MCP has historically paid 100% of its taxable net income to its members
in the form of value-added distributions or patronage dividends. As of March 31,
2000, in the aggregate, MCP has paid over $165 million to its members since
inception. On years distributions have occurred, distributions have ranged from
$.02 - $.75 per unit from year to year.
MCP expects that cash flow from operations and proceeds from its
existing credit lines will be sufficient to fund operations, to provide adequate
capital expenditures (excluding any major expansion), and to make distributions
to its members for the next three to five years.
In late 1997, MCP sold a 30% equity interest, in the form of nonvoting
units of equity participation, to Archer Daniels Midland Company for
approximately $120 million. These funds were utilized to pay down debt, from
$410 million to $290 million, and to refinance existing short-term debt with
long-term debt. In connection with the passive equity investment, Archer Daniels
Midland Company and MCP entered into a stockholder agreement dated August 27,
1997. This agreement sets forth the rights and obligations of Archer Daniels
Midland Company as a nonmember patron of MCP. The agreement restricts MCP from,
among other things, materially changing its principal business, disposing or
otherwise transferring substantially all of its assets, making material changes
to its corn delivery program and incurring capital expenditures in excess of
$250,000 without the consent of Archer Daniels Midland Company. These
restrictions (other than the restriction regarding changes in the corn delivery
program) are continued in the Colorado limited liability company's operating
agreement.
In 1997, MCP sold $290 million of first mortgage notes in a private
offering, primarily to major insurance companies. The maturities range from
seven to fifteen years, with no significant principal payments due until
September 30, 2003. The average interest rate, including a variable rate
portion, is approximately 7.85% at present. The notes restrict MCP from
incurring additional long-term debt and disposing of assets, and require MCP to
maintain specific financial ratios.
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These include: maintaining a current ratio of not less than 1.1:1; not
permitting the ratio of Consolidated Funded Debt to Consolidated Capitalization
to exceed 0.6:1 for quarters ended on or before June 30, 2000 or 0.55:1 for
quarters ended after June 30, 2000; and maintaining a minimum total equity
amount which increases annually by 20% of net earnings until MCP's ratio of
Consolidated Funded Debt to Consolidated Capitalization is less than 0.25:1.0.
As of March 31, 2000, MCP was in compliance with all covenants and restrictions.
The notes are collateralized by mortgages on the Marshall and Columbus
facilities. As of March 31, 2000, MCP has pre-paid $20 million of the variable
rate portion of these mortgage notes.
In addition, MCP has established a $50 million working capital line of
credit with Harris Trust and Savings Bank and US Bancorp Ag Credit. At the
current time, there is no amount outstanding under the line of credit. This
credit line, which protects MCP from seasonal cash fluctuations, terminates
August 27, 2001. The line of credit requires MCP to maintain a minimum net
working capital of $25 million at all times, a minimum equity amount equal to
the sum of $270 million plus 20% of consolidated net earnings for each fiscal
year and a minimum cash flow of $0 as of March 31, 1999. In addition, the line
of credit restricts MCP's ability to make capital expenditures, make certain
distributions, create liens, incur indebtedness and sell assets and properties.
MCP's normal capital expenditure program is between $20 - 30 million
per year. There are no significant expansions planned at present.
Net cash flow from operation (EBITDA) improved to a positive $79
million in fiscal year 2000.
Total assets at March 31, 1999 were $619 million, decreasing
approximately $31 million from the prior year, due to depreciation charges
exceeding capital expenditures by approximately $27 million. Working capital was
$65 million at March 31, 1999 and $43 million at March 31, 1998.
Total assets at March 31, 2000 were $608 million, decreasing
approximately $11 million from the prior year, due to depreciation charges
exceeding capital expenditures by approximately $26 million. Working capital was
$71 million at March 31, 2000.
Capital expenditures were $19 million in the fiscal year ended March
31, 2000 and $16 million in the prior year's period.
FORWARD-LOOKING STATEMENTS
MCP and its representatives may from time to time make written or oral
forward-looking statements, including statements made in this report, that
represent MCP's expectations or beliefs concerning future events, including
statements regarding future sales, future profit percentages and other results
of operations, the continuation of historical trends, the sufficiency of cash
balances and cash generated from operating and financing activities for MCP's
future liquidity and capital resource needs, and the effects of any regulatory
changes. Such statements are "forward-looking statements" within the meaning of
Section 27a of the Securities Act of 1933, as amended, and Section 21e of the
Securities Exchange Act of 1934, as amended. MCP cautions you that any
forward-looking statements made by MCP in this report, in other reports filed by
MCP with the Securities and Exchange Commission or in other announcements by MCP
are qualified by certain risks and other improtant factors that could cause
actual results to differ materially from those in the forward-looking
statements. Such risks and factors include, but are not limited to, the
following:
MCP OPERATES IN AN INTENSIVELY COMPETITIVE INDUSTRY.
MCP operates within highly competitive markets. In the United States, MCP
competes with other corn processors or refiners, including Archer Daniels
Midland Company, Cargill, and A.E. Staley Manufacturing Company, a subsidiary of
Tate & Lyle, PLC. Some of our competitors are divisions of larger enterprises
which may have greater financial resources than MCP. Many of our products also
compete with products made from raw materials other than corn. For example, high
fructose corn syrup competes principally with cane and beet sugar, and ethanol
competes with Methyl Tert-Butyl Ether, a petroleum based fuel oxygenate, and
other oxygenate and compliance alternatives. MCP believes the principal
competitive factors in our markets are supply and demand, price, product quality
and service.
Our business is sensitive to corn prices, and when corn prices increase we
generally cannot pass on these increases to our customers.
16
<PAGE>
Changes in the price of corn can significantly affect our business. In
general, rising corn prices produce lower profit margins and therefore represent
unfavorable market conditions. This is especially true when market conditions do
not allow us to pass along increased corn costs to our customers. The price
fluctuation in corn prices over the twenty-year period from 1979 through 1999,
based on monthly futures data, has ranged from a low of $1.42 per bushel to a
high of $5.55 per bushel. In fiscal year 1996 MCP incurred substantial losses. A
primary cause of the losses was an exceptional increase in corn costs which we
were unable to offset with higher product prices.
The price of corn is influenced by general economic, market and
government factors. These factors include weather conditions, farmer planting
decisions, domestic and foreign government farm programs and policies, global
demand and supply. The significance and relative impact of these factors on the
price of corn is difficult to predict. Factors such as crop disease or severe
weather, that tend to increase the price of corn, could have an adverse impact
on our business because we may be unable to pass on higher corn costs to our
customers. Any events that tend to negatively impact the supply of corn will
tend to increase prices and harm our business.
DEBT SERVICE AND RESTRICTIVE LOAN COVENANTS COULD REDUCE DISTRIBUTIONS TO
MEMBERS.
As of March 31, 2000, MCP's long-term debt was approximately
$271,000,000. It is possible our leverage and debt service requirements may make
us more vulnerable to economic or market downturns. If MCP is unable to service
our indebtedness, we may be forced to reduce or delay planned capital
expenditures, sell assets, restructure our indebtedness or seek additional
equity capital. There can be no assurance that any of these strategies could be
effected on satisfactory terms, if at all. In addition, the terms of MCP's
existing debt instruments contain restrictive, financial and maintenance
covenants. These covenants, among other things, place limits on our ability to
make cash distributions to members. For example, cash distributions may not
exceed 80% of our net earnings in any given year, unless specific financial
ratios are satisfied.
OUR BUSINESS IS SUBJECT TO EXTENSIVE ENVIRONMENTAL AND FOOD REGULATION AND
COMPLYING WITH THESE REGULATIONS CAN BE COSTLY AND UNPREDICTABLE.
As a producer of food items, MCP is subject to extensive regulation by
the FDA and other government agencies. MCP also is subject to various federal,
state and local laws and regulations with respect to environmental matters. The
failure to comply or the need to respond to threatened actions involving
environmental laws and regulations may adversely affect our business, operating
results or financial condition.
MINNESOTA CORN PROCESSORS HAS SUFFERED LOSSES IN THE RECENT PAST.
In fiscal years 1999 and 2000, MCP earned approximately $5.9 million
and $11.1 million, respectively. MCP recorded net losses in the 1996, 1997 and
1998 fiscal years. We may suffer additional losses in the future.
HEDGING TRANSACTIONS INVOLVE RISKS THAT CAN HARM OUR BUSINESS.
In an attempt to minimize the effects of the volatility of corn costs
on operating profits, we take hedging positions in the corn futures markets. The
effectiveness of such hedging activities is dependent upon, among other things,
the cost of corn and our ability sell sufficient products to utilize all of the
corn with respect to which it has futures contracts. Although we attempt to link
its hedging activities to sales plans and pricing activities, occasionally such
hedging activities can themselves result in losses. There can be no assurance
that such losses will not recur.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
COMMODITIES
The availability and price of agricultural commodities are subject to
wide fluctuations due to unpredictable factors such as weather, plantings,
government farm programs and policies, shifts in global demand created by
population growth and changes in standards of living, and global production of
similar crops. To reduce price risk caused by market fluctuations, MCP generally
follows a policy of hedging its inventories and related purchase and sale
contracts. In addition, MCP from time to time will hedge portions of its
production requirements. The instruments used are principally readily marketable
exchange traded futures contracts which are designated as hedges. The changes in
market value of such contracts have a high correlation to the price changes of
the hedged commodity.
17
<PAGE>
To obtain a proper matching of revenue and expense, gains or losses
arising from open and closed hedging transactions are included in inventories as
a cost of the commodities and reflected in the statement of operations when the
product is sold.
A sensitivity analysis has been prepared to estimate MCP's exposure to
market risk of its commodity position. MCP's daily net commodity position
consists of inventories, related purchase and sale contracts, and exchange
traded contracts, including those to hedge portions of production requirements.
The fair value of such positions is a summation of the fair values calculated
for each commodity by valuing each net position at quoted futures prices. Market
risk is estimated as the potential loss in fait value resulting from a
hypothetical 10% adverse change in such prices. The results of this analysis,
which may differ from actual results, are as follows:
March 31 1999 March 31 2000
Fair Value Market Risk Fair Value Market Risk
Long Position $70,141,669 $ 7,014,167 $ 20,627,984 $ 2,062,798
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Minnesota Corn Processors and Consolidated Entities
Marshall, Minnesota
We have audited the accompanying consolidated balance sheets of Minnesota Corn
Processors and Consolidated Entities as of March 31, 2000 and 1999, and the
related consolidated statements of operations, member equities, and cash flows
for the years then ended March 31, 2000, 1999, and 1998. These consolidated
financial statements are the responsibility of the cooperative's management. Our
responsibility is to express an opinion on these consolidated 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 includes 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minnesota Corn
Processors and Consolidated Entities as of March 31, 2000 and 1999, and the
results of their operations and their cash flows for the years ended March 31,
2000, 1999, and 1998, in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The accompanying
supplemental information is presented for purposes of additional analysis and is
not a required part of the basic consolidated financial statements. Such
information has been subjected to the auditing procedures applied in the audits
of the basic consolidated financial statements and, in our opinion, is presented
fairly, in all material respects, in relation to the basic consolidated
financial statements taken as a whole.
/s/ Clifton Gunderson, L.L.C.
Marshfield, Wisconsin
May 5, 2000
18
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 AND 1999
ASSETS
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 10,526,934 $ 8,610,996
Receivables 60,338,482 47,944,856
Inventories 37,346,047 39,416,211
Prepaids and other assets 2,852,794 4,932,884
Margin deposits 5,365,520 2,545,774
------------ ------------
Total current assets 116,429,777 103,450,721
------------ ------------
INVESTMENTS AND OTHER ASSETS
Investments 10,381,232 10,356,694
Deferred debt refinancing costs 2,989,949 3,229,949
Cash surrender value of life insurance 142,520 146,000
Non-current receivables 2,606,308 1,998,714
Non-current prepaids 1,499,689 1,717,690
Goodwill 5,522,752 3,543,382
------------ ------------
Total investments and
other assets 23,142,450 20,992,429
------------ ------------
PROPERTY AND EQUIPMENT 718,093,905 701,383,665
Less accumulated depreciation 249,283,249 206,546,129
------------ ------------
Net property and equipment 468,810,656 494,837,536
------------ ------------
TOTAL ASSETS $608,382,883 $619,280,686
============ ============
</TABLE>
19
<PAGE>
LIABILITIES AND MEMBER EQUITIES
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Short-term notes payable $ 735,418 $ 1,415,373
Current portion of long-term debt 551,169 417,772
Accounts payable - grain 4,776,020 6,011,410
Accounts payable - other 21,111,949 17,859,906
Value added payable 8,677,116 4,140,000
Income taxes payable 64,500 298,615
Accrued payroll costs 3,767,602 2,810,616
Accrued real estate taxes 2,446,000 2,698,340
Accrued expenses and taxes 3,416,391 2,951,286
------------- -------------
Total current liabilities 45,546,165 38,603,318
LONG TERM DEBT 270,623,814 290,975,901
DEFERRED COMPENSATION 728,282 785,000
------------- -------------
Total liabilities 316,898,261 330,364,219
------------- -------------
MEMBER EQUITIES
Units of equity participation certificates 247,006,471 247,006,471
Non-voting units of equity participation 119,790,000 119,790,000
Contributed capital 1,007,789 1,007,789
Unallocated capital deficit (61,335,287) (62,071,209)
Non-qualified patronage refunds 3,849,171 3,849,171
Loss allocated to members (18,833,522) (20,665,755)
------------- -------------
Total member equities 291,484,622 288,916,467
------------- -------------
TOTAL LIABILITIES AND MEMBER
EQUITIES $ 608,382,883 $ 619,280,686
============= =============
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
20
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
NET SALES, STORAGE, AND HANDLING CHARGES $ 583,891,954 $ 598,769,463 $ 563,192,996
COST OF GOODS 492,323,655 525,667,383 525,142,179
------------- ------------- -------------
Gross proceeds 91,568,299 73,102,080 38,050,817
SELLING, GENERAL, AND ADMINISTRATIVE
EXPENSES 58,946,842 50,657,841 44,355,845
PROVISION FOR DOUBTFUL ACCOUNTS 941,494 (127,486) 1,561,670
------------- ------------- -------------
Net operating proceeds (loss) 31,679,963 22,571,725 (7,866,698)
------------- ------------- -------------
OTHER INCOME (EXPENSE)
Interest expense (21,979,662) (23,170,643) (31,901,028)
Interest and other income (net) 880,728 3,077,580 2,408,801
Gain on disposal of property and equipment 793,799 15,287 30,344
Gain (loss) on sales contract -- 3,268,000 (7,986,000)
------------- ------------- -------------
Total other income (expenses) (20,305,135) (16,809,776) (37,447,883)
------------- ------------- -------------
Net income (loss) before income taxes 11,374,828 5,761,949 (45,314,581)
PROVISION FOR INCOME TAXES 251,191 (69,267) (285)
------------- ------------- -------------
NET INCOME (LOSS) $ 11,123,637 $ 5,831,216 $ (45,314,296)
============= ============= =============
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
21
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF MEMBER EQUITIES
YEARS ENDED MARCH 31, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
UNITS OF EQUITY NON-VOTING
PARTICIPATION UNITS OF EQUITY CONTRIBUTED
CERTIFICATES PARTICIPATION CAPITAL
------------ ------------- -------
<S> <C> <C> <C>
BALANCE, APRIL 1, 1997 $ 246,867,655 $ -- $ 1,007,789
Payments by members -- -- --
Less discounts on payments -- -- --
1998 net loss -- -- --
Equities issued 6,450 119,790,000 --
Adjustments (15,172) -- --
--------------- --------------- ---------------
BALANCE, MARCH 31, 1998 246,858,933 119,790,000 1,007,789
Payments by members -- -- --
1999 allocation of net income -- -- --
Value added -- -- --
Transfers 147,538 -- --
Equity retirements -- -- --
--------------- --------------- ---------------
BALANCE, MARCH 31, 1999 247,006,471 119,790,000 1,007,789
Payments by members -- -- --
2000 allocation of net income -- -- --
Value added -- -- --
Equities repurchased -- -- --
Adjustments -- -- --
--------------- --------------- ---------------
BALANCE, MARCH 31, 2000 $ 247,006,471 $ 119,790,000 $ 1,007,789
=============== =============== ===============
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
UNALLOCATED NON-QUALIFIED LOSS
CAPITAL PATRONAGE ALLOCATED
DEFICIT REFUNDS TO MEMBERS TOTAL
------- ------- ---------- -----
<S> <C> <C> <C>
$ (17,464,734) $ 3,849,171 $ (21,584,206) $ 212,675,675
-- -- 40,994 40,994
(8,676) -- 8,676 --
(45,314,296) -- -- (45,314,296)
-- -- -- 119,796,450
-- -- -- (15,172)
-------------- -------------- -------------- --------------
(62,787,706) 3,849,171 (21,534,536) 287,183,651
-- -- 58,301 58,301
5,081,216 -- 750,000 5,831,216
(4,140,000) -- -- (4,140,000)
(208,018) -- 60,480 --
(16,701) -- -- (16,701)
-------------- -------------- -------------- --------------
(62,071,209) 3,849,171 (20,665,755) 288,916,467
-- -- 125,453 125,453
9,533,765 -- 1,589,872 11,123,637
(8,677,116) -- -- (8,677,116)
(7,954) -- -- (7,954)
(112,773) -- 116,908 4,135
-------------- -------------- -------------- --------------
$ (61,335,287) $ 3,849,171 $ (18,833,522) $ 291,484,622
============== ============== ============== ==============
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
23
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLOIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 11,123,637 $ 5,831,216 $ (45,314,296)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization 45,735,486 44,485,669 43,185,375
Investment impairment loss 423,555 1,400,000 --
Non-cash patronage refunds received (122) (2,599,589) (1,261,572)
Gain on disposal of equipment (793,799) (15,287) (30,344)
Sales proceeds applied to purchase of investments -- (143,407) --
Provision for doubtful accounts 941,494 (127,486) 1,561,670
Change in operating assets and liabilities:
Receivables (13,942,714) 4,054,282 (9,041,446)
Inventories 2,070,164 5,219,546 2,081,897
Cash surrender value of life insurance 3,480 103,800 87,200
Prepaids and other assets 2,298,091 972,348 (652,557)
Margin deposits (2,819,746) 1,537,087 (3,680,346)
Accounts payable - grain (1,235,390) (5,373,934) 4,416,672
Accounts payable - other 1,651,918 (20,055,585) 10,731,291
Accrued payroll costs 956,986 (315,534) 220,241
Accrued real estate (252,340) (206,512) 563,997
Accrued expenses and taxes, other than income taxes 465,105 766,125 (1,772,348)
Income taxes recoverable/payable - current
and deferred (234,115) 311 (194,216)
Deferred compensation (56,718) (290,727) 62,495
------------- ------------- -------------
Net cash provided by operating activities 46,334,972 35,242,323 963,713
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property and equipment (18,767,648) (13,932,100) (12,671,480)
Proceeds from disposal of property and equipment 2,416,815 266,201 90,963
Net repayments of notes receivable from employees,
affiliates and others -- 8,684 --
Purchase of Liquid Corn, Inc. (2,889,067) (509,720) --
Investments purchased -- -- (313,450)
------------- ------------- -------------
Net cash used by investing activities (19,239,900) (14,166,935) (12,893,967)
------------- ------------- -------------
</TABLE>
24
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 2000, 1999, AND 1998
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Principal payments on short-term borrowings $ (679,955) $(104,538,602) $ (495,110)
Short-term borrowings -- 97,986,799 3,580,759
Long-term borrowings -- 97,700,000 296,000,000
Principal payment on long-term debt (20,480,813) (104,398,071) (409,683,269)
Debt refinancing costs paid -- -- (3,609,949)
Loss allocation payments from members 125,453 58,301 40,994
Value added (4,112,832) -- --
Equity adjustments (30,987) (16,701) (15,172)
Equities issued -- -- 119,796,450
------------- ------------- -------------
Net cash provided (used) by financing activities (25,179,134) (13,208,274) 5,614,703
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,915,938 7,867,114 (6,315,551)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 8,610,996 743,882 7,059,433
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 10,526,934 $ 8,610,996 $ 743,882
============= ============= =============
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid $ 21,897,487 $ 23,194,460 $ (33,573,344)
Income taxes (recovered) paid 589,190 (69,578) 193,931
NON-CASH ACTIVITY
Investments purchased through sales of product $ -- $ 143,407 $ --
Property and equipment acquired through debt financing
and accounts payable 1,862,248 1,431,744 --
</TABLE>
These consolidated financial statements should be read only in connection with
the accompanying summary of significant accounting policies
and notes to consolidated financial statements.
25
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 2000 AND 1999
Minnesota Corn Processors ("the cooperative") (MCP) is a member owned
cooperative incorporated in Minnesota for the purpose of producing value added
corn related products for its members. The cooperative produces unmodified corn
syrup, high fructose corn syrup, corn starch, fuel ethanol, and feed
co-products.
Liquid Sugars, Inc. (LSI), a wholly owned subsidiary, is a sweetener blending
and storage operation, which provides its products to various types of customers
(including food processors) located primarily in the Western United States. As a
result of MCP's 100% ownership of LSI, the accounts and transactions of LSI are
consolidated in these financial statements.
Grower Procurement Agency (GPA), an agency of the members of MCP, was formed to
assemble, procure, and supply corn to MCP on behalf of its membership. The Board
of Directors consists of employees of MCP, and it leases facilities and
employees from MCP. Because of the control which MCP has over the operations of
GPA, this entity is also being consolidated.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of MCP, and its
wholly owned subsidiary, LSI, and its controlled entity, GPA. All significant
intercompany accounts and transactions have been eliminated.
USE OF ESTIMATES IN PREPARING FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The most significant
management estimates relate to the determination of the valuation of repair
parts inventory, the accumulated depreciation, and the allowance for doubtful
accounts.
CREDIT POLICY
The cooperative sells its product primarily to the petroleum industry, farmers
and ranchers, breweries, bakeries, the paper industry, and soft drink companies
on terms it establishes for each customer. LSI sells its products to food
processors and others on terms it establishes for each customer. GPA basically
has only one customer, MCP. Credit sales are made throughout the United States
and, to a much lesser degree, in Canada, by MCP and its consolidated entities.
26
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 2000 AND 1999
REVENUE RECOGNITION POLICY
Revenues are recognized at the time product is shipped to customers, net of
freight charges, except for consigned inventories where the revenue is
recognized at the time the shipment is used by the customer.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the cooperative and its
consolidated entities considers all highly liquid investments in debt
instruments of other entities, with a maturity date of less than three months at
the date of purchase, to be cash equivalents.
INVENTORIES
Unprocessed corn, finished goods, repair parts, and goods in process of
manufacture inventories are valued at the lower of cost or net realizable value.
Chemicals, raw material supplies, and coal are valued at the lower of cost or
market. All inventory valuations assume a first-in, first-out flow of goods.
HEDGE TRANSACTIONS
The cooperative generally follows a policy of hedging its future grain
requirements needed for fixed price contracts in order to minimize risk from
market price fluctuations. Futures contracts used for hedging are purchased and
sold through regulated commodity exchanges. Noncommodity exchange purchase and
sale contracts may expose MCP to risk in the event that a counterparty to a
transaction is unable to fulfill its contractual obligation.
As grain is used in the production process, realized gains or losses and option
contract premiums on these positions are recognized in cost of sales. Market
gains or losses realized on grain prior to the delivery period for which they
are identified as protecting are deferred and recognized pro rata through the
identified delivery period. Such deferred amounts are included in prepaids and
other assets in the current asset section of the consolidated balance sheet.
Deferred gains and losses from commodity exchange purchases (representing
amounts to be recognized as the grain is purchased in future periods) are not
recorded in these financial statements.
In connection with these hedge transactions, margin deposits are made with
brokers, as reflected in the current asset section of the balance sheet.
27
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 2000 AND 1999
INVESTMENTS
Investments are principally in CoBank (formerly known as St. Paul Bank). They
are recorded at original cost, plus the face value of equities received as
patronage refunds. The face value of equities redeemed by other cooperatives is
deducted from the investment balance. The investments are not transferable. No
cash is received until such time as redeemed at the discretion of the other
cooperative. Patronage refunds and redemptions are recorded in the year
received. If a permanent impairment in value is deemed to have occurred, the
investment value is reduced and a loss is reported in the consolidated statement
of operations.
PROPERTY AND EQUIPMENT
The cost of property and equipment includes all costs incurred to bring such
assets to the condition necessary for their intended use.
Costs of property and equipment are charged to operations, as depreciation, on a
straight-line method over the estimated useful lives of the individual assets.
The ranges of the estimated useful lives for the major classes of property and
equipment are as follows:
Land and public improvements Not being depreciated
Land improvements 10 to 20 years
Building and leasehold improvements Generally 30 years, with some immaterial
amounts on a shorter life (leaseholds
are amortized over shorter of useful
life or lease period)
Equipment 5 to 25 years
Railroad, switch engine, and rail cars 11 to 25 years
Silos 5 to 35 years
Construction in progress Not being depreciated
DEFERRED START UP COSTS
Various start-up costs incurred in connection with the construction of the plant
in Nebraska have been deferred ($3,747,373) and are being charged to expense
(amortized) on a straight-line basis over a 5-year period effective September,
1992, and August, 1994. Amortization expense relating to the start-up costs was
$-0-, $170,732, and $383,780 for the years ended March 31, 2000, 1999, and 1998,
respectively. Accumulated amortization was $3,747,373 and $3,747,373 at March
31, 2000 and 1999, respectively.
AMORTIZATION OF OTHER INTANGIBLE COSTS
Goodwill resulting from the purchase price of LSI being greater than fair market
value is being amortized on a straight-line basis over a 15-year period
beginning in April 1996. Amortization expense for the years ended March 31,
2000, 1999, and 1998, was $295,282, $295,282, and $295,282, respectively.
Accumulated amortization was $1,181,128 and $885,846 at March 31, 2000 and 1999,
respectively.
28
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 2000 AND 1999
AMORTIZATION OF OTHER INTANGIBLE COSTS (CONTINUED)
Included in prepaid expenses is an amount of $3,788,324 representing costs
incurred by MCP in connection with the construction of a railroad bridge in
Columbus, Nebraska, to encourage another rail company to serve that location. It
is expected that the freight savings will result in the recovery of the costs
incurred over a three-year period. Accordingly, these costs are being amortized
on a straight-line basis over a three-year period effective October 1, 1996.
Amortization expense for the year amounted to $-0- in 2000, $1,897,388 in 1999,
and $1,260,624 in 1998. Accumulated amortization was $3,788,324 and $3,788,324
at March 31, 2000 and 1999, respectively.
DEFERRED DEBT REFINANCING COST
The debt refinancing costs relate to a restructuring of debt completed during
fiscal 1997/98. The asset is carried at cost and is being amortized over a
15-year period using the straight-line method. Amortization expense for the
years ended March 31, 2000, 1999, and 1998, was $240,000, $240,000, and
$140,000, respectively. Accumulated amortization was $620,000 and $380,000 at
March 31, 2000 and 1999, respectively.
LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards (SFAS) No. 121,
which is entitled Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of, the cooperative records impairment losses
on long-lived assets used in operations when indicator of impairment are present
and the undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. Based on current estimates, management
does not believe impairment of operating properties is present.
PENSION PLANS
The cooperative makes payments under a defined contribution plan for the benefit
of substantially all nonunion employees. The cooperative matches 50% of each
employee's 401(k) contributions up to a 6% deferral election. Effective April 1,
1999, a Money Purchase Pension program, which is fully funded by MCP and LSI at
3% of employee wages, was adopted. The cooperative is committed to a minimum
contribution of 2% of consolidated net income for these plans.
A portion of LSI's employees are covered by a collective bargaining agreement.
LSI contributes to the union employees' pension plan in accordance with the
terms of the collective bargaining agreement.
29
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
MARCH 31, 2000 AND 1999
DEFERRED COMPENSATION
LSI maintains non-qualified deferred compensation agreements with certain of its
employees. The present value of the future payments amounted to $728,282 and
$785,000 at March 31, 2000 and 1999, respectively. These amounts are based on
estimated rates of returns. Actual future payments could differ from these
estimates. The increase in future benefits attributable to interest is expensed
yearly. Life insurance contracts have been acquired covering the life of most of
the employees covered by the deferred compensation arrangements, with LSI being
both the owner and the beneficiary of the policies. The purpose of these life
insurance policies is to assist in payment of the deferred compensation
obligations in the event of death or retirement of the employee. The cash
surrender value, amounting to $142,520 and $146,000 relating to these policies,
is included as a non-current asset in the balance sheets as of March 31, 2000
and 1999, respectively.
INCOME TAXES
The cooperative is subject to federal income tax, Oregon income tax, Minnesota
franchise tax, and Nebraska and New Jersey income tax and is permitted a
deduction from taxable income for the portion of the net proceeds refunded to
patrons in the form of qualified patronage refunds, if any, or value added
payments. In addition, any tax that may be due to the State of Nebraska will be
offset primarily by credits allowable under the Nebraska Employment and
Investment Growth Act.
LSI is subject to federal and numerous state income taxes as a tax-paying
corporation. The entity is subject to state income taxes on a pro-rata basis in
most of these states.
GPA is a Minnesota corporation that is subject to federal and Minnesota taxation
under the provision of its organizing code section.
Consolidated tax returns are being filed for federal income tax purposes.
DEFERRED INCOME TAXES
Deferred income taxes arise from LSI from the difference in reported bases of
assets and liabilities for financial and tax accounting. Deferred taxes are
classified as current or non-current depending on the classification of the
asset and liabilities to which they relate. Deferred tax assets are reduced by a
valuation allowance if it is deemed more likely than not that some or all of the
deferred tax assets will not be realized.
The principal sources of differences are property and equipment depreciation
methods and non-deductible items, such as the allowance for doubtful accounts,
vacation pay accruals, and deferred compensation.
MCP distributes its proceeds and losses on a tax basis, which effectively
eliminates the requirement of recording deferred income taxes relating to timing
differences for this entity. Those timing differences are accounted for in the
unallocated capital reserve.
This information is an integral part of the accompanying consolidated
financial statements.
30
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 1 - RECEIVABLES
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Balance sheet totals comprise the following elements:
Notes receivable $ 1,307,699 $ 335,623
Trade accounts 59,091,017 47,606,750
Other - primarily sales tax refunds
and ethanol production credits 4,746,074 3,384,197
Allowance for doubtful accounts (2,200,000) (1,383,000)
------------ ------------
TOTAL RECEIVABLES $ 62,944,790 $ 49,943,570
============ ============
Balance sheet classification:
Current assets $ 60,338,482 $ 47,944,856
Non-current assets 2,606,308 1,998,714
------------ ------------
TOTAL $ 62,944,790 $ 49,943,570
============ ============
</TABLE>
Included in receivables is $4,034,317 due from a customer who has filed for
protection from creditors under Chapter 11 of the U.S. Bankruptcy Code. MCP has
recorded an allowance related to this receivable of $1,500,000 at March 31,
2000, which management believes to be adequate based on information currently
available. However, the amount which will ultimately be collected from this
customer will depend, among other factors, on the outcome of bankruptcy court
proceedings, and could differ materially in the near term from the carrying
amount reflected in the financial statements.
NOTE 2 - INVENTORIES
Principal elements of inventories were as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Unprocessed corn $ 3,610,935 $ 3,592,192
Chemicals, raw material supplies, and coal 5,411,454 5,335,998
Goods in process of manufacture 1,876,266 2,065,497
Finished goods 11,560,775 12,762,376
Repair parts 11,556,991 12,600,654
Liquid Sugars, Inc. - sweetener inventory - bulk and
specialty products 3,329,626 3,059,494
------------ ------------
TOTAL INVENTORIES $ 37,346,047 $ 39,416,211
============ ============
</TABLE>
31
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 3 - INVESTMENTS
Investments are nearly all in stock of CoBank (formerly known as St. Paul Bank).
The stock was acquired under the terms of the cooperative's prior loan agreement
with the bank and through patronage refunds received from the bank.
NOTE 4 - PROPERTY AND EQUIPMENT
The consolidated entity's investment in property and equipment is recorded in
the balance sheet at cost. The principal elements of the totals shown in the
balance sheet are as follows:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Land and public improvements $ 6,485,386 $ 6,808,750
Land improvements 7,809,731 7,274,134
Buildings and leasehold improvements 117,269,922 118,614,482
Equipment 562,921,544 543,402,192
Railroad, switch engine, and rail cars 8,977,176 8,977,176
Silos 10,644,158 10,644,158
Construction in progress 3,985,988 5,662,773
------------ ------------
TOTAL PROPERTY AND EQUIPMENT $718,093,905 $701,383,665
============ ============
</TABLE>
Depreciation expense was $44,662,658, $43,779,655, and $42,366,307 for March 31,
2000, 1999, and 1998, respectively.
NOTE 5 - PURCHASE OF LIQUID CORN, INC.
In December, 1999, the cooperative acquired Liquid Corn, Inc. in a business
combination accounted for as a purchase. Liquid Corn, Inc. is primarily engaged
in distribution of corn steepwater. The results of operations of Liquid Corn,
Inc. is included in the accompanying financial statements since the date of
acquisition. The total cost of the acquisition was $3,398,787 which exceeded the
fair value of net assets of Liquid Corn, Inc. by $2,358,897. The excess is being
amortized on the straight-line method over 7 years. Amortization expense for the
current year is $84,246.
The following summarized pro forma (unaudited) information assumes the
acquisition had occurred on April 1, 1998.
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net sales $588,829,459 $607,512,984
Net income 12,287,015 7,575,918
</TABLE>
32
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 6 - SHORT-TERM NOTES PAYABLE
Balance sheet totals consist of notes payable to:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Debentures payable $ 735,418 $ 1,415,373
============ ============
</TABLE>
The debentures payable to members and others are unsecured. Interest is paid on
maturity of the debenture at a rate of 5.00% per annum. Notes are issued for
one-year periods and may be renewed.
NOTE 7 - LONG-TERM DEBT AND PROPERTY PLEDGED
Long-term debt comprises the following elements:
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Private Placement Notes - Series A - repayment to
be made at the rate of $3,571,429 per year
commencing September 1, 2001, with final payment
due September 1, 2007. Secured by real estate
mortgage. Interest payable semi-annually at 7.57%
per annum. $ 25,000,000 $ 25,000,000
Private Placement Notes - Series B - repayment to
be made at the rate of $24,000,000 per year
commencing September 1, 2005, with final payment
due September 1, 2009. Secured by real estate
mortgage. Interest payable semi-annually at 7.72%
per annum. 120,000,000 120,000,000
Private Placement Notes - Series C - repayment to
be made at the rate of $6,428,571 per year
commencing September 1, 2006, with final payment
due September 1, 2012. Secured by real estate
mortgage. Interest payable semi-annually at 7.83%
per annum. 45,000,000 45,000,000
Private Placement Notes - Series D - repayment to
be made at the rate of $20,000,000 per year
commencing September 1, 2003, with final payment
due September 1, 2007. Secured by real estate
mortgage. Interest payable at a variable rate
(7.402% at March 31, 2000). 80,000,000 100,000,000
The Bank of the West - capital lease dated January
25, 1999, payable in 60 monthly payments of
$3,979, including imputed interest at the rate of
7.44% per annum. The final payment is due on
January 31, 2004. 158,822 193,343
Lucent Technology - capital lease dated July 22,
1999. Payable in 60 monthly payments of $4,045,
including imputed interest at the rate of 8% per
annum. The final payment is due June 30, 2004. 206,310 --
</TABLE>
33
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 7 - LONG-TERM DEBT AND PROPERTY PLEDGED (CONTINUED)
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
The Bank of the West - capital lease dated January
25, 1999, payable in 36 monthly installments
beginning August 31, 1999, of $19,692, including
imputed interest at the rate of 7.11% per annum.
The final payment is due on July 31, 2002. $ 486,965 $ 636,668
IBM Credit Corporation - capital lease dated
December 7, 1998, payable in 36 monthly
installments beginning in December, 1998, of
$7,408, including imputed interest at a rate of
8.90% per annum. The final payment is due October
31, 2001. 130,830 204,478
Marshall Municipal Utilities - Water Pipeline
lease agreement payable in annual installments of
$179,592, plus 8% interest. Final payment due on
March 23, 2001. 174,885 359,184
The Associates - capital lease for a forklift
dated July 6, 1999, payable in 66 monthly payments
of $354, including imputed interest at the rate of
6.90% per annum. The final payment is due December
31, 2004. 17,171 --
------------ ------------
Total 271,174,983 291,393,673
Less current portion 551,169 417,772
------------ ------------
LONG-TERM DEBT $270,623,814 $290,975,901
============ ============
</TABLE>
At March 31, 2000, the cooperative had $50,000,000 of unused revolving credit
commitments from Harris Trust and Savings Bank and U.S. Bankcorp Ag Credit, Inc.
limited to the available borrowing base of accounts receivable and inventories.
Interest is payable quarterly at the bank's variable rate.
There are loan covenants with respect to the Harris Trust and Savings Bank, U.S.
Bancorp Ag Credit, Inc., and private placement notes that require the
cooperative to maintain minimum equity of $270,000,000, maintain a current ratio
of 1.1 to 1, maintain minimum net working capital of $25,000,000, maintain
certain levels of cash flow, limitations for capital expenditures, and various
other financial conditions.
The capital leases are secured by title to the equipment covered by the lease.
These leases were executed by Liquid Sugars, Inc. and guaranteed by Minnesota
Corn Processors.
34
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 7 - LONG-TERM DEBT AND PROPERTY PLEDGED (CONTINUED)
Future maturities of long-term debt are as follows:
March 31, 2001 $ 551,169
March 31, 2002 3,935,884
March 31, 2003 3,724,653
March 31, 2004 23,662,330
March 31, 2005 23,586,663
Thereafter 215,714,284
------------
TOTAL $271,174,983
============
NOTE 8 - MEMBER EQUITIES
The following is information pertinent to elements of member equities:
NON-VOTING
PREFERRED COMMON
STOCK STOCK
---------- ----------
Par value $50 $50
Shares authorized 100,000 100,000
Aggregate par value authorized $5,000,000 $5,000,000
Included in the member equities is an account entitled loss allocated to
members, which represents the balance of the loss for the fiscal year ended
September 30, 1996, which was allocated to the membership. This loss is to be
recovered from the members in one of two ways:
A. A portion of the loss will be deducted from future value added or other
positive allocations, until the loss is repaid in full.
B. The loss represents a lien against the members' units of equity
participation, and should a member sell their units of equity participation,
the amount of the loss allocated to the members will be deducted from such
sale.
At year-end, amounts are paid to members at the discretion of the Board of
Directors based upon operating results. This amount is considered a value-added
payment and is accounted for as a component of the allocation of the net
proceeds.
None of the cooperative's stock is transferable except as permitted by the
cooperative's board of directors. Because the cooperative's stock is not
transferable, the number of shares issued, redeemed, and outstanding are not
recorded in the financial statements.
35
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 8 - MEMBER EQUITIES (CONTINUED)
At March 31 the number of voting and non-voting units of equity participation
represented were as follows:
BUSHELS
--------------------------
2000 1999
---- ----
Voting 136,859,235 136,866,968
Non-voting 58,696,755 58,696,755
----------- -----------
TOTAL 195,555,990 195,563,723
=========== ===========
NOTE 9 - INCOME TAXES
Net consolidated operating losses totaling approximately $43,000,000 are
available to reduce future taxable income for federal income tax purposes. The
net operating loss carryforwards expire as follows.
2011 $14,000,000
2018 29,000,000
-----------
$43,000,000
===========
The sources of deferred tax assets and liabilities and the tax effect of each
are as follows:
2000 1999
---- ----
Deferred tax assets:
Allowance for doubtful accounts $ 76,000 $ 55,000
Contributions carryover 39,000 36,000
Accrued vacation pay 274,000 215,000
Deferred compensation 277,000 322,000
Net operating loss carryforwards 7,397,000 2,919,000
----------- -----------
8,063,000 3,547,000
Valuation allowance for deferred tax assets (5,901,000) (1,677,000)
----------- -----------
Net deferred tax assets 2,162,000 1,870,000
Deferred tax liabilities:
Tax over financial statement depreciation (2,162,000) (1,870,000)
----------- -----------
NET DEFERRED TAX ASSET (LIABILITY) $ -- $ --
=========== ===========
36
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 9 - INCOME TAXES (CONTINUED)
The provision for income tax expense (benefit) consists of the following
components:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Federal:
Current $ 244,256 $ 325,872 $ 307,812
Deferred -- (392,800) (357,200)
------------ ------------ ------------
244,256 (66,928) (49,388)
------------ ------------ ------------
State and local:
Current 6,935 16,861 16,103
Deferred -- (19,200) 33,000
------------ ------------ ------------
6,935 (2,339) 49,103
------------ ------------ ------------
TOTAL INCOME TAX EXPENSE (BENEFIT) $ 251,191 $ (69,267) $ (285)
============ ============ ============
</TABLE>
A reconciliation of the provision for income taxes at the statutory federal tax
rates to the cooperative's actual provision for income taxes is as follows:
<TABLE>
<CAPTION>
2000 1999 1998
---- ---- ----
<S> <C> <C> <C>
Computed at federal statutory rates $ 253,864 $ (77,882) $ (8,485)
State income taxes, net of federal tax benefit (2,673) 8,615 8,200
------------ ------------ ------------
TOTAL INCOME TAX EXPENSE (BENEFIT) $ 251,191 $ (69,267) $ (285)
============ ============ ============
</TABLE>
NOTE 10 - MARKETING OBLIGATIONS
The cooperative and GPA had the following open purchase contracts for corn:
<TABLE>
<CAPTION>
BUSHELS
-------------------------
CASH FUTURES
CONTRACTS CONTRACTS
---------- ----------
<S> <C> <C>
March 31, 2000 14,744,767 31,365,000
March 31, 1999 13,808,371 29,330,000
</TABLE>
At March 31, 2000, the average price of the open cash contracts was $2.070 per
bushel. There was unrealized losses on these transactions in the amount of
$427,673 on March 31, 2000.
At March 31, 2000, the average price of the open futures contract was $2.343 per
bushel. There was an unrealized gain on these transactions in the amount of
$2,574,863 on March 31, 2000.
37
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 10 - MARKETING OBLIGATIONS (CONTINUED)
MCP had the following obligations on deferred price contracts:
BUSHELS AMOUNT
--------- -----------
March 31, 2000 1,025,917 $ 2,129,074
March 31, 1999 2,115,099 4,196,351
The liability is reflected as a current liability as a part of the caption
entitled accounts payable grain.
The cooperative also has an immaterial amount of open soybean meal and soybean
oil futures contracts on the Chicago Board of Trade. These commodities are being
used to hedge against the co-products produced by the cooperative.
NOTE 11 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The consolidated entities financial instruments consist principally of cash,
trade receivables and payables, grain contracts, sales contracts, short-term and
long-term notes payable. There are no significant differences between the
carrying value and the fair value of any of these financial instruments, except
long-term debt. Based on the borrowing rates currently available to the
Cooperative for loans with similar terms and average maturities, the approximate
fair value of long-term debt is $266,000,000 and $291,000,000 at March 31, 2000
and 1999, respectively. For investments in other cooperatives, there are no
quoted market prices and a reasonable estimate of the fair value could not be
made without incurring excessive costs.
Quoted market prices are generally not available for MCP's financial
instruments. Accordingly, fair values are based on judgments 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 judgment and,
therefore, cannot be determined with precision. Changes in assumptions could
significantly affect the estimates. The carrying amount for cash and cash
equivalents is a reasonable estimate of fair value.
NOTE 12 - PENSION EXPENSE
Pension costs charged to operations on the accrual basis during 2000, 1999, and
1998 amounted to $1,614,410, $547,949, and $93,720, respectively.
38
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 13 - CONCENTRATIONS OF CREDIT RISK
The cooperative maintains cash and temporary investments at various financial
institutions. Balances on deposit are insured by the Federal Deposit Insurance
Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are
uninsured. Total cash and temporary investments held by the financial
institutions exceeded specified limits at various dates throughout the fiscal
year ended March 31, 2000.
Sales to one customer accounted for approximately 10% of the consolidated
revenues for the year ended March 31, 2000.
NOTE 14 - EMPLOYMENT CONTRACTS
The company has 19 employment contracts with employees, ranging from five to
eight years in length. Salary commitments under these contracts total $5,444,811
as of March 31, 2000.
NOTE 15 - COMMITMENTS AND CONTINGENCIES
Certain property and equipment used by the cooperative are leased. In 2000,
payments on the operating leases, recorded as expense in the statement of
operations, totaled $13,878,086. Property and equipment being acquired under
capital leases had an original cost of $1,334,846 and is included as an element
of equipment in Note 4. Accumulated depreciation relating to the leased
equipment was $166,592 and $47,408 at March 31, 2000 and 1999, respectively.
Depreciation expense was $119,184 and $47,408 at March 31, 2000 and 1999,
respectively.
Noncancellable future minimum payments are required on these leases as follows
for the next five years:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------------ ------------
<S> <C> <C>
2000/2001 $ 424,656 $ 13,401,392
2001/2002 387,840 13,253,161
2002/2003 178,692 12,583,632
2003/2004 291,190 12,179,243
2004/2005 15,234 10,740,141
Thereafter -- 47,264,969
------------ ------------
Total future minimum lease payments 1,297,612 109,422,538
Less portion representing interest 122,629 --
------------ ------------
PRESENT VALUE OF MINIMUM LEASE PAYMENTS $ 1,174,983 $109,422,538
============ ============
</TABLE>
MCP is involved in various claims at March 31, 2000. In the opinion of
management, the ultimate liability for such claims would not have a material
adverse financial effect upon the company. Management further believes that all
or part of any potential liability for certain of these claims will be covered
by insurance, and management is vigorously defending all such claims against the
cooperative.
39
<PAGE>
MINNESOTA CORN PROCESSORS AND CONSOLIDATED ENTITIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2000 AND 1999
NOTE 15 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
MCP entered into a stock purchase agreement in which they may purchase a 7.5%
ownership interest in a third party with an option to purchase an additional
7.5% ownership interest. The cost of this investment at March 31, 1999, was
$456,710, which amount is included in investments in the balance sheet. During
2000, MCP valued this stock at $33,155 to reflect a permanent impairment in
value.
It is expected that the total costs to complete the construction in progress at
March 31, 2000, for MCP will approximate $5,355,000.
In May, 1997, Archer Daniels Midland Company (ADM) purchased 58,622,340
nonvoting units of equity participation. In return for this investment ADM will
receive a pro rata portion of the annual net income of MCP.
NOTE 16 - SUBSEQUENT EVENT
The members of Minnesota Corn Processors voted to convert the cooperative to a
Limited Liability Company. This transaction will be a taxable transaction at
both the cooperative and member levels. However, it is expected that any tax
implications at the cooperative level will be primarily, if not entirely, offset
by the net operating loss carryover, resulting in no tax to the cooperative from
the potential conversion. The conversion is planned to take place July 1, 2000.
Basically at the same time, the wholly owned subsidiary is planned to be merged
into Minnesota Corn Processors, while the controlled entity of Grower
Procurement Agency (GPA) is planned to be dissolved. Minnesota Corn Processors
will perform the operations previously performed by GPA.
NOTE 17 - SEGMENT REPORTING
As of April 1, 1999, the cooperative adopted Statement of Financial Accounting
Standards Number 131 (SFAS 131) "Disclosures about Segments of an Enterprise and
Related Information." SFAS 131 establishes standards for the way public business
enterprises report information about operating segments in financial reports
issued to shareholders. Based on the cooperative's organizational structure and
the manner in which performance is assessed and operating decisions are made,
the cooperative operates as one business segment - procuring, transporting,
storing, processing, and merchandising corn products.
NOTE 18 - FUTURE CHANGE IN ACCOUNTING PRINCIPLE
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which addresses
the accounting for derivative transactions and hedging activities. The
cooperative will adopt the new standard beginning with its 2002 fiscal year, the
year in which adoption is first required. Management is currently evaluating the
reporting requirements under this new standard and has not yet determined the
impact of this standard on the financial results of the cooperative.
This information is an integral part of the accompanying consolidated
financial statements.
40
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There are no disagreements with accountants on accounting and financial
disclosure.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Board of Directors of MCP, the Minnesota cooperative, consists of
24 member-directors who represent eight geographic districts. The number of
directors representing each district is approximately proportionate to the
number of members located in that district. Each district is represented by at
least two or more directors. Every three years, the Bylaws require the
Districting Committee of the Board of Directors to review the boundaries of each
district, members located in each district, as will as the number of directors
representing each district. The recommendation of the Districting Committee may
be accepted, rejected or modified by the Board of Directors.
Immediately after the conversion, the board of directors of the Colorado
limited liability company will be composed of the current members of the board
of directors of MCP, except for John Zwach who resigned from the board effective
June 27, 2000. The current directors of MCP will continue to serve as
directors of the Colorado limited liability company for the same terms for which
they would otherwise have served as directors of MCP. The board will consist of
twenty-four directors, each of whom will represent one of eight districts. Each
director will be elected by members of the new company residing in the district
represented by the directors. The board also will be divided into three classes
for election purposes. Beginning on the date of the conversion, one class of
directors will be elected at each annual meeting of members to serve for a
three-year term. The Colorado limited liability company's operating agreement
requires that the incumbent board of directors appoint a districting committee
to review the boundaries of the districts at least every three years. The
committee will recommend any changes in the district boundaries necessary or
appropriate to maintain equitable representation of the number of members in
each district.
41
<PAGE>
The table below sets forth important information concerning the current
board of directors as well as the initial directors of the Colorado limited
liability company.
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
---------------- --- -------- ------------
<S> <C> <C> <C>
Doug G. Finstrom................................ 47 I 2001
1060 160th Avenue SE
Kerkhoven, Minnesota 56252
Kim Larson...................................... 47 I 2002
7911 County Rd. 5 NW
Willmar, Minnesota 56201
Duane R. Adams.................................. 61 I 2000
54676 Minnesota Highway 7
Cosmos, Minnesota 56228
Howard A. Dahlager.............................. 51 II 2001
85380 180th Street
Sacred Heart, Minnesota 56285
Ken Robinson.................................... 55 II 2002
RR 2 Box 82
Bird Island, Minnesota 55310
David J. Scheibel............................... 39 II 2000
37554 County Road 4
Bird Island, Minnesota 55310
Jerry N. Jacoby................................. 55 III 2001
17557 County Highway 1
Springfield, Minnesota 56087
Steve F. Lipetzky............................... 49 III 2002
P.O. Box 152
Springfield, Minnesota 56087
John M. Zwach, Jr............................... 52 III 2000
13705 205th Street
Walnut Grove, Minnesota 56180
Roger E. Fjerkenstad............................ 67 IV 2000
RR 2 Box 145
Dawson, Minnesota 56232
Galen Rud....................................... 51 IV 2002
3030 60th Avenue NW
Montevideo, Minnesota 56265
Daniel P. Dybsetter............................. 55 V 2002
RR 1 Box 92
Porter, Minnesota 56280
John R. Jerzak.................................. 48 V 2000
RR 1 Box 178
Ivanhoe, Minnesota 56142
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AGE DISTRICT TERM EXPIRES
---------------- --- -------- ------------
<S> <C> <C> <C>
Dean J. Buesing................................. 47 V 2001
RR 1 Box 157
Granite Falls, Minnesota 56241
Sandy A. Ludeman................................ 52 VI 2000
RR 2 Box 19
Tracy, Minnesota 56175
John P. Hennen.................................. 64 VI 2002
1986 330th Street
Ghent, Minnesota 56239
John H. Nelson.................................. 62 VII 2002
2034 170th Avenue
Garvin, Minnesota 56132
James H. Gervais................................ 48 VII 2000
2090 171st Street
Currie, Minnesota 56123
Ron F. Kirchner................................. 52 VII 2001
2696 71st Street
Avoca, Minnesota 56114
Kenneth L. Regier............................... 67 VIII 2001
215 Donegal Rd.
Aurora, Nebraska 68818
Larry W. Dowd................................... 55 VIII 2002
P.O. Box 129
Columbus, Nebraska 68602
Andrew V. Jensen................................ 50 VIII 2002
1407 W. 16th Road
Aurora, Nebraska 68818
Patrick L. Meuret............................... 43 VIII 2000
P.O. Box 146
Brunswick, Nebraska 68720
Robert J. Bender................................ 46 VIII 2000
5266 Cherokee Avenue
Columbus, Nebraska 68601
</TABLE>
DOUG FINSTROM. Mr. Finstrom has been a director of MCP since 1989. Mr.
Finstrom has been in the business of farming near Kerkhoven, Minnesota for the
past 28 years. Mr. Finstrom is currently the President of Property Management
Services of Minnesota, Inc. He has been involved in buying, selling, and
managing investment properties for the past 3 years, and has also been for the
past 15 years, president of Finco Equipment, Inc., a company involved in leasing
equipment and investing. In addition, Mr. Finstrom has been a member of
Minnesota Farm Bureau for 28 years.
KIM LARSON. Mr. Larson was elected to the Board of Directors at the
annual meeting held in July, 1999. However, from 1980 to 1990, Mr. Larson also
served as a member of the Board of Directors of MCP. Mr. Larson owns and
operates a crop production farm near Willmar, Minnesota. In addition to his
prior service on the MCP Board of Directors, Mr. Larson has served on the Board
of Directors of the Minnesota Soybean Growers Association and, from 1993 to
1999, as a member of the Board of Directors of the American Soybean Association.
While a director of the American Soybean Association, Mr. Larson also served as
Vice President of the American Soybean Association Executive Committee, as
Chairman of the American Soybean Association's Membership and Corporate
Relations Committee and, most recently, as Chairman of the American Soybean
Association's Trade Policy and International Affairs Committee.
43
<PAGE>
DUANE ADAMS. Mr. Adams has been a director of MCP since 1997. Mr. Adams
has been the president of Duane Adams Farms, Inc., producing corn and soybeans,
near Cosmos, Minnesota for the past 15 years. In addition, Mr. Adams has been a
member of the Meeker County Corn Growers for the past 10 years and was a
director of that association for 6 years. Mr. Adams has also been the past
president of Cosmos Development Corporation.
HOWARD DAHLAGER. Mr. Dahlager has been a director of MCP since 1988.
Mr. Dahlager is co-owner and secretary-treasurer of JSF Inc., Johnson Seed Farm
near Sacred Heart, Minnesota, since 1979. Mr. Dahlager has also been the
secretary-treasurer for the past 4 years of Sacred Heart Community Development
Company Colorado limited. In addition, Mr. Dahlager is currently the secretary
of M.C.I.A. -- Minnesota Crop Improvement Association. Mr. Dahlager is also a
member of Southern Minnesota Beet Coop, Minn Aqua Fisheries and Midwest Investor
(Golden Oval) Eggs.
KEN ROBINSON. Mr. Robinson has been a director of MCP since 1990. Mr.
Robinson has been in the business of farming in the Bird Island, Minnesota area
since 1983.
DAVID SCHEIBEL. Mr. Scheibel has been a director of MCP since 1988. Mr.
Scheibel's experiences include being a partner of a 946 acre farming operation
from 1978 to 1994 near Bird Island, Minnesota. The partnership raised corn,
soybeans, seed corn and other specialty crops, as well as feeding Holstein dairy
replacement heifers and finishing Holstein beef cattle. As a partner, his duties
included financial and cost accounting, as well as daily production
responsibilities. Mr. Scheibel has also been employed in the agriculture
equipment business since 1994. He is currently serving as senior parts man at
Kibble Equipment Service Center in Bird Island, Minnesota. In addition, Mr.
Scheibel is currently a member and serving as a trustee and has served in the
past as financial secretary and grand knight of the Knights of Colombus, Council
#2000, Bird Island, Minnesota.
JERRY JACOBY. Mr. Jacoby has been a director of MCP since 1986 and
board chairman since 1992. Mr. Jacoby has been in the business of farming,
producing corn and soybeans, near Springfield, Minnesota since 1974. Mr. Jacoby
has also been the treasurer for Sundown Township for 12 years. In addition, Mr.
Jacoby has been a member of Minnesota Corn Growers for 18 years and is also a
member of the American Legion.
STEVE LIPETZKY. Mr. Lipetzky has been a director of MCP since 1981. Mr.
Lipetzky is the president of Stephen Trucking, Inc. of Springfield, Minnesota, a
trucking company hauling F.O.B. corn to MCP, since its inception in May 1998.
Although MCP has done a significant amount of business with Mr. Lipetzky's
trucking company, that business has been on the same terms as MCP's
relationships with other trucking firms. In addition, Mr. Lipetzky is currently
working on the farm in partnership with his brothers. Mr. Lipetzky is currently
the Parish Council Chairman at St. Raphael's Catholic Church in Springfield,
Minnesota.
JOHN ZWACH, JR. Mr. Zwach has been a director of MCP since 1991. Mr.
Zwach is totally involved in operations and management in the business of
farming, a corn and soybean operation in Redwood County, Minnesota for 29 years.
Mr. Zwach is also currently a member of the Knights of Columbus and has been
since 1968. In addition, Mr. Zwach is a member of the American Legion Post in
Milroy, Minnesota and has been a member of the Milroy Lions club since the early
1970's. Mr. Zwach retired from the board effective June 27, 2000.
ROGER FJERKENSTAD. Mr. Fjerkenstad helped in the organization of MCP
and has been a director since 1981. Mr. Fjerkenstad is a retired farmer,
producing corn, soybeans and hogs from 1957 to 1996 near Dawson, Minnesota. Mr.
Fjerkenstad has been a director of the Farmers Electric Company, Dawson,
Minnesota for 10 years.
GALEN RUD. Mr. Rud was elected to the Board of Directors at the annual
meeting held in July, 1999. Mr. Rud operates a corn and soybean farming
operation north of Montevideo, Minnesota and has been involved in that operation
since 1971. Mr. Rud served for 21 years as a director of his local Cenex
cooperative, including 15 years as a chairman, for 6 years as a director of the
Luther Haven Nursing Home and for 9 years as a member of the Chippewa County
Extension Committee, including 2 years as chairman of that committee.
DANIEL DYBSETTER. Mr. Dybsetter has been a director of MCP since 1994
and is currently serving as secretary. Mr. Dybsetter is in the business of
farming, producing corn, soybeans and hogs since 1970 near Porter, Minnesota.
Mr. Dybsetter is also a member and owns shares in the South Dakota Soybean
Processors and Phoenix Manufacturing. Mr. Dybsetter is also a member of the Corn
Growers Association, Soybean Growers Association and a member of various area
coops. Mr. Dybsetter was the past secretary for the Yellow Medicine Pork
Producers.
44
<PAGE>
JOHN JERZAK. Mr. Jerzak has been a director of MCP since 1985. Mr.
Jerzak is primarily engaged in the business of farming near Ivanhoe, Minnesota
since 1975. Mr. Jerzak also has a seed business, dealing primarily in DeKalb
Seeds. In addition, Mr. Jerzak is Board Chairman of Hope Mutual Insurance
Company and a director of Divine Providence Hospital in Ivanhoe, Minnesota.
DEAN BUESING. Mr. Buesing has been a director of MCP since 1998. Mr.
Buesing is the president of Buesing Farms, Inc., Granite Falls, Minnesota, a
farming operation producing corn, soybeans and hogs for 25 years. Mr. Buesing
has also been the president for the past 4 years of Buesing, Buesing, Inc.,
Granite Falls, Minnesota which is involved in the building of cornheads. In
addition, Mr. Buesing is an officer and has served as treasurer for the past 8
years of the Yellow Medicine Soybean Growers Association. Mr. Buesing is first
cousin of director Mr. Hennen.
SANDY LUDEMAN. Mr. Ludeman has been a director of MCP since 1997 and is
currently serving as vice-chairman. Mr. Ludeman has been a partner in Sanmarbo
Farms, Inc., a diversified grain and livestock farm near Tracy, Minnesota, since
1973. Mr. Ludeman has been on the board of the Minnesota Farm Bureau Foundation
for 4 years. In addition, Mr. Ludeman has been a member of Minnesota Soybean
Growers Association for 20 years, Minnesota Corn Growers Association for 15
years and Minnesota Farm Bureau for 30 years. Mr. Ludeman was the founding
chairman of the United Soybean Board, past president of the American Soybean
Development Foundation, vice-chairman of the Institute of Agriculture, Forestry,
Home Economics and Advisory Council of the University of Minnesota and past
chairman of the Minnesota Soybean Research and Promotion Council.
JOHN P. (JACK) HENNEN. Mr. Hennen has been a director of MCP since
1997. Mr. Hennen has been in the business of farming in Lyon County, Minnesota
since 1960. Mr. Hennen's farming operation is diversified, producing cattle,
hogs, corn and soybeans. The farming operation has expanded to include his 3
sons and their families. In addition, Mr. Hennen is currently a director and has
been vice-chairman of the Minnesota Beef Council for 2 years. Mr. Hennen also is
a member of Minnesota Corn Growers, National Corn Growers, Soybean Growers and a
member of various coops in the area. Mr. Hennen is first cousin of director Mr.
Buesing.
JOHN NELSON. Mr. Nelson has been a director of MCP since 1981. Mr.
Nelson is the owner-operator of a 930 acre farming business located in Murray
County for 40 years. Mr. Nelson is also involved in a farm drainage business. In
addition, Mr. Nelson served as state president in 1992 and is a past state
director for the Minnesota Corn Growers Association. Mr. Nelson is also a member
of the Minnesota Soybean Growers Association and has been on the Murray County
Planning and Zoning Board for 18 years, 10 of which he was chairman.
JAMES GERVAIS. Mr. Gervais has been a director of MCP since 1990. Mr.
Gervais has been in the business of farming near Currie, Minnesota for 27 years.
RON KIRCHNER. Mr. Kirchner has been a director of MCP since 1998. Mr.
Kirchner has been in the business of farming, producing soybeans and custom
feeding hogs near Fulda, Minnesota. Mr. Kirchner has been a director for the
past 6 years on the Fulda, Minnesota School Board. In addition, Mr. Kirchner has
been a member of the VFW for 30 years, the American Legion Club for 30 years,
the Corn Growers Association for 5 years and the Soybean Growers Association for
2 years. Mr. Kirchner also volunteers at St. Gabriel in Fulda, Minnesota as a
release time teacher.
KENNETH REGIER. Mr. Regier has been a director of MCP since 1992. Mr.
Regier is in the business of farming near Aurora, Nebraska, producing irrigated
corn, since 1955. Mr. Regier has been a board member of the Upper Big Blue
Natural Resource District since 1980. In addition, Mr. Regier has been a member
of the Nebraska Coop Council, Education Committee, since 1997. Mr. Regier was
past board chairman of the Aurora Coop Elevator Company.
LARRY DOWD. Mr. Dowd has been a director of MCP since 1992. Mr. Dowd is
President of Dowd Grain, O'Neill Farms, and Dowd Oil Co, all of which are
principally farming operations located in Holt County, Nebraska, producing row
crops, cow-calf operations, farrow to finish hog operations. Mr. Dowd also
serves as a director of First State Bank of Hickman, and has a partnership
interest in a swine breeding stock company. In addition, Mr. Dowd has been a
member of the Nebraska Corn Growers Association for 10 years.
ANDREW JENSEN. Mr. Jensen has been a director of MCP since 1997. Mr.
Jensen has been in the business of farming and livestock production near Aurora,
Nebraska since 1970. Mr. Jensen is currently the president of Jensen Farms, Inc.
and a partner in Jensen Brothers. Mr. Jensen has been a state director of the
Nebraska Corn Growers Association since 1986 and is a past and current state
president. In addition, Mr. Jensen has been the chairman of Government Affairs
since 1992, a member of the Nebraska Cattlemen since 1970, a member of the
National Corn Growers Association
45
<PAGE>
since 1982, a state director of the Nebraska Agriculture Awareness Foundation
since 1996 and a national director of the National Corn Growers Association
since 1992.
PATRICK L. MEURET. Mr. Meuret has been a director of MCP since 1997.
Mr. Meuret has been the manager of J.E. Meuret Grain Co. Inc., Brunswick,
Nebraska for 22 years. Mr. Meuret is currently chairman of the board, Village
Board of Trustees' -- Village of Brunswick, of which he has been a board member
for 8 years. In addition, Mr. Meuret is currently president of Plainview Board
of Education and has been a board member for 8 years. Mr. Meuret is a past
director of Nebraska Grain and Feed and the Nebraska Turkey Growers Association.
ROBERT BENDER. Mr. Bender has been a director of MCP since 1992. Mr.
Bender is the owner-operator of Bender Farms, a grain and livestock operation,
near Colombus, Nebraska since 1977. Mr. Bender has also been the president of
Bender Farms Trucking Inc., since 1992 and is a partner-manager of CSS Farms. In
addition, Mr. Bender is currently a partner and has been the secretary for Klub
81 Inc. since 1980.
COMMITTEES OF THE BOARD
Following the conversion, the board will have the following committees:
executive, finance, corn procurement, grower relations, public relations,
compensation and long range planning.
EXECUTIVE. The executive committee exercises the authority of the board
of directors when the board is not in session, as permitted by law and the
operating agreement. Members: Howard Dahlager, Dan Dybsetter, Roger Fjerkenstad,
Larry Dowd, Doug Finstrom, Jim Gervais, Jerry Jacoby, and Sandy Ludeman.
FINANCE. The finance committee reviews the financial structure,
policies and future of MCP as developed by senior management. It also approves
audit reports, accounting policies, financial statements and internal controls.
Members: Dean Buesing, Howard Dahlager, Larry Dowd, Doug Finstrom, Roger
Fjerkenstad, Jerry Jacoby, Ron Kirchner and Sandy Ludeman.
CORN PROCUREMENT. The corn procurement committee reviews MCP's
strategic corn procurement activities. Members: Duane Adams, Jim Gervais, Pat
Meuret, Galen Rud, Jack Hennen, John Jerzak, Steve Lipetzky and David Scheibel.
GROWER RELATIONS. The grower relations committee coordinates MCP's
interaction with the growers MCP's corn. Members: Duane Adams, Daniel Dybsetter,
Roger Fjerkenstad, Andrew Jensen, Steve Lipetzky, John Nelson, Kenneth Regier
and Ken Robinson.
PUBLIC RELATIONS. The pubic relations committee assists management in
directing MCP's public relations activities. Members: Kim Larson, Robert Bender,
Daniel Dybsetter, Andrew Jensen, Jack Hennen, Ron Kirchner, Ken Robinson and
John Zwach, Jr.
COMPENSATION. The compensation committee reviews management
compensation practices and employee benefit plans. Members: Robert Bender,
Howard Dahlager, Jerry Jacoby, John Jerzak, Patrick Meuret Kim Larson, Galen
Rud, and John Nelson.
LONG RANGE PLANNING. The long range planning committee considers and
analyzes MCP's long-term strategic and market positions. Members: Dean Buesing,
Doug Finstrom, Jim Gervais, Sandy Ludeman, Larry Dowd, Kenneth Regier, David
Scheibel and John Zwach, Jr.
EXECUTIVE OFFICERS
The following sets forth the name, age and business experience for at
least the past five years of each of the executive officers of MCP as of June
15, 2000. Each officer serves full time in the capacity listed. These officers
serve at the discretion of the Chief Executive Officer and can be terminated by
him without notice. These executive officers will also be the officers of the
new Colorado limited liability company.
46
<PAGE>
<TABLE>
<CAPTION>
TERM
NAME AGE POSITION EXPIRES
---- --- -------- -------
<S> <C> <C> <C>
L. Daniel Thompson 58 President and Chief Executive Officer 3/31/2003(plus renewals)
Daniel H. Stacken 36 Vice President and Chief Financial Officer at will
Lawrence J. Schiavo, Jr. 42 Vice President of Operations and Business at will
Development
Stanley L. Sitton 43 Senior Vice President of Sales and Marketing at will
Roger L. Untiedt 42 Vice President of Technology at will
Roger F. Evert 39 Vice President of Human Resources and at will
Administration
Bradford A. Schultz 41 Vice President of Commodities at will
Michael T. Mote 51 Vice President of Information Technology and at will
Chief Information Officer
Joseph G. Bennett 35 General Counsel at will
Bradley Bacon 30 Controller at will
</TABLE>
L. DANIEL THOMPSON. Mr. Thompson has served as President and Chief
Executive Officer of MCP since August 1997. Mr. Thompson served as Chief
Financial Officer from January 1997 to August 1997. From December 1994 to
January 1997, he served as President and Chief Executive Officer of Bake Rite
Foods, a shortening and vegetable oil manufacturer. Before that, Mr. Thompson
was President and Chief Executive Officer of Lou Ana Foods, Inc., a vegetable
oil refinery. Mr. Thompson is also a director of Liquid Sugars.
DANIEL H. STACKEN. Mr. Stacken has served as Vice President and Chief
Financial Officer of MCP since November 1998. Mr. Stacken served as Controller
from December 1991 to November 1998. He is a director of Liquid Sugars.
LAWRENCE J. SCHIAVO, JR. Mr. Schiavo has served as Vice President of
Operations and Business Development of MCP since November 1998. Mr. Schiavo
served as Director of Operations from October 1992 to November 1998 and as Plant
Manager of the Marshall facility from June 1990 to October 1992.
STANLEY L. SITTON. Mr. Sitton was named Senior Vice President of Sales
and Marketing in November 1998 and has been Vice President of Sales and
Marketing of MCP since March 1997. Mr. Sitton also is a director of Liquid
Sugars. From December 1985 to February 1997, Mr. Sitton served in various
positions with A.E. Staley Manufacturing Company focusing on sales and
marketing.
ROGER L. UNTIEDT. Mr. Untiedt was named Vice President of Technology in
November 1998 and from February 1996 to November 1998 served as Director of
Quality and Engineering of MCP. From November 1992 to February 1996, he served
as Plant Manager of the Marshall facility.
ROGER F. EVERT. Mr. Evert was named Vice President of Human Resources
and Administration in November 1998. From October 1992 to November 1998, Mr.
Evert was Human Resources Manager of MCP.
BRADFORD A. SCHULTZ. Mr. Schultz was employed by MCP in June, 1999 as
the Vice President of Commodities. From 1997 until June 1999 he served as a
trader/account executive for Centennial Trading/Frontier Risk Management. From
1993 - 1997 Mr. Schultz was Vice President-General Manager for Conagra Corn
Processing.
MICHAEL T. MOTE. Mr. Mote was employed by MCP in April 2000 as the Vice
President of Information Technology and Chief Information Officer. From June
1997 until April 2000 he served as a contracted Chief Information Officer and
Director of Information Services for Central Plains Clinic. Before that, he
served as Vice President and Chief Information Officer for Mercy Information
Systems and Mercy Health Services.
JOSEPH G. BENNETT. Mr. Bennett was named General Counsel of MCP in
October 1998. He was employed by MCP in March 1998 as the corporate legal
counsel. From September, 1996 until March 1998 he was an associate attorney for
Wilkinson and Wilkinson, P.C. Before that he was an associate attorney for
McCann and Ribstein, P.C. from February 1995 until August 1996. Mr. Bennett is
also a director of Liquid Sugars.
BRADLEY BACON. Mr. Bacon was named Controller of MCP in May 1999. He
was employed by MCP in June 1992 as a staff accountant. He was promoted to
accounting supervisor in April 1994. After that he was named assistant
controller in April 1997.
47
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
The board of directors of MCP meets monthly. MCP currently reimburses
each director for actual expenses of attending board and committee meetings and
provides a per diem payment for services performed on behalf of MCP in the
amount of $250 for the board chairman, $150 for the vice chairman and secretary,
and $100 for other directors. Any additional director compensation must be
approved by the voting members of MCP.
The operating agreement of the new Colorado limited liability company
provides the same compensation for directors.
EXECUTIVE COMPENSATION
The following table shows the compensation paid by MCP for the last two
fiscal years to the Chief Executive Officer and the four most highly compensated
executive officers and one other individual who ceased to serve as an executive
officer during the last fiscal year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
OTHER
ANNUAL ALL OTHER
FISCAL COMPEN- COMPEN-
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SATION SATION(4)
--------------------------- ---- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
L. Daniel Thompson 1999 $238,500.08 $101.47 $0 $2,400.00
President & Chief Executive Officer......................... 2000 $275,000.16 $14,679.47 $0 $9,600.00
Stan Sitton 1999 $160,625.16 $10,101.47 $0 $2,206.32
Vice President of Sales & Marketing......................... 2000 $177,500.16 $12,601.47 $0 $9,600.00
Roger Untiedt 1999 $133,875.03 $10,101.47 $0 $1,927.57
Vice President of Technology................................ 2000 $147,500.16 $12,601.47 $0 $9,239.55
Larry Schiavo 1999 $133,875.03 $10,101.47 $0 $1,927.57
Vice President of Operations & Business Development......... 2000 $147,500.16 $12,601.48 $0 $9,272.32
Bradford Schultz (1) 1999 ------ ------ ------ ------
Vice President of Commodities............................... 2000 $105,769.29 $30,101.47(5) $0 $2,362.56
Geroge Lamberth 1999 $180,000.00 $0 $0 $0
Former Chief Operations Office & President of Liquid
Sugars, Inc................................................. 2000 $79,166.66 $0 $13,200.00(2) $187,500.00(3)
</TABLE>
(1) Mr. Schultz was hired by MCP effective June 24, 1999.
(2) MCP paid, on October 18, 1999, pursuant to Mr. Lamberth's separation
agreement, an annual premium of $13,200.00 for an existing Universal
Benefit Life Policy for Mr. Lamberth.
(3) Mr. Lamberth resigned from MCP effective September 2, 1999. Pursuant to
Mr. Lamberth's Separation Agreement, Mr. Lamberth receives separation
pay at his current annual salary, which, at the time of his
resignation, was $187,500.00. Such payments are structured over a
one-year period. This expense has been recognized as of March 31, 2000.
(4) Except as otherwise noted, the amounts reported represent MCP's
matching contributions to MCP's Retirement Savings and Investment Plan.
(5) This amount includes relocation, discretionary, and gift bonus.
48
<PAGE>
EMPLOYMENT AGREEMENTS
MCP has an employment agreement with Mr. Thompson, its president and
chief executive officer. Under the agreement, Mr. Thompson's initial annual
salary is $275,000. Mr. Thompson also is eligible for an annual bonus based on a
fixed percentage of net income for that fiscal year. The agreement provides for
discretionary annual bonuses to Mr. Thompson for any fiscal year in which MCP is
unprofitable. In addition, the agreement has an annuity provision whereby Mr.
Thompson receives a $20,000 annuity annually. This annuity is still in the
process of being implemented.
The initial term of the agreement expires on March 31, 2003, subject to
automatic renewal terms of one year each, unless terminated earlier. If the
Board terminates the employment agreement with Mr. Thompson without cause (as
defined), Mr. Thompson will receive a cash severance payment equal to:
* if the employment ends during the initial term, the greater of $275,000 or
the product of $5,288.46 times the number of weeks remaining from the date
of termination to the end of the initial term, or
* if the employment ends after the initial term, $275,000.
In addition, MCP will compensate Mr. Thompson for up to $200,000
financial loss suffered on the sale of his residence in Marshall, Minnesota.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The table below presents, as of June 22, 2000, certain information about the
beneficial ownership of the units of equity participation in MCP, the Minnesota
cooperative, for each director and executive officer named in the Summary
Compensation Table and all directors and executive officers of MCP as a group.
Units of equity participation will be converted to "Class A" voting member units
upon the conversion to the Colorado limited liability corporation.
Amount and Nature of Percent of
Name of Beneficial Owner Beneficial Ownership Class Owned
------------------------ -------------------- -----------
*Duane R. Adams....................... 118,117 .0604%
*Robert J. Bender..................... 100,957 .0516%
*Dean J. Buesing...................... 969,912 .4959%
*Howard A. Dahlager................... 213,247 .1090%
*Larry W. Dowd........................ 898,447 .4594%
*Daniel P. Dybsetter.................. 131,440 .0672%
*Doug G. Finstrom..................... 389,732 .1992%
*Roger E. Fjerkenstad................. 313,840 .1604%
*James H. Gervais..................... 418,416 .2139%
*John P. Hennen....................... 136,922 .0700%
*Jerry N. Jacoby...................... 522,791 .2673%
*Andrew V. Jensen..................... 66,768 .0341%
*John R. Jerzak....................... 504,752 .2581%
*Ron F. Kirchner...................... 71,190 .0364%
*Kim Larson........................... 54,994 .0281%
*Steve F. Lipetzky.................... 511,700 .2616%
*Sandy A. Ludeman..................... 217,823 .1113%
*Patrick L. Meuret.................... 97,802 .0500%
*John H. Nelson....................... 384,368 .1965%
*Kenneth L. Regier.................... 75,672 .0386%
*Ken Robinson......................... 102,334 .0523%
Galen Rud............................ 63,864 .0326%
*David Scheibel....................... 83,796 .0428%
*John M. Zwach, Jr.................... 301,515 .1541%
Roger Evert.......................... 8,403 .0042%
George A. Lamberth................... 0 0%
Mike Mote............................ 0 0%
Lawrence J. Schiavo.................. 43,819 .0224%
Bradford A. Schultz.................. 0 .0000%
Stanley L. Sitton.................... 3,078 .0015%
Daniel H. Stacken.................... 8,635 .0044%
L. Dan Thompson...................... 3,078 .0015%
Roger L. Untiedt..................... 27,486 .0140%
All Exec Officers & Directors -
Group........................ 6,844,898 3.500%
Archer Daniels Midland (ADM)
4666 Faries Parkway
Decatur, IL 62526
Amount of non-voting units... 58,622,430 30%
ADM's non-voting units will be converted to Class "B" (non-voting) member
units of the Colorado limited liability company.
*Includes units for which the individual has shared voting and dispositive
powers.
49
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Steve Lipetsky, a director of MCP since 1981, is the president of
Stephen Trucking. Stephen Trucking has been hauling corn to MCP since May 1998.
The amount paid by MCP to Stephen Trucking during fiscal year 2000 (April 1,
1999 to March 31, 2000) was $142,907.69.
In fiscal year 1996 MCP sustained a loss which was allocated to the
members on a proportionate basis to their ownership of Units compared to the
rest of the members. The loss allocation is either paid back to MCP by the
members or is deducted from future value added payments. The following table
shows each board member's loss allocation amount that is in excess of $60,000
and is still owed to MCP as of June 15, 2000. The table also includes each
director's beneficial ownership amounts and therefore is not necessarily an
individual amount owed.
LOSS ALLOCATION
DIRECTOR OR OFFICER NAME AMOUNT REMAINING
------------------------ ----------------
Dowd, Larry................. $204,977.41
Fjerkenstad, Roger E........ $119,520.00
Gervais, Jim................ $137,448.00
Jacoby, Jerry............... $185,790.48
Jerzak, John................ $147,906.00
Lipetzky, Steve............. $216,928.80
Nelson, John H.............. $89,833.00
Zwach, John Jr.............. $101,020.00
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following Independent Auditor's Report and consolidated financial
statements of Minnesota Corn Processors, Inc., the Minnesota
cooperative, are contained in Part II, Item 8, of this report:
Independent Auditor's Report
Consolidated Balance Sheets as of March 31, 2000 and 1999
Consolidated Statements of Operations for the Fiscal Years Ended March
31, 2000, 1999 and 1998
Consolidated Statements of Members Equities
Consolidated Statements of Cash Flows for the Fiscal Years Ended March
31, 2000, 1999 and 1998
Summary of significant accounting policies and Notes to Consolidated
Financial Statements
All financial statement schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and, therefore,
have been omitted.
No financial statements for Minnesota Corn Processors, LLC, are
included in this Form 10-K because, until the conversion, the registrant has no
operations or assets.
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2. Exhibits
The following exhibits are filed as a part of, or are incorporated by reference
into, this report:
2.1 Plan of Merger by and between Minnesota Corn Processors, Inc. and
Minnesota Corn Processors of Colorado, dated January __, 1999
(incorporated herein by reference to Exhibit 2.1 to the registrant's
Registration Statement on Form S-4 (Registration No. 333-71213)).
2.2 Plan of Merger by and between Minnesota Corn Processors Colorado and
Minnesota Corn Processors, LLC, dated January __, 1999 (incorporated
herein by reference to Exhibit 2.2 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
2.3 Amended and Restated Transaction Agreement by and among Minnesota Corn
Processors, Inc., Minnesota Corn Processors Colorado and Minnesota Corn
Processors, LLC, dated as of May __, 1999 (incorporated herein by
reference to Exhibit 2.3 to the registrant's Registration Statement on
Form S-4 (Registration No. 333-71213)).
3.1 Articles of Organization of Minnesota Corn Processors, LLC.
3.2 Third Amended and Restated Operating Agreement of Minnesota Corn
Processors, LLC.
4.1 Note Purchase Agreement dated as of August 26, 1997 (incorporated
herein by reference to Exhibit 10.7 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.1 Transaction Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc., dated July 9, 1997 (incorporated
herein by reference to Exhibit 10.1 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.2 Stockholder Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc. dated August 27, 1997 (incorporated
herein by reference to Exhibit 10.2 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.3 Master Equipment Lease Agreement between Fleet Capital Corporation and
Minnesota Corn Processors, Inc., dated April 9, 1998 (incorporated
herein by reference to Exhibit 10.3 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.4 Firm Sales/Purchase Agreement between Minnesota Corn Processors, Inc.
and Wascana Energy Marketing (U.S.) Inc., dated December 30, 1996
(incorporated herein by reference to Exhibit 10.4 to the registrant's
Registration Statement on Form S-4 (Registration No. 333-71213)).
10.5 Natural Gas Purchase and Sale Contract between Minnesota Corn
Processors, Inc. and Husky Gas Marketing Inc., dated November 1, 1996
(incorporated herein by reference to Exhibit 10.5 to the registrant's
Registration Statement on Form S-4 (Registration No. 333-71213)).
10.6 Amended and Restated Secured Credit Agreement among Minnesota Corn
Processors, Inc., Liquid Sugars, Inc., Harris Trust and Savings Bank
and U.S. Bancorp Ag Credit, dated as of November 4, 1998 (incorporated
herein by reference to Exhibit 10.6 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.7 Employment Agreement of L. Daniel Thompson, dated April 1, 2000.*
10.8 Separation Agreement with George A. Lamberth, dated June 28, 1999.*
10.9 Corn Steep Agreement between Minnesota Corn Processors and Liquid Corn,
Inc. (incorporated herein by reference to Exhibit 10.11 to the
registrant's Registration Statement on Form S-4 (Registration No.
333-71213)).
21 List of significant subsidiaries.
23 Consent of Clifton Gunderson, L.L.C.
24 Power of Attorney.
27 Financial Data Schedule.
---------------
*Items that are managements contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31,
2000.
(c) See Exhibit Index and exhibits attached to this report.
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<PAGE>
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.
Dated: June 28, 2000 Minnesota Corn Processors, LLC
By /s/ L. Dan Thompson
-------------------
L. Dan Thompson
President and Chief Executive Officer
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 date indicated.
SIGNATURE TITLE
/s/ L. Dan Thompson President and Chief Executive )
------------------- Officer and Director )
L. Dan Thompson (principal executive officer) )
)
Daniel H. Stacken* Chief Financial )
Officer and Director ) *By: /s/ L. Dan Thompson
(principal financial and ) -------------------
accounting officer) ) Attorney-in-fact
)
)
)
)
Jerry Jacoby* Director )
)
)
)
) Dated: June 28, 2000
*By Power of Attorney filed with this report as Exhibit 24 hereto.
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<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
2.1 Plan of Merger by and between Minnesota Corn Processors, Inc. and
Minnesota Corn Processors of Colorado, dated January __, 1999
(incorporated herein by reference to Exhibit 2.1 to the registrant's
Registration Statement on Form S-4 (Registration No. 333-71213)).
2.2 Plan of Merger by and between Minnesota Corn Processors Colorado and
Minnesota Corn Processors, LLC, dated January __, 1999 (incorporated
herein by reference to Exhibit 2.2 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
2.3 Amended and Restated Transaction Agreement by and among Minnesota Corn
Processors, Inc., Minnesota Corn Processors Colorado and Minnesota Corn
Processors, LLC, dated as of May __, 1999 (incorporated herein by
reference to Exhibit 2.3 to the registrant's Registration Statement on
Form S-4 (Registration No. 333-71213)).
3.1 Articles of Organization of Minnesota Corn Processors, LLC.
3.2 Third Amended and Restated Operating Agreement of Minnesota Corn
Processors, LLC.
4.1 Note Purchase Agreement dated as of August 26, 1997 (incorporated
herein by reference to Exhibit 10.7 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.1 Transaction Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc., dated July 9, 1997 (incorporated
herein by reference to Exhibit 10.1 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.2 Stockholder Agreement between Archer Daniels Midland Company and
Minnesota Corn Processors, Inc. dated August 27, 1997 (incorporated
herein by reference to Exhibit 10.2 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.3 Master Equipment Lease Agreement between Fleet Capital Corporation and
Minnesota Corn Processors, Inc., dated April 9, 1998 (incorporated
herein by reference to Exhibit 10.3 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.4 Firm Sales/Purchase Agreement between Minnesota Corn Processors, Inc.
and Wascana Energy Marketing (U.S.) Inc., dated December 30, 1996
(incorporated herein by reference to Exhibit 10.4 to the registrant's
Registration Statement on Form S-4 (Registration No. 333-71213)).
10.5 Natural Gas Purchase and Sale Contract between Minnesota Corn
Processors, Inc. and Husky Gas Marketing Inc., dated November 1, 1996
(incorporated herein by reference to Exhibit 10.5 to the registrant's
Registration Statement on Form S-4 (Registration No. 333-71213)).
10.6 Amended and Restated Secured Credit Agreement among Minnesota Corn
Processors, Inc., Liquid Sugars, Inc., Harris Trust and Savings Bank
and U.S. Bancorp Ag Credit, dated as of November 4, 1998 (incorporated
herein by reference to Exhibit 10.6 to the registrant's Registration
Statement on Form S-4 (Registration No. 333-71213)).
10.7 Employment Agreement of L. Daniel Thompson, dated April 1, 2000.*
10.8 Separation Agreement with George A. Lamberth, dated June 28, 1999.*
10.9 Corn Steep Agreement between Minnesota Corn Processors and Liquid Corn,
Inc. (incorporated herein by reference to Exhibit 10.11 to the
registrant's Registration Statement on Form S-4 (Registration No.
333-71213)).
21 List of significant subsidiaries.
23 Consent of Clifton Gunderson, L.L.C.
24 Power of Attorney.
27 Financial Data Schedule.
---------------
*Items that are managements contracts or compensatory plans or arrangements
required to be filed as an exhibit pursuant to Item 14(c) of Form 10-K.
53
