<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 1997
or
/ / Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
------------------------
Commission File
Nos. 33-83868; 333-11693 and 333-32251
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AMERICAN CRYSTAL SUGAR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
Minnesota 84-0004720
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION
NUMBER)
101 North Third Street
Moorhead, MN 56560 (218) 236-4400
(ADDRESS OF PRINCIPAL EXECUTIVE (REGISTRANT'S TELEPHONE NUMBER)
OFFICES)
</TABLE>
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 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. [ ]
------------------------
As of November 21, 1997, 2,585 shares of the Registrant's Common Stock and
436,915 shares of the Registrant's Preferred Stock were outstanding. As there is
only a limited, private market for shares of the Registrant's stock and the
Registrant does not obtain information regarding the transfer price in
transactions between its members, the Registrant is not able to estimate the
aggregate market value of the Registrant's shares held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits to this Report are incorporated by reference from the
Company's Registration Statement on Form S-1 (File number 33-83868), declared
effective on November 23, 1994, from the Company's Annual Report of Form 10-K
for fiscal year ending August 31, 1995, from the Company's Registration
Statement on Form S-1 (File number 333-11693), declared effective on November
13, 1996 and from the Company's Registration Statement on Form S-1 (File number
333-32251) declared effective on October 25, 1997.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
American Crystal is a Minnesota agricultural cooperative corporation owned
by approximately 2,586 sugarbeet growers in the Minnesota and North Dakota
portions of the Red River Valley. (The Red River Valley, the largest sugarbeet
growing area in the United States, forms a band approximately 35 miles wide on
either side of the North Dakota and Minnesota border and extends approximately
200 miles south from the border of the United States and Canada.) The Company
currently processes sugarbeets from a base level of approximately 440,000 acres,
subject to tolerances for overplanting and underplanting established by the
Board of Directors each year. By owning and operating five sugarbeet processing
facilities in the Red River Valley, the Company provides its shareholders with
the ability to process their sugarbeets into sugar and by-products, such as
molasses and beet pulp. The sugar is pooled and then marketed through the
services of a marketing agent under contract with the Company. The sugar
marketing agent, United Sugars Corporation, is a cooperative owned by its
members, American Crystal, Southern Minnesota Beet Sugar Cooperative and
Minn-Dak Farmers Cooperative. The Company's molasses, beet pulp and Concentrated
Separated By-Product (CSB) (a by-product of the molasses desugarization process)
are also marketed through a marketing agent, Midwest Agri-Commodities Company.
Midwest Agri-Commodities Company is a cooperative whose members are the Company,
Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. The
Company is also one of three members of ProGold Limited Liability Company, a
joint venture which owns a corn wet-milling plant in Wahpeton, North Dakota.
American Crystal was organized in 1973 by sugarbeet growers to acquire the
business and assets of American Crystal Sugar Company, then a publicly held New
Jersey corporation in operation since 1899.
American Crystal's corporate headquarters are located at 101 North Third
Street, Moorhead, Minnesota 56560 (telephone number (218) 236-4400). Its fiscal
year ends August 31.
PRODUCTS AND PRODUCTION
American Crystal is engaged primarily in the production and marketing of
sugar from sugarbeets. American Crystal also markets beet pulp, molasses and
CSB, which are by-products of the sugar it produces, and sugarbeet seed.
American Crystal processes sugarbeets grown by its members in five factories
located in the Red River Valley area of Minnesota and North Dakota. The growing
area is divided into five factory districts, each containing one sugarbeet
processing plant.
The period during which the Company's plants are in operation to process
sugarbeets into sugar and by-products is referred to as the "campaign." During
the campaign, each of the Company's factories is operated twenty-four hours per
day, seven days per week. The campaign is expected to begin in September, when a
small portion of the sugarbeet crop is harvested, and continues until the
available supply of beets has been depleted, which generally occurs in April or
May of the following year. Based on current processing capacity, an average
campaign lasts approximately 245 days, assuming normal crop yields.
Once the sugarbeets are harvested, rapid processing is important to maximize
sugar extraction and minimize spoilage. Members transport their crop by truck to
receiving stations designated by the Company and receive a hauling allowance
under the Grower's Contract. Beets are then stored in factory yards and at
outlying piling stations until processed.
American Crystal's total sugar production is presently influenced by the
amount and quality of sugarbeets grown by its members, the processing capacity
of the Company's plants and by the ability to store harvested beets. Most of the
beet harvest is stored in piles. Although frozen sugarbeets may be stored for
extended periods, beets stored in unprotected piles at temperatures above
freezing must be processed
2
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within approximately 150 days. In most years, therefore, the cold weather in
North Dakota and Minnesota offers an advantage to the Company as it permits the
outdoor storage of sugarbeets in below-freezing weather conditions. By contrast,
unprotected piles of sugarbeets would experience cycles of freezing and thawing
and, therefore, be subject to some deterioration. Subject to such freeze and
thaw cycles, beets on the exterior of piles freeze naturally. Beets near the
center of the piles, however, may not freeze and thus may be subject to
spoilage. The Company utilizes a process called "split pile storage" in which
beets from the center of the piles are removed for processing first. Split pile
storage permits more of the stored beets to freeze naturally.
American Crystal also utilizes a ventilation technique to further reduce
spoilage. In this process, fans circulate air through ventilation channels
constructed within beet piles in order to precool and then deep freeze the
beets. Approximately 11% of an average crop may be stored in ventilated storage
sites. Enclosed cold storage facilities are also used to extend the beet storage
period at each of the Company's factory locations. Cold storage sites presently
have the capacity to cover approximately 8% of an average crop.
Once the sugarbeets arrive in the factory, the basic steps in producing
sugar from them include: washing; slicing into thin strips called "cossettes";
extracting the sugar from the cossettes in a diffuser; purifying the resulting
"raw juice" and boiling it, first in an evaporator to thicken it and then in
vacuum pans to crystalize the sugar; separating the sugar crystals in a
centrifuge; drying the sugar; storing sugar in bulk form and grading and
screening the crystals for packaging and bulk shipping.
The Company's sugarbeet by-products include molasses and beet pulp. After
the extraction of raw juice from the cossettes, the remaining pulp is dried and
processed into animal feeds. The Company processes approximately one-half of its
molasses through its molasses desugarization facility to extract additional
sugar. The remaining molasses and CSB from the molasses desugarization process
are marketed through Midwest Agri-Commodities Company and are sold primarily to
yeast and pharmaceutical manufacturers and for use in animal feeds.
The Company also has its own Seed Division, which has been in existence
since the 1920's. The goal of the Seed Division is to ensure that the Company's
shareholders have the highest quality sugarbeet hybrids available to maximize
their production. Since the mid-1970s, American Crystal has had an effective
working arrangement with Danisco Seed of Denmark. Exchange of germplasm between
American Crystal and Danisco provides a wide genetic base in developing hybrids
by both companies. The Seed Division markets its seed to sugarbeet growers in
Michigan, Ohio, Montana, Wyoming, Colorado, Nebraska, Idaho, Oregon and
Washington.
RECENT CROPS
The sugarbeet crop grown during 1997 produced a total of approximately 18.6
tons of sugarbeets per acre from roughly 463,000 acres. That production exceeded
the ten-year average of 16.9 tons per acre for the years from 1987 through 1996.
The sugar content of the 1997 crop was 17.59%, in comparison to a ten year
average for the applicable period of 17.39%. The Company has begun processing
the sugarbeets produced in the 1997 crop and expects to produce a total of
approximately 23.1 million hundredweight of sugar from that crop.
The sugarbeet crop grown during 1996 produced a total of approximately 18.1
tons of sugarbeets per acre from roughly 459,000 acres. That production exceeded
16.8 tons per acre, which is the ten-year average of tons per acre for the years
from 1986 through 1995. The sugar content of the 1996 crop was 17.3%, in
comparison to a ten year average for the applicable period of 17.5%. The Company
produced a total of roughly 22.2 million hundredweight of sugar from the 1996
sugarbeet crop.
American Crystal's members harvested approximately 8.0 million tons of
sugarbeets from 430,000 acres for the 1995 crop. The approximately 18.7 ton per
acre crop yield was higher than the then-current 16.6 ton per acre 10 year
average. Sugar content for the 1995 crop was approximately 16.4%, which is 1.1%
3
<PAGE>
lower than the then-current ten year average of 17.5%. Beet processing began on
September 7, 1995 and the Company produced 20.2 million hundredweights of sugar
during the 1995-1996 campaign.
For a discussion of the 1996, 1995 and 1994 crops and results of operations
for fiscal years 1997, 1996 and 1995, see "Management's Discussion and Analysis
of Financial Condition and Results of Operations".
MARKET AND COMPETITION
According to United States government estimates, the United States market
for sugar during the year beginning on October 1, 1995 and ending on September
30, 1996 totaled approximately 176 million hundredweights of sugar. That
estimate suggests the continuation of a trend of growth in the market in recent
years at a compounded rate of approximately 2% per year. For example, from a
market of approximately 146 million hundredweights in 1986, the total domestic
market grew to a total of approximately 180 million hundredweights in 1996.
Given the size of the total market, the Company's sugar production and sales
represented slightly more than 11.1% of the total domestic market for refined
sugar in 1994 and 1995.
The growth in the market for refined sugar in the late 1980s and the early
1990s is a reversal of trends in the 1970s and early 1980s which resulted in a
reduced market for refined sugar. During the 1970s and early 1980's, high
fructose corn syrup was increasingly used as a replacement for refined sugar in
certain food products. (The prime example of this trend was the use of high
fructose corn syrup in beverages such as soft drinks.) In addition,
non-nutritive sweeteners such as aspartame were developed and used in food
products. While high fructose corn syrup and non-nutritive sweeteners constitute
a large portion of the overall sweetener market, the Company believes that the
recent trend of increased use of refined sugar results from population growth
and increased acceptance of the use of sugar as a desirable natural ingredient
in a normal diet.
4
<PAGE>
The trends described in the preceding paragraph are illustrated by the
following chart:
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MILLION SHORT TONS RAW VALUE
<S> <C>
1981/2 9.206
1982/3 8.874
1983/4 8.578
1984/5 8.097
1985/6 7.794
1986/7 8.046
1987/8 8.193
1988/9 8.264
1989/0 8.531
1990/1 8.901
1991/2 9.006
1992/3 9.197
1993/4 9.333
1994/5 9.337
1995/6 9.700
</TABLE>
Company's main competitors in the domestic market are beet sugar processors
including Holly Sugar Corporation (a division of Imperial Holly Corporation),
Western Sugar Company (a subsidiary of Tate & Lyle, PLC.), Amalgamated Sugar
Company, Michigan Sugar Company (wholly-owned by Savannah Foods and Industries,
Inc.) and Monitor Sugar Company, Inc. The Company's products also compete with
cane sugar refined by Savannah Foods and Industries, Inc., Hawaiian Sugar
Company, U.S. Sugars, Imperial Holly Corporation and Domino Sugar (a subsidiary
of Tate & Lyle, PLC). Because sugar is a fungible commodity, competition for
sales volume is based primarily upon price, customer service and reliability.
According to USDA statistics, the Red River Valley is generally one of the
most cost efficient sugarbeet producing areas in the nation. As a result, the
Company's management believes that it possesses the ability to compete
successfully with other producers of sugar in the United States. In spite of
this competitive advantage, substitute products and sugar imports could have a
material and adverse effect on the Company's operations in the future.
Consumption of corn sweeteners is projected to grow at an annual rate of 4
to 5% over the next five years. However, as noted elsewhere herein,
forward-looking statements such as the projected increase in the consumption of
corn sweeteners are subject to uncertainty. Food manufacturers are currently
increasing their research and development budgets to expand their ingredients to
include corn sweeteners. Information received by the Company from industry
experts suggests that a number of companies are switching some of their corn
sweetener production capacity into the production of additives for functional
foods. These additives may include B complex, lysine, glycerin, and various
vitamins.
5
<PAGE>
GOVERNMENT PROGRAMS AND REGULATION
Domestic sugar prices are supported under a program administered by the
USDA. Under the current program, which was initiated in 1981 and extended under
the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act
of 1990 and the Federal Agriculture Improvement and Reform Act of 1996 (the
"FAIR Act"), the price of sugar is maintained above the price at which producers
could forfeit sugar to repay nonrecourse loans obtained through the Commodity
Credit Corporation (the "CCC"). The USDA maintains sugar prices without cost to
the U.S. Treasury by regulating the quantity of sugar imports. Under the "Tariff
Rate Quota" implemented October 1, 1990, sugar producing countries are assigned
a fixed quantity of imports duty-free or subject to minimal duties. Unlimited
additional quantities may be imported upon payment of a tariff of 16 cents per
pound prior to shipment. (To date, only minute quantities of sugar have been
imported under this higher tariff level.)
The Uruguay Round agreement under the General Agreement on Tariffs and Trade
(GATT) mandates imports of at least 1,257,000 short tons of sugar per year into
the United States. The FAIR Act maintains the basic 18 cent per pound loan rate
for raw sugar and puts in place a 22.90 cent per pound loan rate for refined
beet sugar. Both loan rates are effective for crop years 1996 through 2002.
Price support loans are to be made on a non-recourse basis provided that United
States sugar imports for domestic usage exceed 1.5 million short tons raw value
in a given fiscal (October through September) year. Loans made on a non-recourse
basis enable the sugar processor to forfeit sugar to the CCC if sugar prices are
below the loan rate. If imports during a given year are less than 1.5 million
short tons, loans must be made on a recourse basis, meaning that processors will
not be able to forfeit sugar to the CCC at its full loan value. In order to
recover the full value of a recourse loan, the CCC could require that cash or
other assets be provided in addition to the sugar used as collateral when the
loan is made. Another provision of the FAIR Act is a one cent per pound penalty
paid by processors if the processor defaults on sugar price support loans.
The nature and scope of future legislation affecting the sugar market cannot
be predicted and there can be no assurance that price supports will continue in
their present form. If the price support program, including the Tariff Rate
Quota system described above, were eliminated in its entirety or if the
protection the United States' price support program provides from foreign
competitors were materially reduced, the Company could be materially and
adversely effected. In such a situation, if the Company were not able to adopt
strategies which would allow it to compete effectively in a greatly changed
domestic market for sugar, the adverse affects could impact the Company's
continued viability and the desirability of growing sugarbeets for delivery to
the Company. Such events could significantly impair the value of the shares of
Preferred Stock in which are embodied the right and obligation to deliver
sugarbeets.
MARKETING, CUSTOMERS AND PRICES
Since January, 1994, American Crystal's sugar has been marketed by United
Sugars Corporation, a cooperative common marketing agency. United Sugars
Corporation was formed in late 1993, at which time American Crystal contributed
approximately $6,880,000, in the form of certain assets, to the capital of
United Sugars Corporation. In exchange for that capital contribution, the
Company received an ownership interest of approximately 69%. (American Crystal's
representatives on the United Sugars Corporation Board of Directors total
one-third of the members of the United Sugars Corporation Board of Directors
and, therefore, American Crystal does not possess a controlling interest in the
day-to-day affairs of United Sugars Corporation, except to the extent that
certain Board actions must also be approved by the members of the association
including, for example, mergers or consolidations, sales or liquidations of
substantially all of the association's assets, and dissolution of the
association.) Upon completion of the incorporation and capitalization of United
Sugars Corporation, American Crystal entered into a "Uniform Member Marketing
Agreement" with United Sugars Corporation. Under that agreement, the sugar
produced by American Crystal is pooled with sugar produced by Minn-Dak Farmers
Cooperative and Southern Minnesota Beet Sugar Cooperative and is then sold
through the efforts of United Sugars Corporation. The
6
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Company receives payment for its sugar by receiving its pro rata share of the
net proceeds from the sale of the pooled sugar. The net proceeds of such sales
represent the gross proceeds of sale of the sugar, adjusted for the various
costs and expenses of marketing the pooled sugar, including the Company's pro
rata share of the marketing and sales expenses incurred by United Sugars
Corporation. Any net proceeds from the operation of United Sugars Corporation
are distributed to the various members on a patronage basis.
On September 15, 1997, United Sugars Corporation entered into a Transaction
Agreement with United States Sugar Corporation ("USSC"), a grower of sugar cane
and other agricultural products, providing for the admission of USSC as a member
of United Sugars Corporation. As of the date of this annual report, all
documents necessary for closing on the Transaction Agreement have been delivered
into escrow and a final closing is expected to occur by mid-December 1997. At
such time as USSC formally becomes a member of United Sugars Corporation, United
Sugars Corporation and USSC will enter into a Uniform Cane Sugar Marketing
Agreement, which will provide that USSC will market all of its refined sugar
through United Sugars Corporation. At such time, existing members of United
Sugars Corporation, including the Company, will be required to enter into
amended marketing agreements reflecting the admission of USSC. With the
admission of USSC, United Sugars Corporation will be able to distribute both
cane sugar and beet sugar, and distribute sugar to customers over a large
geographical area.
In 1993 and earlier years, American Crystal marketed most of its sugar
through direct sales efforts, supplemented by the efforts of sugar brokers
retained by the Company. Since 1994, the Company has marketed its sugar
exclusively through United Sugars Corporation. The Company's sugar is sold in
bulk, as liquid sugar and in cartons and bags ranging in size from 1 to 100
pounds.
The Company's sugar is marketed by United Sugars Corporation primarily to
industrial users such as confectioners, breakfast cereal manufacturers and
bakeries. For the fiscal year ended August 31, 1997, 88% (by weight) of the
Company's sugar production was sold to industrial users. The remaining portion
is marketed by United Sugars Corporation through sugar brokers to wholesalers
and retailers under the "Crystal Sugar" brand name and various private labels
for household consumption.
A recently-executed licensing agreement with Pillsbury Company will allow
United Sugars Corporation to sell sugar nationwide under the "Pillsbury" name.
United Sugars Corporation has indicated that it believes that the opportunity to
distribute sugar nationwide under the Pillsbury name will allow the expansion of
its presence in the consumer portion of the sugar market, with the goal of
expanding the portion of its members' sugar sold in that higher margin segment
of the sugar market.
Customers are located primarily in Illinois, Minnesota, Iowa, Wisconsin,
Pennsylvania, Michigan, Indiana, Ohio, Missouri and Tennessee. During fiscal
1997, the Company's 10 largest customers purchased approximately 57.9% (by
weight) of the Company's sugar sold.
The prices at which United Sugars Corporation sells the Company's sugar
fluctuates periodically based on changes in domestic sugar supply and demand.
The largest proportion of American Crystal's sales are contracted one or more
quarters in advance, with the effect of stabilizing fluctuations in revenue from
quarter to quarter. Retail (grocery) products are sold on a spot price basis.
Sugar prices were at a premium in 1996 due to sugarbeet shortages and
insufficient refinery capacity. During 1997 sugar prices decreased due to
increased production in the sugar industry and larger import quotas.
American Crystal markets dried beet pulp, molasses and CSB through Midwest
Agri-Commodities Company, a cooperative whose members are American Crystal,
Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. Beet
pulp is marketed to livestock feed mixers and livestock feeders in the United
States and foreign markets. For the year ended August 31, 1997, the majority of
American Crystal's pulp production was exported to Japan and Europe. The market
for beet pulp is affected by the availability and quality of competitive
feedstuffs. Beet molasses is marketed primarily to yeast manufacturers,
pharmaceutical houses, livestock feed mixers and livestock feeders. By-product
sales accounted for approximately 11% of the Company's total revenues during
fiscal 1997. This relationship is
7
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primarily a function of the average market prices for sugar, pulp and molasses
and is not necessarily indicative of future relationships between by-product and
sugar revenues, because prices of these commodities fluctuate independently of
each other.
For a short period of time in the early 1990s, the Company (through United
Sugars Corporation) sold a portion of its sugar in the Canadian market. Due to
the imposition of significant duties, the Company does not currently consider
Canada to be a market for its products. The Company believes that consumption in
the United States represents an adequate market for the Company's sugar.
GROWERS' CONTRACTS
American Crystal purchases virtually all of its sugarbeets from members
under contract with the Company. All members have five-year contracts with the
Company covering the growing seasons of 1993 through 1997 (the "Growers'
Contracts"). Each member will be obligated to enter into a new five-year
contract for subsequent years. In addition, each member has an annual contract
with the Company specifying the number of acres the member is obligated to grow
during that year. Each share of Preferred Stock held by a member entitles that
member to grow one acre of sugarbeets for sale to the Company. The Company's
Board of Directors has the discretion to adjust the acreage which may be planted
for each share of Preferred Stock held by the members. However, it is
management's current intention and recommendation to the Board of Directors that
the relationship between shares of Preferred Stock and acres of sugarbeet
production be maintained at a ratio of 1 to 1 for the foreseeable future,
subject to tolerances for overplanting and underplanting established by the
Board each year.
The total price for sugarbeets paid to a member (the "Net Beet Payment") is
based on the "Gross Beet Payment," as adjusted by certain allowances, costs and
deductions. The Gross Beet Payment is the value of recovered sugar from the
beets a member delivers plus the member's share of by-product revenues, minus
the member's share of member business operating costs, including depreciation
and interest. The following allowances, costs and deductions, if applicable, are
used to adjust the Gross Beet Payment to arrive at the Net Beet Payment: hauling
allowance program costs, early delivery allowance program costs, minimum payment
allowance program costs, and unit retains. Growers are paid a hauling allowance
based on the distance they must transport beets for delivery to the Company and
may also receive minimum beet payments and an allowance for early delivery of
beets prior to the commencement of the stockpiling of harvested sugarbeets. The
costs of these programs are shared among members on the basis of the net tonnage
of beets delivered by each member.
Under the current Growers' Contracts, payments to members for sugarbeets
must be made in at least four installments: (i) on or about November 15, the
Company pays its members an amount equal to 60% of the Company's estimate of the
grower's Net Beet Payment; (ii) on or about March 31, the Company pays an amount
which combined with the November payment equals 85% of the estimated Net Beet
Payment; (iii) on or about September 30, the Company pays an amount which
combined with the November and March payments equals 95% of the estimated Net
Beet Payment; and (iv) not more than 15 days after completion and acceptance of
the audit of the Company's annual financial statements, the Company pays the
remainder of the member's Net Beet Payment. Except for unit retains, the Company
must pay to members for their sugarbeets all proceeds from the sale of sugar and
by-products in excess of related member business operating costs, as described
above.
8
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The following tables summarize the "Gross Beet Payment" and "Net Beet
Payment" and the "Sugar Content of Sugarbeets" for each of the last 10 completed
fiscal years, respectively:
<TABLE>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996
--------- --------- --------- --------- --------- --------- --------- --------- ---------
DISTRIBUTION OF NET PROCEEDS--TOTALS (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Proceeds............ $ 270,736 $ 216,878 $ 209,510 $ 259,229 $ 269,388 $ 303,842 $ 261,571 $ 320,549 $ 310,206
Non-Member
(Income)/Loss......... (802) 844 698 1,058 1,075 77 544 15 396
Hauling Allowance....... 5,769 3,482 3,900 4,140 5,522 5,413 4,531 6,144 6,038
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross Beet Payment...... $ 275,703 $ 221,204 $ 214,108 $ 264,427 $ 275,985 $ 309,332 $ 266,646 $ 326,708 $ 316,640
Unit Retains............ (9,610) (7,316) (7,995) (8,010) (10,364) (20,223) (19,328) (16,648) (16,040)
Member Tax ADJ, Net..... (3,141) 1,908 1,922 589 676 447 12,585 5,621 0
Hauling Allowance....... (5,769) (3,482) (3,900) (4,140) (5,522) (5,413) (4,531) (6,144) (6,038)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Beet Payment........ $ 257,183 $ 212,314 $ 204,135 $ 252,866 $ 260,775 $ 284,143 $ 255,372 $ 309,537 $ 294,562
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
DISTRIBUTION OF NET PROCEEDS--PER TON HARVESTED(1)
Net Proceeds............ $ 42.22 $ 44.44 $ 39.27 $ 48.50 $ 38.95 $ 45.03 $ 40.55 $ 38.47 $ 38.64
Non-Member
(Income)/Loss......... (0.12) 0.17 0.13 0.20 0.16 0.01 0.09 0.00 0.05
Hauling Allowance....... 0.90 0.71 0.73 0.77 0.80 0.80 0.70 0.74 0.75
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Gross Beet Payment...... $ 43.00 $ 45.32 $ 40.13 $ 49.47 $ 39.91 $ 45.84 $ 41.34 $ 39.21 $ 39.44
Unit Retains............ (1.50) (1.50) (1.50) (1.50) (1.50) (3.00) (3.00) (2.00) (2.00)
Member Tax ADJ, Net..... (0.49) 0.39 0.36 0.11 0.10 0.07 1.95 0.68 0.00
Hauling Allowance....... (0.90) (0.71) (0.73) (0.77) (0.80) (0.80) (0.70) (0.74) (0.75)
--------- --------- --------- --------- --------- --------- --------- --------- ---------
Net Beet Payment........ $ 40.11 $ 43.50 $ 38.26 $ 47.31 $ 37.71 $ 42.11 $ 39.59 $ 37.15 $ 36.69
--------- --------- --------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- --------- --------- ---------
SUGAR CONTENT OF SUGARBEETS(1)
Tons Harvested (In
Thousands):........... 6,413 4,881 5,336 5,345 6,915 6,748 6,450 8,332 8,029
Tons Purchased Per Acre
Harvested:............ 19.3 13.4 14.5 13.4 17.4 16.9 16.3 20.2 18.7
Sugar Content of
Beets:................ 18.1% 18.2% 16.7% 18.6% 17.0% 18.0% 17.6% 16.8% 16.4%
<CAPTION>
1997
---------
<S> <C>
Net Proceeds............ $ 366,756
Non-Member
(Income)/Loss......... 18,074
Hauling Allowance....... 6,893
---------
Gross Beet Payment...... $ 391,723
Unit Retains............ (16,611)
Member Tax ADJ, Net..... 0
Hauling Allowance....... (6,893)
---------
Net Beet Payment........ $ 368,219
---------
---------
Net Proceeds............ $ 44.12
Non-Member
(Income)/Loss......... 2.17
Hauling Allowance....... 0.83
---------
Gross Beet Payment...... $ 47.12
Unit Retains............ (2.00)
Member Tax ADJ, Net..... 0.00
Hauling Allowance....... (0.83)
---------
Net Beet Payment........ $ 44.29
---------
---------
Tons Harvested (In
Thousands):........... 8,313
Tons Purchased Per Acre
Harvested:............ 18.1
Sugar Content of
Beets:................ 17.3%
</TABLE>
- ------------------------------
(1) Information provided with respect to net proceeds, gross beet payment, net
beet payment, tons harvested per acre and sugar content of beets represents
an average of the financial and production results experienced by the
Company's members. As described elsewhere in this annual report, the return
to members for their sugarbeets is based upon the value of the recovered
sugar from the beets delivered to the Company by each member. As a result of
variations in the sugar content of the sugarbeets delivered by the various
members to the Company, the payments received by the various members also
vary.
RESEARCH AND DEVELOPMENT
American Crystal operates a research complex in Moorhead, Minnesota. The
Research Center is primarily involved in the development of technologies related
to improved factory operations, development of process efficiency technology,
and development of new technologies in beet seeds. The Company's research and
development expenses for 1997, 1996 and 1995 were approximately $4,387,000,
$4,535,000 and $4,669,000, respectively.
In recent years research conducted by the Company has been diversified into
technical services and agriculture research. Technical services has focused
primarily on the testing and evaluation of technologies related to improved
factory operations and development of process efficiency concepts. Technical
services research also concentrates on developing tests and recommending
instrumentation for use in monitoring beet sugar processes, including molasses
desugarization. The results of these efforts will allow plant operators to be
proactive and to react to problems quickly, thereby improving the overall
recovery of sugar from the beets.
9
<PAGE>
The Company is also engaged in ongoing research with respect to beet seed.
This research focuses primarily on the development of agricultural practices for
the piling and storage of sugarbeets, as well as the monitoring and treatment of
sugarbeet diseases and insect infestations. Additionally, coded variety testing
and reporting are key services this area provides for the growers. The results
of this testing is critical in assisting growers' decision making during the
selection of beet seed for planting. The Company and its members also contribute
resources to a number of public research institutions for general research
related to sugarbeets and their use. Those institutions include North Dakota
State University, University of Minnesota, University of Minnesota Crookston,
the Beet Sugar Development Foundation and programs operated by the USDA.
ENVIRONMENTAL MATTERS
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an on-going and expanding
control program designed to meet these environmental laws and regulations.
American Crystal believes that it is in substantial compliance with applicable
environmental laws and regulations.
The Company was cited in July 1994 by the State of Minnesota for
non-compliance with nitrous oxide emissions from the pulp driers at the East
Grand Forks facility. The notice of violation indicated that the operation of
the East Grand Forks facility created emissions in excess of those described in
the permit previously granted by the Minnesota Pollution Control Agency ("MPCA")
for that facility. The East Grand Forks facility subsequently converted to the
use of natural gas, rather than coal. The conversion to natural gas has resulted
in lower nitrous oxide emissions, in compliance with MPCA limits. The MPCA has
sent the Company a letter stating that the Company's nitrous oxide emissions
from the East Grand Forks facility are currently in compliance with MPCA limits.
The Company has converted the pulp drier operations in three of its five
factories. The conversion from coal to natural gas will allow the Company to
operate the driers in compliance with state and federal requirements. The
conversion for East Grand Forks was completed in 1995. The conversion for the
Moorhead and Crookston facilities was completed in 1996.
A notice of violation was received in April 1995, from the State of North
Dakota regarding emissions from the pulp drier at the Hillsboro factory. The
Company retested emissions from the drier and is in compliance with North Dakota
emission limits.
JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY
American Crystal is one of three members of ProGold Limited Liability
Company ("ProGold"). ProGold was formed in July, 1994 as a limited liability
company to serve as a joint venture mechanism for the Company, Minn-Dak Farmers
Cooperative and Golden Growers Cooperative, a North Dakota cooperative
association comprised of corn producers. The joint venture was formed to
construct and operate a corn wet-milling plant capable of processing corn to
produce corn sweeteners (including high fructose corn syrups) and various
by-products. ProGold's plant, which became operational in late 1996, is
currently fully operational and has obtained certification from its significant
customers.
American Crystal contributed a total of approximately $48 million for its
membership interest in ProGold and received a 46% interest in ProGold. Golden
Growers Cooperative contributed approximately $51 million in exchange for a 49%
interest in ProGold, while Minn-Dak Farmers Cooperative made a capital
contribution of approximately $5.2 million in exchange for a 5% interest in
ProGold. Under the terms of the ProGold Member Control Agreement, in each year
after September 1, 1997, the ProGold Board of Governors can require that the
three members of ProGold provide additional capital contributions in an
aggregate amount not to exceed $5 million per year, with each member obligated
to provide a portion of that capital contribution proportionate to its ownership
interest in ProGold. As a result, the
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Company could be required to make annual contributions in an amount of up to
$2.3 million per year, based on the Company's ownership of a 46% interest in
ProGold. Any other capital contributions can be required only with the prior
written consent of all of ProGold's members, including the Company.
Representatives of ProGold, the Company, Minn-Dak Farmers Cooperative and
Golden Growers Cooperative have entered into various agreements relating to the
ownership and operation of ProGold and the corn wet-milling plant. The contracts
include (i) contract marketing agreements under which United Sugars Corporation
and Midwest Agri-Commodities Company would market various products on behalf of
ProGold, (ii) Uniform Member Marketing Agreements under which American Crystal,
Minn-Dak Farmers Cooperative and Golden Growers Cooperative are obligated to
deliver to ProGold the corn to be processed at the processing plant and (iii)
administrative services agreements under which the Company provides services
such as accounting, financial planning support and human resources services to
both ProGold and Golden Growers Cooperative.
The Uniform Member Marketing Agreement between American Crystal & ProGold
was cancelled on Oct. 29, 1997. Under the arrangements, the Company was
responsible for providing corn to ProGold in proportion to the Company's
ownership interest in ProGold. As a result, the Company was required to provide
46% of the corn used at ProGold's facility. In years when the ProGold facility
is operating at full capacity, the Company would have been required to deliver
approximately 13.8 million bushels of corn to ProGold. Under the Company's
agreements with ProGold, the Company did not receive payment for the corn upon
delivery. Instead, the Company would have received payment of its proportionate
share of ProGold's revenues from the sale of corn sweeteners and related
products, less its proportionate share of ProGold's operating expenses (which
will not include the cost of corn.) The distribution of ProGold's net revenues
was intended to provide both compensation for the corn delivered to ProGold by
the Company and the Company's share of ProGold's profits, if any. While ProGold
intended to distribute net revenues to its members as soon as possible following
receipt of proceeds from the sale of its products, the Company anticipated that
it would have received periodic distributions from ProGold during each year,
with a final distribution to be made following the close of ProGold's fiscal
year. To the extent that ProGold's operations did not result in a profit, the
Company would have received distributions from ProGold in an amount less than
the Company's cost to acquire the corn delivered to ProGold for processing.
ProGold and Cargill, Incorporated ("Cargill") have entered into a lease of
ProGold's corn wet-milling plant to Cargill. The lease commenced on November 1,
1997, and will terminate on December 31, 2007. Under the arrangement, the
Company and its ProGold partners will retain ownership of the plant, while
Cargill will operate the plant. ProGold will receive rental payments in a base
amount fixed for each year during the term of the lease. ProGold will also
receive supplemental rent equal to fifty percent (50%) of the amount by which
earnings before taxes from Cargill's operation of the facility exceeds a
contractually-specified base amount. Under the terms of the lease, Cargill has
also entered into a corn supply agreement with ProGold, pursuant to which
ProGold will be obligated to deliver approximately 15.6 million bushels of corn
per fiscal year. Cargill will pay ProGold a market price for any corn delivered
to Cargill under the corn supply agreement. The lease specifies a variety of
alternatives which may take effect upon expiration of the initial term of the
lease. ProGold and Cargill could negotiate a ten year extension of the lease
upon mutually agreeable terms and conditions, ProGold could offer to sell the
facility to Cargill at a fair market value or ProGold could offer to sell
Cargill a fifty percent (50%) ownership interest in ProGold. If the parties are
unable to agree upon the terms and conditions of any such transaction, ProGold
can enter into a similar transaction with a third party. However, in each case,
including a lease of the facility to a third party, Cargill would have the first
right to engage in the proposed transaction upon the same terms as agreed to by
the third party.
If ProGold is successful in generating profits for distribution to is
members, those distributions would become the property of the Company. Under the
Company's Articles of Incorporation and Bylaws, the return, if any, from the
Company's involvement with ProGold would be classified as amounts received from
"non-patronage" sources. The Company's Bylaws currently provide that any
non-patronage net
11
<PAGE>
income is to become the property of the Company and is not to be distributed
directly to the members of the Company. Distributions from ProGold could, in the
discretion of the Company's Board of Directors, yield benefits to the Company's
members through such means as future reductions of annual unit retain amounts,
repayment of unit retains in advance of the current seven year repayment
schedule and the use of such returns, if any, for capital investment in the
Company. To date, the Company's Board of Directors has not adopted any
resolutions or made any commitments regarding the distribution of non-patronage
revenues directly to the Company's members or the application of any such
amounts for the indirect benefit of the Company's members. As described above,
any decisions regarding the application of distributions received by the Company
from ProGold will be made in the discretion of the Company's Board of Directors.
EMPLOYEES
As of August 31, 1997, American Crystal had 1,202 full-time employees, of
which 985 were hourly and 217 were salaried. The Company also had 38 part-time
employees. In addition, the Company employs approximately 1,466 additional
hourly seasonal workers during the sugarbeet harvest and approximately 518
hourly seasonal workers during the remainder of the sugarbeet processing
campaign.
Substantially all of the hourly employees at the factories, including
full-time and seasonal employees, are represented by the American Federation of
Grain Millers, AFL-CIO, and are covered by a collective bargaining agreement
expiring July 31, 1999. Office, clerical and management employees are not
unionized, except for certain office employees at the Moorhead and Crookston,
Minnesota, and Hillsboro, North Dakota, factories who are covered by the
collective bargaining agreement with the Grain Millers. The Company considers
its employee relations to be excellent.
Substantially all employees who meet eligibility requirements of age and
length of service are covered by one of the Company's two retirement plans. Plan
A (nonunion employees) and Plan B (union employees) are defined benefit,
noncontributory plans. The plans provide for vesting in five years with benefits
for early retirement, normal retirement and disability or death. The Company's
policy is to fund pension costs accrued, and the plans were fully funded for
vested benefits as of February 28, 1997, the end of the most recent plan year.
Union and nonunion employees are also eligible to participate in 401(k) savings
plans.
ITEM 2. PROPERTY AND PROCESSING FACILITIES
American Crystal operates five sugarbeet processing factories in the Red
River Valley. The factories are located in Crookston, East Grand Forks and
Moorhead, Minnesota and Drayton and Hillsboro, North Dakota. American Crystal
owns all of its factories and the land on which they are located. The factories
range in size from 150,000 to 400,000 square feet and have a combined beet
processing capacity, expressed in terms of quantity of sugarbeets which may be
sliced into strips or "cossettes," of approximately 30,400 tons per day. The
Crookston, Minnesota plant has a capacity of 5,300 tons of sugarbeets per day,
the East Grand Forks, Minnesota plant has a capacity of 8,000 tons of sugarbeets
per day and the Moorhead plant has a capacity of 5,300 tons of sugarbeets per
day. The Company's Hillsboro, North Dakota plant has a capacity of 5,900 tons of
sugarbeets per day, while the Drayton, North Dakota plant has a capacity of
5,900 tons of sugarbeets per day. Each of the processing factories includes the
physical facilities and equipment necessary to process sugarbeets into sugar.
Each factory has space for sugarbeet storage, including ventilated and cold
storage sites. However, only approximately 20% of the sugarbeet crop is stored
in either ventilated storage sites or cold storage facilities. Each processing
factory includes the washing and slicing equipment necessary to cut the
sugarbeets into cossettes, the diffusers necessary to extract sugar from the
cossettes in the form of "raw juice" and the purification systems necessary to
remove impurities from the raw juice. The factories also contain the evaporators
and vacuum pans necessary to thicken the raw juice and then to crystalize the
sugar. Each factory also contains the centrifuges and dryers necessary to
complete the process. The Company's sugar packaging facilities are
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<PAGE>
located at the Moorhead, Hillsboro, Crookston and East Grand Forks factories.
Each of the Company's facilities is currently operating at or near its capacity.
The capital expenditures discussed in "Use of Proceeds", along with additional
efforts to increase processing capacity at the Company's facilities, will enable
the Company to increase its sugarbeet processing capacity to process the
additional sugarbeets to be delivered in connection with the shares of Preferred
Stock issued in the offering described herein.
In 1996, the Company completed a number of capital improvements to its sugar
factories. For example, beet storage facilities and refined sugar
conditioning/storage bins were added at both the Hillsboro and Drayton
factories. (The beet storage facilities allow for expanding acres by extending
the length of the beet slicing campaign. The sugar conditioning/storage bins are
used to condition and store refined sugar.) A clarifier mud press was added to
the Moorhead factory to help reduce odors. The Moorhead factory also completed a
sugar screening station project designed to improve the packaging operations
there. A new beet piler was purchased for the Drayton factory district to
increase beet receiving capacity and efficiency. New juice purification stations
have been added at Drayton, Crookston and Moorhead. Evaporation equipment at
Hillsboro and East Grand Forks has been upgraded.
The Board of Directors has approved funding for a number of capital
expenditures aimed at enhancing the Company's processing capacity. From the date
hereof until August 31, 1998, the Company proposes to spend a total of up to
$56.9 million on increasing the ability of the current Hillsboro processing
facility to slice sugarbeets by approximately 1,800 tons per day. In addition,
the Company plans to increase its total number of beet storage facilities.
The Company is currently contemplating the formation of a joint venture for
the purpose of constructing a molasses desugarization plant at one of its
plants, which would allow the Company to desugar the balance of its molasses to
extract additional sugar. Currently, approximately one-half of the Company's
molasses is desugared. The Company's goal in entering into a joint venture to
construct the molasses desugarization plant is to reduce the Company's average
cost of sugar production, through the use of current separation technologies.
Although the Company's Board of Directors has approved the strategic initiative
of constructing the desugarization plant, the specific terms of a joint venture
have not yet been adopted and the Company has not entered into any agreements or
letters of intention or understanding with respect to the proposed joint
venture. The facility is anticipated to cost between $90 million and $100
million.
American Crystal's corporate office is located in a 30,000 square foot,
two-story office building in Moorhead, Minnesota. The Company also has a 100,000
square foot research center situated on approximately 200 acres in Moorhead,
Minnesota, a portion of which is used for the offices of United Sugars
Corporation, the Company's marketing agent. (United Sugars Corporation does own
certain facilities separate from the facilities owned by the Company.) The
Company owns both facilities, and owns numerous sites as sugarbeet receiving and
storage stations. All the Company's property, plant and equipment is mortgaged
or pledged as collateral for its indebtedness to the St. Paul Bank for
Cooperatives.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
From time to time and in the ordinary course of its business, the Company is
named as a defendant in legal proceedings related to various issues, including
worker's compensation claims, tort claims and contractual disputes. The Company
is currently involved in certain legal proceedings which have arisen in the
ordinary course of American Crystal's business; the Company is also aware of
certain other potential claims which could result in the commencement of legal
proceedings. The Company carries insurance which provides protection against
certain types of claims. With respect to current litigation and potential claims
of which the Company is aware, the Company's management believes that (i) the
Company has insurance protection to cover all or a portion of any judgments
which may be rendered against the Company with respect to certain claims or
actions and (ii) any judgments which may be entered against the Company and
which may exceed such insurance coverage or which may arise in actions involving
potential liabilities not covered by insurance policies are not likely to have a
material adverse effect upon the Company, or its assets or operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's shareholders during the
quarter ended August 31, 1997.
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is only a limited, private market for shares of the Company's Common
or Preferred Stock, as such shares may be held only by farmer-producers who are
eligible for membership in the Company. The Company's shares are not listed for
trading on any exchange or quotation system. Although transfers of the Company's
shares may occur only with the consent of the Board of the Directors, the
Company does not obtain information regarding the transfer price in connection
with such transfers. As a result, the Company is not able to provide information
regarding the prices at which the Company's shares have been transferred.
The purchase of the Common Stock and Preferred Stock should be considered a
long-term decision by each prospective member. Because the number of acres of
sugarbeets a member may grow for sale to the Company is directly related to the
number of shares of Preferred Stock owned, a limited, private market for
Preferred Stock exists. However, it is not anticipated that a general public
market for the Company's shares of Common Stock or Preferred Stock will develop
due to the limitations on transfer and the various membership requirements which
must be satisfied in order to acquire such shares.
A member desiring to sell his or her Common Stock or Preferred Stock must
first offer them to the Company for purchase at par value. If the Company
declines to purchase such shares, either class may be sold to a new member
(i.e., another farm operator not already a member) and Preferred Stock may be
sold to one or more existing members or farm operators approved for membership,
in each case subject to approval by the Board of Directors. To date, the
Company's Board of Directors has not exercised the Company's right of first
refusal to purchase shares offered for sale by its members. In the absence of
the exercise of such right of first refusal, the Company is aware of sales of
Preferred Stock at prices in excess of the par value of those shares. However,
as the Company does not require parties seeking approval for transfers to
provide information regarding the transfer price, the Company does not possess
verifiable information regarding the transfer price involved in recent transfers
of the Company's Preferred Stock. See "Description of Common Stock and Preferred
Stock."
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data of the Company should be read in conjunction
with the financial statements and related notes included elsewhere in this
Annual Report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT FOR RATIOS)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................... $ 677,004 $ 688,012 $ 605,960 $ 563,420 $ 542,665 $ 545,220
Net Proceeds Before Accounting Change.............. $ 366,756 $ 310,206 $ 320,549 $ 273,785 $ 303,842 $ 269,388
Cumulative Effect of Accounting Change(1).......... -- -- -- $ (12,214) -- --
Net Proceeds(2).................................... $ 366,756 $ 310,206 $ 320,549 $ 261,571 $ 303,842 $ 269,388
Total Assets....................................... $ 581,504 $ 465,136 $ 420,890 $ 324,469 $ 303,318 $ 278,989
Long-Term Debt, including current maturities....... $ 204,600 $ 190,919 $ 119,029 $ 115,834 $ 98,039 $ 91,615
Members' Investments............................... $ 175,928 $ 152,136 $ 142,047 $ 115,609 $ 120,113 $ 107,679
Property and Equipment Additions, net of
retirements...................................... $ 70,101 $ 43,168 $ 48,394 $ 50,824 $ 35,659 $ 42,046
Working Capital.................................... $ 45,652 $ 32,071 $ 28,046 $ 30,859 $ 32,819 $ 27,254
Ratio of Long-Term Debt to Equity(3)............... 1.07:1 1.17:1 .75:1 .88:1 .71:1 .71:1
Ratio of Net Proceeds to Fixed Charges(4).......... 13.3 14.3 11.6 15.0 14.2 15.0
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31
---------------------------------------------------------------------------
PRODUCTION DATA(5) 1997 1996 1995 1994 1993 1992 1991
- ------------------------------------------------------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Acres harvested........................................ 459 429 413 396 400 397 400
Tons purchased......................................... 8,313 8,029 8,332 6,450 6,748 6,915 5,345
Tons purchased per acre harvested...................... 18.1 18.7 20.2 16.3 16.9 17.4 13.4
Net beet payment per ton of sugarbeets purchased, plus
unit retains......................................... $ 46.29 $ 38.69 $ 39.15 $ 42.59 $ 45.11 $ 39.21 $ 48.81
Sugar hundredweight--
Produced............................................. 22,465 19,947 21,369 18,093 18,979 16,474 15,057
Sold, including purchased sugar...................... 20,579 22,179 19,702 19,450 17,957 17,262 14,936
Purchased sugar sold................................. 869 490 509 293 81 195 15
Pulp and molasses tons--
Produced............................................. 690 651 643 488 667 724 570
Sold................................................. 618 638 659 472 688 706 569
</TABLE>
- ------------------------------
(1) During 1994, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Post-Retirement Benefits Other than
Pensions" and Financial Accounting Standards No. 112, "Employers Accounting
for Post-Employment Benefits." The cumulative effect of application of the
new standards resulted in the reduction of net proceeds shown above for the
year ended August, 1994. See note number 8 to the Financial Statements for
the fiscal year ended August 31, 1996, for a more detailed description of
the accounting change.
(2) Net Proceeds are the Company's gross revenues, less the costs and expenses
of producing and marketing sugar, by-products and beet seed, but before
payments to members for sugarbeets. Payments to be made to members for the
delivery of sugarbeets are liabilities of the Company. (For a more complete
description of the calculation of Net Proceeds, see "Description of Business
Growers' Contracts.")
(3) Calculated by dividing the Company's long term debt, exclusive of the
current maturities of such debt, by members' investments.
(4) Computed by dividing (i) the sum of Net Proceeds plus interest plus
depreciation by (ii) the sum of interest plus principal payments. Although
the Company does lease certain items, such as some office furniture, office
equipment and computers, due to the proportionately small amounts involved,
such lease payments have not been included in the total of the Company's
Fixed Charges or the calculation of this ratio.
(5) Information for a fiscal year relates to the crop planted and harvested in
the preceding calendar year (e.g., information for the fiscal year ended
August 31, 1997 relates to the crop of 1996).
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITIONS AND RESULTS OF
OPERATIONS OF THE COMPANY SHOULD BE READ IN CONJUNCTION WITH THE COMPANY'S
FINANCIAL STATEMENTS AND NOTES THERETO INCLUDED ELSEWHERE IN THIS REPORT.
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
This Report contains forward-looking statements regarding, among other
items, the Company's growth strategy and anticipated trends in the Company's
business. These forward-looking statements are based largely on the Company's
expectations and are subject to a number of risks and uncertainties, certain of
which are beyond the Company's control. Actual results could differ materially
from these forward-looking statements as a result of the factors described
elsewhere herein, including, among others, regulatory or economic influences. In
light of these risks and uncertainties, there can be no assurance that the
forward-looking information contained in this Report will in fact transpire or
prove to be accurate.
LIQUIDITY AND CAPITAL RESOURCES
Because American Crystal operates as a cooperative, payments for member
delivered sugarbeets, the principal raw material used in producing the sugar and
agri-products it sells, are subordinated to all member business expenses. In
addition, actual cash payments to members are spread over a period of
approximately one year following delivery of their sugarbeet crops to American
Crystal and are net of unit retains allocated to them, both of which remain
available to meet American Crystal's capital requirements. This member financing
arrangement may result in an additional source of liquidity and reduced outside
financing requirements in comparison to a similar business operated on a
non-cooperative basis. However, because sugar is sold throughout the year (while
sugarbeets are processed primarily in the fall and winter) and because
substantial amounts of equipment are required for its operations, American
Crystal has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The majority of such financing has been
provided by the St. Paul Bank for Cooperatives (the "Bank"). American Crystal
has a long-term debt commitment with the Bank in 1997 of $216 million. The
Company also has a seasonal line of credit with the Bank of $240 million,
including any amounts obtained through issuance of instruments in its commercial
paper program. American Crystal also has a line of credit with Norwest Bank for
$10 million. The Company utilizes a commercial paper program, which provides for
short-term borrowings of up to $75 million.
RESULTS OF OPERATIONS
INDUSTRY ENVIRONMENT
During most of the 1970s and 1980s, the sweetener industry witnessed two
significant trends: the increase in consumption of non-nutritive sweeteners,
principally aspartame, and the increased use of high fructose corn syrup (HFCS)
in place of refined sugar (sucrose) in certain food products, primarily
beverages.
During the late 1980s and the early 1990s, the domestic consumption of U.S.
sugar continuously increased, from 146 million hundredweights in 1986 to 180
million hundredweights in 1996. The growth has been at a compounded rate of
approximately 2% a year during that period, although sugar consumption is
currently growing at a rate of approximately 1.6% per year. The Company believes
that this recent market trend has been due to population growth and general
acceptability of sugar as a desirable natural ingredient of a normal diet.
Consumption of corn sweeteners is projected to grow at an annual rate of 4
to 5% over the next five years. Food manufacturers are currently increasing
their research and development budgets to expand
17
<PAGE>
their ingredients to include corn sweeteners. Information received by the
Company from industry experts suggests that a number of companies are switching
some of their corn sweetener production capacity into the production of
additives for functional foods. These additives may include B complex, lysine,
glycerin, and various vitamins.
The Company's results of operations are substantially dependent on market
factors, including domestic prices for refined sugar. These market factors are
influenced by a variety of forces, including sugarbeet production, weather
conditions and United States farm and trade policy, that the Company is unable
to predict. See "Business Government Programs and Regulations." In addition,
weather conditions during the growing, harvesting and processing seasons, as
well as diseases and insects, may materially affect the quality and quantity of
sugarbeets available for purchase as well as the unit costs of raw materials and
processing. Sugar prices are currently at a premium due to sugarbeet shortages
and insufficient refinery capacity during 1995 and 1996.
COMPARISON OF THE YEAR ENDED AUGUST 31, 1997 AND 1996
Revenue for the year ended August 31, 1997, was $677 million, a decrease of
$11 million from the same period in 1996. Revenue from total sugar sales
decreased 1.8% reflecting a 7.2% decrease in hundredweight sold and a 5.9%
increase in the average selling price per hundredweight. Revenue from pulp sales
increased 5.1% due to a 2.9% increase in the volume of pulp sold and a 2.1%
increase in the average selling price per ton. Revenue from molasses sales
decreased 11.5% due to a 12.3% decrease in the volume of molasses sold partially
offset by a .9% increase in the average selling price per ton. Revenue from
Concentrated Separated By-Product (CSB) increased 21.2% due to a 10.3% decrease
in the volume of CSB sold and a 35.5% increase in the average selling price per
ton.
Cost of product sold, exclusive of payments to members for sugarbeets,
decreased $79.9 million. The decrease was primarily due to the amount of
products sold compared to the prior year which was partially offset by increased
direct processing costs. Changes in product inventory levels decreased the cost
of product sold by $103 million. The cost associated with sugar purchased to
meet customer needs was up $1.1 million due to the short supply of inventory at
the beginning of the fiscal year. Fixed and committed expenses increased by 4.7%
due to higher depreciation costs.
Selling expenses decreased $10.5 million. The decrease is attributable
primarily to the decrease in the volume of sugar and by-products sold. General
and Administrative expenses decreased $2.7 million due primarily to lower
outside services and other general cost decreases.
Interest expense increased $7.1 million from $11.2 million during the year
ended August 31, 1996, to $18.3 million for the same period in 1997. This
resulted from higher average borrowing levels for long and short-term debt.
Non-member business activities resulted in a loss of $18.1 million for the
year ended August 31, 1997 as compared to a loss of $396,000 for the same period
in 1996. The majority of this loss is related to American Crystal's investment
in ProGold Limited Liability Company.
Payments to members for sugarbeets increased by $73.6 million from $294.6
million during the year ending August 31, 1996 to $368.2 million during the same
period in 1997. The increase is attributable to an increase in the sales price
for the Company's products, a reduction in the Company's expenses and additional
tons harvested.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1996, AND 1995
Revenue for the year ended August 31, 1996, was $688.0 million, an increase
of $82.0 million from 1995. Revenue from total sugar sales increased 15.4%,
reflecting a 12.6% increase in hundredweight sold and a 2.5% increase in the
average selling price per hundredweight. Revenue from pulp sales decreased 7.5%,
due to a 16.9% decrease in the volume of pulp sold partially offset by an 11.3%
increase in the
18
<PAGE>
average selling price per ton. Revenue from molasses sales increased 32.4%, due
to a 29.0% increase in the volume of molasses sold and a 2.6% increase in the
average selling price per ton. Revenue from Concentrated Separated By-Products
("CSB") increased 4.6%, due to a 2.4% increase in the volume of CSB sold and a
2.2% increase in the average selling price per ton. Revenue from beet seed sales
was down 4.5%, primarily due to decreased sales volume offset by an increase in
sales prices.
Cost of product sold, exclusive of payments to members for sugarbeets,
increased $72.5 million. The increase was primarily due to changes in product
inventory levels between 1996 and 1995, which impacted the cost of product sold
unfavorably by $77.1 million. Direct processing costs for sugar and pulp
decreased 2.5% primarily due to the harvesting and processing of a 3.6% smaller
crop. Fixed and committed expenses decreased by 2.9% due to a shorter processing
campaign.
Selling expenses increased $17.9 million. The increase was attributable
primarily to increased sales volume. General and administrative expenses
increased $4.5 million due primarily to higher information services costs,
capital projects expense and general increases in personnel costs, partially
offset by a favorable settlement of an IRS tax case.
Interest expense decreased $3.2 million from $14.5 million in 1995, to $11.3
million in 1996. This resulted from lower 1996 average interest rates for both
long-term and short-term debt, partially offset by higher average borrowing
levels.
Non-member business activities resulted in a loss of $396,000 in 1996 and a
loss of $15,000 in 1995.
Unit retains of $16.0 million and $16.6 million were withheld from members
in 1996 and 1995, respectively. The unit retain per-ton-purchased was $2.00 in
1996 and 1995.
Payments to members for sugarbeets decreased by $14.9 million from $309.5
million in 1995 to $294.6 million in 1996. The decrease is attributable
primarily to a decrease in tons harvested and a lower average sugar content from
the 1995 crop of sugarbeets.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1995, AND 1994
Revenue for the year ended August 31, 1995 was $606 million, an increase of
$42.5 million from 1994. Revenue from total sugar sales increased 4.6%,
reflecting a 1.3% increase in hundredweight sold and a 3.3% increase in the
average selling price per hundredweight. Revenue from pulp sales increased
42.8%, due to a 41.6% increase in the volume of pulp sold and an 0.8% increase
in the average selling price per ton. Revenue from molasses sales increased
49.9% due to a 36.1% increase in the volume of molasses sold and a 10.1%
increase in the average selling price per ton. Revenue from beet seed sales was
down 4.1% primarily due to decreased sales volume.
Cost of product sold, exclusive of payments for sugarbeets, decreased $25.4
million from $169.1 million in 1994 to $143.7 million in 1995. This was
primarily due to changes in product inventory levels between 1995 and 1994,
which impacted the cost of product sold favorably by $61.2 million. Also, the
cost of product sold was partially offset by increased process costs associated
with a large crop and higher costs for purchased sugar due to increased sales
volume.
Selling, general and administrative expenses increased $19.1 million from
$113.7 million to $132.8 million. This was due primarily to higher selling
expenses associated with the increased volumes of products sold. General and
administrative expenses increased 15.4% due primarily to higher outside service
costs and general increases in personnel costs.
Interest expenses increased $6.6 million from $7.9 million in 1994 to $14.5
million in 1995. This resulted from a higher 1995 average borrowing level and
higher interest rates for both long-term and short-term debt.
Non-member business activities resulted in a loss of $15,000 in 1995 and a
loss of $544,000 in 1994.
19
<PAGE>
Unit retains of $16.6 million and $19.3 million were withheld from members
in 1995 and 1994, respectively. The unit retain per-ton-purchased was $2.00 in
1995 and $3.00 in 1994.
Payments to members for sugarbeets increased by $54.1 million from $255.4
million in 1994, to $309.5 million in 1995 due primarily to an increase in tons
harvested in the 1994 crop.
1997 CROP AND ESTIMATED FISCAL YEAR 1998 INFORMATION
As noted in the "Growers Contracts" subsection of the "Description of
Business", the agreements between the Company and its members regarding the
delivery of sugarbeets to the Company require payment for members' sugarbeets in
four installments throughout the year after harvest of the applicable sugarbeet
crop. As only the final payment is made after the close of the fiscal year in
question, the first three payments to members for their sugarbeets are, of
necessity, based upon the Company's then-current estimates of the Net Beet
Payment arising from the processing of the crop in question and the subsequent
sale of the products obtained from processing those sugarbeets. This discussion
contains a summary of the Company's current estimates of the financial results
to be obtained from the Company's processing of the 1997 sugarbeet crop. Given
the nature of the estimates required in connection with the payments to members
for their sugarbeets, this discussion included forward-looking statements
regarding the quantity of sugar to be produced from the 1997 sugarbeet crop, the
net selling price for the sugar and agri-products produced by the Company and
the Company's operating costs. These forward-looking statements are based
largely upon the Company's expectations and estimates of future events; as a
result, they are subject to a variety of risks and uncertainties. Some of those
estimates, such as the selling price for the Company's products and the quantity
of sugar produced from the sugarbeet crop, are beyond the Company's control. The
actual results experienced by the Company could differ materially from the
forward-looking statements contained herein. As indicated above, the Company
will prepare new, then-current estimates in connection with the payment to the
members of the second and third installments of the Net Beet Payment. (Those
installments are expected to be made to the members with respect to the 1997
sugarbeet crop on or about March 31, 1998 and September 30, 1998, respectively.)
The recently completed harvest of the sugarbeet crop grown during 1997
produced a total of 8.6 million tons of sugarbeets, or approximately 18.6 tons
of sugarbeets per acre from roughly 463,000 acres. That production exceeded 16.9
tons per acre, which is the ten-year average of tons per acre for the years from
1987 through 1996. The sugar content of 1997 crop is 17.59% in comparison to a
ten year average for the applicable period of approximately 17.39%. The Company
expects to produce a total of roughly 23.1 million hundredweight of sugar from
the 1997 sugarbeet crop, representing an estimated increase of approximately .9
million hundredweight of sugar in comparison to the 1996 sugarbeet crop. Such
sugar production provides a total sugar recovery of approximately 269 pounds of
sugar for each ton of sugarbeets harvested by the Company.
Based on marketing information developed by United Sugars Corporation, the
Company's current estimate is that the average net selling price of the
Company's sugar will be approximately $23.50 per hundredweight, a decrease of
nearly $.07 from the ten year average of $23.57. The effect of the estimated net
selling price, when combined with the Company's anticipated recovery of sugar
from each ton of sugarbeets, results in expected sugar revenue per ton of
sugarbeets in an amount equal to $63.40 per ton.
The Company's sales of sugar must be added to the revenue produced by the
agri-products: molasses, beet pulp and Concentrated Separated By-product. The
Company's estimates of additional revenue would be $5.42 per ton of sugarbeets.
From the revenues generated from the sale of products produced from each ton
of sugarbeets must be deducted the Company's operating costs, which are
currently estimated to be $25.46 per ton. The deduction of those operating costs
results in an estimated gross beet payment of $43.36 per tons of sugarbeets.
With the subsequent deduction of a hauling allowance of $.87 per ton and
anticipated unit retains of $2.00 per ton for the fiscal year ending on August
31, 1998, the Company's current estimated Net
20
<PAGE>
Beet Payment is $40.50 per ton of sugarbeets. If successful in achieving the
estimated results, the Company's Net Beet Payment will be lower than the ten
year average Net Beet Payment by roughly $.17 per ton.
THE COMPANY'S CURRENT STRATEGIC PLAN
The Company's Board of Directors and management have been involved in a
continuing process of reviewing the Company's current business plans for the
future. In considering the Company's future activities, the Company's Board of
Directors and management have focused on possible scenarios in which the
marketplace might present a future environment in which prices for the Company's
products remain relatively stable while the Company's costs might increase at
roughly the rate of inflation. In order to prevent the possible negative impact
if such a scenario were to arise, the Company's Board of Directors and
management have identified three key strategies which the Company intends to
pursue. First, the Company believes that it would be in the best interests of
the Company to increase its market share. Second, the Company believes it
appropriate to optimize the selling price for its sugar while, third,
maintaining its current low cost producer status by further reducing costs.
With respect to increasing the Company's share of the domestic market for
sugar, the Company believes that it could sell more product if it could produce
the additional sugar. However, including the sugarbeet production represented by
the shares of Preferred Stock sold in the Company's recent offering, the
Company's facilities will be near or exceed their current production capacity.
Instead of investing the substantial sums necessary to build another sugarbeet
processing facility, the Company's management proposes to increase the Company's
capacity to process sugarbeets through sequential increases in processing
capacity at some of the Company's current facilities over the course of the next
ten years. The Company believes that adopting such a procedure will allow the
Company to complete an appropriate course of expansion without being exposed to
excessive debt or financing risk and while still allowing the Company to retain
the flexibility to reconsider the decision with respect to each incremental
increase in production capacity immediately prior to engaging in that activity.
The Company also believes that it may be possible for the Company to increase
its market share through acquisitions of or joint ventures with other sugar
producers. The Company will consider each such transaction if and when such
opportunities arise.
In order to obtain the best selling price for its products, the Company
intends to focus on sales and marketing strategies which allow the Company to
provide its customers with an appropriate mixture of the Company's products. The
Company is optimizing its customer mix, improving logistics and continually
trying to evaluate and improve its customer performance.
To pursue the goal of maintaining and improving upon its current status as a
low cost producer, the Company intends to focus on working with its members to
increase the productivity of the members' sugarbeet farming operations. In
addition, the Company plans to focus on cost reduction at the factory level. At
the member level, the Company expects to focus on, among others, programs for
nitrogen management and new seed varieties. At the factory level, the Company
intends to pursue on-going maintenance and improvements related to, for example,
diffuser replacement at the East Grand Forks factory and expansion of sugarbeet
storage facilities. In addition, the Company is currently contemplating
participation in a joint venture to be formed to construct and operate a
molasses desugarization plant at one of the Company's plants, which would allow
the Company to desugar the balance of its molasses to extract additional sugar.
Currently, approximately one-half of the Company's molasses is desugared. The
Company's goal in participating in the molasses desugarization plant is to
reduce the Company's average cost of sugar production, through the use of
current separation technologies.
21
<PAGE>
ITEM 8. FINANCIAL STATEMENTS
The financial statements of the Company for the fiscal years ended August
31, 1997, 1996 and 1995 have been audited by Eide Helmeke PLLP, Fargo, North
Dakota, independent certified public accountants. Such financial statements have
been included herein in reliance upon the report of Eide Helmeke PLLP. The
financial statements of the Company are included in Appendix A to this annual
report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
BOARD OF DIRECTORS
The Board of Directors of the Company consists of three directors from each
of the five factory districts. Directors must be common shareholders or
representatives of common shareholders belonging to the district they represent
and are elected by the members of that district. In the case of a common
shareholder who is other than a natural person, a duly appointed or elected
representative of such common shareholder may serve as a director. The directors
have been elected to serve three-year terms expiring in December of the years
indicated in the table below. One director is elected each year from each
factory district.
The table below lists the current directors of the Company and a
director-elect. Brief biographies for each of the directors are included after
the table.
<TABLE>
<CAPTION>
TERM
YEAR OF DIRECTOR EXPIRES IN
NAME AND ADDRESS BIRTH FACTORY DISTRICT SINCE DEC.
- ------------------------------------------ ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Michael A. Astrup ........................ 1953 Moorhead 1996 1999
Box 219
Dilworth, MN 56529
Jerry D. Bitker .......................... 1948 Hillsboro 1996 1999
R.R. #1, Box 106
Halstad, MN 56548
Paul Borgen .............................. 1947 Moorhead 1985 1997
R.R. 1, Box 43
Georgetown, MN 56546
Richard Borgen ........................... 1949 Moorhead 1997 2000
R.R. 1, Box 36
Perly, MN 56574
Aime J. Dufault .......................... 1954 East Grand Forks 1990 2000
R.R. #1, Box 162
Argyle, MN 56713
Steven M. Goodwin ........................ 1958 East Grand Forks 1995 1998
R.R. 3, Box 116
Angus, MN 56712
Court G. Hanson .......................... 1948 Hillsboro 1993 1998
R.R. 2, Box 1
Blanchard, ND 58009
Lonn M. Kiel ............................. 1953 Crookston 1994 2000
R.R. 3, Box 71
Crookston, MN 56716
David J. Kragnes ......................... 1952 Moorhead 1995 1998
R.R. 1, Box 100
Felton, MN 56536
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
TERM
YEAR OF DIRECTOR EXPIRES IN
NAME AND ADDRESS BIRTH FACTORY DISTRICT SINCE DEC.
- ------------------------------------------ ----------- -------------------- ----------- -----------
<S> <C> <C> <C> <C>
Francis L. Kritzberger ................... 1945 Hillsboro 1996 2000
R.R. #1, Box 22
Hillsboro, ND 58045
Wayne Langen (Chairman) .................. 1939 Drayton 1988 2000
P.O. Box 133
Kennedy, MN 56733
Patrick D. Mahar ......................... 1942 Drayton 1993 1999
R.R. 1, Box 363
Cavalier, ND 58220-9789
Barry W. Malme ........................... 1947 Crookston 1986 1998
R.R. 1, Box 19K
Shelly, MN 56581
Ronald E. Reitmeier ...................... 1945 Crookston 1996 1999
Route 1, Box 49
Fisher, MN 56723
G. Terry Stadstad ........................ 1943 East Grand Forks 1993 1999
R.R. 2, Box 98
Grand Forks, ND 58203-9644
Robert Vivatson (Vice Chairman) .......... 1949 Drayton 1992 1998
P.O. Box 63
Cavalier, ND 58220
</TABLE>
MICHAEL A. ASTRUP. Mr. Astrup has been a director since 1996. He has been a
farmer near Dilworth, Minnesota, since 1977.
JERRY D. BITKER. Mr. Bitker has been a director since 1996 and has been a
farmer since 1974 near Halstad and Ada, Minnesota.
PAUL BORGEN. Mr. Borgen has been a director since 1985. His current term
expires in December, 1997. Pursuant to the Company's By-laws, a director may not
serve for a more than four consecutive terms; as a result, Mr. Borgen was not
eligible to stand for re-election for an additional term. Mr. Borgen has been a
farmer since 1968. Mr. Borgen's operations are near Georgetown, Minnesota, where
he serves as President of Paul Borgen Farms, Inc. Mr. Borgen serves on the
Boards of Directors of United Sugars Corporation and American Sugarbeet Growers
Association, Washington, D.C.
RICHARD BORGEN. Mr. Borgen was elected a director at the Company's recent
district meetings. His term as a director will begin in December 1997. He has
farmed east of Perly, Minnesota since 1967 and has served as a director on the
Perly Coop Elevator Board for nine years.
AIME J. DUFAULT. Mr. Dufault has been a director since 1990. He has farmed
near Argyle, Minnesota since 1974.
STEVEN M. GOODWIN. Mr. Goodwin has been a director since 1995. Mr. Goodwin
has been a farmer since 1980 and owns and operates a farm near Angus, Minnesota.
COURT G. HANSON. Mr. Hanson has been a director since 1993 and has been a
farmer since 1971. Mr. Hanson is president of C. Hanson Farm, Inc., operating
near Blanchard, North Dakota. Prior to farming, Mr. Hanson was an assistant
national bank examiner from 1970 to 1973.
24
<PAGE>
LONN M. KIEL. Mr. Kiel has been a director since 1994 and has been farming
near Crookston, Minnesota since 1982. He is the President of Kiel Corporation
and also serves on the Board of Directors of the Crookston Fuel Company.
DAVID J. KRAGNES. Mr. Kragnes has been a director since 1995. Mr. Kragnes
has been a farmer since 1972, with his farming operation located near Felton,
Minnesota.
FRANCIS L. KRITZBERGER. Mr. Kritzberger has been a director since 1996. He
has previously served as a director with the Company, from July 30, 1989 until
July 30, 1993. Mr. Kritzberger has been a farmer since 1964.
WAYNE LANGEN. Mr. Langen has been a director since 1988 and a farmer since
1963. Mr. Langen is a partner of Langen Bros. Joint Venture and operates its
farming operations near Kennedy, Minnesota. Mr. Langen serves on the Board of
Directors of Kennedy Farmers Elevator Company, United Sugars Corporation and
Midwest Agri-Commodities Company.
PATRICK D. MAHAR. Mr. Mahar has been a director since 1993 and has been a
farmer since 1962. He is currently a partner of Mahar Farms near Cavalier, North
Dakota. Mr. Mahar previously served as president of the Red River Valley
Sugarbeet Growers Association, Fargo, North Dakota, and as president of the
American Sugarbeet Growers Association, Washington, D.C. Mr. Mahar is currently
serving on the Boards of Directors of First State Bank and Farmers Coop
Elevator, both of Cavalier, North Dakota.
BARRY W. MALME. Mr. Malme has been a director since 1986. Mr. Malme has
been a farmer near Shelly, Minnesota since 1974. Mr. Malme is a director of
Midwest Agri-Commodities Company.
RONALD E. REITMEIER. Mr. Reitmeier has been a director since 1996, and has
been a farmer since 1968. He previously served on the Board of Directors of PKM
Electric Co-op for ten years.
G. TERRY STADSTAD. Mr. Stadstad has been a director since 1993 and has been
farming near Grand Forks, North Dakota since 1965. Mr. Stadstad serves on the
Board of Directors of United Sugars Corporation.
ROBERT VIVATSON. Mr. Vivatson has been a director since 1992. Operating as
a farmer near Cavalier, North Dakota since 1975, Mr. Vivatson is a partner of
Vivatson Bros. and president of Vivatson Farms Inc. Mr. Vivatson is serving on
the Board of Directors of First State Bank, Cavalier, North Dakota and on the
Board of Governors of ProGold Limited Liability Company.
The Board of Directors meets monthly. The Company provides its directors
with minimal compensation, consisting of (i) a payment of $200 per month, (ii) a
per diem payment of $200 for each day spent on Company activities, including
board meetings and other Company functions, and (iii) reimbursement of expenses
for attendance at Board of Directors' meetings. The Chairman of the Board of
Directors receives a payment of $500 per month, rather than $200 per month; the
Chairman also receives a per diem in the amount of $200 for each day spent on
Company activities.
EXECUTIVE OFFICERS
The table below lists the principal officers of the Company, none of whom
owns any shares of Common or Preferred Stock. Officers are elected annually by
the Board of Directors.
<TABLE>
<CAPTION>
YEAR OF
NAME BIRTH POSITION
- ----------------------------------------- ----------- -----------------------------------------
<S> <C> <C>
Daniel J. McCarty........................ 1952 Chief Executive Officer
Marcus F. Richardson..................... 1941 Chief Operating Officer
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
YEAR OF
NAME BIRTH POSITION
- ----------------------------------------- ----------- -----------------------------------------
James J. Horvath......................... 1945 Chief Financial Officer
<S> <C> <C>
Robert W. Levos.......................... 1943 Vice President-Agriculture
Lawrence L. Mathias...................... 1941 Vice President-Human Resources and Public
Relations
David A. Berg............................ 1954 Vice President-Business Development
James Dudley............................. 1950 Vice President-Operations
Ralph K. Morris.......................... 1940 Secretary
Samuel S.M. Wai.......................... 1953 Corporate Controller
Joseph J. Talley......................... 1960 Treasurer and Assistant Secretary
Mark L. Lembke........................... 1955 Assistant Secretary & Assistant Treasurer
Daniel C. Mott........................... 1959 Assistant Secretary
Ronald K. Peterson....................... 1955 Assistant Treasurer
Brian Ingulsrud.......................... 1962 Assistant Treasurer & Assistant Secretary
</TABLE>
DANIEL J. MCCARTY. Mr. McCarty was named Chief Executive Officer in April,
1996. Mr. McCarty has over fifteen years of experience in managing major
agricultural businesses. From 1992 through 1995, he was with Pet, Inc. as Group
Vice-President and President of the William Underwood subsidiary. He was
previously with Del Monte Foods for over ten years, where he was Director of the
flagship Del Monte Vegetable brand. Mr. McCarty serves on several Boards of
Directors, including United Sugars Corporation, Midwest Agri-Commodities
Company, the Sugar Association, Inc. and the U.S. Beet Sugar Association.
MARCUS F. RICHARDSON. Mr. Richardson has been Chief Operating Officer since
1995. Mr. Richardson has served in various manufacturing positions with the
Company since 1980 including, from 1986 to 1995, Vice President-Operations. Mr.
Richardson currently serves as a director of the Beet Sugar Development
Foundation, a non-profit industry association, and on the Board of Governors of
ProGold Limited Liability Company. Mr. Richardson also serves on the Board of
Directors of the Moorhead Economic Development Authority.
JAMES J. HORVATH. Mr. Horvath was named Chief Financial Officer in March,
1996. From June, 1994 to March, 1996, Mr. Horvath served as the Company's Vice
President-Joint Ventures as well as Chief Manager and Chief Operating Officer of
ProGold Limited Liability Company. Mr. Horvath also served as the Company's Vice
President-Finance from 1985-1994. Mr. Horvath currently serves on the Boards of
Directors of United Sugars Corporation and Midwest Agri-Commodities Company.
ROBERT W. LEVOS. Mr. Levos has been Vice President-Agriculture since 1986.
From 1981 to 1986 he was General Agriculturalist. He has been employed by the
Company since 1965. Mr. Levos currently serves on the Boards of Directors of
West Coast Beet Seed Company and the Beet Sugar Development Foundation.
26
<PAGE>
LAWRENCE L. MATHIAS. Mr. Mathias has been Vice President-Human Resources
and Public Relations since 1990. He was Industrial Relations Manager with the
Company from 1976 to 1990. He currently serves on the Board of Directors of Blue
Cross Blue Shield of Minnesota.
DAVID A. BERG. Mr. Berg was named Vice President-Business Development in
1996. He served as the Company's Vice President Strategic Planning from 1994 to
1996, Director-Market Information from 1992-1994, Manager of Marketing and
Analysis from 1990 to 1992 and Manager-Economic Research from 1987 to 1990. He
currently serves on the Regulatory Task Force of the U.S. Beet Sugar Association
and the Domestic Sugar Committee of the New York Coffee, Sugar and Cocoa
Exchange.
JAMES DUDLEY. Mr. Dudley has been Vice President-Operations since 1995.
From 1993 until August of 1995, Mr. Dudley served as Regional Manager and then
as Factory Operations Manager. Mr. Dudley served as Operations Manager at the
Company's Crookston factory from 1985 through 1993.
RALPH K. MORRIS. Mr. Morris has been Secretary of the Company since 1995.
He is a shareholder and the Chief Executive Officer of the law firm of Doherty,
Rumble & Butler Professional Association. The firm acts as corporate counsel to
American Crystal. Mr. Morris is not an employee of the Company.
SAMUEL S.M. WAI. Mr. Wai served as the Company's Treasurer from 1985 to
1996. He now serves as the Company's Corporate Controller. He held various
financial positions with the Company from 1979 to 1985.
JOSEPH J. TALLEY. Mr. Talley was named the Company's Treasurer in 1996. He
served as Finance Director, Assistant Treasurer and Assistant Secretary from
March 1996 until his appointment as Treasurer. From July 1994 to March 1996, Mr.
Talley served as Finance Director of ProGold Limited Liability Company. He
currently serves as Assistant Treasurer and Assistant Secretary of ProGold
Limited Liability Company, as well as Assistant Treasurer and Assistant
Secretary of Golden Growers Cooperative. Prior to July 1994, Mr. Talley was a
partner with the accounting firm of Eide Helmeke PLLP.
MARK L. LEMBKE. Mr. Lembke was named Assistant Secretary and Assistant
Treasurer in March 1996. Mr. Lembke has also served as the Company's Corporate
Accounting Manager since August 1995. From July 1987 through July 1995, Mr.
Lembke served as Factory Accounting Supervisor.
DANIEL C. MOTT. Mr. Mott has been Assistant Secretary of the Company since
1995. He is a shareholder in the law firm of Doherty, Rumble & Butler
Professional Association. The firm acts as corporate counsel to American
Crystal. Mr. Mott is not an employee of the Company.
RONALD K. PETERSON. Mr. Peterson has served as the Financial Systems
Manager since 1996 and as Assistant Treasurer since 1993. He currently holds
both positions. From 1993 through 1996, Mr. Peterson served as the Company's
Assistant Secretary. Mr. Peterson also served as the Company's Corporate
Accounting Manager from 1991 through 1996. Mr. Peterson has held various
financial positions with the Company since 1979.
BRIAN INGULSRUD. Mr. Ingulsrud became the Company's Financial Planning
Manager in 1997. He also serves as Assistant Treasurer and Assistant Secretary.
Mr. Ingulsrud began his employment with the Company in 1990, initially serving
as a Financial Analyst. In 1994, Mr. Ingulsrud became an Operations Financial
Planning Supervisor and in 1995 a Factory Office Manager. Prior to assuming his
current position as Financial Planning Manager, in 1996 Mr.Ingulsrud served as
SAP Implementation Manager.
27
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the amount of compensation paid for services
rendered to the Company during the fiscal year ended August 31, 1997 and the two
prior fiscal years to those persons serving as the Company's Chief Executive
Officer and to the four other most highly compensated executive officers of the
Company whose cash compensation exceeded $100,000 per annum.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------------
AWARDS
ANNUAL COMPENSATION ---------------------------- PAYOUTS
---------------------------------------------- RESTRICTED -----------
OTHER ANNUAL STOCK LTIP
SALARY COMPENSATION AWARD(S) OPTIONS/ SARS PAYOUTS
YEAR ($) BONUS ($) ($)(1) ($) (#) ($)
--------- --------- --------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel J. McCarty(2) ............... 1997 $ 410,000 $ 184,000 $ 19,102 $ 146,938(3)
Chief Executive Officer 1996 $ 149,808 $ 70,000 $ 77,372
Joseph P. Famalette(4) ............. 1997 $ 0 $ 0 $ 0
Chief Executive Officer 1996 $ 0 $ 0 $ 0
1995 $ 296,966 $ 0 $ 48,904
Marcus F. Richardson(6) ............ 1997 $ 254,555 $ 114,550 $ 71,718 $ 112,110(3)
Chief Operating Officer 1996 $ 245,000 $ 93,683 $ 60,550
1995 $ 268,000 $ 81,104 $ 31,220
James J. Horvath ................... 1997 $ 217,650 $ 97,943 $ 37,958 $ 45,925(3)
Chief Financial Officer 1996 $ 205,330 $ 71,866 $ 27,646
1995 $ 175,000 $ 61,250 $ 17,603
Robert W. Levos .................... 1997 $ 189,200 $ 85,140 $ 47,399 $ 43,223(3)
Vice President--Agriculture 1996 $ 178,490 $ 62,472 $ 37,222
1995 $ 163,750 $ 57,313 $ 19,192
Lawrence L. Mathias ................ 1997 $ 172,610 $ 69,044 $ 42,839 $ 36,469(3)
Vice President--Human 1996 $ 162,840 $ 56,994 $ 31,121
Resources and Public Relations 1995 $ 148,710 $ 52,049 $ 20,084
<CAPTION>
ALL OTHER
COMPENSATION
($)
-------------
<S> <C>
Daniel J. McCarty(2) ...............
Chief Executive Officer
Joseph P. Famalette(4) ............. $ 159,510(5)
Chief Executive Officer $ 83,333(5)
Marcus F. Richardson(6) ............
Chief Operating Officer
James J. Horvath ...................
Chief Financial Officer
Robert W. Levos ....................
Vice President--Agriculture
Lawrence L. Mathias ................
Vice President--Human
Resources and Public Relations
</TABLE>
- ------------------------------
(1) Includes the cost of additional life insurance coverage, use of a company
car, costs of tax return preparation, imputed interest, taxable moving
expenses reimbursed, the Company's matching contribution for 401(k) and SERP
and pension valuations.
(2) Mr. McCarty's employment with the Company began on March 28, 1996.
Calculated on an annualized basis, Mr. McCarty's salary for the fiscal year
ending on August 31, 1996 was $410,000.
(3) Represents the sum of (i) dollar value at $1,485 per share of contract
rights with respect to the vested portion of contract rights granted to the
executive under the Company's LTIP plan (described below) during the fiscal
year and (ii) "profit per acre payments" made to the executive under the
Company's LTIP plan. The profit per acre payments are determined by
subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the
result by the number of contract rights held by the executive.
(4) Mr. Famalette's employment with the Company ended on May 31, 1995.
(5) Represents forgiveness of installment payments due under loans from the
Company to Mr. Famalette. During Mr. Famalette's tenure with the Company,
the Company entered into certain contractual arrangements with Mr. Famalette
regarding his employment by the Company. Although the agreements
specifically indicated that Mr. Famalette was an employee at will, they were
intended to govern both (i) Mr. Famalette's bonuses during the period prior
to 1996 and (ii) severance payments due Mr. Famalette should his employment
with the Company be terminated. Effective March 2, 1992, the Company and Mr.
Famalette entered into a "Compensation, Loan and Severance Agreement". Among
other terms, that agreement established Mr. Famalette's initial compensation
at $250,000 per year. The agreement also provided for a loan of $250,000 to
Mr. Famalette. Evidenced by a promissory note, the loan was to be repaid in
three equal installments of $83,333.33. The first such installment was due
on March 2, 1993, the next installment was due on March 2, 1994 and the
final installment became due on March 2, 1995. However, the "Compensation,
Loan and Severance Agreement" provided that for each full year in which Mr.
Famalette remained employed as the President and Chief Executive Officer of
the Company, the sum of $83,333.33 due under the note would be forgiven. As
a result, on March 2, 1993, March 2, 1994, and March 2, 1995 the Company
forgave the installment
28
<PAGE>
payments due under the promissory note. The "Compensation, Loan and
Severance Agreement" specified that the loan and any amounts forgiven under
the terms of the agreement were provided to Mr. Famalette in lieu of any
other severance benefits to be paid upon termination of Mr. Famalette's
employment with the Company. Effective October 1, 1993, the Company entered
into a Compensation and Loan Agreement with Mr. Famalette. The agreement
governed Mr. Famalette's compensation for Mr. Famalette's employment by the
Company. The Compensation and Loan Agreement stated that Mr. Famalette's
annual base compensation during the period was to be $250,000, unless
adjusted by the Board of Directors of the Company. Effective October 1,
1994, Mr. Famalette's annual base compensation was established as $359,500.
The agreement further provided that Mr. Famalette was not eligible for any
executive incentive compensation or bonuses, but would receive the loan
described in this paragraph. Instead of participating in the executive
incentive program described below, Mr. Famalette received a loan in the
amount of $420,000. The loan bore no interest and was due in full on January
2, 1997; provided, that the loan was to be forgiven on January 2, 1997 if
Mr. Famalette remained in the employ of the Company through September 30,
1996. Upon Mr. Famalette's departure from the Company, an Amendment to the
Compensation and Loan Agreement was mutually agreed upon providing that
$140,000 of the loan would be forgiven at such time as Mr. Famalette repaid
the other $280,000 of the loan. Mr. Famalette has since repaid the whole
$280,000. On March 11, 1994, a loan was made to Mr. Famalette. The amount of
the loan was $420,000 and bore interest at a rate of 4% per annum. Mr.
Famalette repaid the loan in full on August 29, 1994.
(6) Mr. Richardson also served as interim Chief Executive Officer between June
1995 and March 1996.
Effective April 8, 1996, the Company and Mr. McCarty entered into an
"Employment Agreement" regarding Mr. McCarty's employment by the Company. The
agreement provides that such employment is for an initial term of three years,
after which Mr. McCarty shall serve as an "at will" employee at the pleasure of
the Board of Directors. Among other terms, the agreement establishes Mr.
McCarty's base compensation at $410,000 per year, and also provides that he may
participate in other benefit plans offered by the Company. Pursuant to the
agreement, Mr. McCarty was paid a sig.6ing bonus by the Company of $70,000 (less
applicable deductions), in lieu of participation in the Company's annual
management incentive plan through August 31, 1996. If during the initial term
the Board of Directors terminates Mr. McCarty's employment with the Company
without cause, Mr. McCarty is entitled to receive a severance payment equal to
$7,884.62 times the number of weeks between the date of termination and April 7,
1999. The agreement was amended in 1997 to reclassify Mr. McCarty as an "at
will" employee at all times. The amendment to the agreement provides for a
three-year wage and benefit continuation if the Board of Directors terminates
Mr. McCarty's employment without cause. Under the terms of the amendment, Mr.
McCarty is subject to a one-year restrictive covenant against his involvement in
the production, marketing and sale of refined sugar.
Certain management employees are entitled to participate in an incentive
program that provides for cash awards based partially on the performance of the
Company and partially on achievement of certain management performance
objectives. Those performance objectives are determined by the Board of
Directors. An executive is not eligible for any awards under the incentive
program unless that executive's performance for the applicable fiscal year is
rated as "fully satisfactory" or better. Depending on the executive's
responsibilities, the performance of the Company (measured in terms of revenues
returned to the members) and the results of the executive's evaluation for the
fiscal year, the program provides for an incentive bonus in amounts ranging from
4% to 40% of the eligible executive's base salary.
The Company has also adopted a Long Term Incentive Plan ("LTIP") which
provides deferred compensation to certain key executives of American Crystal
effective September 1, 1995. The LTIP creates financial incentives that reward
executives for long-term commitment to the Company and for successfully
implementing the Company's long-term growth strategies. Such incentives are
based upon contract rights which are available to the executive under the terms
of the LTIP, the value of which is related to the value of preferred shares of
the Company. The LTIP allows participants to purchase a limited number of
contract rights at the end of each three-year cycle. The LTIP establishes both
minimum and maximum ownership levels. When an executive reaches his minimum
ownership level, he or she may sell any vested shares over the minimum to any
qualified grower. The executive or his estate may also sell any vested shares at
the time of his termination, disability or death. At the point of sale, the
contract right becomes a share of Preferred Stock which the Company issues to
the purchasing grower. The executive receives the proceeds of the sale, less
appropriate taxes. The long-term cost of the stock will not be to the Company,
but to the grower who eventually purchases the stock from the executive. The
LTIP also provides for
29
<PAGE>
annual payments of "profit per acre payments" to executives holding contract
rights. The profit per acre payments are determined by subtracting from the
Company's beet payment per acre the average cost of production per acre incurred
by the Company's members and multiplying the result by the number of contract
rights held by the executive.
A total of 389 contract rights have been granted under the plan, although
none have been exercised to date. As of the date hereof, those executives listed
above have been granted and hold contract rights with respect to number of
shares set forth below. Each contract right listed below carried a stated value
upon grant of $1,485 per share; the current stated value is $1,500 per share.
LONG-TERM INCENTIVE PLAN--AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
CONTRACT REPRESENTATIVE
EXECUTIVE RIGHTS PAYOUT(1)
- -------------------------------------------------------------------- ----------- -------------
<S> <C> <C>
Daniel J. McCarty................................................... 155 $ 31,850
Marcus F. Richardson................................................ 83 $ 19,669
James J. Horvath.................................................... 34 $ 8,057
Robert W. Levos..................................................... 32 $ 7,583
Lawrence L. Mathias................................................. 27 $ 6,398
</TABLE>
- ------------------------
(1) The amount shown represents a representative amount, determined for the last
fiscal year, with respect to "profit per acre payments", which are non-stock
price based payments. The profit per acre payments are determined by
subtracting from the Company's beet payment per acre the average cost of
production per acre incurred by the Company's members and multiplying the
result by the number of contract rights held by the executive. Based on that
formula, the Company must provide a beet payment per acre to its members
equal to the average cost of production for an acre of sugarbeets in order
for executives holding contract rights to obtain any payment of profit per
acre payments. Given the method of determining the profit per acre payments,
there is no maximum payment amount.
Management employees are also eligible to participate in the Company's
Retirement Plan "A," a 401(k) savings plan and, beginning on September 1, 1994,
a "Supplemental Executive Plan." Those plans are described below.
RETIREMENT PLANS
The Company has established noncontributory, defined benefit retirement
plans which are available to all eligible employees of the Company. Those
employees who are covered by a collective bargaining agreement participate in
one plan, while employees who are not subject to a collective bargaining
agreement, including the executive officers listed on the Summary Compensation
Table, participate in another pension plan. That plan is known as Retirement
Plan "A." The benefits of the plan are funded by periodic Company contributions
to a retirement trust which invests the Company's contributions and the earnings
from such contributions in order to pay the benefits to the employees. The plan
provides for the payment of monthly retirement benefits determined under a
calculation based on years of service and a participant's compensation.
Retirement benefits are paid to participants upon normal retirement at the age
of 65 or later or upon early retirement. The plan also provides for the payment
of certain disability and death benefits.
30
<PAGE>
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under Retirement Plan "A," upon
retirement at age 65, after 15, 20, 25, 30 and 35 years of annual service at the
remuneration levels set forth in the table:
AMERICAN CRYSTAL SUGAR COMPANY
1996 CALCULATION
PLAN A--QUALIFIED BENEFITS
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------------------
REMUNERATION 15 20 25 30 35
- --------------------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000............................... $ 24,595 $ 32,794 $ 40,993 $ 49,191 $ 49,191
$150,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$175,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$200,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$225,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$250,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$300,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$400,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
$500,000............................... $ 29,846 $ 39,794 $ 49,743 $ 59,691 $ 59,691
</TABLE>
The five executive officers named in the Summary Compensation Table have
years of service under the plan as follows: Mr. McCarty has served for less than
1 year; Mr. Richardson has served for 16 years; Mr. Horvath has served for 12
years; Mr. Levos has served for 31 years; and Mr. Mathias has served for 21
years.
The Company maintains a Section 401(k) plan that permits employees to elect
to set aside, on a pre-tax basis, a portion of their gross compensation in trust
to pay future retirement benefits. The Company matches 100% of the employee's
first 4% of compensation. The total annual pre-income tax addition to any
employees' account in any calendar year may not exceed the lesser of (i) $30,000
or (ii) 25% of annual compensation less the amount of the contribution and any
salary conversion. During 1996, the employee pre-income tax contribution was
limited to $9,500. An employee may also contribute up to 10% of his annual
compensation on an after-tax basis. Benefits under the 401(k) plan begin to be
paid to the employee upon the close of the plan year in which one of the
following events has occurred: the date the employee attains age 65, the date
the employee terminates his service with the employer and the date specified in
a written election made by the employee to receive benefits no later than April
1 of the year following the calendar year in which the employee retires, dies,
becomes disabled, reaches age 70 1/2 or is terminated.
Effective September 1, 1994, certain executive employees of the Company
became eligible to participate in a "Supplemental Executive Retirement Plan."
That plan was adopted by the Company's Board of Directors on June 30, 1994.
Subject to the discretion of the Board of Directors, the plan provides for the
Company to credit to the account of each executive eligible to participate in
the Supplemental Plan amounts equal to (i) the difference between amounts
actually contributed to the Company's 401(k) plan on behalf of the executive and
the amounts which could have been contributed if certain provisions of the
Internal Revenue Code did not prohibit the contribution of such amounts and (ii)
the difference between the benefits actually payable to the executive under the
provisions of Retirement Plan "A" and the amounts which would be payable under
Retirement Plan "A" if certain provisions of the Internal Revenue Code did
31
<PAGE>
not prohibit the payment of such benefits. In addition, the executive may elect
to defer a portion of his or her compensation, ranging from 2% to 16%, by
regular payroll deductions under the Supplemental Plan, and may also so defer
100% of all bonus and profits-per-acre payments. The Supplemental Plan is an
"unfunded" plan, with all amounts to be paid under the Supplemental Plan to be
paid from the general assets of the Company when due and also to be subject to
the claims of the Company's creditors.
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Company under the Supplemental Plan, upon
retirement at age 65, after 15, 20, 25, 30 and 35 years of annual service at the
remuneration levels set forth in the table:
PLAN A--NON QUALIFIED BENEFITS 1996 CALCULATION
<TABLE>
<CAPTION>
YEARS OF SERVICE
--------------------------------------------------------
REMUNERATION 15 20 25 30 35
- ----------------------------------- --------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
$125,000........................... $ 0 $ 0 $ 0 $ 0 $ 0
$150,000........................... $ 0 $ 0 $ 0 $ 0 $ 0
$175,000........................... $ 5,250 $ 7,000 $ 8,750 $ 10,500 $ 10,500
$200,000........................... $ 10,500 $ 14,000 $ 17,500 $ 21,000 $ 21,000
$225,000........................... $ 15,750 $ 21,000 $ 26,250 $ 31,500 $ 31,500
$250,000........................... $ 21,000 $ 28,000 $ 35,000 $ 42,000 $ 42,000
$300,000........................... $ 31,500 $ 42,000 $ 52,500 $ 63,000 $ 63,000
$400,000........................... $ 52,500 $ 70,000 $ 87,500 $ 105,000 $ 105,000
$450,000........................... $ 63,000 $ 84,000 $ 105,000 $ 126,000 $ 126,000
$500,000........................... $ 73,500 $ 98,000 $ 122,500 $ 147,000 $ 147,000
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of the date hereof, no director owns beneficially more than 1% of the
Company's issued and outstanding Preferred Stock and the directors, as a group,
beneficially own less than 3% of the Company's issued and outstanding Preferred
Stock. To the best of the Company's knowledge, no other party beneficially owns
more than 1% of the Company's Preferred Stock.
ITEM 13. CERTAIN RELATIONSHIPS RELATED TRANSACTIONS
Each of the Company's directors is also a sugarbeet farmer and a shareholder
member or representative of a shareholder member of American Crystal. By virtue
of their status as such members of the Company, each director or the member he
represents sells sugarbeets to the Company and receives payments for those
sugarbeets. Such payments for sugarbeets often exceed $60,000. However, such
payments are received by the directors or the entities they represent on exactly
the same basis as payments are received by other members of the Company for the
delivery of their sugarbeets. Except for the sugarbeet sales described in the
preceding sentences, none of the directors or executive officers of the Company
have engaged in any other transactions with the Company involving amounts in
excess of $60,000.
32
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) Documents filed as part of this report
1. Financial Statements
Report of Independent Auditors
Balance Sheets as of August 31, 1997 and 1996
Statements of Operations for the Years Ended August 31, 1997, 1996
and 1995
Statements of Changes in Members' Investment for the Years Ended
August 31, 1997,
1996 and 1995
Statements of Cash Flows for the Years Ended August 31, 1997, 1996
and 1995
Notes to consolidated Financial Statements
2. Financial Statement Schedules
None
(b) Reports on Form 8-K
None
(c) Exhibits
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
*3(i) Restated Articles of Incorporation of American Crystal Sugar Company.
#3(ii) Restated By-laws of American Crystal Sugar Company.
#10(f) Growers' Contract (5-year Agreement).
*10(g) Growers' Contract (Annual Contract).
*10(h) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 1, 1986.
*10(i) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company, dated
August 1, 1986.
*10(j) Beet Loading and Hauling Agreement between Registrant and Transystems, Inc., dated May 18, 1993.
*10(k) Form of Uniform Member Marketing Agreement between Registrant and United Sugars Corporation, dated
January 1, 1994.
*10(l) Trademark License Agreement between Registrant and United Sugars Corporation, dated November 1,
1993.
*10(m) Uniform Member Marketing Agreement, Pool Basis between Registrant and Midwest Agri-Commodities
Company, dated April 14, 1992.
*10(n) Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency.
*10(o) Master Agreement between Registrant, United Sugars Corporation, American Federation of Grain
Millers, AFL-CIO, CLC, et al.
*10(p) Loan Agreement between Registrant and St. Paul Bank for Cooperatives, dated December 20, 1993.
*10(q) Amended and Restated Loan Agreement between Registrant and First Bank National Association, dated
November 22, 1993.
*10(r) Pension Contract and Amendments.
</TABLE>
33
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<C> <S>
*10(s) Compensation, Severance and Loan Agreement with Mr. J. Famalette, dated March 2, 1992.
*10(t) Compensation and Loan Agreement with Mr. J. Famalette, dated October 1, 1993.
*10(u) Form of Operating Agreement between Registrant and ProGold Limited Liability Company.
*10(v) Form of Member Control Agreement between Registrant and ProGold Limited Liability Company.
*10(w) Administrative Services Agreement between Registrant and ProGold Limited Liability Company
*10(x) Uniform Member Marketing Agreement.
#10(y) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25, 1995
(Confidential treatment granted as to certain provisions).
#10(z) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company, dated
August 25, 1995 (Confidential treatment granted as to certain provisions).
#10(aa) Gas Sales Contract between Registrant and Coastal Gas Marketing Company, dated as of March 20, 1996
(Confidential treatment granted as to certain provisions.)
#10(bb) Employment Agreement with Mr. Daniel McCarty, dated as of April 8, 1996.
**10(cc) Amendment to Employment Agreement with Mr. Daniel McCarty, dated as of July, 1997.
**10(dd) Form of Subscription Agreement for Preferred Stock (Current Members). Subscription Document A.
**10(ee) Form of Indication of Interest in Purchasing Additional Shares of Preferred Stock (Current Members).
Subscription Document B.
**10(ff) Form of Indication of Interest in Purchasing Pool 3 Shares of Preferred Stock. Subscription Document
C.
**10(gg) Form of Statement of Representations and Warranties for New Members (Prospective Members).
Subscription Document D.
**10(hh) Subscription Document Instructions.
**+10(ii) Trademark License Agreement between Registrant and The Pillsbury Company, dated as of April 9, 1997
(Confidential treatment granted as to certain provisions).
**10(jj) Subscription Agreement for Pool 2 Preferred Stock
**10(kk) Subscription Agreement for Pool 3 Preferred Stock
23 Consent of Independent Public Accountant.
</TABLE>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-83868), declared effective November 23, 1994.
# Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-11693), declared effective November 13, 1996.
** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-32251), declared effective October 24, 1997.
+ Pursuant to Rule 406(b) of the Securities Act of 1933, confidential portions
of the exhibit have been deleted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment,
which request has been granted.
34
<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, ON NOVEMBER 28, 1997.
<TABLE>
<S> <C> <C>
AMERICAN CRYSTAL SUGAR COMPANY
By: /s/ DANIEL J. MCCARTY
-----------------------------------------
Daniel J. McCarty
CHIEF EXECUTIVE OFFICER
</TABLE>
Dated: November 28, 1997
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ --------------------------------------- ----------------------
<C> <S> <C>
/s/ DANIEL J. MCCARTY
-------------------------------------- Chief Executive Officer (Principal November 28, 1997
Daniel J. McCarty Executive Officer)
/s/ JAMES J. HORVATH
-------------------------------------- Chief Financial Officer (Principal November 28, 1997
James J. Horvath Financial Officer)
/s/ SAMUEL S. M. WAI
-------------------------------------- Corporate Controller November 28, 1997
Samuel S. M. Wai
/s/ MICHAEL A. ASTRUP
-------------------------------------- Director November 28, 1997
Michael A. Astrup
/s/ JERRY D. BITKER
-------------------------------------- Director November 28, 1997
Jerry D. Bitker
/s/ PAUL BORGEN
-------------------------------------- Director November 28, 1997
Paul Borgen
/s/ RICHARD BORGEN
-------------------------------------- Director November 28, 1997
Richard Borgen
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ --------------------------------------- ----------------------
<C> <S> <C>
/s/ AIME J. DUFAULT
-------------------------------------- Director November 28, 1997
Aime J. Dufault
/s/ STEVEN M. GOODWIN
-------------------------------------- Director November 28, 1997
Steven M. Goodwin
/s/ COURT G. HANSON
-------------------------------------- Director November 28, 1997
Court G. Hanson
/s/ LONN M. KIEL
-------------------------------------- Director November 28, 1997
Lonn M. Kiel
/s/ DAVID J. KRAGNES
-------------------------------------- Director November 28, 1997
David J. Kragnes
/s/ FRANCIS L. KRITZBERGER
-------------------------------------- Director November 28, 1997
Francis L. Kritzberger
/s/ WAYNE LANGEN
-------------------------------------- Director November 28, 1997
Wayne Langen
/s/ PATRICK D. MAHAR
-------------------------------------- Director November 28, 1997
Patrick D. Mahar
/s/ BARRY W. MALME
-------------------------------------- Director November 28, 1997
Barry W. Malme
/s/ RONALD E. REITMEIER
-------------------------------------- Director November 28, 1997
Ronald E. Reitmeier
/s/ G. TERRY STADSTAD
-------------------------------------- Director November 28, 1997
G. Terry Stadstad
/s/ ROBERT VIVATSON
-------------------------------------- Director November 28, 1997
Robert Vivatson
</TABLE>
36
<PAGE>
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
AMERICAN CRYSTAL SUGAR COMPANY
FINANCIAL STATEMENTS:
Report of Independent Auditors.....................................................
Balance Sheets as of August 31, 1997 and 1996......................................
Statements of Operations for the Years Ended August 31, 1997, 1996 and 1995........
Statements of Changes in Members' Investment for the Years Ended August 31, 1997,
1996 and 1995.....................................................................
Statements of Cash Flows for the Years Ended August 31, 1997, 1996 and 1995........
Notes to the Financial Statements..................................................
</TABLE>
37
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Members of American Crystal Sugar Company
Moorhead, Minnesota
We have audited the accompanying balance sheets of the American Crystal
Sugar Company (a Minnesota cooperative corporation) as of August 31, 1997, and
1996, and the related statements of operations, changes in members' investments
and cash flows for the years ended August 31, 1997, 1996, and 1995. These
financial statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 financial statements referred to above present fairly,
in all material respects, the financial position of the American Crystal Sugar
Company as of August 31, 1997, and 1996, and the results of its operations and
its cash flows for the years ended August 31, 1997, 1996, and 1995, in
conformity with generally accepted accounting principles.
As described in Note 1 to the Financial Statements, the company changed its
method of depreciating certain classes of property and equipment in 1996.
[LOGO]
Eide Helmeke PLLP
October 10, 1997
Fargo, North Dakota
38
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
AUGUST 31
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents............................................................. $ 11,551 $ 3,807
Receivables:
Trade............................................................................... 60,940 50,915
Members............................................................................. 2,857 3,845
Other............................................................................... 5,618 1,399
Advances to Related Parties........................................................... 15,064 10,308
Inventories........................................................................... 140,057 72,677
Prepaid Expenses...................................................................... 2,892 3,088
----------- -----------
TOTAL CURRENT ASSETS.................................................................... 238,979 146,039
----------- -----------
PROPERTY AND EQUIPMENT:
Land.................................................................................. 13,101 12,059
Buildings and Equipment............................................................... 635,671 572,446
Construction in Progress.............................................................. 43,938 41,098
Less Accumulated Depreciation......................................................... (413,211) (391,665)
----------- -----------
NET PROPERTY AND EQUIPMENT.............................................................. 279,499 233,938
----------- -----------
OTHER ASSETS:
Investments in Banks for Cooperatives................................................. 14,568 15,177
Investments in Marketing Cooperatives................................................. 1,650 15,468
Investments in ProGold Limited Liability Company...................................... 43,007 51,330
Other Assets.......................................................................... 3,801 3,184
----------- -----------
TOTAL OTHER ASSETS...................................................................... 63,026 85,159
----------- -----------
TOTAL ASSETS............................................................................ $ 581,504 $ 465,136
----------- -----------
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
39
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
AUGUST 31
(IN THOUSANDS)
LIABILITIES AND MEMBERS' INVESTMENTS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT LIABILITIES:
Short-Term Debt....................................................................... $ 67,960 $ 13,643
Current Maturities of Long-Term Debt.................................................. 17,800 13,525
Accounts Payable...................................................................... 25,897 24,550
Other Current Liabilities............................................................. 15,515 15,132
Amounts Due Members................................................................... 66,155 47,118
----------- -----------
TOTAL CURRENT LIABILITIES............................................................... 193,327 113,968
LONG-TERM DEBT, NET OF CURRENT MATURITIES............................................... 186,800 177,394
DEFERRED INCOME TAXES................................................................... 1,540 --
OTHER LIABILITIES....................................................................... 23,909 21,638
----------- -----------
TOTAL LIABILITIES....................................................................... 405,576 313,000
----------- -----------
MEMBERS' INVESTMENTS:
Preferred Stock....................................................................... 33,542 31,879
Common Stock.......................................................................... 26 24
Additional Paid-In Capital............................................................ 64,596 33,041
Unit Retains.......................................................................... 105,450 97,191
Pension Liability Adjustment.......................................................... (4,131) (4,518)
Retained Earnings..................................................................... (23,555) (5,481)
----------- -----------
TOTAL MEMBERS' INVESTMENTS.............................................................. 175,928 152,136
----------- -----------
TOTAL LIABILITIES AND MEMBERS' INVESTMENTS.............................................. $ 581,504 $ 465,136
----------- -----------
----------- -----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
40
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
NET REVENUE.................................................................. $ 677,004 $ 688,012 $ 605,960
COST OF PRODUCT SOLD, EXCLUDING PAYMENTS TO MEMBERS FOR SUGARBEETS........... 136,330 216,229 143,652
---------- ---------- ----------
GROSS PROCEEDS............................................................... 540,674 471,783 462,308
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................................. 141,949 155,188 132,752
---------- ---------- ----------
OPERATING PROCEEDS........................................................... 398,725 316,595 329,556
---------- ---------- ----------
OTHER INCOME (EXPENSE):
Interest Income............................................................ 2,063 3,564 281
Other Income............................................................... 1,066 1,121 1,934
Interest Expense, Net...................................................... (18,321) (11,252) (14,532)
Other Expenses............................................................. (15,050) (371) (612)
---------- ---------- ----------
(30,242) (6,938) (12,929)
---------- ---------- ----------
PROCEEDS BEFORE INCOME TAXES................................................. 368,483 309,657 316,627
INCOME TAX BENEFIT/(EXPENSE)................................................. (1,727) 549 3,922
---------- ---------- ----------
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS................... $ 366,756 $ 310,206 $ 320,549
---------- ---------- ----------
---------- ---------- ----------
DISTRIBUTIONS OF NET PROCEEDS:
Credited (Charged) to Members' Investments:
Member Tax Accounting Adjustment, Net.................................... $ -- $ -- $ (5,621)
Non-Member Business (Loss)............................................... (18,074) (396) (15)
Unit Retains Declared to Members......................................... 16,611 16,040 16,648
---------- ---------- ----------
Net Credit (Charge) to Members' Investments................................ (1,463) 15,644 11,012
Payments to Members for Sugarbeets, Net of Unit Retains Declared........... 368,219 294,562 309,537
---------- ---------- ----------
TOTAL........................................................................ $ 366,756 $ 310,206 $ 320,549
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
41
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONAL PENSION
PREFERRED PAID-IN UNIT LIABILITY RETAINED
STOCK COMMON STOCK CAPITAL RETAINS ADJUSTMENT EARNINGS
----------- ------------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1994......................... $ 30,429 $ 24 $ 5,558 $ 81,433 $ (2,386) $ 551
----------- --- ----------- --------- ----------- -----------
Member Tax Accounting Adjustment, Net -- -- -- -- -- (5,621)
Non-Member Business (Loss)..................... -- -- -- -- -- (15)
Unit Retains Withheld from Members
($2.00/Ton).................................. -- -- -- 16,648 -- --
Payments to Estates and Disabled Individuals... -- -- -- (374) -- --
Payments of 1987 Crop Unit Retains to
Members...................................... -- -- -- (9,220) -- --
Contributed Capital of Investee................ -- -- 460 -- -- --
Pension Liability Adjustment................... -- -- -- -- (3,288) --
Common Stock Issued/(Redeemed), Net............ 1,450 (1) 26,399 -- -- --
----------- --- ----------- --------- ----------- -----------
BALANCE, AUGUST 31, 1995......................... $ 31,879 $ 23 $ 32,417 $ 88,487 $ (5,674) $ (5,085)
----------- --- ----------- --------- ----------- -----------
Member Tax Accounting Adjustment, Net.......... -- -- -- -- -- --
Non-Member Business (Loss)..................... -- -- -- -- -- (396)
Unit Retains Withheld from Members
($2.00/Ton).................................. -- -- -- 16,040 -- --
Payments to Estates and Disabled Individuals... -- -- -- (296) -- --
Payments of 1988 Crop Unit Retains to
Members...................................... -- -- -- (7,040) -- --
Contributed Capital of Investee................ -- -- 624 -- -- --
Pension Liability Adjustment................... -- -- -- -- 1,156 --
Stock Issued/(Redeemed), Net................... -- 1 -- -- -- --
----------- --- ----------- --------- ----------- -----------
BALANCE, AUGUST 31, 1996......................... $ 31,879 $ 24 $ 33,041 $ 97,191 $ (4,518) $ (5,481)
----------- --- ----------- --------- ----------- -----------
Member Tax Accounting Adjustment, Net.......... -- -- -- -- -- --
Non-Member Business (Loss)..................... -- -- -- -- -- (18,074)
Unit Retains Withheld from Members
($2.00/Ton).................................. -- -- -- 16,611 -- --
Payments to Estates and Disabled Individuals... -- -- -- (673) -- --
Payments of 1989 Crop Unit Retains to
Members...................................... -- -- -- (7,679) -- --
Contributed Capital of Investee................ -- -- 892 -- -- --
Pension Liability Adjustment................... -- -- -- -- 387 --
Stock Issued/(Redeemed), Net................... 1,663 2 30,663 -- -- --
----------- --- ----------- --------- ----------- -----------
BALANCE, AUGUST 31, 1997......................... $ 33,542 $ 26 $ 64,596 $ 105,450 $ (4,131) $ (23,555)
----------- --- ----------- --------- ----------- -----------
----------- --- ----------- --------- ----------- -----------
<CAPTION>
TOTAL
---------
<S> <C>
BALANCE, AUGUST 31, 1994......................... $ 115,609
---------
Member Tax Accounting Adjustment, Net (5,621)
Non-Member Business (Loss)..................... (15)
Unit Retains Withheld from Members
($2.00/Ton).................................. 16,648
Payments to Estates and Disabled Individuals... (374)
Payments of 1987 Crop Unit Retains to
Members...................................... (9,220)
Contributed Capital of Investee................ 460
Pension Liability Adjustment................... (3,288)
Common Stock Issued/(Redeemed), Net............ 27,848
---------
BALANCE, AUGUST 31, 1995......................... $ 142,047
---------
Member Tax Accounting Adjustment, Net.......... --
Non-Member Business (Loss)..................... (396)
Unit Retains Withheld from Members
($2.00/Ton).................................. 16,040
Payments to Estates and Disabled Individuals... (296)
Payments of 1988 Crop Unit Retains to
Members...................................... (7,040)
Contributed Capital of Investee................ 624
Pension Liability Adjustment................... 1,156
Stock Issued/(Redeemed), Net................... 1
---------
BALANCE, AUGUST 31, 1996......................... $ 152,136
---------
Member Tax Accounting Adjustment, Net.......... --
Non-Member Business (Loss)..................... (18,074)
Unit Retains Withheld from Members
($2.00/Ton).................................. 16,611
Payments to Estates and Disabled Individuals... (673)
Payments of 1989 Crop Unit Retains to
Members...................................... (7,679)
Contributed Capital of Investee................ 892
Pension Liability Adjustment................... 387
Stock Issued/(Redeemed), Net................... 32,328
---------
BALANCE, AUGUST 31, 1997......................... $ 175,928
---------
---------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
42
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATIONS:
Net Proceeds Resulting from Member and Non-Member Business....................... $ 366,756 $ 310,206 $ 320,549
Payments to Members for Sugarbeets, Net of Unit Retains.......................... (368,219) (294,562) (309,537)
Add (Deduct) Non-Cash Items:
Depreciation and Amortization.................................................. 26,165 20,314 28,174
Loss on Investment Activities.................................................. 13,918 343 495
Deferred Income Taxes.......................................................... 1,540 (1,216) (3,629)
Loss on the Disposition of Property and Equipment.............................. 37 230 50
Non-Cash Portion of Patronage Dividend from the Banks for Cooperatives......... 609 (1,404) (1,653)
Deferred Gain Recognition...................................................... (213) (223) (223)
Changes in Certain Elements of Working Capital:
Accounts Receivable:
Trade.......................................................................... (10,025) (2,802) (14,120)
Members........................................................................ 988 362 8
Other.......................................................................... (4,219) 3,795 (2,827)
Inventories...................................................................... (67,380) 30,614 (49,511)
Prepaid Expenses................................................................. 196 737 1,727
Advances to Related Parties...................................................... (4,756) (4,217) (1,898)
Accounts Payable................................................................. 1,347 (1,343) 9,831
Other Current Liabilities........................................................ 384 1,214 525
Amount Due Members............................................................... 19,037 6,881 (3,658)
--------- --------- ---------
NET CASH (USED)/PROVIDED BY OPERATIONS............................................. (23,835) 68,929 (25,697)
--------- --------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of Property and Equipment.............................................. (70,805) (43,549) (48,636)
Proceeds from the Sale of Property and Equipment................................. 667 151 191
Investments in the Banks for Cooperatives........................................ -- 159 770
Investments in Marketing Cooperatives............................................ 14,031 (9,700) (4,482)
Investment in ProGold Limited Liability Company.................................. (5,595) (39,221) (12,757)
Changes in Other Assets.......................................................... (2,372) (271) 178
--------- --------- ---------
NET CASH USED IN INVESTING ACTIVITIES.............................................. (64,074) (92,431) (64,736)
--------- --------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net Proceeds (Payments) on Short-Term Debt....................................... 54,317 (40,289) 53,932
Proceeds from Long-Term Debt..................................................... 28,200 85,000 20,300
Long-Term Debt Repayment......................................................... (14,525) (13,115) (17,110)
Payment of Unit Retains.......................................................... (8,352) (7,336) (9,594)
Changes in Preferred Stock....................................................... 1,663 -- 1,450
Changes in Common Stock.......................................................... 2 1 1
Changes in Additional Paid-In Capital............................................ 31,555 623 26,859
Changes in Other Long-Term Liabilities........................................... 2,793 (995) 3,601
--------- --------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES.......................................... 95,653 23,889 79,439
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................... 7,744 387 (10,994)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD..................................... 3,807 3,420 14,414
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD........................................... $ 11,551 $ 3,807 $ 3,420
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
43
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
American Crystal Sugar Company (American Crystal) is a Minnesota
agricultural cooperative corporation, which processes and markets sugar and
sugarbeet pulp, molasses and seed. Business done with its shareholders (members)
constitutes "patronage business" as defined by the Internal Revenue Code, and
the net proceeds therefrom are credited to members' investments in the form of
unit retains or distributed to members in the form of payments for sugarbeets.
Members are paid the net amounts realized from the current year's production
less member operating costs determined on a book basis.
On April 26, 1995, the Company's shareholders amended the Bylaws of the
Company and the Grower Agreement between the Company and each of its
shareholders. The amendment changed the method by which the grower beet payment
is determined. Previously, the grower beet payment was on the basis of the
Company's taxable income. Effective with the fiscal year beginning September 1,
1995, the grower beet payment is calculated on the basis of the Company's
financial statement income as reported in conformity with Generally Accepted
Accounting Principles.
CASH AND CASH EQUIVALENTS
American Crystal considers all highly liquid debt and equity instruments
purchased with a maturity of three months or less to be cash equivalents.
American Crystal places its temporary cash investments with high credit quality
financial institutions. At times, such investments may be in excess of the
applicable insurance limit.
RECEIVABLES
American Crystal grants credit, individually and through its marketing
cooperatives, to its customers, which are primarily companies in the food
processing industry located throughout the United States. Ongoing credit
evaluations of customers' financial condition are performed and the Company
maintains a reserve for potential credit losses. American Crystal does not
believe it is dependent upon one or a few customers, as no one customer
accounted for more than 10% of sales.
INVENTORIES
Sugar, pulp, and molasses inventories are valued at estimated net realizable
value. Maintenance parts and supplies, corn and beet seed inventories are valued
at the lower of average cost or market.
PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment are recorded at cost. Indirect costs and construction
period interest are capitalized as a component of the cost of qualified assets.
Property and equipment are depreciated for financial reporting purposes
principally using straight-line methods with estimated useful lives ranging from
3 to 45 years. Statutory lives and methods are used for income tax reporting
purposes.
Property and equipment acquired prior to September 1, 1995, was depreciated
for financial statement purposes, principally using declining-balance methods
with estimated useful lives ranging from 3 to 45 years. Effective September 1,
1995, property and equipment is being depreciated using the straight-line
method. The straight-line method of depreciation was adopted during fiscal 1996
to more accurately reflect
44
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
the allocation of the cost of the property and equipment in the proper period
and to conform with general industry practice.
Indirect costs capitalized were $1.1 million, $1.0 million and $845,000 in
1997, 1996 and 1995, respectively. Construction period interest capitalized was
$2.6 million, $3.8 million and $1.5 million in 1997, 1996 and 1995,
respectively.
INVESTMENTS
Investments in the Banks for Cooperatives are stated at cost plus unredeemed
patronage refunds received or estimated to be received in the form of capital
stock. No patronage was accrued in 1997. Investments in Marketing Cooperatives
and ProGold Limited Liability Company (ProGold) are accounted for using the
equity method. The net capitalized interest related to the investment in ProGold
totaled $1.1 million and $3.1 million for the years ended August 31, 1997 and
1996 respectively.
MEMBERS' INVESTMENTS
PREFERRED AND COMMON STOCK--The ownership of common and preferred stock is
restricted to a "farm operator" as defined by the bylaws of American Crystal.
Each "farm operator" may own only one share of common stock and is entitled to
one vote in the affairs of American Crystal. Each "farm operator" is entitled to
grow a specified number of acres of sugarbeets in proportion to the shares of
preferred stock owned. The preferred shares are non-voting. All transfers of
stock must be approved by American Crystal's board of directors and any
shareholder desiring to sell stock must first offer it to American Crystal for
repurchase at its par value. American Crystal has never exercised this
repurchase option. The bylaws do not allow dividends to be paid on either the
common or preferred stock. The articles of incorporation of the Company were
amended on August 31, 1994, to allow recapitalization of the Company to
authorize the issuance of 600,000 shares of preferred stock with a par value of
$76.77. As part of that recapitalization, each share of preferred stock was
changed and reclassified into 65/100 (.65) of one share of preferred stock, with
a par value of $76.77 per share.
<TABLE>
<CAPTION>
SHARES SHARES ISSUED
PAR VALUE AUTHORIZED & OUTSTANDING
--------- ----------- --------------
<S> <C> <C> <C>
Preferred Stock:
August 31, 1997....................................... $ 76.77 600,000 436,915
August 31, 1996....................................... $ 76.77 600,000 415,255
August 31, 1995....................................... $ 76.77 600,000 415,255
Common Stock:
August 31, 1997....................................... $ 10.00 4,000 2,585
August 31, 1996....................................... $ 10.00 4,000 2,444
August 31, 1995....................................... $ 10.00 4,000 2,343
</TABLE>
UNIT RETAINS--The bylaws authorize American Crystal's board of directors to
require additional direct capital investments by members in the form of a
variable unit retain of up to a maximum of 10% of the weighted average gross
per-ton beet payment. American Crystal has a policy whereby the company refunds,
to the entity legally entitled thereto, the unit retains attributable to a
deceased or totally and permanently disabled former shareholder.
45
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
RETAINED EARNINGS--Retained earnings represent the cumulative net
income/(loss) resulting from non-member business and the difference between
member income as determined for financial reporting purposes and federal income
tax reporting purposes from the years prior to 1996. The non-member net loss was
$18.1 million, $396,000, and $15,000 in 1997, 1996 and 1995, respectively.
STOCK OFFERING
On July 23, 1997, the Board of Directors authorized an offer of up to 61,500
shares of Preferred Stock, $76.77 par value and up to 500 shares of Common
Stock, $10.00 par value for sale at $1,500.00 per share and $10.00 per share,
respectively, to sugarbeet farm operators in the territory in which the Company
is engaged in business. A preliminary registration statement was filed with the
Securities and Exchange Commission and the North Dakota Securities Commission on
July 28, 1997. The filings are currently under review and are expected to become
effective in November, 1997. Members of the Company as of July 25, 1997, will be
granted priority to purchase the shares. The shares of Preferred Stock offered
equal approximately 13.7 % of preferred shares outstanding on July 25, 1997.
INTEREST EXPENSE, NET
American Crystal earns patronage dividends from the Banks for Cooperatives
based on American Crystal's share of the net interest income earned by the
banks. These patronage dividends are applied against interest expense.
INCOME TAXES
American Crystal is a non-exempt cooperative for federal income tax
purposes. As such, American Crystal is subject to corporate income taxes on its
net income from non-member sources. The provision for income taxes relates to
the results of operations from non-member business, state income taxes and
certain other permanent differences between financial and income tax reporting.
Deferred income taxes are provided for timing differences between financial and
income tax reporting.
As of August 31, 1997, American Crystal had accumulated approximately $9.4
million of net operating loss carryforwards. The majority of the net operating
loss carryforwards expire in 2012. American Crystal has provided a valuation
allowance for the entire balance of the deferred tax asset related to the loss
carryforwards.
Examinations of the Company's federal income tax returns for the years ended
on or before August 31, 1992, were conducted by the Internal Revenue Service
(IRS) in prior years. During the year ended August 31, 1997, all open issues
with respect to these years were settled with the IRS which resulted in a net
refund. The IRS will be examining the Company's federal tax returns for August
31, 1993, 1994 and 1995 beginning in October, 1997.
At this time, it is not possible to determine the additional taxes and
interest, if any, that may become due upon the resolution of the remaining
contested matters. The eventual resolution of these income tax matters will not
have a material effect on these financial statements. Net income tax payments
(refunds) for the years ended August 31, 1997, 1996 and 1995 were $(4,000),
$(139,000) and $183,000 respectively.
46
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of 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.
(2) INVENTORIES:
The major components of inventories are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ---------
(IN THOUSANDS)
<S> <C> <C>
Refined Sugar, Pulp, Molasses, Beet Seed............................... $ 115,026 $ 46,155
Corn................................................................... 3,758 --
Maintenance Parts and Supplies......................................... 21,273 26,522
---------- ---------
Total Inventories...................................................... $ 140,057 $ 72,677
---------- ---------
---------- ---------
</TABLE>
(3) INVESTMENT IN MARKETING COOPERATIVES:
As of January 1, 1994, American Crystal entered into a marketing agreement
with United Sugars Corporation (United), whereby United will market the
cooperative's production of sugar. The amount of the investment is accounted for
using the equity method. American Crystal's investment in United was comprised
of contributed assets with a net book value of $1.7 million and transferred
liabilities of $1.1 million. Upon transfer, certain assets were revalued based
on appraisals that increased the value of those assets by $4.2 million. This
increased value was recorded by United as a capital contribution from American
Crystal. American Crystal has recorded this $4.2 million as a deferred gain, net
of deferred income taxes, and will amortize it over a period of 31 years. The
investment in United is reported net of the unamortized deferred gain. During
1996, American Crystal invested an additional $10.0 million in United. This
investment was associated with the funding of United's current capital projects.
All sugar produced is sold by United as an agent for American Crystal. As of
August 31, 1997, American Crystal has a 70% ownership interest in United,
however, American Crystal has only one-third voting rights. The amount of sales
and related costs to be recognized by each owner is allocated based on their pro
rata share of production for the year. The owners provide United with cash
advances on an ongoing basis for operating and marketing expenses incurred by
United. As of August 31, 1997, $15.3 million worth of marketing assets were
transferred to American Crystal from United Sugars. American Crystal had net
advances to United of $11.9 million and $7.1 million as of August 31, 1997 and
1996, respectively. American Crystal provides administrative services for United
and is reimbursed for costs incurred. American Crystal was reimbursed $745,000
and $708,000 for services provided during 1997 and 1996, respectively.
In July, 1997, United Sugars Corporation and United States Sugar Corporation
(USSC), entered into a preliminary agreement wherein USSC intends to become an
equity member of United Sugars Corporation. The actual equity investment will be
adjusted based upon relative annual sugar volume marketed by United Sugars
Corporation.
47
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(3) INVESTMENT IN MARKETING COOPERATIVES: (CONTINUED)
Under the planned arrangement, United Sugars Corporation would market all
sugar produced by USSC under approximately the same terms as now done for other
members. USSC is presently constructing a cane sugar refining production
facility at Clewiston, Florida, which is expected to be in operation in June,
1998, and have annual capacity of approximately 10 million hundredweight.
American Crystal has a one-third ownership interest in Midwest
Agri-Commodities Company (Midwest). The amount of the investment is accounted
for using the equity method. All beet pulp and molasses produced is sold by
Midwest as an agent for American Crystal. The amount of sales and related costs
to be recognized by each owner is allocated based on their pro rata share of
production for the year. The owners provide Midwest with cash advances on an
ongoing basis for operating and marketing expenses incurred by Midwest. American
Crystal had outstanding advances to Midwest of $2.3 million and $3.2 million as
of August 31, 1997, and 1996, respectively. The owners are guarantors of the
short-term line of credit Midwest has with the St. Paul Bank for Cooperatives
(Bank). As of August 31, 1997, Midwest had outstanding short-term debt with the
Bank of $1.5 million, of which $1.1 million was guaranteed by American Crystal.
(4) PROGOLD LIMITED LIABILITY COMPANY
American Crystal has a 46% ownership interest in ProGold. ProGold operates a
corn wet milling plant, which produces high-fructose corn syrup sweetener. The
plant started operations on October 25, 1996 with saleable product being
produced on January 1, 1997. Following is summary financial information for
ProGold.
SUMMARY INFORMATION (IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Current Assets........................................................ $ 38,788 $ 1,222
Fixed Assets.......................................................... 223,815 194,916
Other Assets.......................................................... 13,731 5,026
---------- ----------
Total Assets........................................................ $ 276,334 $ 201,164
---------- ----------
---------- ----------
Current Liabilities................................................... $ 24,164 $ 24,268
Long-Term Liabilities................................................. 171,844 71,962
---------- ----------
Total Liabilities................................................... 196,008 96,230
Equity................................................................ 80,326 104,934
---------- ----------
Total Liabilities and Equity.......................................... $ 276,334 $ 201,164
---------- ----------
---------- ----------
Sales Revenue......................................................... $ 46,725 $ --
Cost of Sales......................................................... 59,145 --
---------- ----------
Gross Margins......................................................... (12,420) --
Other Income.......................................................... 344 482
Expenses.............................................................. (18,182) (1,228)
---------- ----------
Net (Loss)............................................................ $ (30,258) $ (746)
---------- ----------
---------- ----------
</TABLE>
48
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(4) PROGOLD LIMITED LIABILITY COMPANY (CONTINUED)
On September 30, 1997, ProGold entered into a letter of intent to lease
substantially all of its assets to Cargill, Incorporated. Under the terms of
this operating lease, Cargill, Incorporated would manage all aspects of the
operations of the ProGold corn wet-milling plant.
(5) LONG-TERM AND SHORT-TERM DEBT:
The long-term debt outstanding as of August 31, 1997 and 1996, is summarized
below:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Term Loans from the St. Paul Bank for Cooperatives, Due in Varying
Amounts Through 2008, Interest at 5.9% to 9.5%, with First Lien on
Substantially all Property and Equipment............................ $ 172,300 $ 168,800
Term Loans from First Bank, Minneapolis, Due in Equal Amounts Through
2002, Interest at 7.60% to 8.25%, unsecured......................... 5,000 6,000
Term Loan from the Bank of North Dakota, Due in Equal Amounts Through
2009, with Interest at 6.34%, unsecured............................. 9,600 10,400
Pollution Control and Industrial Development Revenue Bonds, Due in
Varying Amounts Through 2018, Interest at 3.76% to 8.00%............ 17,700 5,719
---------- ----------
204,600 190,919
Less Current Maturities............................................... (17,800) (13,525)
---------- ----------
Total Long-Term Debt.................................................. $ 186,800 $ 177,394
---------- ----------
---------- ----------
</TABLE>
Aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................................. $ 17,800
1999.............................................................. 18,800
2000.............................................................. 18,915
2001.............................................................. 18,925
2002.............................................................. 18,930
Thereafter........................................................ 111,230
---------
Total........................................................... $ 204,600
---------
---------
</TABLE>
As of August 31, 1997, the unused portion of the term loan line of credit
with the St. Paul Bank for Cooperatives was $44 million. The undrawn amount of
cash relating to the Pollution Control and Industrial Development Revenue bonds
was $11.3 million.
During the year ended August 31, 1997, American Crystal borrowed from the
St. Paul Bank for Cooperatives, the Commodity Credit Corporation and issued
commercial paper to meet its short-term borrowing requirements. American Crystal
had outstanding short-term commercial paper debt of
49
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(5) LONG-TERM AND SHORT-TERM DEBT: (CONTINUED)
$67.9 million as of August 31, 1997. During the year ended August 31, 1997,
American Crystal had available short-term lines of credit totaling $240 million.
Maximum borrowings, average borrowing levels and average interest rates for
short-term debt for the years ended August 31, 1997 and 1996, follow:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
(IN THOUSANDS EXCEPT
INTEREST RATES)
<S> <C> <C>
Maximum Borrowings.................................................... $ 230,000 $ 190,798
---------- ----------
---------- ----------
Average Borrowing Levels.............................................. $ 113,227 $ 118,481
---------- ----------
---------- ----------
Average Interest Rates................................................ 6.06% 5.77%
---------- ----------
---------- ----------
</TABLE>
The terms of the loan agreements with the St. Paul Bank for Cooperatives
contain certain covenants related to, among other matters, the: level of working
capital; ratio of term liabilities to members' investment; ratio of short-term
debt balances to working capital; level of term debt to net funds generated; and
investment in bank stock in amounts prescribed by the bank. As of August 31,
1997, American Crystal was in compliance with the terms of the loan agreements.
Interest paid was $21.6 million, $16.1 million and $16.8 million for the
years ended August 31, 1997, 1996 and 1995 respectively. Interest capitalized
was $2.6 million, $3.8 million, and $1.5 million for the years ended August 31,
1997, 1996 and 1995, respectively.
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is generally defined as the amount
at which the instrument could be exchanged in a current transaction between
willing parties, other than in a forced liquidation sale. Quoted market prices
are generally not available for the Company's financial instruments.
Accordingly, fair values are based on 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 estimated fair values of the Company's financial instruments as of
August 31, 1997 and 1996, are as follows:
LONG-TERM DEBT--Based upon current borrowing rates with similar maturities,
the fair value of the long-term debt approximates the carrying value.
INVESTMENTS IN BANKS FOR COOPERATIVES, INVESTMENTS IN MARKETING
COOPERATIVES, AND INVESTMENT IN PROGOLD LIMITED LIABILITY COMPANY--American
Crystal believes it is not practical to estimate the fair value of these
investments without incurring excessive costs because there is no established
market for these securities and it is inappropriate to estimate future cash
flows which are largely dependent on future earnings of these organizations.
50
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS:
COMPANY-SPONSORED DEFINED BENEFIT PENSION PLANS
Substantially all employees who meet eligibility requirements of age and
length of service are covered by a Company-sponsored retirement plan. Plan A
(nonunion employees) and Plan B (union employees) are defined benefit,
noncontributory plans. The plans provide for vesting after 5 years of service
with benefits for early retirement, normal retirement and disability or death.
The assets of the plans are held by an insurance company. American Crystal's
funding policy for Plan A is to contribute the normal cost of the plan
determined under the entry age normal actuarial cost method, plus amounts
necessary to amortize changes over 30 years. The funding policy for Plan B is to
contribute the minimum required amount determined under the frozen initial
liability actuarial cost method. The actuarial assumptions are shown below:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Discount Rate............................................................ 7.5% 7.5% 7.5%
Compensation Rate Increase (Plan A Only)................................. 5.0% 5.0% 5.0%
Rate of Return........................................................... 9.0% 9.0% 9.0%
</TABLE>
During 1996, the Company adopted a non-qualified Supplemental Executive
Retirement Plan for a select group of management and employees. The plan is
unfunded and provides for vesting after 5 years of service with benefits for
early retirement, normal retirement and disability or death.
The plans' status as of August 31, 1997, 1996 and 1995, is shown below:
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Normal Service Cost.......................................... $ 1,545 $ 1,366 $ 1,281
Interest Cost on Projected Benefit Obligation................ 4,066 3,718 3,388
Return on Plan Assets........................................ (5,561) (7,414) (3,458)
Multiple Employer Adjustment................................. (34) (17) (21)
Net Amortization (Deferral).................................. 2,078 4,739 511
--------- --------- ---------
Net Pension Expense.......................................... $ 2,094 $ 2,392 $ 1,701
--------- --------- ---------
--------- --------- ---------
Actuarial Present Value of Benefit Obligations:
Estimated Present Value of Vested Benefits................. $ 46,359 $ 44,933 $ 41,855
Estimated Present Value of Non-Vested Benefits............. 5,758 3,368 2,901
--------- --------- ---------
Accumulated Benefit Obligation............................... 52,117 48,301 44,756
Value of Future Pay Increases................................ 6,667 7,239 6,086
--------- --------- ---------
Projected Benefit Obligation................................. 58,784 55,540 50,842
Estimated Market Value of Plan Assets........................ 49,058 43,853 37,385
--------- --------- ---------
Projected Benefit Obligation in Excess of Plan Assets........ 9,726 11,687 13,457
Unrecognized Net Costs....................................... (12,331) (14,407) (17,262)
Unrecognized Net Assets...................................... 1,753 2,049 2,345
Minimum Pension Liability Adjustment......................... 6,350 6,872 9,043
--------- --------- ---------
Net Pension Liability........................................ $ 5,498 $ 6,201 $ 7,583
--------- --------- ---------
--------- --------- ---------
</TABLE>
51
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS: (CONTINUED)
As required by Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions," American Crystal has recognized, as of
August 31, 1997, a minimum pension liability of $6.3 million, an intangible
pension asset of $2.2 million and a direct equity reduction of $4.1 million.
LONG-TERM INCENTIVE PLAN
The Long Term Incentive Plan provides deferred compensation to certain key
executives of American Crystal Sugar Company effective September 1, 1995. The
Plan creates financial incentives that are based upon contract rights which are
available to the executive under the terms of the Plan, the value of which is
related to the value of preferred shares of the Company. As of August 31, 1997,
there were 389 rights issued, of which 234 were 75% vested and 155 were 50%
vested. During 1997, the Company incurred $379,500 of expense related to this
plan.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS OTHER THAN PENSIONS
American Crystal Sugar Company has a medical plan and a Medicare supplement
plan which are available to substantially all American Crystal retirees.
American Crystal also has a medical plan that covers disabled employees who have
not attained retirement age. The cost of this program is paid by the company.
The rates used in determining the actuarial present value of the accumulated
other postretirement and postemployment benefit (OPEB) obligations are in the
following table:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Discount Rate.................................................... 7.5% 7.5% 7.5%
Increase in Future Health Cost................................... 10.5% 9.75% 10.5%
Health Care Trend Rate........................................... 5.5% 5.5% 5.5%
</TABLE>
The components of accumulated OPEB obligations and the periodic OPEB cost
are set forth in the following table. If the health care cost trend rate was
increased by one percentage point for each year,
52
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(7) EMPLOYEE BENEFIT PLANS: (CONTINUED)
OPEB expense would have increased approximately $254,427 in 1997, and the
actuarial present value of accumulated OPEB obligations at August 31, 1997,
would have increased approximately $2.3 million.
<TABLE>
<CAPTION>
1997 1996 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Actuarial Present Value of Accumulated OPEB Obligations:
Retiree Benefits........................................... $ 4,314 $ 3,552 $ 3,261
Other Fully Eligible Active Plan Participants.............. 2,690 2,295 1,934
Other Active Plan Participants............................. 9,383 7,186 5,292
--------- --------- ---------
Present Value of Accumulated OPEB Obligations................ 16,387 13,033 10,487
Unrecognized Net Gain from Experience Different from
Actuarial Assumptions.................................... 462 1,255 2,627
--------- --------- ---------
Total Accrued OPEB Obligation.............................. 16,849 14,288 13,114
Less Current Portion....................................... 643 831 397
--------- --------- ---------
Non-Current Accrued OPEB Obligation...................... $ 16,206 $ 13,457 $ 12,717
--------- --------- ---------
--------- --------- ---------
Net Periodic OPEB Cost:
Service Cost............................................... $ 1,199 $ 903 $ 770
Interest Cost.............................................. 917 742 802
Amortization............................................... (4) (100) (11)
--------- --------- ---------
Net Periodic OPEB Cost....................................... $ 2,112 $ 1,545 $ 1,561
--------- --------- ---------
--------- --------- ---------
</TABLE>
DEFINED CONTRIBUTION PLANS
American Crystal also has qualified 401(k) plans for all eligible employees.
The plans provide for immediate vesting of benefits. Participants contribute a
percentage of their gross earnings each pay period as provided in the
participation agreement. The Company matches the nonunion and union
participants' contribution up to 4% and 1% respectively, of their gross
earnings. The company's contributions to this plan were $1,149,000, $936,000,
and $887,000 for the years ended August 31, 1997, 1996 and 1995, respectively.
(8) ENVIRONMENTAL MATTERS:
American Crystal is subject to extensive federal and state environmental
laws and regulations with respect to water pollution, discharge permits, air
pollution, noise pollution and solid waste disposal. American Crystal conducts
an ongoing pollution control program designed to meet these environmental laws
and regulations. American Crystal was cited in May, 1994, by the State of
Minnesota for noncompliance with nitrous oxide emissions for the pulp driers at
the East Grand Forks facility. The Company was assessed a penalty of $61,000 by
virtue of noncompliance with the air quality permit. This amount was charged to
expense in 1995. The Company has installed natural gas pulp driers at the East
Grand Forks facility at a cost of approximately $1.4 million. These driers are
designed to bring the East Grand Forks facility into compliance with emissions
standards as well as provide operational efficiencies. A notice of violation was
received in April, 1995, from the State of North Dakota regarding emissions from
the pulp
53
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
(8) ENVIRONMENTAL MATTERS: (CONTINUED)
drier at the Hillsboro factory. The Company retested emissions from the drier
and is in compliance with North Dakota emission limits.
(9) COMMITMENTS AND CONTINGENCIES:
American Crystal had outstanding letters of credit totaling $29.5 million as
of August 31, 1997.
American Crystal is subject to various lawsuits and claims that arise in the
ordinary course of its business. Management believes the disposition of all such
proceedings, individually or in the aggregate, should not have a material
adverse effect on the Company's financial condition.
Under the terms of the ProGold Limited Liability Company (ProGold) Member
Control Agreement, the ProGold Board of Governors can require American Crystal
to provide additional capital contributions not to exceed $2.3 million per year.
ProGold Grain, a division of the American Crystal, acts as an agent to
procure corn to satisfy the obligations of American Crystal, Minn-Dak Farmers
Cooperative and some members of Golden Growers Cooperative to deliver corn to
ProGold. To reduce the price risk of market fluctuations, American Crystal
follows a policy of hedging substantially all corn purchase contracts and
related sweetener sale contracts on behalf of ProGold. As of August 31, 1997,
the Company had outstanding purchase commitments of 3.7 million bushels of corn
at $2.75 per bushel. The market price of corn as of October 10, 1997, was $2.45
per bushel.
During 1997, American Crystal's Board of Directors authorized the
construction of a project to increase the slice capacity at the Hillsboro
facility at a total estimated cost of $56.9 million. As of August 31, 1997,
American Crystal has incurred costs of $17.6 million related to this project.
American Crystal has outstanding commitments totaling $15.9 million as of
August 31, 1997, for consulting services, equipment and construction contracts
related to various capital projects.
On September 29, 1997, the Board of Directors authorized management to
negotiate toward the formation of a joint venture with Newcourt Credit Group
Inc. of Toronto, Canada, to acquire molasses desugarization technology from
Idreco USA Ltd. and to construct a molasses desugarization plant in the Red
River Valley. The facility is anticipated to cost between $90 to $100 million.
American Crystal and Newcourt are expected to contribute 3% of the cost in the
form of equity capital with American Crystal contributing an additional 13.5% of
subordinated debt to the joint venture. The remaining cost of the facility is
anticipated to be underwritten by Newcourt in the form of senior debt. The
plant, when completed, is expected to process approximately 200,000 tons of
molasses and recover sugar and other by-products. The formation of the
joint-venture is expected to be completed in January, 1998 and construction of
the facility to begin in the Spring of 1998 for completion in March, 1999.
54
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------ -----
<C> <S> <C>
*3(i) Restated Articles of Incorporation of American Crystal Sugar Company..........................
#3(ii) Restated By-laws of American Crystal Sugar Company............................................
#10(f) Growers' Contract (5-year Agreement)..........................................................
*10(g) Growers' Contract (Annual Contract)...........................................................
*10(h) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 1,
1986........................................................................................
*10(i) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company,
dated August 1, 1986........................................................................
*10(j) Beet Loading and Hauling Agreement between Registrant and Transystems, Inc., dated May 18,
1993........................................................................................
*10(k) Form of Uniform Member Marketing Agreement between Registrant and United Sugars Corporation,
dated January 1, 1994.......................................................................
*10(l) Trademark License Agreement between Registrant and United Sugars Corporation, dated November
1, 1993.....................................................................................
*10(m) Uniform Member Marketing Agreement, Pool Basis between Registrant and Midwest Agri-Commodities
Company, dated April 14, 1992...............................................................
*10(n) Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency......
*10(o) Master Agreement between Registrant, United Sugars Corporation, American Federation of Grain
Millers, AFL-CIO, CLC, et al................................................................
*10(p) Loan Agreement between Registrant and St. Paul Bank for Cooperatives, dated December 20,
1993........................................................................................
*10(q) Amended and Restated Loan Agreement between Registrant and First Bank National Association,
dated November 22, 1993.....................................................................
*10(r) Pension Contract and Amendments...............................................................
*10(s) Compensation, Severance and Loan Agreement with Mr. J. Famalette, dated March 2, 1992.........
*10(t) Compensation and Loan Agreement with Mr. J. Famalette, dated October 1, 1993..................
*10(u) Form of Operating Agreement between Registrant and ProGold Limited Liability Company..........
*10(v) Form of Member Control Agreement between Registrant and ProGold Limited Liability Company.....
*10(w) Administrative Services Agreement between Registrant and ProGold Limited Liability Company....
*10(x) Uniform Member Marketing Agreement............................................................
#10(y) Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25, 1995
(Confidential treatment granted as to certain provisions)...................................
#10(z) Coal Transportation Agreement between Registrant and Northern Coal Transportation Company,
dated August 25, 1995 (Confidential treatment granted as to certain provisions).............
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS PAGE
- ------------ -----
<C> <S> <C>
#10(aa) Gas Sales Contract between Registrant and Coastal Gas Marketing Company, dated as of March 20,
1996 (Confidential treatment granted as to certain provisions.).............................
#10(bb) Employment Agreement with Mr. Daniel McCarty, dated as of April 8, 1996.......................
**10(cc) Amendment to Employment Agreement with Mr. Daniel McCarty, dated as of July, 1997.............
**10(dd) Form of Subscription Agreement for Preferred Stock (Current Members). Subscription Document
A...........................................................................................
**10(ee) Form of Indication of Interest in Purchasing Additional Shares of Preferred Stock (Current
Members). Subscription Document B...........................................................
**10(ff) Form of Indication of Interest in Purchasing Pool 3 Shares of Preferred Stock. Subscription
Document C..................................................................................
**10(gg) Form of Statement of Representations and Warranties for New Members (Prospective Members).
Subscription Document D.....................................................................
**10(hh) Subscription Document Instructions............................................................
**+10(ii) Trademark License Agreement between Registrant and The Pillsbury Company, dated as of April 9,
1997 (Confidential treatment granted as to certain provisions)..............................
**10(jj) Subscription Agreement for Pool 2 Preferred Stock.............................................
**10(kk) Subscription Agreement for Pool 3 Preferred Stock.............................................
23 Consent of Independent Public Accountant......................................................
</TABLE>
- ------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-83868), declared effective November 23, 1994.
# Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-11693), declared effective November 13, 1996.
** Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 333-32251), declared effective October 24, 1997.
+ Pursuant to Rule 406(b) of the Securities Act of 1933, confidential portions
of the exhibit have been deleted and filed separately with the Securities
and Exchange Commission pursuant to a request for confidential treatment,
which request has been granted.
56
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated October 10, 1997, with respect to
the financial statements of American Crystal Sugar Company for the year ended
August 31, 1997, in this Form 10-K (file number 33-83868, 33-11693 and
333-32251).
/s/ EIDE HELMEKE PLLP
November 28, 1997
Fargo, North Dakota
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> AUG-31-1997
<CASH> 11,551
<SECURITIES> 0
<RECEIVABLES> 69,415
<ALLOWANCES> 0
<INVENTORY> 140,057
<CURRENT-ASSETS> 238,979
<PP&E> 692,710
<DEPRECIATION> 413,211
<TOTAL-ASSETS> 581,504
<CURRENT-LIABILITIES> 193,327
<BONDS> 186,800
0
33,542
<COMMON> 26
<OTHER-SE> 142,360
<TOTAL-LIABILITY-AND-EQUITY> 581,504
<SALES> 677,004
<TOTAL-REVENUES> 677,004
<CGS> 136,330
<TOTAL-COSTS> 278,279
<OTHER-EXPENSES> 30,242
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,321
<INCOME-PRETAX> 368,483
<INCOME-TAX> 1,727
<INCOME-CONTINUING> 366,756
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 366,756
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
