<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM 10-Q
---------------------------
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE PERIOD ENDED NOVEMBER 30, 1998
COMMISSION FILE NUMBER: 33-83868
AMERICAN CRYSTAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
MINNESOTA 84-0004720
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 NORTH THIRD STREET
MOORHEAD, MINNESOTA 56560
(Address of principal executive offices)
TELEPHONE NUMBER (218) 236-4400
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
YES X NO
------- -------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
OUTSTANDING AT
CLASS OF COMMON STOCK JANUARY 5, 1999
--------------------- ---------------
<S> <C>
$10 PAR VALUE 2,837
</TABLE>
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<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 3
STATEMENT OF CASH FLOWS 4
NOTES TO THE FINANCIAL STATEMENTS 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION 7
PART II OTHER INFORMATION 9
SIGNATURES 11
</TABLE>
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
Balance Sheets
(Unaudited)
(Dollars in Thousands)
ASSETS
<TABLE>
<CAPTION>
November 30
---------------------------------------- August 31,
1998 1997 1998
-------------------- ------------------ ------------------
<S> <C> <C> <C>
Current Assets: *
Cash and Cash Equivalents $ 43 $ 587 $ 41
Accounts Receivable:
Trade 58,944 60,611 53,874
Members 1,837 827 2,558
Other 927 4,612 2,801
Advances to Related Parties 18,752 13,786 26,402
Inventories 478,103 421,412 142,382
Prepaid Expenses 3,041 2,418 3,079
-------------------- ------------------ ------------------
Total Current Assets 561,647 504,253 231,137
-------------------- ------------------ ------------------
Property and Equipment:
Land 14,277 13,101 13,818
Buildings and Equipment 672,700 639,409 664,453
Construction-in-Progress 115,156 50,552 112,470
Less: Accumulated Depreciation (445,620) (420,121) (438,801)
-------------------- ------------------ ------------------
Net Property and Equipment 356,513 282,941 351,940
-------------------- ------------------ ------------------
Other Assets:
Investments in Banks for Cooperatives 15,874 14,546 15,890
Investments in Marketing Cooperatives 2,855 1,678 2,197
Investment in ProGold LLC 35,110 36,225 35,172
Investment in Crystech 1,574 0 1,574
Other Assets 11,413 5,990 8,550
-------------------- ------------------ ------------------
Total Other Assets 66,826 58,439 63,383
-------------------- ------------------ ------------------
Total Assets $ 984,986 $ 845,633 $ 646,460
==================== ================== ==================
</TABLE>
* Derived from audited financial statements.
The Accompanying Notes are an Integral Part of These Financial Statements.
1
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
Balance Sheets
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND MEMBERS' INVESTMENTS
<TABLE>
<CAPTION>
November 30
--------------------------------------- August 31,
1998 1997 1998
------------------- ------------------ ------------------
<S> <C> <C> <C>
Current Liabilities: *
Short-Term Debt $ 240,369 $ 165,000 $ 116,322
Current Maturities of Long-Term Debt 18,800 18,800 17,800
Accounts Payable:
Trade 7,674 12,400 31,421
Other 6,304 18,382 4,710
Accrued Continuing Costs 24,002 15,721 -
Other Current Liabilities 15,457 14,877 16,112
Amounts Due Members 190,167 181,629 14,415
------------------- ------------------ ------------------
Total Current Liabilities 502,773 426,809 200,780
Long-Term Debt, Excluding Current
Maturities 233,695 185,800 194,695
Deferred Income Taxes 1,753 1,540 1,753
Other Liabilities 24,917 24,884 24,389
------------------- ------------------ ------------------
Total Liabilities 763,138 639,033 421,617
------------------- ------------------ ------------------
Members' Investments (Note 4):
Preferred Stock 38,275 37,747 38,275
Common Stock 28 26 28
Additional Paid-in Capital 119,386 104,849 116,183
Unit Retains 95,693 97,516 105,850
Pension Liability Adjustment (2,259) (4,131) (2,259)
Retained Earnings (29,275) (29,407) (33,234)
------------------- ------------------ ------------------
Total Members' Investments 221,848 206,600 224,843
------------------- ------------------ ------------------
Total Liabilities and Members'
Investments $ 984,986 $ 845,633 $ 646,460
=================== ================== ==================
</TABLE>
* Derived from audited financial statements.
The Accompanying Notes are an Integral Part of These Financial Statements.
2
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
Statement of Operations
(Unaudited)
(Dollars in Thousands)
<TABLE>
<CAPTION>
For the Three Months Ended
November 30
------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
Net Revenue $ 195,673 $ 179,169
Cost of Product Sold 1,914 14,650
-------------------- ---------------------
Gross Proceeds 193,759 164,519
Selling, General & Administrative
Expenses 44,274 39,584
Accrued Continuing Costs 24,002 15,721
-------------------- ---------------------
Operating Proceeds 125,483 109,214
-------------------- ---------------------
Other Income (Expenses)
Interest Income 279 386
Interest Expense (4,609) (2,991)
Other Income (Loss) 4,379 55
Other Expenses (22) (5,538)
-------------------- ---------------------
Other Income (Expense) 27 (8,088)
-------------------- ---------------------
Proceeds before Income Taxes 125,510 101,126
Income Taxes Provision/Benefit - -
-------------------- ---------------------
Net Proceeds Resulting from
Member and Non-Member Business $ 125,510 $ 101,126
==================== =====================
Distribution of Net Proceeds:
Credited/(Charged) to Member's
Investments:
Non-Member Business Income/(Loss) 3,959 (5,852)
Unit Retains Declared to Members - -
-------------------- ---------------------
Net Credit/(Charge) to Members'
Investments 3,959 (5,852)
Payments to/due Members for
Sugarbeets, Net of Unit Retains
Declared 121,551 106,978
-------------------- ---------------------
Total $ 125,510 $ 101,126
==================== =====================
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
3
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
Statements of Cash Flows
(Unaudited)
(Dollars In Thousands)
<TABLE>
<CAPTION>
Three Months Ended
November 30
---------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Cash Provided By (Used In) Operations:
Net Proceeds Resulting from Member and Non-
Member Business $ 125,510 $ 101,126
Payments to/due Members for Sugarbeets,
Including Unit Retains (121,551) (106,978)
Add/(Deduct) Noncash Items:
Depreciation and Amortization 6,837 6,929
Loss on Investment Activities 2 5,494
(Gain)/loss on the Disposition of Property
and Equipment (19) (4)
Noncash Portion of Patronage Dividend from
Banks for Cooperatives 16 0
Deferred Gain Recognition (50) (52)
Changes in Assets and Liabilities
Accounts Receivable (2,475) 3,365
Inventories (335,721) (281,355)
Prepaid Expenses 38 474
Advances to Related Parties 7,650 1,278
Accounts Payable (22,153) 4,884
Other Liabilities 23,876 16,058
Amount Due Growers 175,752 115,474
------------------- -------------------
Net Cash Used In Operations (142,288) (133,307)
------------------- -------------------
Cash Provided By (Used In) Investing Activities:
Purchases of Property and Equipment (11,393) (10,352)
Proceeds from the Sale of Property and Equipment 19 4
Investment in Banks for Cooperatives (0) 22
Investment in Marketing Cooperatives (607) 24
Investment in ProGold LLC 60 1,288
Changes in Other Assets (2,882) (2,207)
------------------- -------------------
Net Cash Used In Investing Activities (14,803) (11,221)
------------------- -------------------
Cash Provided by Financing Activities:
Net Proceeds (Payments) on Short-Term Debt 124,047 97,040
Proceeds from Long-Term Debt 40,000 0
Changes in Preferred Stock 0 4,205
Changes in Additional Paid-In Capital 3,203 40,253
Payment of Unit Retains (10,157) (7,934)
------------------- -------------------
Net Cash Provided by Financing Activities 157,093 133,564
------------------- -------------------
Decrease in Cash and Cash Equivalents 2 (10,964)
Cash and Cash Equivalents Beginning of Period 41 11,551
------------------- -------------------
Cash and Cash Equivalents End of Period $ 43 $ 587
=================== ===================
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
4
<PAGE>
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
NOTE 1: BASIS OF PRESENTATION
The unaudited financial statements contained herein have been prepared
pursuant to the rules and regulations of the Security and Exchange
Commission. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles. However, in
the opinion of management, all adjustments, consisting of normal recurring
accruals, considered necessary for a fair presentation have been included.
The operating results for the three month period ended November 30, 1998 are
not necessarily indicative of the results that may be expected for the year
ended August 31, 1999.
The amount paid to growers for sugarbeets (beet payment) depends on the
future selling prices of sugar and by-products as well as processing and
other costs to be incurred during the remainder of the fiscal year. For the
purposes of this report, the amount of the beet payment, future revenues and
costs have been estimated. Therefore, adjustments with respect to these
estimates may be necessary in the future as additional information becomes
available.
These financial statements should be read in conjunction with the financial
statements and notes included in the company's annual report for the year
ended August 31, 1998.
NOTE 2: INVENTORIES
The major components of inventories are as follows (In Thousands):
<TABLE>
<CAPTION>
11/30/98 11/30/97 8/31/98
-------- -------- --------
<S> <C> <C> <C>
Refined Sugar, Pulp, Molasses,
CSB and Beet Seed $170,175 $149,433 $123,628
Unprocessed Sugarbeets 289,472 251,415 -
Maintenance Parts & Supplies 18,456 20,564 18,754
-------- -------- --------
Total Inventories $478,103 $421,412 $142,382
======== ======== ========
</TABLE>
Sugar, pulp, molasses and CSB inventories are valued at estimated net
realizable value. Unprocessed sugarbeets are valued at the estimated net beet
payment plus estimated unit retains to be withheld. Maintenance parts &
supplies and beet seed inventories are valued the lower of average cost or
market.
5
<PAGE>
NOTE 3: ACCRUED CONTINUING COSTS
For interim reporting, the Net Proceeds from Member Business is determined
based on the forecasted beet payment and the percentage of the tons of
sugarbeets processed to the total estimated tons of sugarbeets to process for
a given crop year. Accrued continuing costs represents the difference between
the Net Proceeds from Member Business as determined above and actual member
business crop year revenues realized and expenses incurred through the end of
the reporting period. Accrued continuing costs are reflected in the Financial
Statements as a cost on the Statements of Operations and as a current
liability on the Balance Sheets.
NOTE 4: MEMBERS' INVESTMENTS
<TABLE>
<CAPTION>
Shares Shares Issued
Par Value Authorized & Outstanding
--------- ---------- ------------
<S> <C> <C> <C>
Preferred Stock:
January 5, 1999 . $ 76.77 600,000 498,570
November 30, 1998 $ 76.77 600,000 498,570
August 31, 1998 . $ 76.77 600,000 498,570
November 30, 1997 $ 76.77 600,000 491,689
Common Stock:
January 5, 1999 . $ 10.00 4,000 2,837
November 30, 1998 $ 10.00 4,000 2,834
August 31, 1998 . $ 10.00 4,000 2,835
November 30, 1997 $ 10.00 4,000 2,585
</TABLE>
6
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE AND THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 1998 AND 1997
Revenue for the three months ended November 30, 1998, was $195.7 million, an
increase of $16.5 million from 1997. Revenue from total sugar sales increased
8.6 percent reflecting an 11.4 percent increase in hundredweight sold
partially offset by a 2.5 percent decrease in the average selling price per
hundredweight. Revenue from pulp sales increased 25.0 percent due to a 82.1
percent increase in the volume of pulp sold partially offset by a 31.4
percent decrease in the average selling price per ton. Revenue from molasses
sales increased 13.3 percent due to a 42.0 percent increase in the volume of
molasses sold partially offset by a 20.2 percent decrease in the average
selling price per ton. Revenue from the sales of Concentrated Separated
By-Produce (CSB), a by-product of the molasses desugarization process,
decreased 14.6 percent due to a 15.7 percent decrease in the average selling
price per ton partially offset by a 1.4 percent increase in sales volume.
Cost of product sold, exclusive of payments for sugarbeets, decreased $12.7
million. Direct processing costs for sugar and pulp increased 2.9 percent.
Fixed and committed expenses increased 17.3 percent reflecting higher
maintenance costs. The cost associated with sugar purchased to meet customer
needs was up $.4 million due to the increase in purchased sugar activity in
distant geographic markets.
Selling expenses increased $4.9 million due primarily to the increase in the
volume of products sold. General and Administrative expenses decreased $.3
million due to a decrease in general administrative costs that consist mainly
of decreased incentive compensation.
The increase in accrued continuing costs was due primarily to changes in
sugar sales and production and the differences in the timing of incurring
processing costs.
Interest expense increased due primarily to higher average borrowing levels
for short and long-term debt this year.
Non-member activities resulted in a gain of $4.0 million for the three months
ended November 30, 1998 as compared to a loss of $5.9 million for the same
period last year. The majority of this gain is related to the sale of beet
seed assets to Betaseed Inc. (BETA), a wholly owned subsidiary of
Kleinwanzlebener Saatzucht, Ag.
American Crystal has made extensive efforts to become year 2000 compliant.
Twenty-two months ago, a new computer software package (SAP) was installed
which made most of the company-wide computer systems and its hardware
compliant for the year 2000. This includes software for the financial
applications such as accounts payable, accounts receivable and general ledger
as well as costing, project accounting, sales and distribution, plant
maintenance, and production planning. The payroll and human resources
software has also been upgraded to be year 2000 compliant and will be running
on hardware that is compliant by the end of 1998.
Work has also been done at the factories to ensure the systems and controls
used in the day-to-day production of sugar will not be adversely effected by
year 2000 problems.
7
<PAGE>
A Year 2000 Assessment Team has been formed with representation from various
locations and departments, information services functions as well as two of
American Crystal's associated companies, United Sugars Corporation and
Midwest Agri-Commodities Company. This committee is in the process of
assessing what additional systems the Company uses and if there are any year
2000 compliance problems. The systems that are determined to be non-compliant
will then be examined, risk assessed and action will be taken as deemed
appropriate and necessary.
Year 2000 compliance may also adversely affect the operations and financial
performance of the Company indirectly by causing complications of, or
otherwise affecting, the operations of any one or more of the Company's
suppliers and customers. The Company has begun contacting its significant
suppliers and customers as part of its year 2000 compliance plan. The
Company's goal is to identify any potential year 2000 compliance issues with
the enterprises with whom the Company does business. Although the results of
this effort indicate that many of the Company's customers and suppliers will
be year 2000 compliant, the Company is currently unable to predict the
magnitude of the operational and financial impact on the Company of year 2000
compliance issues with the Company's suppliers and customers.
The Company expects to incur (and expense) up to $60,000 during the fiscal
year which began on September 1, 1998 to resolve the remaining year 2000
compliance issues. The Company also expects to incur up to $20,000 during
that fiscal year for new software and hardware; those amounts will be
capitalized.
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
("Bank"). American Crystal has a short-term line of credit with the Bank in
1998 of $280 million.
The various loan agreements between the Bank and American Crystal obligate
American Crystal to maintain or achieve certain amounts of working capital
and certain financial ratios and impose restrictions on American Crystal. As
of November 30, 1998, American Crystal was in compliance with its loan
agreements.
The primary factor for the changes in American Crystal's financial condition
for the three months ended November 30, 1998 was due to the 1998/1999
sugarbeet processing campaign. The cash used in operations of $142.3 million
and investing activities of $14.8 million, was funded through the cash
provided by financing activities. The net cash provided by financing
activities was primarily comprised of the net proceeds from short-term debt
of $124.0 million, proceeds from long-term debt of $40.0 million and proceeds
from the sale of stock of $3.2 million, partially offset by the payment of
the unit retains of $10.2 million.
8
<PAGE>
Working capital has increased $28.5 million from $30.4 million at the
beginning of the year to $58.9 million as of November 30, 1998 primarily due
to increased inventories, partially offset by increased short term and
current maturities of long term debt. Working capital for the three months
ended November 30, 1998 was $58.9 million, a decrease of $18.5 million
compared to $77.4 million in the same period in 1997.
Capital expenditures for the three months ended November 30, 1998 were $11.4
million.
American Crystal anticipates that the funds necessary for the Bank's working
capital requirements and future capital expenditures will be derived from
depreciation, unit retains and long-term borrowing.
The growth in the market for refined sugar in the late 1980's and the mid
1990's is a reversal of trends in the 1970's and early 1980's which resulted
in a reduced market for refined sugar. During the 1970's 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, more importantly, increased acceptance of the use of
sugar as a desirable natural ingredient in a normal diet.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
American Crystal is subject to various lawsuits and claims which arise in the
ordinary course of its business. While the results of such litigation and
claims cannot be predicted with certainty, management believes the
disposition of all such proceedings, individually or in the aggregate, should
not have a material adverse effect on the Company's financial position,
results of operations or cash flows. Management is not aware of any
threatened claims which could result in the commencement of legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Hillsboro Factory District Meeting on November 9, 1998, an election of
a Board of Director was held. Court Hanson who sought re-election received 91
of the 91 votes cast. His three-year term expires in December, 2001.
At the Drayton Factory District Meeting on November 10, 1998, an election of
a Board of Director was held. Robert Vivatson who sought re-election received
147 of the 151 votes cast. His three-year term expires in December, 2001.
At the Crookston Factory District Meeting on November 11, 1998, an election
of a Board of Director was held. No candidate received a majority of the
votes cast on the first ballot, pursuant to the Company's election policy, a
runoff election was conducted between the persons receiving the most votes on
the first ballot. Jim Ross received 66 of the 105 votes cast in the runoff
election. His three-year term expires in December, 2001. Mr. Ross replaces
Barry Malme who was unable to stand for re-election due to the provisions of
the Company By-Laws which prohibit a person from serving more than four (4)
consecutive terms as a Director.
9
<PAGE>
At the East Grand Forks Factory District Meeting on November 12, 1998, an
election of a Board of Director was held. Steve Goodwin who sought
re-election received 159 of the 170 votes cast. His three-year term expires
in December, 2001.
At the Moorhead Factory District Meeting on November 13, 1998, an election of
a Board of Director was held. David Kragnes who sought re-election received
131 of the 137 votes cast. His three-year term expires in December, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
No exhibits are included herein.
The Company did not file any reports on Form 8-K during the three months
ended November 30, 1998.
10
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENT OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
AMERICAN CRYSTAL SUGAR COMPANY
------------------------------
(REGISTRANT)
DATE: JANUARY 5, 1999 /s/ SAMUEL S. M. WAI
---------------------- -----------------------------
SAMUEL S. M. WAI
CORPORATE CONTROLLER
DULY AUTHORIZED OFFICER
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1999
<PERIOD-START> SEP-01-1999
<PERIOD-END> NOV-30-1998
<CASH> 43
<SECURITIES> 0
<RECEIVABLES> 61,708
<ALLOWANCES> 0
<INVENTORY> 478,103
<CURRENT-ASSETS> 561,647
<PP&E> 802,133
<DEPRECIATION> 445,620
<TOTAL-ASSETS> 984,986
<CURRENT-LIABILITIES> 502,773
<BONDS> 233,695
0
38,275
<COMMON> 28
<OTHER-SE> 183,545
<TOTAL-LIABILITY-AND-EQUITY> 984,986
<SALES> 195,673
<TOTAL-REVENUES> 195,673
<CGS> 1,914
<TOTAL-COSTS> 70,190
<OTHER-EXPENSES> 27
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,609
<INCOME-PRETAX> 125,510
<INCOME-TAX> 0
<INCOME-CONTINUING> 125,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 125,510
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
