|
|
|
|
|
|
|
|
|
|
|
|
|
|
Previous: ENTERPRISE GROUP OF FUNDS INC, 497, 2000-11-22 |
Next: AMERICAN CRYSTAL SUGAR CO /MN/, 10-K405, EX-10.29, 2000-11-22 |
UNITED STATES
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, 2000
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
AMERICAN CRYSTAL SUGAR COMPANY
(Exact name of registrant as specified in its charter)
| Minnesota (State of incorporation) |
84-0004720 (I.R.S. Employer Identification Number) |
|
| 101 North Third Street Moorhead, MN 56560 (Address of principal executive offices) |
|
(218) 236-4400 (Registrant's telephone number) |
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities
registered pursuant to Section 12(g) of the Act:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /x/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. /x/
As of November 22, 2000, 3,006 shares of the Registrant's Common Stock and 498,570 shares of the Registrant's Preferred Stock were outstanding. There is no established public market for the Registrant's Common Stock or Preferred Stock. Although there is a limited, private market for shares of the Registrant's stock, the Registrant does not obtain information regarding the transfer price in transactions between its members and therefore is unable to estimate the aggregate market value of the Registrant's shares held by non-affiliates.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
This report contains forward-looking statements and information based upon assumptions by the American Crystal Sugar Company's management, including assumptions about risks and uncertainties faced by the Company. These forward-looking statements can be identified by the use of forward-looking terminology such as "expects", "believes", "will" or similar verbs or expressions. If any of management's assumptions prove incorrect or should unanticipated circumstances arise, the Company's actual results could materially differ from those anticipated by such forward-looking statements. The differences could be caused by a number of factors or combination of factors, including, but not limited to, those factors influencing the Company and its business which are described in this report in the "Important Factors" section below. Readers are urged to consider these factors when evaluating any forward-looking statement. The Company undertakes no obligation to update any forward-looking statements in this report to reflect future events or developments.
General
The Company is a Minnesota agricultural cooperative corporation owned by 3,006 sugarbeet growers in the Minnesota and North Dakota portions of the Red River Valley. Throughout this report, the terms "growers," "members" and "shareholders" will be used interchangeably to refer to the equity holders of the Company. The Red River Valley is the largest sugarbeet growing area in the United States, forming a band approximately 35 miles wide on either side of the North Dakota and Minnesota border and extending approximately 200 miles south from the border of the United States and Canada. The Company was organized in 1973 by sugarbeet growers to acquire the business and assets of the American Crystal Sugar Company, then a publicly held New Jersey corporation in operation since 1899. The Company currently processes sugarbeets from a base level of approximately 498,570 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 agri-products such as molasses, sugarbeet pulp and concentrated separated by-product (CSB), a by-product of the molasses desugarization process.
The Company's 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 the Company, Southern Minnesota Beet Sugar Cooperative, Minn-Dak Farmers Cooperative and United States Sugar Corporation. The Company's agri-products 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. The Company and Newcourt Capital USA own Crystech, LLC which was formed to construct and operate a molasses desugarization facility adjacent to the Company's processing facility in Hillsboro, North Dakota.
The Company'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
The Company is engaged primarily in the production and marketing of sugar from sugarbeets. The Company also sells agri-products and sugarbeet seeds. The Company's total sugar and agri-product
2
production is influenced by the amount and quality of sugarbeets grown by its members, the processing capacity of the Company's plants and by its ability to store harvested sugarbeets.
The Company 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 agri-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 typically begins in September, when a small portion of the sugarbeet crop is harvested, and continues until the available supply of sugarbeets has been depleted, which generally occurs in May of the following year. Based on current processing capacity, an average campaign lasts approximately 250 days, assuming normal crop yields.
Once the sugarbeets are harvested, members transport their crop by truck to receiving stations designated by the Company. The sugarbeets are then stored in factory yards and at outlying piling stations until processed. Rapid processing is important to maximize sugar extraction and minimize spoilage. Most of the sugarbeets are stored outside in piles. Although frozen sugarbeets may be stored for extended periods, sugarbeets stored in unprotected piles at temperatures above freezing must be processed within approximately 150 days. In most years, 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. In milder climates or years, unprotected piles of sugarbeets experience cycles of freezing and thawing and are subject to some deterioration. When subject to such freeze and thaw cycles, sugarbeets on the exterior of piles freeze naturally. Sugarbeets near the center of the piles, however, may not freeze and thus may be subject to spoilage.
In order to avoid spoilage the Company utilizes a process called "split pile storage" in which sugarbeets from the center of the piles are removed for processing first. Split pile storage permits more of the stored sugarbeets to freeze naturally. The Company also utilizes a ventilation technique to further reduce spoilage. In this process, fans circulate air through ventilation channels constructed within sugarbeet piles in order to pre-cool and then deep freeze the sugarbeets. Approximately 24.5% of an average crop may be stored in ventilated storage sites. Enclosed cold storage facilities are also used to extend the sugarbeet storage period at each of the Company's factory locations. Enclosed cold storage sites presently have the capacity to cover approximately 8% of an average crop.
The basic process for producing sugar from sugarbeets involves: washing the sugarbeets; slicing the sugarbeets 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 crystallize the sugar; separating the sugar crystals from the molasses in a centrifuge; drying the sugar; storing sugar in bulk form and grading and screening the crystals for packaging and bulk shipping.
Molasses that remains after the sugar crystals are initially separated can be further processed to remove more sugar crystals. Prior to fiscal 2000, the Company processed approximately one-half of its molasses through its East Grand Forks molasses desugarization facility to extract additional sugar. In February, 2000, the new Hillsboro desugarization facility became operational. Approximately two-thirds of the Company's molasses was processed during fiscal 2000. In the future, the Company expects to process substantially all of its molasses to extract the remaining sugar.
The sugar production process results in a variety of agri-products. After the extraction of raw juice from the cossettes, the remaining pulp is dried and processed into animal feed. Currently, the remaining molasses and CSB from the molasses desugarization process are marketed through Midwest Agri-Commodities Company and are sold primarily to yeast manufacturers and for use in animal feed.
3
The Company develops and markets sugarbeet seeds through a 10-year Product Development, Licensing and Sales Agreement with Betaseed, Inc., a Minnesota corporation which is a wholly-owned subsidiary of KWS Kleinwanzlebener Saatzucht, AG, a German seed company that is one of the three largest seed companies in the world. Under the agreement, the Company has the right to market its branded seed to its own members and Betaseed has the right to market Betaseed branded seed to the Company's members and also to market the Company's seed and its seed in all other markets.
Recent Crops
The sugarbeet crop grown during 2000 that will be processed during fiscal 2001, produced a total of approximately 21.6 tons of sugarbeets per acre from approximately 445,000 acres. That production exceeded the ten-year average of 18.3 tons per acre for the crops grown in the years 1990 through 1999. The sugar content of the 2000 crop was 17.75%, in comparison to a ten-year average for the applicable period of 17.43%. The Company has begun processing the sugarbeets produced from the 2000 crop and expects to produce a total of approximately 27.3 million hundredweight of sugar from the crop.
The sugarbeet crop grown during 1999 and processed during fiscal 2000, produced a total of approximately 19.9 tons of sugarbeets per acre from approximately 486,000 acres. That production exceeded the ten-year average of 17.8 tons per acre for the crops grown in the years 1989 through 1998. The sugar content of the 1999 crop was 17.37%, in comparison to a ten-year average for the applicable period of 17.36%. The Company produced a total of approximately 26.6 million hundredweight of sugar from the 1999 sugarbeet crop.
The sugarbeet crop grown during 1998 and processed during fiscal 1999, produced a total of approximately 22.2 tons of sugarbeets per acre from approximately 481,000 acres. That production exceeded the ten year average of 16.9 tons per acre for the crops grown in the years 1988 through 1997. The sugar content of the 1998 crop was 17.66%, in comparison to a ten-year average for the applicable period of 17.42%. The Company produced a total of approximately 25.5 million hundredweight of sugar from the 1998 sugarbeet crop.
For a discussion of the 1999, 1998 and 1997 crops and results of operations for fiscal years 2000, 1999 and 1998, see "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Market and Competition
Current United States government statistics estimate total United States sugar consumption at 194.1 million hundredweight for the year beginning October 1, 2000 and ending September 30, 2001. For the same period starting October 1999, total consumption was 191.6 million hundredweight. Comparing the two years shows demand growth of 1.7% for United States sugar sellers.
The United States refined sugar market has grown over the past twenty years, despite the demand lost to the substitution of high fructose corn syrups for sugar in beverages and certain food products. Non-nutritive sweeteners such as aspartame have also been developed to substitute for sugar. While corn and non-nutritive sweeteners constitute a large portion of the overall sweetener market, the Company believes that the United States market for sugar will continue to grow between 1 and 2% per year mainly due to population growth.
The substitution of corn sweeteners for sugar not only reduced demand for sugar in the United States, but also resulted in a high degree of sugar industry consolidation. Today there are eight sugar sellers, with over 75% of United States sugar market share concentrated in the top three sellers, all of which are fully integrated sugarbeet and cane suppliers. Given the size of the domestic market, the Company's sugar production and sales represented 13.9% of the total domestic market for refined
4
sugar in 1999/2000. Sugar sales by United Sugars Corporation represents approximately 22% of the United States sugar market.
The Company's main competitors in the domestic market are Imperial Sugar Company, Tate & Lyle North America, Amalgamated Sugar Company and California & Hawaiian Sugar Company. Because sugar is a fungible commodity, competition in the United States industry is primarily based upon price, customer service and reliability as a supplier.
According to United States Department of Agriculture (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 the future, while cost efficiency is a competitive advantage, substitute products for sugar and sugar imports could have a material and adverse effect on the Company's operations.
Marketing, Customers and Prices
United Sugars Corporation, a common marketing agency operating on a cooperative basis, markets the Company's sugar. The Company is a party to a "Uniform Member Marketing Agreement" with United Sugars Corporation. The other members of United Sugars Corporation, Minn-Dak Farmers Cooperative, Southern Minnesota Beet Sugar Cooperative and United States Sugar Corporation, are parties to similar agreements. Under these agreements, all of the members market all of their refined sugar through United Sugars Corporation. The 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 from the 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 four members proportionally.
United Sugars Corporation distributes both cane sugar and beet sugar to customers over a large geographical area. All of the uniform marketing agreements terminate on August 31, 2001, with automatic renewal for subsequent terms of one year unless notice of termination is given by a party. In order to terminate its agreement, a party must provide notice of termination by May 1 of the then current year for the termination to be effective on the August 31 of the subsequent year. In the event one of the parties terminates its uniform marketing agreement, the amount of sugar that is marketed by United Sugars Corporation would decrease, thus reducing proceeds. Furthermore, United Sugars Corporation would also be required to return the exiting member's capital over a period of five years. No notifications of termination were received in May of 2000.
United Sugars Corporation markets the Company's sugar primarily to industrial users such as confectioners, breakfast cereal manufacturers and bakeries. For the fiscal year ended August 31, 2000, 89.6% (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" and "Pillsbury" brand names and various private labels for household consumption. With regard to brand name sales, the Company licenses the use of the "Crystal" name and sub-licenses the use of the "Pillsbury" name to United Sugars Corporation.
United Sugars Corporation's customers are located primarily in Illinois, Indiana, Iowa, Minnesota, Missouri, New York, Ohio, Pennsylvania, Tennessee, and Wisconsin. During fiscal 2000, United Sugar Corporation's 10 largest customers purchased approximately 49.7% (by weight) of the Company's sugar sold.
The prices at which United Sugars Corporation sells the Company's sugar fluctuate periodically based on changes in domestic sugar supply and demand. The largest proportion of United Sugars
5
Corporation's sugar 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.
The Company markets its agri-products through Midwest Agri-Commodities Company, a common marketing agency operating on a cooperative basis, whose members are the Company, Minn-Dak Farmers Cooperative and Southern Minnesota Beet Sugar Cooperative. Sugarbeet pulp is marketed to livestock feed mixers and livestock feeders in the United States and foreign markets. For the year ended August 31, 2000, the majority of the Company's pulp production was exported to Japan and Europe. The market for sugarbeet pulp is affected by the availability and quality of competitive foodstuffs. Sugarbeet molasses is marketed primarily to yeast manufacturers, livestock feed mixers and livestock feeders. Total agri-product sales accounted for 7.7% of the Company's total revenues during fiscal 2000. Export agri-product sales accounted for 4.1% of the Company's total revenues during fiscal 2000. In the past, export agri-products sales accounted for 3.1% of the Company's total revenues in 1999 and 6.5% in 1998. These percentages are primarily a function of the average market prices for sugar, pulp and molasses and are not necessarily indicative of future relationships between agri-product revenues (both export and domestic) and sugar revenues, because prices of these commodities fluctuate independently of each other.
Government Programs and Regulation
Domestic sugar prices are directly affected by a program administered by the USDA. Under the current program, which was initiated in 1981 and extended with modifications 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 USDA attempts to maintain the price of sugar above the price at which producers could forfeit sugar to repay non-recourse loans obtained through the Commodity Credit Corporation (CCC). The USDA has historically maintained sugar prices without cost to the U.S. Treasury by regulating the quantity of sugar imports. Under the "Tariff Rate Quota" (TRQ) 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 15.36 cents per pound prior to shipment. To date, only minute quantities of sugar have been imported under this higher tariff level.
During fiscal 2000, market conditions caused prices for raw and refined sugar to drop below the non-recourse loan rates established under the FAIR Act. The USDA attempted to support market prices by purchasing sugar and through a Payment-In-Kind program between it and the sugar producers, but prices did not remain above the non-recourse loan rates. As a result, several producers forfeited sugar under the terms of loans obtained from the CCC. The Company forfeited approximately 4.5 million hundredweight of sugar under CCC loans on September 30, 2000 (the maturity date of the loans).
During 2000, the USDA implemented a Payment-In-Kind (PIK) program. Under this program, the Company's shareholders were paid to destroy a portion of their 2000 sugarbeet crop. Payments to the Company's shareholders will be made by the USDA in the form of certificates to be exchanged for sugar obtained by the USDA as a result of the purchases and forfeitures noted in the above paragraph. The Company has entered into contracts with its shareholders to purchase the sugar certificates they may receive from the USDA and reduce the shareholders' delivery obligation to the Company to the extent sugarbeets were destroyed. As a result of the PIK program, the number of acres of the 2000 sugarbeet crop harvested by the shareholders was reduced by approximately 33,000 acres. At this time, the Company does not believe that the reduction in sugarbeets available to process as a result of the PIK program will materially affect the results of operations for fiscal 2001.
6
The Uruguay Round Agreement, under the General Agreement on Tariffs and Trade (GATT), mandates imports of at least 1,256,000 short tons of sugar per year into the United States. The FAIR Act maintains an 18 cent per pound loan rate for raw sugar and establishes a 22.90 cent per pound loan rate for refined sugarbeet sugar. Both loan rates are effective for crop years 1996 through 2002. Price support loans are to be made on a non-recourse basis as long as 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. 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. The FAIR Act requires a one cent per pound penalty be paid by processors if the processor forfeits on sugar price support loans. On September 15, 2000, the United States Department of Agriculture announced that non-recourse loans would be available to producers for the marketing year ending September 30, 2001.
The Company believes the North American Free Trade Agreement ("NAFTA") represents the most serious public policy challenge to itself and the domestic sugar industry. Under the terms of the original NAFTA text, Mexico would have been allowed to ship any excess production of sugar into the United States if Mexico were to achieve net surplus producer status two years in a row. Concerned that Mexico's productive capabilities and possible conversion to the use of high fructose corn sweeteners could quickly change Mexico from a net sugar importer to a net sugar exporter, the U.S. sugar industry insisted that NAFTA be changed to delay Mexico's access to the U.S. market. To embody these changes, a side agreement on sugar was reached prior to passage of NAFTA to give Mexico incrementally larger but capped volumes of duty-free access, and an ability to send additional quantities if it were to pay a gradually descending second tier tariff. The side agreement establishes a common market between the United States and Mexico in sugar by 2008.
The Company is concerned that low world sugar prices and a trade conflict between the U.S. and Mexico over high fructose corn syrup could permit de facto acceleration of the side agreement under NAFTA. Under the NAFTA tariff schedule, second tier sugar tariffs are set at approximately 12 cents in 2000 but decline by approximately 1.5 cents per year until reaching zero in 2008. Low world raw sugar prices could make it feasible for Mexican sugar to enter the United States earlier than 2008. In contrast to Mexico's duty free access to the United States sugar market (which will be 116,611 short tons raw value for fiscal year 2001) NAFTA contains no restrictions on second tier imports.
Under the current terms of NAFTA and the side agreement, the Company is concerned that imports from Mexico could oversupply the U.S. market, forcing sugar prices significantly lower. Any fluctuation in the price of sugar has a direct impact on any beet payments made to members. The Company, along with the domestic sugar industry, is seeking negotiated improvements to NAFTA and may also pursue legal remedies to address the matter. If the sugar industry is unsuccessful in these or any other endeavors it pursues to prevent the influx of Mexican sugar into the U.S. market, there could be adverse financial consequences to the Company and its members.
The government of Mexico has indicated that it does not agree that the side agreement to NAFTA is binding, and has filed a NAFTA Article XX challenge to the United States' implementation of the side agreement. At this time, it is not known when, or if, a ruling will be received on the Article XX challenge. If the side agreement to NAFTA is ruled to be invalid, the Company could be materially and adversely affected. In such a situation, if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse effects could negatively impact the Company's continued viability and the desirability of growing sugarbeets for delivery to the Company.
7
Another public policy challenge to the Company and the domestic sugar industry is the circumvention of the TRQ system. The Company believes that sugar-containing syrup, commonly referred to as stuffed molasses, is being imported into the United States to avoid legitimate U.S. import duties. The United States government is currently appealing an adverse ruling from the U.S. Court of International Trade on this matter. If imports of the stuffed molasses are not controlled, the Company could be materially and adversely affected.
From fiscal years 1990 to 1996, the sugar industry was required to remit to the Commodity Credit Corporation a nonrefundable marketing assessment equivalent to 1.1794 percent of the raw cane sugar loan rate of 18 cents per pound. The Federal Agriculture Improvement and Reform Act of 1996 increased the assessment for fiscal years 1997 through 2003 to 1.47425 percent of the raw cane sugar loan rate of 18 cents per pound. In response to the downturn in the agriculture economy, Congress included a provision in the fiscal year 2000 federal agricultural appropriations bill to alleviate the sugar industry from paying the assessment for fiscal years 2000 and 2001. Thus, from October 1, 1999 to September 30, 2001, the Company will not be required to pay a marketing assessment to the Commodity Credit Corporation.
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 affected. In such a situation, if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse effects could negatively impact the Company's continued viability and the desirability of growing sugarbeets for delivery to the Company.
Growers' Contracts
The Company purchases 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 1998 through 2002. 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 requires 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 and the Board of Director's current intention 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 net beet payment or total price for sugarbeets paid to a member 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 sugarbeets a member delivers plus the member's share of agri-product revenues, minus the member's share of member business operating costs. The following allowances, costs and deductions, if applicable, are used to adjust the gross beet payment to arrive at the net beet payment: hauling program allowance and costs, pre-pile quality premium and costs, minimum payment program allowance and costs, tare incentive premium/penalty program and unit retains. A unit retain is a uniform retention of a portion of the payments otherwise due to members for their crops. Unit retains are considered capital contributions that the Company, at its option, can return to the members. Currently, it is the Company's practice to return unit retains after seven years. Growers are paid a hauling allowance based on the distance they must transport sugarbeets for delivery to the Company and may also receive minimum beet payments and an allowance for early delivery of sugarbeets prior
8
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 sugarbeets delivered by each member.
Under the current growers' contracts, payments to members for sugarbeets must be made in at least three installments: (i) on or about November 15, the Company pays its members an amount equal to 65% 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 90% of the estimated net beet payment; (iii) and 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 the members' sugar and agri-products in excess of related member business operating costs, as described above.
The following tables summarize the gross beet payment and net beet payment and certain crop statistics for each of the last 10 completed fiscal years, respectively:
| |
2000 |
1999 |
1998 |
1997 |
1996 |
1995 |
1994 |
1993 |
1992 |
1991 |
||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Distribution of Net Proceeds Totals (In Thousands) |
|||||||||||||||||||||||||||||||
| Net Proceeds | $ | 358,373 | $ | 369,681 | $ | 313,007 | $ | 373,649 | $ | 316,244 | $ | 326,693 | $ | 266,102 | $ | 309,255 | $ | 274,910 | $ | 263,369 | ||||||||||||
| Non-Member Loss | 1,879 | 494 | 9,679 | 18,074 | 396 | 15 | 544 | 77 | 1,075 | 1,058 | ||||||||||||||||||||||
| Gross Beet Payment | $ | 360,252 | $ | 370,175 | $ | 322,686 | $ | 391,723 | $ | 316,640 | $ | 326,708 | $ | 266,646 | $ | 309,332 | $ | 275,985 | $ | 264,427 | ||||||||||||
| Unit Retains | (19,299 | ) | (21,332 | ) | (8,545 | ) | (16,611 | ) | (16,040 | ) | (16,648 | ) | (19,328 | ) | (20,223 | ) | (10,364 | ) | (8,010 | ) | ||||||||||||
| Member Tax ADJ, Net | 0 | 0 | 0 | 0 | 0 | 5,621 | 12,585 | 447 | 676 | 589 | ||||||||||||||||||||||
| Net Beet Payment | $ | 340,953 | $ | 348,843 | $ | 314,141 | $ | 375,112 | $ | 300,600 | $ | 315,681 | $ | 259,903 | $ | 289,556 | $ | 266,297 | $ | 257,006 | ||||||||||||
| |
|
Distribution of Net Proceeds Per Ton Harvested(1) |
|
|||||||||||||||||||||||||||||
| Net Proceeds | $ | 37.11 | $ | 34.62 | $ | 36.60 | $ | 44.95 | $ | 39.39 | $ | 39.21 | $ | 41.25 | $ | 45.83 | $ | 39.75 | $ | 49.27 | ||||||||||||
| Non-Member Loss | .20 | .05 | 1.13 | 2.17 | 0.05 | 0.00 | 0.09 | 0.01 | 0.16 | 0.20 | ||||||||||||||||||||||
| Gross Beet Payment | $ | 37.31 | $ | 34.67 | $ | 37.73 | $ | 47.12 | $ | 39.44 | $ | 39.21 | $ | 41.34 | $ | 45.84 | $ | 39.91 | $ | 49.47 | ||||||||||||
| Unit Retains | (2.00 | ) | (2.00 | ) | (1.00 | ) | (2.00 | ) | (2.00 | ) | (2.00 | ) | (3.00 | ) | (3.00 | ) | (1.50 | ) | (1.50 | ) | ||||||||||||
| Member Tax ADJ, Net | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.68 | 1.95 | 0.07 | 0.10 | 0.11 | ||||||||||||||||||||||
| Net Beet Payment | $ | 35.31 | $ | 32.67 | $ | 36.73 | $ | 45.12 | $ | 37.44 | $ | 37.89 | $ | 40.29 | $ | 42.91 | $ | 38.51 | $ | 48.08 | ||||||||||||
| |
|
Crop Statistics(1) |
|
|||||||||||||||||||||||||||||
| Tons Harvested (In Thousands): | 9,657 | 10,679 | 8,553 | 8,313 | 8,029 | 8,332 | 6,450 | 6,748 | 6,915 | 5,345 | ||||||||||||||||||||||
| Tons Purchased Per Acre Harvested: | 19.9 | 22.2 | 18.5 | 18.1 | 18.7 | 20.2 | 16.3 | 16.9 | 17.4 | 13.4 | ||||||||||||||||||||||
| Sugar Content of Beets: | 17.4 | % | 17.7 | % | 17.6 | % | 17.3 | % | 16.4 | % | 16.8 | % | 17.6 | % | 18.0 | % | 17.0 | % | 18.6 | % | ||||||||||||
Environmental Matters
The Company 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. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. From time to time, however, the Company may be involved in investigations or determinations regarding non-material matters that may arise. In the future, the Company may
9
determine that it is necessary to invest certain amounts of time, attention and capital in order to ensure continued compliance with environmental regulations at both the state and federal level.
The Company received a Notice of Violation from the State of Minnesota on September 24, 1998 for an accidental discharge of wastewater and the disposal of decomposed sugarbeets and sugarbeet pulp. On April 14, 2000, the Company and the Minnesota Pollution Control Agency (the "MPCA") concluded a stipulation agreement with regard to the violation and related penalties. This agreement required the Company, among other conditions, to pay penalties in the amount of $127,000.
Joint Venture ProGold Limited Liability Company
The Company is one of three members of ProGold Limited Liability Company. ProGold was formed to serve as a joint venture mechanism for the Company, Minn-Dak and Golden Growers Cooperative, a North Dakota cooperative association comprised of corn producers. The joint venture owns a corn wet-milling plant capable of processing corn to produce corn sweeteners (including high fructose corn syrups) and various agri-products.
The Company has a 46% membership interest in ProGold, while Golden Growers has a 49% interest and Minn-Dak has a 5% interest in ProGold. Under the terms of the ProGold Member Control Agreement, 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 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. To date, the Company has not made any additional capital contributions.
ProGold and Cargill, Incorporated entered into a lease of ProGold's corn wet-milling plant. The lease commenced on November 1, 1997, and the initial term will terminate on December 31, 2007. The lease could be extended to December 31, 2009, in the event renewal terms have not been reached. Under the lease, ProGold retains ownership of the plant, while Cargill operates the plant. ProGold receives rental payments in a base amount fixed for each year during the term of the lease. ProGold also receives supplemental rent equal to fifty percent (50%) of the amount earnings before taxes from Cargill's operation of the facility exceeds a contractually-specified base amount. Cargill also entered into a corn supply agreement with ProGold, pursuant to which ProGold is obligated to deliver approximately 15.6 million bushels of corn per fiscal year. In corresponding agreements, ProGold and Golden Growers have entered into a marketing agreement whereby Golden Growers agrees to supply the entire amount of corn to ProGold that ProGold is required to deliver to Cargill. Cargill pays ProGold 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, Cargill would have the first right to engage in the proposed transaction upon the same terms as agreed to by the third party.
Any profits or losses ProGold generates are passed through to the Company, Golden Growers and Minn-Dak in proportion to each ownership interest. 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 income is to become the property of the Company and is not to be distributed
10
directly to the members of the Company. Distributions from ProGold could, at the discretion of the Company's Board of Directors, yield benefits to the Company's members through such mechanisms 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 at the discretion of the Company's Board of Directors.
Joint Venture Crystech, LLC
Crystech, LLC (Crystech) is a Delaware limited liability company formed on May 28, 1998. The Company received a 50% membership interest in Crystech for its initial contribution of $1,545,000. Newcourt Capital USA, Inc. owns the other 50% interest. As specified by the Limited Liability Company Agreement, the Company and Newcourt Capital USA, Inc. each have the right to appoint three members to serve on Crystech's six member Board of Managers.
Crystech was formed to construct and operate a molasses desugarization facility in Hillsboro, North Dakota. The total cost of the facility was $101.4 million. The plant became operational in February 2000 with a capacity to process 200,000 tons of softened molasses annually for conversion to sugar and other agri-products. The plant processed approximately 117,000 tons of softened molasses in fiscal 2000, with the plan to process 200,000 tons in fiscal 2001.
Under the Note Purchase Agreement between Crystech and the Crystech Senior Lender Trust, the Trust provided term debt to Crystech in the amount of $86,005,000 via the purchase of notes from Crystech. The Company also provided $13,905,000 of subordinated debt to Crystech.
The Company has a 12-year tolling services agreement with Crystech whereby the Company pays for tolling services for processing sugarbeet molasses delivered to Crystech with title and risk of loss throughout the process maintained by the Company. The tolling agreement may be terminated by the Company if the specific operational processing performance required of Crystech in the contract is not achieved and maintained.
The Company's Current Strategic Plan
In order to obtain the best selling price for its products, the Company intends to focus on sales and marketing strategies that allow the Company to provide its customers with an appropriate mixture of the Company's products. The Company plans to optimize its customer mix, improve logistics and continue 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. The Company expects to focus on, among others, programs for nitrogen management and new seed varieties. At the factory level, the Company plans to focus on cost reductions and pursue on-going maintenance initiatives and targeted capital improvements. The Company plans to continue to reduce its average cost of production through the Hillsboro desugarization plant, owned and operated by Crystech.
11
Employees
As of August 31, 2000, the Company had 1,266 full-time employees, of which 1,042 were hourly and 224 were salaried. The Company had 28 part-time employees. In addition, the Company employs approximately 726 hourly seasonal workers, approximately 377 during the sugarbeet harvest and approximately 349 during the remainder of the sugarbeet processing campaign. The Company also contracts with a third party agency for approximately another 1,000 additional workers during the sugarbeet harvest.
Substantially all of the hourly employees at the factories, including full-time and seasonal employees, are represented by the Bakery, Confectionery, Tobacco Workers and Grain Millers (BCTGM) AFL-CIO, and are covered by a collective bargaining agreement expiring July 31, 2002. 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 BCTGM. 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 defined benefit 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. The plans were fully funded for vested benefits as of February 29, 2000, the end of the most recent plan year. Union and nonunion employees are also eligible to participate in 401(k) savings plans.
Important Factors
The financial results of the Company's operations and the payments made to its members for sugarbeets may be directly and materially affected by many factors, including prevailing prices of sugar and agri-products, the Company's ability to market its sugar competitively, the weather, government programs and regulations, and costs and expenses. Beyond the factors that may impact the Company's business generally, the Company is involved in several ventures that may also materially affect the financial results of the Company's operations.
Competition
The Company sells sugar through United Sugars Corporation in direct competition with beet and cane sugar produced by other sugar companies. Because sugar is a fungible commodity, competition for sales volume is based primarily upon customer service, price and reliability, though differences in proximity to various geographic markets within the United States result in differences in freight and shipping costs which in turn generally affect pricing and competitiveness.
In addition to sugar, the overall sweetener market includes corn-based sweeteners, such as regular and high fructose corn syrups, and non-nutritive, high-intensity sweeteners such as aspartame. Differences in functional properties and prices have tended to define the use of these various sweeteners. For example, corn sweeteners are generally limited to applications where a liquid sweetener can be used. Non-nutritive sweeteners presently do not provide the bulk and other physical properties of sugar. Although the various sweeteners are not interchangeable in all applications, the substitution of other sweeteners for sugar has occurred in certain products, such as soft drinks. The Company is not able to predict the availability, development or potential use of these and other alternative sweeteners and their possible impact on the Company and its members.
According to the U.S. Department of Agriculture (USDA) statistics, the Red River Valley is generally one of the most cost efficient sugarbeet producing areas in the nation. As a result, the
12
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.
Weather and Other Factors
The sugarbeet, as with most other crops, is affected by weather conditions during the growing season. Additionally, weather conditions during the processing season affect the Company's ability to store sugarbeets held for processing. Growing and storage conditions different from the Company's expectations may change the quantity and quality of sugarbeets available for processing and therefore may affect the quantity of sugar produced by the Company.
A significant reduction in the quantity or quality of sugarbeets harvested resulting from adverse weather conditions, disease or other factors could result in increased per unit processing costs and decreased production, with adverse financial consequences to the Company and its members.
Government Programs and Regulations; Legislation
The nature and scope of future legislation and regulation affecting the sugar market cannot be predicted and there can be no assurance that price supports and market protections will continue in their present forms. If the price support programs were eliminated in their entirety, or if certain protections the federal government provides from foreign competitors were materially reduced, the Company could be materially and adversely affected. In such a situation, if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse effects could negatively impact the desirability of growing sugarbeets for delivery to the Company, the Company's financial results, and the Company's continued viability.
Under the current terms of NAFTA and other government regulations, imports of sugar from Mexico may enter the U.S. market. These imports could oversupply the U.S. market and negatively affect the price of sugar. Any fluctuation in the price of sugar has an impact on the payments made to members. The Company, along with the domestic sugar industry, is seeking improvements to NAFTA and is also pursuing legal remedies to address the matter. If the sugar industry is unsuccessful in these and any other endeavors it pursues to prevent the influx of Mexican sugar into the U.S. market, there could be adverse financial consequences to the Company and its members.
From fiscal years 1990 to 1996, the sugar industry was required to remit to the Commodity Credit Corporation a nonrefundable marketing assessment equivalent to 1.1794 percent of the raw cane sugar loan rate of 18 cents per pound. The Federal Agriculture Improvement and Reform Act of 1996 increased the assessment for fiscal years 1997 through 2003 to 1.47425 percent of the raw cane sugar loan rate of 18 cents per pound. In response to the downturn in the agriculture economy, Congress included a provision in the fiscal year 2000 federal agricultural appropriations bill to alleviate the sugar industry from paying the assessment for fiscal years 2000 and 2001. Thus, from October 1, 1999 to September 30, 2001, the Company will not be required to pay a marketing assessment to the Commodity Credit Corporation. There can be no assurances that the sugar industry will receive the same treatment in the future.
Environmental Matters
The Company 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. The Company believes that it is in substantial compliance with applicable environmental laws and regulations. The Company cannot predict whether future changes in environmental laws or
13
regulations might increase the cost of operating its facilities and conducting its business. Any such changes could have adverse financial consequences for the Company.
Item 2. PROPERTY AND PROCESSING FACILITIES
The Company operates five sugarbeet processing factories in the Red River Valley. The Company 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.
The location and processing capacity of the Company's factories are:
| Location |
Approximate Daily Slicing Capacity (Tons of Sugarbeets) |
|
|---|---|---|
| Crookston, MN | 5,400 | |
| East Grand Forks, MN | 9,000 | |
| Moorhead, MN | 5,400 | |
| Drayton, ND | 6,000 | |
| Hillsboro, ND | 7,700 |
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. Each of the Company's facilities is currently operating at or near its capacity. The Company owns a molasses desugarization (MDS) plant at its East Grand Forks facility and participates in a joint venture, which owns and operates a MDS plant at the Hillsboro facility (see Joint Venture Crystech, LLC). The MDS plants process molasses to extract additional sugar. The Company's sugar packaging facilities are located at the Moorhead, Hillsboro, Crookston and East Grand Forks factories.
The Company'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 Technical Services Center situated on approximately 200 acres in Moorhead, Minnesota. The Company owns both facilities, and owns numerous sites as sugarbeet receiving and storage stations. All of the Company's property, plant and equipment is mortgaged or pledged as collateral for its indebtedness to various financial institutions.
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 the Company'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, 2000.
14
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company currently has 3,006 shares of the Common Stock and 498,570 shares of the Preferred Stock outstanding. There is no established public market for the Company's Common Stock 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.
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.
15
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.
| |
Fiscal Year Ended August 31, (In Thousands, except for ratios) |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
2000 |
1999 |
1998 |
1997 |
1996 |
||||||||||
| Net Revenues | $ | 731,432 | $ | 843,968 | $ | 676,625 | $ | 677,004 | $ | 688,012 | |||||
| Net Proceeds(1) | $ | 358,373 | $ | 369,681 | $ | 313,007 | $ | 373,649 | $ | 316,244 | |||||
| Total Assets | $ | 739,719 | $ | 667,824 | $ | 648,118 | $ | 581,504 | $ | 465,136 | |||||
| Long-Term Debt, including current maturities | $ | 249,830 | $ | 252,050 | $ | 212,495 | $ | 204,600 | $ | 190,919 | |||||
| Members' Investments | $ | 249,330 | $ | 241,286 | $ | 224,843 | $ | 175,928 | $ | 152,136 | |||||
| Property and Equipment | |||||||||||||||
| Additions, net of retirements | $ | 42,088 | $ | 58,693 | $ | 98,992 | $ | 69,542 | $ | 43,168 | |||||
| Working Capital | $ | 55,336 | $ | 56,733 | $ | 30,357 | $ | 45,652 | $ | 32,071 | |||||
| Ratio of Long-Term Debt to Equity(2) | .93:1 | .97:1 | .87:1 | 1.06:1 | 1.17:1 | ||||||||||
| Ratio of Net Proceeds to Fixed Charges(3) | 10.7 | 8.8 | 11.3 | 13.5 | 16.5 | ||||||||||
| |
Fiscal Year Ended August 31, (In Thousands, except for tons purchased per acre and Net Beet Payment per ton) |
|||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Production Data(4) |
2000 |
1999 |
1998 |
1997 |
1996 |
|||||||||||
| Acres harvested | 486 | 481 | 462 | 459 | 429 | |||||||||||
| Tons purchased | 9,657 | 10,679 | 8,553 | 8,313 | 8,029 | |||||||||||
| Tons purchased per acre harvested | 19.9 | 22.2 | 18.5 | 18.1 | 18.7 | |||||||||||
| Net beet payment per ton of sugarbeets purchased, plus unit retains | $ | 37.31 | $ | 34.67 | $ | 37.73 | $ | 47.12 | $ | 39.44 | ||||||
| Sugar hundredweight | ||||||||||||||||
| Produced | 26,646 | 25,453 | 21,528 | 22,465 | 19,947 | |||||||||||
| Sold, including purchased sugar | 24,756 | 27,552 | 21,735 | 20,579 | 22,179 | |||||||||||
| Purchased sugar sold | 230 | 798 | 901 | 869 | 490 | |||||||||||
| Pulp, Molasses and CSB tons | ||||||||||||||||
| Produced | 784 | 921 | 771 | 775 | 741 | |||||||||||
| Sold | 803 | 1,042 | 728 | 696 | 725 | |||||||||||
16
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.
Liquidity and Capital Resources
Under the Company's Bylaws and Grower Contracts, 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 the Company and are net of unit retains allocated to them, both of which remain available to meet the Company's capital requirements. This member financing arrangement may result in an additional source of liquidity and reduced outside financing requirements in comparison to a similar business operated on a non-cooperative basis. 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, the Company 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 CoBank. The Company has a long-term debt commitment with CoBank of $218.7 million. In addition, the Company has long-term debt outstanding of $50 million from a private placement of Senior Notes that occurred in September of 1998 and $34.3 million from nine separate issuances of Pollution Control and Industrial Development Revenue Bonds. The Company also has a seasonal line of credit with CoBank of $210 million that also includes a line of credit with Norwest Bank for $3 million and any amounts obtained through issuance of instruments in its commercial paper program. The Company's commercial paper program provides short-term borrowings of up to $150 million.
Results of Operations
The U.S. sweetener industry experienced three significant trends during the 1970s and 1980s: increased consumption of non-nutritive sweeteners, principally aspartame; the increased use of high fructose corn syrup (HFCS) as a substitute for refined sugar (sucrose) in certain food products, primarily beverages; and a significant degree of sugar industry consolidation.
U.S. sugar consumption has continued to expand slightly over the past decade. Growth rates averaged close to 1.6% annually during the 1990's. Sugar consumption growth rates are a function of population growth, which has increased slightly over the past five years, and food market trends. The Company believes that sugar consumption should continue to grow between 1 and 2% per year as a result of population growth.
The Company's operational results are substantially dependent on market factors, including domestic prices for refined sugar. These factors are continuously influenced by a wide variety of market forces, including domestic sugarbeet and cane production, weather conditions and United States farm and trade policy, that the Company is unable to predict (see "Item 1. Business—Important Factors").
In addition, highly variable 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 were at a premium during 1995 and 1996 due to shortages of domestic sugarbeet production and less than adequate cane refinery capacity to cover this shortfall. Prices for domestic refined sugar have since declined to a historically low level due to increased sugar supplies.
17
Comparison of the Years Ended August 31, 2000 and 1999
Revenue for the year ended August 31, 2000, was $731.4 million, a decrease of $112.6 million from 1999. Revenue from total sugar sales decreased 12.2%, reflecting a 10.2% decrease in hundredweight sold and a 2.3% decrease in the average selling price per hundredweight. Revenue from pulp sales decreased 7.6% due to a 18.4% decrease in the volume of tons sold, partially offset by a 13.3% increase in the average selling price per ton. Revenue from molasses sales decreased 50.9% due to a 52.4% decrease in the volume of molasses sold, partially offset by a 3.1% increase in the average selling price per ton. Revenue from Concentrated Separated By-Product (CSB) increased 32.9% due to a 90.1% increase in the volume of CSB sold, partially offset by a 30.1% decrease in the average selling price per ton. The decrease in sales volume of molasses and the increase in sales volume of CSB are primarily the result of the operation of the Crystech, LLC molasses desugarization facility at Hillsboro, North Dakota, which became operational on February 1, 2000.
Cost of product sold, exclusive of payments for sugarbeets, decreased $76.8 million. Direct processing costs for sugar and pulp increased 9.3% primarily due to the commencement of tolling charges from Crystech, LLC, partially offset by reduced costs of harvesting and processing fewer tons. Fixed and committed expenses increased 0.1% reflecting slightly higher depreciation and maintenance costs. The cost associated with sugar purchased to meet customer needs was down $15.4 million due to the decrease in purchased sugar activity in distant geographic markets. The change in inventories impacted the cost of product sold favorably by $72.5 million.
Selling, general and administrative expenses decreased $27.1 million. Selling expenses decreased $27.7 million due to lower agri-product freight costs and the suspension of the Commodity Credit Corporation marketing assessment fee as of September 1, 1999. General and Administrative expenses increased approximately 2.0% from 1999, due to general cost increases.
Interest income increased $1.4 million in fiscal 2000 primarily due to interest on the Crystech, LLC notes receivable.
Interest expense increased $.7 million in fiscal 2000 primarily due to higher average interest rates.
Other income decreased $3.6 million in fiscal 2000 primarily due to the gain in fiscal 1999 from the sale of certain beet seed assets to Betaseed, Inc., a wholly owned subsidiary of Kleinwanzlebener Saatzucht, Ag.
Non-member business activities resulted in a loss of $1.9 million for the year ended August 31, 2000, as compared to a loss of $.5 million in 1999. This change is primarily the result of the gain on the sale of certain sugarbeet seed assets to Betaseed, Inc. being reflected in 1999, offset by increased income from the investment in ProGold.
Payments to members for sugarbeets decreased by $7.8 million from $348.8 million for the year ended August 31, 1999, to $341.0 million in 2000. The decrease is primarily attributable to a 9.6% decrease in tons harvested partially offset by a higher per-ton beet payment.
Comparison of the Years Ended August 31, 1999 and 1998
Revenue for the year ended August 31, 1999, was $844.0 million, an increase of $167.3 million from 1998. Revenue from total sugar sales increased 27.0%, reflecting a 26.8% increase in hundredweight sold and a 0.2% increase in the average selling price per hundredweight. Revenue from pulp sales increased 2.8% due to a 30.6% increase in the volume of tons sold, partially offset by a 21.3% decrease in the average selling price per ton. Revenue from molasses sales increased 18.8% due to an 81.3% increase in the volume of molasses sold, partially offset by a 34.5% decrease in the average selling price per ton. Revenue from Concentrated Separated By-Product (CSB) decreased
18
13.1% due to a 17.4% decrease in the average selling price per ton, partially offset by a 5.2% increase in the volume of CSB sold.
Cost of product sold, exclusive of payments to members for sugarbeets, increased $73.2 million. This was due to lower inventory levels at the end of 1999 and higher costs related to processing a larger crop. Direct costs increased by 16.8% due to harvesting a 24.9% larger crop and processing 20.6% more sugarbeets. The cost associated with purchased sugar decreased $2.4 million in 1999 compared to 1998, due to more produced sugar available to meet customer requirements. Fixed and committed expenses increased 20.9% primarily due to higher depreciation and maintenance costs.
Selling expenses increased $35.3 million. The increase is primarily attributable to the increase in the volumes of products sold. General and administrative expenses increased approximately 7.7% from 1998 due to general cost increases.
Interest expense increased from $14.4 million for the year ended August 31, 1998 to $22.0 million in 1999. Higher inventory levels throughout most of the year, the processing of a larger crop, and increased term debt to finance capital improvements resulted in higher overall borrowing levels.
Non-member business activities resulted in a loss of $.5 million for the year ended August 31, 1999, as compared to a loss of $9.7 million in 1998. This change is primarily the result of the gain on the sale in 1999 of certain sugarbeet seed assets to Betaseed, Inc., a wholly owned subsidiary of KWS, and the reduced loss in 1999 as compared to 1998, from the investments in ProGold.
Payments to members for sugarbeets increased by $34.7 million from $314.1 million for the year ended August 31, 1998 to $348.8 million in 1999. The increase is primarily attributable to a 24.9% increase in tons harvested partially offset by a lower per-ton beet payment.
Comparison of the Years Ended August 31, 1998 and 1997
Revenue for the year ended August 31, 1998, was $677.0 million, virtually the same as in 1997. Revenue from sugar sales increased 1.8%, reflecting a 5.6% increase in hundredweight sold, offset by a 3.7% decrease in the average selling price per hundredweight. Revenue from pulp sales decreased 18.3% due to a 25.1% decrease in the average selling price per ton, partially offset by a 9.1% increase in the volume of pulp sold. Revenue from molasses sales decreased 14.3% due to a 1.4% decrease in the volume of molasses sold and a 13.1% decrease in the average selling price per ton. Revenue from CSB decreased 8.5% due to a 1.3% decrease in the volume of CSB sold and a 7.4% decrease in the average selling price per ton.
Cost of product sold, exclusive of payments to members for sugarbeets, increased $64.5 million. This was primarily due to an increase in inventories during 1997, which decreased the cost of product sold in 1997 by $62.1 million. Direct costs increased primarily due to a 2.9% larger crop. The cost associated with purchased sugar decreased $.8 million in 1998 compared to 1997, when the short supply of inventory at the beginning of the fiscal year created a greater need to purchase sugar to meet customer requirements. Fixed and committed expenses increased by 6.4% due to higher depreciation and higher storage costs.
Selling expenses increased $11.6 million. The increase is attributable primarily to the increase in the freight and packaging costs. General and administrative expenses were approximately the same as 1997.
Interest expense decreased from $18.3 million during the year ended August 31, 1997, to $14.4 million for the same period in 1998. This resulted from an increase in pollution control bond interest income, increased bank patronage income along with an increase in interest charged to United Sugars Corporation related to the marketing assets used by that company.
19
Non-member business activities resulted in a loss of $9.7 million for the year ended August 31, 1998, as compared to a loss of $18.1 million for the same period in 1997. The majority of this loss is related to the Company's investment in ProGold Limited Liability Company.
Payments to members for sugarbeets decreased by $61.0 million from $375.1 million during the year ended August 31, 1997 to $314.1 million during the same period in 1998. The decrease is attributable primarily to a lower per-ton beet payment for fiscal 1998.
2000 Crop and Estimated Fiscal Year 2001 Information
As noted earlier, the agreements between the Company and its members regarding the delivery of sugarbeets to the Company require payment for members' sugarbeets in three 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 two 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 2000 sugarbeet crop. Given the nature of the estimates required in connection with the payments to members for their sugarbeets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2000 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 installment of the net beet payment. That installment is expected to be made to the members with respect to the 2000 sugarbeet crop on or about March 31, 2001.
The completed harvest of the sugarbeet crop grown during 2000 produced a total of 9.6 million tons of sugarbeets, or approximately 21.6 tons of sugarbeets per acre from approximately 445,000 acres. This production exceeded the ten-year average of 18.3 tons per acre for crops grown in the years 1990 through 1999. The sugar content of the 2000 crop is 17.75% in comparison to a ten year average for the applicable period of approximately 17.43%. The Company expects to produce a total of approximately 27.3 million hundredweight of sugar from the 2000 crop, an increase of approximately 2.4% compared to the 1999 crop. Such sugar production provides a total sugar recovery of approximately 284 pounds of sugar for each ton of sugarbeets harvested by the Company.
The gross beet payment for the 2000 crop is currently estimated at $31.50 per ton of sugarbeets. With the deduction of an anticipated unit retain of $2.00 per ton for the fiscal year ending August 31, 2001, the Company's current estimated net beet payment is $29.50 per ton of sugarbeets.
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market-risk sensitive financial instruments, including long term debt.
20
The Company does not believe that there is any material market risk exposure with respect to interest rates, exchange rates, commodity prices, equity prices and other market changes that would require disclosure under this item.
The financial statements of the Company for the fiscal years ended August 31, 2000, 1999 and 1998 have been audited by Eide Bailly LLP, independent certified public accountants. Such financial statements have been included herein in reliance upon the report of Eide Bailly LLP. 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
21
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 hold common stock of the Company or must be representatives of such shareholders belonging to the district they represent and are elected by the members of that district. In the case of a holder of common stock who is other than a natural person, a duly appointed or elected representative of such shareholder may serve as a director. The directors were 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. A director cannot serve more than four consecutive three-year terms.
The table below lists certain information concerning current directors of the Company.
| Name and Address |
Age |
Factory District |
Director Since |
Term Expires Dec. |
|||||
|---|---|---|---|---|---|---|---|---|---|
| Michael A. Astrup Box 219 Dilworth, MN 56529 |
|
47 |
|
Moorhead |
|
1996 |
|
2002 |
|
| Jerry D. Bitker 1694 Co. Highway #19 Halstad, MN 56548 |
|
52 |
|
Hillsboro |
|
1996 |
|
2002 |
|
| Richard Borgen 1544 Co. Highway #39 Perley, MN 56574 |
|
51 |
|
Moorhead |
|
1997 |
|
2003 |
* |
| Paul J. Driscoll (Director Elect) PO Box 555 East Grand Forks, MN 56721 |
|
55 |
|
East Grand Forks |
|
2000 |
|
2003 |
** |
| Aime J. Dufault RR 1, Box 162 Argyle, MN 56713 |
|
46 |
|
East Grand Forks |
|
1990 |
|
2000 |
|
| Steven M. Goodwin RR 3, Box 116 Angus, MN 56712 |
|
42 |
|
East Grand Forks |
|
1995 |
|
2001 |
|
| Court G. Hanson RR 2, Box 1 Blanchard, ND 58009 |
|
52 |
|
Hillsboro |
|
1993 |
|
2001 |
|
| Lonn M. Kiel RR 3, Box 71 Crookston, MN 56716 |
|
47 |
|
Crookston |
|
1994 |
|
2003 |
* |
| David J. Kragnes 10600 60th St. N. Felton, MN 56536 |
|
48 |
|
Moorhead |
|
1995 |
|
2001 |
|
| |
|
|
|
|
|
|
|
|
|
22
| Francis L. Kritzberger RR #1, Box 22 Hillsboro, ND 58045 |
|
55 |
|
Hillsboro |
|
1996 |
|
2003 |
* |
| Wayne Langen (Chairman) Box 133 Kennedy, MN 56733 |
|
61 |
|
Drayton |
|
1988 |
|
2000 |
|
| Patrick D. Mahar RR 1, Box 363 Cavalier, ND 58220-9789 |
|
58 |
|
Drayton |
|
1993 |
|
2002 |
|
| Ronald E. Reitmeier RR 1, Box 49 Fisher, MN 56723 |
|
55 |
|
Crookston |
|
1996 |
|
2002 |
|
| Jim A. Ross RR 1, Box 5 Fisher, MN 56723 |
|
50 |
|
Crookston |
|
1998 |
|
2001 |
|
| G. Terry Stadstad 1774 22nd Avenue NE Grand Forks, ND 58203 |
|
57 |
|
East Grand Forks |
|
1993 |
|
2002 |
|
| Robert Vivatson (Vice Chairman) PO Box 631 Cavalier, ND 58220 |
|
51 |
|
Drayton |
|
1992 |
|
2001 |
|
| Neil Widner (Director Elect) PO Box 305 Stephen, MN 56757 |
|
49 |
|
Drayton |
|
2000 |
|
2003 |
** |
| |
|
|
|
|
|
|
|
|
|
Michael A. Astrup. Mr. Astrup has been a director since 1996. He has been a farmer near Dilworth, Minnesota, since 1977. He serves on the Board of Directors for the American Sugarbeet Growers Association.
Jerry D. Bitker. Mr. Bitker has been a director since 1996 and has been a farmer since 1974 near Halstad and Ada, Minnesota.
Richard Borgen. Mr. Borgen has been a director since 1997. He has farmed east of Perley, Minnesota since 1967 and has served as a director on the Perley Co-op Elevator Board for nine years and the Norman County West school board for 10 years.
Paul J. Driscoll. Mr. Driscoll was elected a Director at the Company's Factory District meeting for the East Grand Forks Factory District in November 2000. His term as a Director will begin in December 2000. Mr. Driscoll has farmed in the East Grand Forks, Minnesota area for many years. He currently serves on the Marshall Polk Rural Water Board, the Minnesota Rural Water Finance
23
Authority, the Huntsville Township Board, the Northwest Technical College Advisory Board and the East Grand Forks Chamber of Commerce Board.
Aime J. Dufault. Mr. Dufault has been a director since 1990. At the Company's recent district meetings, his bid for re-election was not successful. His current term expires in December 2000. He has farmed near Argyle, Minnesota since 1974. Mr. Dufault served on the Board of Directors for Midwest Agri-Commodities Company.
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.
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. Mr. Kragnes is a director for the American Sugarbeet Growers Association.
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. He serves on the Board of Directors of the North Dakota Council of Cooperatives.
Wayne Langen. Mr. Langen has been a director since 1988. His current term expires in December 2000. Pursuant to the Company's By-laws, a director may not serve for more than four consecutive terms; as a result, Mr. Langen was not eligible to stand for re-election for an additional term. Mr. Langen has been 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 and on the Board of Governors of ProGold Limited Liability 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 as a director for Midwest Agri-Commodities Company and also on the Boards of Directors of First State Bank and Farmers Co-op Elevator, both of Cavalier, North Dakota.
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.
Jim A. Ross. Mr. Ross has been a director since 1998. Mr. Ross has farmed near Fisher, Minnesota since 1971 and is a board member of Fisher Fuel and Hardware Cooperative.
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,
24
North Dakota and on the Board of Governors of ProGold Limited Liability Company and United Sugars Corporation.
Neil Widner. Mr. Widner was elected a Director at the Company's Factory District meeting for the Drayton Factory District in November 2000. His term as a Director will begin in December 2000. Mr. Widner has farmed near Stevens, Minnesota since 1973. He currently serves as the President of Farmers Grain in Steven, Minnesota.
The Board of Directors meets monthly. The Company provides its directors with 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.
Under the terms of the Board of Directors Deferred Compensation Plan, members of the Board of Directors can elect to defer receipt of their monthly and per diem compensation. This is an annual irrevocable election made prior to January 1, of each calendar year the fees are to be paid. The amounts are deferred until either withdrawal from the Board of Directors by a member or until retirement from the Board Member's regular employment or business, but not beyond age 65. Two payment options are available at the election of the participant. Payments can be received in a single lump sum or in equal installments over a period up to ten years. The Board of Directors, at its discretion, can elect to distribute the remaining balance at any time. Interest is earned on the amounts deferred based on the five year Treasury bond rate. Currently, there is one Board member who has elected to participate in this plan. The amount deferred, as of August 31, 2000 was $91,000.
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.
| Name |
Age |
Position |
||
|---|---|---|---|---|
| James J. Horvath |
|
55 |
|
Chief Executive Officer |
| James W. Dudley |
|
50 |
|
Vice President—Agriculture |
| Joseph J. Talley |
|
40 |
|
Vice President—Finance |
| David A. Berg |
|
46 |
|
Vice President—Administration |
| David A. Walden |
|
47 |
|
Vice President—Operations |
| Daniel C. Mott |
|
41 |
|
Secretary |
| Samuel S. M. Wai |
|
47 |
|
Treasurer and Assistant Secretary |
| Thomas S. Astrup |
|
32 |
|
Corporate Controller, Assistant Secretary and Assistant Treasurer |
| Mark L. Lembke |
|
45 |
|
Finance Administration Manager, Assistant Secretary and Assistant Treasurer |
| Ronald K. Peterson |
|
45 |
|
Accounting & Systems Manager, Assistant Secretary and Assistant Treasurer |
| David L. Malmskog |
|
43 |
|
Director Business Development, Assistant Secretary and Assistant Treasurer |
| |
|
|
|
|
25
James J. Horvath. Mr. Horvath was named Chief Executive Officer in May, 1998. He served as Chief Financial Officer from 1996 to 1998. From 1994 to 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 to 1994. Mr. Horvath currently serves on the Boards of Directors of United Sugars Corporation and Midwest Agri-Commodities Company.
James W. Dudley. Mr. Dudley was appointed Vice President—Agriculture in January, 1998. He had served as Vice President—Operations, Factory Operations Manager and Regional Manager from 1985 through 1997. Mr. Dudley resigned from the Company in October, 2000.
Joseph J. Talley. Mr. Talley was named Vice President—Finance in 1998. He served as the Company's Treasurer and Finance Director, Assistant Treasurer and Assistant Secretary from 1996 until his appointment as Vice President—Finance. Mr. Talley served as Finance Director of ProGold Limited Liability Company from 1994 through 1996. He currently serves on the Board of Governors for ProGold Limited Liability Company. Prior to July 1994, Mr. Talley was a partner with the accounting firm of Eide Helmeke PLLP.
David A. Berg. Mr. Berg served as a Factory Shift Supervisor and Packaging and Warehousing Superintendent during 1998 as part of a development assignment. In October 1998, he was named Vice President—Administration. During the period from 1994 to 1998, Mr. Berg served as the Company's Vice President—Business Development, Vice President—Strategic Planning, Director—Market Information, Manager of Marketing and Analysis and Manager—Economic Research.
David W. Walden. Mr. Walden was elected Vice President of Operations in January 1998. He served as Production Manager from 1995 until 1998. He joined the Company in 1979 as a Resident Engineer at the Crookston facility and has held positions of Engineering and Maintenance Superintendent, Production Superintendent, Assistant Operations Manager and Maintenance Manager. Mr. Walden also serves as the chairman of the Board of Managers of Crystech LLC.
Daniel C. Mott. Mr. Mott became the Company's Secretary during 1999. Previously, he had served as Assistant Secretary since 1995. Mr. Mott also serves as the Company's General Counsel. He is a Partner in the law firm of Oppenheimer Wolff & Donnelly LLP. Mr. Mott is not an employee of the Company.
Samuel S. M. Wai. Mr. Wai was named the Company's Treasurer and Assistant Secretary in 1999. He served as the Company's Corporate Controller from 1996 until 1999 and was the Company's Treasurer from 1985 to 1996. He held various financial positions with the Company from 1979 to 1985. Mr. Wai also serves on the Board of Managers of Crystech LLC and as Treasurer of the American Crystal Sugar Political Action Committee. Mr. Wai also serves on the Board of Directors of the Institute of Cooperative Financial Officers.
Thomas S. Astrup. Mr. Astrup was named the Company's Corporate Controller, Assistant Treasurer and Assistant Secretary in 1999. From 1997 until 1999, he held the position of Controller for Midwest Agri-Commodities Company. He was the Corporate Accountant for ProGold Limited Liability Company from 1994 to 1997.
Mark L. Lembke. Mr. Lembke was named Assistant Secretary and Assistant Treasurer in 1996. He currently serves as Finance Administration Manager. Mr. Lembke served as the Company's Corporate Accounting Manager from 1995 to 1999. From 1987 through 1995, Mr. Lembke served as Factory Accounting Supervisor.
Ronald K. Peterson. Mr. Peterson has served as Assistant Treasurer and Assistant Secretary since 1993. He currently holds the position of Accounting and Systems Manager. From 1996 to 1999
26
Mr. Peterson was the Financial Systems Manager and from 1991 to 1995 served as the Company's Corporate Accounting Manager. Mr. Peterson has held various financial positions with the Company since 1979. He is also the Assistant Treasurer for American Crystal Sugar Political Action Committee.
David L. Malmskog. Mr. Malmskog currently serves as Director—Business Development and was appointed Assistant Secretary and Assistant Treasurer in 1998. Mr. Malmskog has held various financial positions with the Company since 1980.
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, 2000 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 current executive officers of the Company whose cash compensation exceeded $100,000 per annum.
| |
|
Annual Compensation |
Long-Term Compensation Payouts |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
|
|
|
Other Annual Compensation ($)(1) |
||||||||
| |
Year |
Salary ($) |
Incentive Compensation ($) |
1995 Plan Payouts ($)(2) |
1999 Plan Payouts ($) |
|||||||
| James J. Horvath Chief Executive Officer* |
2000 1999 1998 |
$405,865 $388,840 $270,031 |
$263,779 $103,000 $64,556 |
$26,954 $34,249 $51,354 |
$4,437 $4,197 $19,546 |
— — — |
||||||
| David A. Berg Vice President—Administration |
|
2000 1999 1998 |
|
$171,077 $152,994 $138,412 |
|
$117,624 $39,000 $35,053 |
|
$14,162 $14,735 $15,180 |
|
$2,393 $1,852 $8,624 |
|
— — — |
| James W. Dudley Vice President—Agriculture |
|
2000 1999 1998 |
|
$187,292 $177,900 $176,034 |
|
$111,888 $30,000 $35,580 |
|
$15,499 $15,987 $28,713 |
|
$1,026 $3,456 $16,096 |
|
— — — |
| Joseph J. Talley Vice President—Finance** |
|
2000 1999 1998 |
|
$171,077 $154,231 $133,992 |
|
$100,224 $49,008 $25,584 |
|
$13,648 $12,594 $8,135 |
|
N/A N/A N/A |
|
— — — |
| David A. Walden Vice President—Operations*** |
|
2000 1999 1998 |
|
$171,077 $158,561 $126,765 |
|
$90,480 $35,000 $22,796 |
|
$14,025 $14,966 $10,311 |
|
N/A N/A N/A |
|
— — — |
| |
|
|
|
|
|
|
|
|
|
|
|
|
27
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.
Employment Agreement with CEO
Effective May 15, 1998, the Company and Mr. Horvath entered into an agreement regarding Mr. Horvath's employment by the Company. The agreement provides that Mr. Horvath shall serve as an "at will" employee at the pleasure of the Board of Directors. The agreement also contains the provision of a three-year non-compete/non-solicitation agreement with Mr. Horvath. Among other terms, the agreement establishes Mr. Horvath's base compensation at $405,865 per year, and also provides that he may participate in other benefit plans offered by the Company.
If the Board of Directors terminates Mr. Horvath's employment with the Company without cause or he incurs a termination due to disability after age 60, Mr. Horvath is entitled to receive reimbursement for the cost of medical and dental coverage for himself and his spouse from the date of termination through their respective deaths; life insurance coverage equal to his base salary on the date of termination, from age 65 to 70 equal to 50% of his base salary on the date of termination, and after age 70 equal to 25% of his base salary on the date of termination; and supplemental pension benefits equal to the difference between the cumulative monthly amount of the retirement benefit Mr. Horvath would have received under Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) computed as though Mr. Horvath continued his employment to age 65 and had attained 30 years of service, and the cumulative monthly amount of the retirement benefits actually paid to Mr. Horvath under Retirement Plan A and the Supplemental Executive Retirement Plan (SERP).
If the Board of Directors terminates Mr. Horvath's employment with the Company without cause or he incurs a termination due to disability before age 55, Mr. Horvath is entitled to receive supplemental early retirement benefits equal to the difference between the cumulative monthly amount of the retirement benefit Mr. Horvath would have received under Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) computed as though Mr. Horvath continued his employment to age 55 and assuming compensation equal to that in effect as of the termination date with no reduction in benefits for death benefits payable to Mr. Horvath's spouse, and the cumulative monthly amount of the retirement benefits actually paid to Mr. Horvath under Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) assuming commencement at age 55.
If the Board of Directors terminates Mr. Horvath's employment with the Company without cause after age 60 and Mr. Horvath subsequently dies, or if Mr. Horvath dies prior to terminating his employment with the Company, Mr. Horvath's spouse is entitled to receive monthly payments for the remainder of her life equal to the difference between the cumulative monthly amount of the retirement benefit Mr. Horvath would have received under Retirement Plan A and the Supplemental Executive Retirement Plan (SERP) computed as though Mr. Horvath continued his employment to age 65 and had attained 30 years of service, and the cumulative monthly amount of the retirement benefits actually payable to his spouse under Retirement Plan A and the Supplemental Executive Retirement Plan (SERP).
Incentive Plans
Certain management employees are entitled to participate in an annual incentive program that provides for cash awards based partially on the performance of the Company and partially on achievement of certain management performance objectives. The performance objectives of the CEO are determined by the Board of Directors. The performance objectives of other executives are determined by the CEO. An executive is not eligible for any awards under the incentive program if that executive's performance for the applicable fiscal year does not meet a "Target" performance level. The
28
amount of the incentive bonus is dependent on the executive's responsibilities, the performance of the Company and the results of the executive's evaluation for the fiscal year.
1995 Plan:
Effective September 1, 1995, the Company adopted the 1995 Long Term Incentive Plan, which provides deferred compensation to certain key executives of the Company. This 1995 Plan created financial incentives to 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 that are available to the executive under the terms of the 1995 Plan, the value of which is related to the value of preferred shares of the Company. The 1995 Plan allows participants to purchase a limited number of contract rights at the end of each three-year cycle. The 1995 Plan 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 1995 Plan also provides for 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. The contract rights acquired under this plan terminate five years after the executive's employment with the Company is terminated, if not exercised by the executive.
Under the 1995 Plan, 389 contract rights have been granted and 328 contact rights have been purchased for a total of 717 contact rights of which 562 contract rights were outstanding as of August 31, 2000. The table below lists executives named in the executive compensation table who have been granted, purchased and hold contract rights with respect to the number of shares set forth below. Contract rights listed below carried a stated value of $1,500 per share upon grant and $1,485 per share upon purchase. The current stated values are unchanged. Executive officers are 100% vested in contact rights granted and 75% vested in contract rights purchased with the remaining 25% vesting in 2001, if the executive remains with the Company through August 31, 2001.
1995 Plan
Long-Term Incentive Plan Awards in Last Fiscal Year
| |
Contract Rights |
|
|
|||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| |
Total Stated Value |
Fiscal 2000 Representative Payout (1) |
||||||||||||
| Executive Officers |
Granted |
Purchased |
Total |
Vested |
||||||||||
| James J. Horvarth | 34 | 68 | 102 | 85 | $ | 151,980 | $ | 4,437 | ||||||
| David A. Berg | 15 | 30 | 45 | 37.5 | $ | 67,050 | $ | 2,393 | ||||||
| James J. Dudley | 28 | — | 28 | 28 | $ | 42,000 | $ | 1,026 | ||||||
29
per acre payments. Given the method of determining the profit per acre payments, there is no maximum payment amount.
Contract rights were available under the 1995 Plan with regard to fiscal years 1996, 1997, and 1998. Contract rights are no longer being made available to the executives under the 1995 Plan. However, the profit per acre payments discussed above will continue to be made under the terms of the plan for so long as participants remain in the plan.
1999 Plan:
In June of 1999, the Board of Directors adopted the 1999 Long-Term Incentive Plan which is effective with respect to fiscal year 2000. Under the new plan, awards will be based upon progress towards achieving certain long-term strategic objectives established by the Board of Directors. Incentive awards under the plan will range from 0 to 40% of base compensation for the Vice Presidents and from 0 to 80% of base compensation for the President. The actual amount of the award available to a given individual will be based upon the collective performance level of participants as determined by the Board of Directors. Awards paid under the plan may be paid in the form of cash paid to the employee's Supplemental Executive Retirement Plan, as discussed below, or in the form of contract rights, in each case as determined by the Board of Directors. All awards will be subject to a three year vesting schedule. The Board of Directors retains the discretion to determine the amount of any cash awards and/or contract rights to be made available to plan participants with respect to a given fiscal year.
A total of 412.8 contract rights were granted under the 1999 Plan. The table below lists the executives named in the compensation table who have been granted and hold contract rights. Each contract right listed below carried a stated value upon grant of $1,000 per share. The Executive Officers will become vested in the contract rights over a three-year period. One-third will vest on August 31 in each of the next three years on the condition that the executive is employed by the Company on that date.
1999 Plan
Long-term Incentive Plan Awards in Last Fiscal Year
| |
Contact Rights |
|
|
||||||
|---|---|---|---|---|---|---|---|---|---|
| |
Stated Value |
Fiscal 2000 Representative Payout |
|||||||
| Executive Officers |
Granted |
Vested |
|||||||
| James J. Horvath | 220.83 | — | $ | 220,830 | — | ||||
| David A. Berg | 46.98 | — | $ | 46,980 | — | ||||
| James J. Dudley(1) | 51.03 | — | $ | 51,030 | — | ||||
| Joseph J. Talley | 46.98 | — | $ | 46,980 | — | ||||
| David A Walden | 46.98 | — | $ | 46,980 | — | ||||
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 Plan B, while employees who are not subject to a collective bargaining agreement, including the executive officers listed on the Summary Compensation Table, participate in pension Plan A. The benefits of the plans are funded by periodic Company contributions to a retirement trust which invests the Company's contributions and the earnings from such
30
contributions in order to pay the benefits to the employees. The plans provide 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 plans also provide for the payment of certain disability and death benefits.
Effective September 1, 1994, certain executive employees of the Company became eligible to participate in a "Supplemental Executive Retirement Plan." 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 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 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 table below shows the approximate annual pension benefits payable to executive officers at normal retirement under Retirement Plan A, as well as a non-qualified supplemental benefit plan. The compensation covered by the pension program is based on an employee's annual salary and bonus. Amounts payable are computed on the basis of a straight life annuity and are not reduced for social security benefits or other offsets.
American Crystal Sugar Company
2000 Calculation
Plan A Qualified and Non-Qualified Supplemental Benefits
| |
Years of Service |
||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Remuneration |
15 |
20 |
25 |
30 |
35 |
||||||||||
| $125,000 | $ | 24,144 | $ | 32,192 | $ | 40,240 | $ | 48,288 | $ | 48,288 | |||||
| $150,000 | $ | 29,394 | $ | 39,192 | $ | 48,990 | $ | 58,788 | $ | 58,788 | |||||
| $175,000 | $ | 34,644 | $ | 46,192 | $ | 57,740 | $ | 69,288 | $ | 69,288 | |||||
| $200,000 | $ | 39,894 | $ | 53,192 | $ | 66,490 | $ | 79,788 | $ | 79,788 | |||||
| $225,000 | $ | 45,144 | $ | 60,192 | $ | 75,240 | $ | 90,288 | $ | 90,288 | |||||
| $250,000 | $ | 50,394 | $ | 67,192 | $ | 83,990 | $ | 100,788 | $ | 100,788 | |||||
| $300,000 | $ | 60,894 | $ | 81,192 | $ | 101,490 | $ | 121,788 | $ | 121,788 | |||||
| $400,000 | $ | 81,894 | $ | 109,192 | $ | 136,490 | $ | 163,788 | $ | 163,788 | |||||
| $450,000 | $ | 92,394 | $ | 123,192 | $ | 153,990 | $ | 184,788 | $ | 184,788 | |||||
| $500,000 | $ | 102,894 | $ | 137,192 | $ | 171,490 | $ | 205,788 | $ | 205,788 | |||||
The five executive officers named in the Summary Compensation Table who are currently employees of the Company, have years of service under the plan as follows: Mr. Horvath has served for 15 years; Mr. Dudley served for 16 years; Mr. Walden has served for 21 years; Mr. Berg has served for 13 years; and Mr. Talley has served for 6 years.
The Company maintains Section 401(k) plans that permit 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 nonunion and union year-round participant's contribution up to 4%
31
and 2% respectively of their gross earnings. The total annual pre-income tax addition to any employee's 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. For calendar 2000, the employee pre-income tax contribution is limited to $10,500. An employee may also contribute up to 10% of his annual compensation on an after-tax basis. Benefits under the 401(k) plans 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 591/2, 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 701/2 or is terminated.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Under state law and the Company's Bylaws, each member of the cooperative is entitled to one vote, regardless of the number of shares the member holds. The Common Stock of the Company is voting stock and each member of the Company holds one share of Common Stock. The Preferred Stock of the Company is non-voting stock. The Company's stock can only be held by individuals who are sugarbeet growers. None of the officers or executives of the Company hold stock of the Company. 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 2% of the Company's issued and outstanding Preferred Stock. To the best of the Company's knowledge, no other party beneficially owns more than 2% of the Company's Preferred Stock.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of the Company's directors is also a sugarbeet farmer and a shareholder member or representative of a shareholder member of the Company. 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.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
| 1. | Financial Statements Report of Independent Auditors Balance Sheets as of August 31, 2000 and 1999 Statements of Operations for the Years Ended August 31, 2000, 1999 and 1998 Statements of Changes in Members' Investments for the Years Ended August 31, 2000, 1999 and 1998 Statements of Cash Flows for the Years Ended August 31, 2000, 1999 and 1998 Notes to Financial Statements |
|
| 2. | Financial Statement Schedules | |
| None | ||
| 3. | The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index on pages E-1 to E-5 of this report |
32
None
The response to this portion of Item 14 is included as a separate section of this Annual Report on Form 10-K.
33
Pursuant to the requirements of Section 13 or 15 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 22, 2000.
| AMERICAN CRYSTAL SUGAR COMPANY | |||
| |
|
By: |
/s/ JAMES J. HORVATH |
| Chief Executive Officer | |||
Dated: November 22, 2000
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.
| Signature |
Title |
Date |
||
|---|---|---|---|---|
| /s/ JAMES J. HORVATH | Chief Executive Officer (Principal Executive Officer) | November 22, 2000 | ||
| /s/ JOSEPH J. TALLEY |
|
Vice President—Finance (Principal Financial Officer) |
|
November 22, 2000 |
| /s/ THOMAS S. ASTRUP |
|
Corporate Controller (Principal Accounting Officer) |
|
November 22, 2000 |
| /s/ MICHAEL A. ASTRUP |
|
Director |
|
November 22, 2000 |
| /s/ JERRY D. BITKER |
|
Director |
|
November 22, 2000 |
| /s/ RICHARD BORGEN |
|
Director |
|
November 22, 2000 |
| /s/ AIME J. DEFAULT |
|
Director |
|
November 22, 2000 |
| /s/ STEVEN M. GOODWIN |
|
Director |
|
November 22, 2000 |
| /s/ COURT G. HANSON |
|
Director |
|
November 22, 2000 |
| /s/ LONN M. KIEL |
|
Director |
|
November 22, 2000 |
| /s/ DAVID J. KRAGNES |
|
Director |
|
November 22, 2000 |
| /s/ FRANCIS L. KRITZBERGER |
|
Director |
|
November 22, 2000 |
| /s/ WAYNE LANGEN |
|
Director |
|
November 22, 2000 |
| /s/ PATRICK D. MAHAR |
|
Director |
|
November 22, 2000 |
| /s/ RONALD E. REITMEIER |
|
Director |
|
November 22, 2000 |
| /s/ JIM A. ROSS |
|
Director |
|
November 22, 2000 |
| /s/ G. TERRY STADSTAD |
|
Director |
|
November 22, 2000 |
| /s/ ROBERT VIVATSON |
|
Director |
|
November 22, 2000 |
| |
|
|
|
|
34
APPENDIX A
INDEX TO FINANCIAL STATEMENTS
| AMERICAN CRYSTAL SUGAR COMPANY | ||||
| FINANCIAL STATEMENTS: | ||||
| Report of Independent Auditors | A-2 | |||
| Statements of Operations for the Years Ended August 31, 2000, 1999 and 1998 | A-3 | |||
| Balance Sheets as of August 31, 2000 and 1999 | A-4 | |||
| Statements of Changes in Members' Investments for the Years Ended August 31, 2000, 1999 and 1998 | A-6 | |||
| Statements of Cash Flows for the Years Ended August 31, 2000, 1999 and 1998 | A-7 | |||
| Notes to the Financial Statements | A-8 | |||
A-1
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, 2000 and 1999, and the related statements of operations, changes in members' investments and cash flows for the years ended August 31, 2000, 1999 and 1998. 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, 2000 and 1999, and the results of its operations and its cash flows for the years ended August 31, 2000, 1999 and 1998, in conformity with generally accepted accounting principles.
/s/
EIDE BAILLY LLP
Eide
Bailly LLP
October 11, 2000
Eden Prairie, Minnesota
A-2
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED AUGUST 31
(In Thousands)
| |
2000 |
1999 |
1998 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Net Revenue | $ | 731,432 | $ | 843,968 | $ | 676,625 | ||||||
| Cost of Product Sold, Excluding Payments to Members for Sugarbeets |
|
|
190,352 |
|
|
267,159 |
|
|
193,949 |
|
||
| Gross Proceeds |
|
|
541,080 |
|
|
576,809 |
|
|
482,676 |
|
||
| Selling, General and Administrative Expenses |
|
|
163,816 |
|
|
190,898 |
|
|
153,561 |
|
||
| Operating Proceeds |
|
|
377,264 |
|
|
385,911 |
|
|
329,115 |
|
||
| Other Income (Expense): |
|
|
|
|
|
|
|
|
|
|
||
| Interest Income | 3,202 | 1,762 | 2,045 | |||||||||
| Other Income | 2,032 | 5,588 | 1,058 | |||||||||
| Interest Expense, Net | (22,645 | ) | (21,960 | ) | (14,390 | ) | ||||||
| Other Expenses | (1,417 | ) | (1,489 | ) | (4,866 | ) | ||||||
| Total Other (Expense) | (18,828 | ) | (16,099 | ) | (16,153 | ) | ||||||
| Proceeds Before Income Taxes |
|
|
358,436 |
|
|
369,812 |
|
|
312,962 |
|
||
| Income Tax Benefit/(Expense) |
|
|
(63 |
) |
|
(131 |
) |
|
45 |
|
||
| Net Proceeds Resulting from Member and |
|
|
|
|
|
|
|
|
|
|
||
| Non-Member Business | $ | 358,373 | $ | 369,681 | $ | 313,007 | ||||||
| Distributions of Net Proceeds: |
|
|
|
|
|
|
|
|
|
|
||
| Credited (Charged) to Members' Investments: | ||||||||||||
| Non-Member Business (Loss) | $ | (1,879 | ) | $ | (494 | ) | $ | (9,679 | ) | |||
| Unit Retains Declared to Members | 19,299 | 21,332 | 8,545 | |||||||||
| Net Credit (Charge) to Members' Investments | 17,420 | 20,838 | (1,134 | ) | ||||||||
| Payments to Members for Sugarbeets, Net of Unit Retains Declared |
340,953 | 348,843 | 314,141 | |||||||||
| Total |
|
$ |
358,373 |
|
$ |
369,681 |
|
$ |
313,007 |
|
||
The Accompanying Notes are an Integral Part of These Financial Statements.
A-3
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
AUGUST 31
(In Thousands)
Assets
| |
2000 |
1999 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Current Assets: | ||||||||||
| Cash and Cash Equivalents | $ | 70,124 | $ | 2,156 | ||||||
| Receivables: | ||||||||||
| Trade | 49,489 | 71,654 | ||||||||
| Members | 1,063 | 1,595 | ||||||||
| Other | 3,230 | 2,642 | ||||||||
| Advances to Related Parties | 9,219 | 25,015 | ||||||||
| Inventories | 147,935 | 111,958 | ||||||||
| Prepaid Expenses | 4,363 | 2,280 | ||||||||
| Total Current Assets |
|
|
285,423 |
|
|
217,300 |
|
|||
| Property and Equipment: |
|
|
|
|
|
|
|
|||
| Land | 27,563 | 24,456 | ||||||||
| Buildings and Equipment | 825,466 | 804,607 | ||||||||
| Construction in Progress | 6,310 | 6,648 | ||||||||
| Less Accumulated Depreciation | (477,868 | ) | (459,096 | ) | ||||||
| Net Property and Equipment |
|
|
381,471 |
|
|
376,615 |
|
|||
| Other Assets: |
|
|
|
|
|
|
|
|||
| Investments in Banks for Cooperatives | 15,135 | 15,427 | ||||||||
| Investments in Marketing Cooperatives | 3,219 | 3,112 | ||||||||
| Investments in ProGold Limited Liability Company | 36,867 | 35,629 | ||||||||
| Investments in Crystech, LLC | 1,630 | 1,688 | ||||||||
| Notes Receivable—Crystech, LLC | 13,905 | 11,883 | ||||||||
| Other Assets | 2,069 | 6,170 | ||||||||
| Total Other Assets |
|
|
72,825 |
|
|
73,909 |
|
|||
| Total Assets |
|
$ |
739,719 |
|
$ |
667,824 |
|
|||
The Accompanying Notes are an Integral Part of These Financial Statements.
A-4
AMERICAN CRYSTAL SUGAR COMPANY
BALANCE SHEETS
AUGUST 31
(In Thousands)
Liabilities and Members' Investments
| |
2000 |
1999 |
|||||||
|---|---|---|---|---|---|---|---|---|---|
| Current Liabilities: | |||||||||
| Short-Term Debt | $ | 103,376 | $ | 60,180 | |||||
| Current Maturities of Long-Term Debt | 18,925 | 18,915 | |||||||
| Accounts Payable | 26,291 | 26,258 | |||||||
| Advances Due to Related Parties | 8,845 | 2,596 | |||||||
| Other Current Liabilities | 18,984 | 16,920 | |||||||
| Amounts Due Members | 53,666 | 35,698 | |||||||
| Total Current Liabilities |
|
|
230,087 |
|
|
160,567 |
|
||
| Long-Term Debt, Net of Current Maturities |
|
|
230,905 |
|
|
233,135 |
|
||
| Other Liabilities |
|
|
29,397 |
|
|
32,836 |
|
||
| Total Liabilities |
|
|
490,389 |
|
|
426,538 |
|
||
| Members' Investments: |
|
|
|
|
|
|
|
||
| Preferred Stock | 38,275 | 38,275 | |||||||
| Common Stock | 30 | 30 | |||||||
| Additional Paid-In Capital | 131,071 | 123,948 | |||||||
| Unit Retains | 116,216 | 116,849 | |||||||
| Accumulated Other Comprehensive Income (Loss) | (655 | ) | (4,088 | ) | |||||
| Retained Earnings (Deficit) | (35,607 | ) | (33,728 | ) | |||||
| Total Members' Investments |
|
|
249,330 |
|
|
241,286 |
|
||
| Total Liabilities and Members' Investments |
|
$ |
739,719 |
|
$ |
667,824 |
|
||
The Accompanying Notes are an Integral Part of These Financial Statements.
A-5
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CHANGES IN MEMBERS' INVESTMENTS
FOR YEARS ENDED AUGUST 31
(In Thousands)
| |
Preferred Stock |
Common Stock |
Additional Paid-In Capital |
Unit Retains |
Other Comprehensive Income (Loss) |
Retained Earnings (Deficit) |
Total |
|||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balance, August 31, 1997 | $ | 33,542 | $ | 26 | $ | 64,596 | $ | 105,450 | $ | (4,131 | ) | $ | (23,555 | ) | $ | 175,928 | ||||||||
| Non-Member Business (Loss) | — | — | — | — | — | (9,679 | ) | (9,679 | ) | |||||||||||||||
| Pension Liability Adjustment | — | — | — | — | 1,872 | — | 1,872 | |||||||||||||||||
| Comprehensive (Loss) | (7,807 | ) | ||||||||||||||||||||||
| Unit Retains Withheld from Members ($1.00/Ton) | — | — | — | 8,545 | — | — | 8,545 | |||||||||||||||||
| Payments to Estates and Disabled Individuals | — | — | — | (478 | ) | — | — | (478 | ) | |||||||||||||||
| Payments of 1990 Crop Unit Retains to Members | — | — | — | (7,667 | ) | — | — | (7,667 | ) | |||||||||||||||
| Contributed Capital of Investee | — | — | 21 | — | — | — | 21 | |||||||||||||||||
| Stock Issued, Net | 4,733 | 2 | 51,566 | — | — | — | 56,301 | |||||||||||||||||
| Balance, August 31, 1998 | $ | 38,275 | $ | 28 | $ | 116,183 | $ | 105,850 | $ | (2,259 | ) | $ | (33,234 | ) | $ | 224,843 | ||||||||
| Non-Member Business (Loss) | — | — | — | — | — | (494 | ) | (494 | ) | |||||||||||||||
| Pension Liability Adjustment | — | — | — | — | (1,829 | ) | — | (1,829 | ) | |||||||||||||||
| Comprehensive (Loss) | (2,323 | ) | ||||||||||||||||||||||
| Unit Retains Withheld from Members ($2.00/Ton) | — | — | — | 21,332 | — | — | 21,332 | |||||||||||||||||
| Payments to Estates and Disabled Individuals | — | — | — | (365 | ) | — | — | (365 | ) | |||||||||||||||
| Payments of 1991 Crop Unit Retains to Members | — | — | — | (9,968 | ) | — | — | (9,968 | ) | |||||||||||||||
| Stock Issued, Net | — | 2 | 7,765 | — | — | — | 7,767 | |||||||||||||||||
| Balance, August 31, 1999 | $ | 38,275 | $ | 30 | $ | 123,948 | $ | 116,849 | $ | (4,088 | ) | $ | (33,728 | ) | $ | 241,286 | ||||||||
| Non-Member Business (Loss) | — | — | — | — | — | (1,879 | ) | (1,879 | ) | |||||||||||||||
| Pension Liability Adjustment | — | — | — | — | 3,433 | — | 3,433 | |||||||||||||||||
| Comprehensive Income | 1,554 | |||||||||||||||||||||||
| Unit Retains Withheld from Members ($2.00/Ton) | — | — | — | 19,299 | — | — | 19,299 | |||||||||||||||||
| Payments to Estates and Disabled Individuals | — | — | — | (401 | ) | — | — | (401 | ) | |||||||||||||||
| Payments of 1992 Crop Unit Retains to Members | — | — | — | (19,531 | ) | — | — | (19,531 | ) | |||||||||||||||
| Stock Issued, Net | — | — | 7,123 | — | — | — | 7,123 | |||||||||||||||||
| Balance, August 31, 2000 | $ | 38,275 | $ | 30 | $ | 131,071 | $ | 116,216 | $ | (655 | ) | $ | (35,607 | ) | $ | 249,330 | ||||||||
The Accompanying Notes are an Integral Part of These Financial Statements.
A-6
AMERICAN CRYSTAL SUGAR COMPANY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED AUGUST 31
(In Thousands)
| |
2000 |
1999 |
1998 |
|||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash Provided By (Used In) Operations: | ||||||||||||
| Net Proceeds Resulting from Member and Non-Member Business | $ | 358,373 | $ | 369,681 | $ | 313,007 | ||||||
| Payments to Members for Sugarbeets, Net of Unit Retains Declared | (340,953 | ) | (348,843 | ) | (314,141 | ) | ||||||
| Add (Deduct) Non-Cash Items: | ||||||||||||
| Depreciation and Amortization | 37,562 | 34,334 | 26,870 | |||||||||
| (Income) Loss from Equity Method Investees | (1,298 | ) | (802 | ) | 4,434 | |||||||
| Loss on the Disposition of Property and Equipment | 1,216 | 661 | 2,412 | |||||||||
| Non-Cash Portion of Patronage Dividend from Banks for Cooperatives | 292 | 463 | (1,322 | ) | ||||||||
| Deferred Gain Recognition | (197 | ) | (201 | ) | (209 | ) | ||||||
| Changes in Assets and Liabilities: | ||||||||||||
| Receivables | 22,109 | (16,658 | ) | 10,182 | ||||||||
| Inventories | (35,977 | ) | 30,424 | (2,325 | ) | |||||||
| Prepaid Expenses | (2,083 | ) | 799 | 287 | ||||||||
| Advances with Related Parties | 22,045 | 3,983 | (11,338 | ) | ||||||||
| Accounts Payable | 33 | (9,873 | ) | 10,234 | ||||||||
| Other Liabilities | 4,052 | 3,900 | 3,242 | |||||||||
| Amounts Due Members | 17,968 | 21,283 | (51,740 | ) | ||||||||
| Net Cash Provided By (Used In) Operations | 83,142 | 89,151 | (10,407 | ) | ||||||||
| Cash Provided By (Used In) Investing Activities: | ||||||||||||
| Purchases of Property and Equipment | (43,935 | ) | (59,783 | ) | (101,769 | ) | ||||||
| Proceeds from the Sale of Property and Equipment | 631 | 430 | 365 | |||||||||
| Investments in Marketing Cooperatives | — | (609 | ) | (765 | ) | |||||||
| Distributions from ProGold Limited Liability Company | — | — | 3,588 | |||||||||
| Investments in Crystech, LLC | (47 | ) | (114 | ) | (1,574 | ) | ||||||
| Issuance of Notes Receivable—Crystech, LLC | (2,022 | ) | (8,164 | ) | (3,719 | ) | ||||||
| Changes in Other Assets | 2,032 | 357 | (1,189 | ) | ||||||||
| Net Cash (Used In) Investing Activities | (43,341 | ) | (67,883 | ) | (105,063 | ) | ||||||
| Cash Provided By (Used In) Financing Activities: | ||||||||||||
| Net Proceeds (Payments) on Short-Term Debt | 43,196 | (56,142 | ) | 47,888 | ||||||||
| Proceeds from Long-Term Debt | 17,000 | 67,455 | 26,694 | |||||||||
| Long-Term Debt Repayment | (19,220 | ) | (27,900 | ) | (18,799 | ) | ||||||
| Issuance of Stock | 7,123 | 7,767 | 56,322 | |||||||||
| Payment of Unit Retains | (19,932 | ) | (10,333 | ) | (8,145 | ) | ||||||
| Net Cash Provided By (Used In) Financing Activities | 28,167 | (19,153 | ) | 103,960 | ||||||||
| Increase (Decrease) In Cash and Cash Equivalents | 67,968 | 2,115 | (11,510 | ) | ||||||||
| Cash and Cash Equivalents, Beginning of Year | 2,156 | 41 | 11,551 | |||||||||
| Cash and Cash Equivalents, End of Year | $ | 70,124 | $ | 2,156 | $ | 41 | ||||||
The Accompanying Notes are an Integral Part of These Financial Statements.
A-7
AMERICAN CRYSTAL SUGAR COMPANY
NOTES TO THE FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization
American Crystal Sugar Company is a Minnesota agricultural cooperative corporation which processes and markets sugar, 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 in conformity with generally accepted accounting principles.
Cash and Cash Equivalents
The Company considers financial instruments purchased with a maturity of three months or less to be cash equivalents. The Company 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
The Company 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. The Company had a major agri-products customer that accounted for approximately 16.3% and 15.7% of total receivables as of August 31, 2000 and 1999, respectively.
Inventories
Sugar, pulp, molasses and other agri-products inventories are valued at estimated net realizable value. Maintenance parts and supplies and sugarbeet seed inventories are valued at the lower of average cost or market. Sugarbeets are valued at the projected gross per-ton beet payment related to that year's crop.
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.
Indirect costs capitalized were $1.1 million, $1.0 million and $1.3 million in 2000, 1999 and 1998, respectively. Construction period interest capitalized was $.7 million, $1.2 million and $3.9 million in 2000, 1999 and 1998, respectively.
Related Parties
The following organizations are considered related parties for financial reporting purposes: United Sugars Corporation (United), Midwest Agri-Commodities Company (Midwest), Crystech, LLC (Crystech), and ProGold Limited Liability Company (ProGold).
A-8
Investments
Investments in the Banks for Cooperatives are stated at cost plus unredeemed patronage refunds received in the form of capital stock. Investments in marketing cooperatives, ProGold and Crystech are accounted for using the equity method. The net interest capitalized related to the investment in Crystech totaled $47,000, $114,000 and $29,000 for the years ended August 31, 2000, 1999 and 1998, 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 the Company. Each "farm operator" may own only one share of common stock and is entitled to one vote in the affairs of the Company. Each "farm operator" is required 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 the Company's Board of Directors and any shareholder desiring to sell stock must first offer it to the Company for repurchase at its par value. The Company has never exercised this repurchase option. The bylaws do not allow dividends to be paid on either the common or preferred stock.
| |
Par Value |
Shares Authorized |
Shares Issued & Outstanding |
|||||
|---|---|---|---|---|---|---|---|---|
| Preferred Stock: | ||||||||
| August 31, 2000 | $ | 76.77 | 600,000 | 498,570 | ||||
| August 31, 1999 | $ | 76.77 | 600,000 | 498,570 | ||||
| August 31, 1998 | $ | 76.77 | 600,000 | 498,570 | ||||
| Common Stock: |
|
|
|
|
|
|
|
|
| August 31, 2000 | $ | 10.00 | 4,000 | 3,006 | ||||
| August 31, 1999 | $ | 10.00 | 4,000 | 2,950 | ||||
| August 31, 1998 | $ | 10.00 | 4,000 | 2,835 | ||||
Unit Retains—The bylaws authorize the Company's Board of Directors to require additional direct capital investments by members in the form of a variable unit retain per ton of up to a maximum of 10% of the weighted average gross per ton beet payment. The Company 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.
Accumulated Other Comprehensive Income (Loss)—During 1999, the Company adopted Statement of Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income", which establishes standards for the reporting and displaying of changes in equity from non-owner sources in the financial statements. Accumulated Other Comprehensive Income (Loss) represents the cumulative net increase (decrease) in equity related to the recording of the minimum pension liability adjustment. Consistent with the Company's treatment of income taxes related to member source income and expenses, accumulated other comprehensive income (loss) does not include any adjustment for income taxes.
Retained Earnings (Deficit)—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.
A-9
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. The filings with the United States Securities and Exchange Commission and the North Dakota Securities Commission became effective in November, 1997. The Company sold all of the 61,500 shares of preferred stock offered. The shares of preferred stock offered equal approximately 13.7% of preferred shares outstanding on July 25, 1997. The Company received $7.1 million, $7.8 million and $56.3 million from the sale of stock during the years ended August 31, 2000, 1999 and 1998, respectively, with the remaining $21.2 million to be received in installment amounts through 2004.
Interest Expense, Net
The Company earns patronage dividends from the Banks for Cooperatives based on the Company's share of the net income earned by the banks. These patronage dividends are applied against interest expense.
Income Taxes
The Company is a non-exempt cooperative for federal income tax purposes. As such, the Company 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. Total income tax payments (refunds) were $(7,600), $(380,000) and $ 106,000 in the years ended August 31, 2000, 1999 and 1998, respectively.
As of August 31, 2000, the Company had accumulated approximately $24.0 million of net operating loss carryforwards. The net operating loss carryforwards expire in the years 2012 through 2020. The Company has provided a valuation allowance for the entire balance of the deferred tax asset related to the loss carryforwards.
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.
Reclassifications
Certain reclassifications have been made to the 1999 and 1998 financial statements to conform with the 2000 presentation.
A-10
(2) INVENTORIES:
The major components of inventories are as follows:
| (In Thousands) |
2000 |
1999 |
|||||
|---|---|---|---|---|---|---|---|
| Refined Sugar, Pulp, Molasses, other Agri-Products and Sugarbeet Seed |
$ | 126,545 | $ | 88,466 | |||
| Sugarbeets | 3,402 | 3,817 | |||||
| Maintenance Parts and Supplies | 17,988 | 19,675 | |||||
| Total Inventories | $ | 147,935 | $ | 111,958 | |||
(3) INVESTMENTS IN MARKETING COOPERATIVES:
The Company has a 59% ownership interest and a 25% voting interest in United. The investment is accounted for using the equity method. All sugar products produced are sold by United as an agent for the Company. The amount of sales and related costs to be recognized by each owner of United is allocated based on its pro rata share of sugar production for the year. The owners provide United with cash advances on an ongoing basis for operating and marketing expenses incurred by United. The Company had outstanding advances to United of $8.4 million and $22.6 million as of August 31, 2000 and 1999, respectively. The Company provides administrative services for United and is reimbursed for costs incurred. The Company was reimbursed $1.6 million, $.9 million and $1.1 million for services provided during 2000, 1999 and 1998, respectively.
The Company has a 331/3% ownership and voting interest in Midwest. The investment is accounted for using the equity method. All sugarbeet pulp, molasses and other agri-products produced are sold by Midwest as an agent for the Company. The amount of sales and related costs to be recognized by each owner of Midwest is allocated based on its pro rata share of production for each product for the year. The owners provide Midwest with cash advances on an ongoing basis for operating and marketing expenses incurred by Midwest. The Company had outstanding advances (from) Midwest of $(2.9) million and $(2.6) million as of August 31, 2000 and 1999, respectively. The owners of Midwest are guarantors of the short-term line of credit Midwest has with CoBank, Agricultural Credit Bank (ACB). As of August 31, 2000, Midwest had outstanding short-term debt with CoBank, ACB of $3.5 million, of which $2.6 million was guaranteed by the Company.
(4) PROGOLD LIMITED LIABILITY COMPANY:
The Company has a 46% ownership interest in ProGold. On November 1, 1997, ProGold signed an agreement to lease substantially all of its assets to Cargill, Incorporated. Under the terms of this
A-11
operating lease, Cargill, Incorporated manages all aspects of the operations of the ProGold corn wet-milling plant. Following is summary financial information for ProGold:
| (In Thousands) |
2000 |
1999 |
||||||
|---|---|---|---|---|---|---|---|---|
| Current Assets | $ | 2,418 | $ | 3,578 | ||||
| Long-Term Assets | 209,663 | 220,332 | ||||||
| Total Assets | $ | 212,081 | $ | 223,910 | ||||
| Current Liabilities | $ | 6,314 | $ | 10,828 | ||||
| Long-Term Liabilities | 133,091 | 143,618 | ||||||
| Total Liabilities | 139,405 | 154,446 | ||||||
| Members' Equity | 72,676 | 69,464 | ||||||
| Total Liabilities and Members' Equity | $ | 212,081 | $ | 223,910 | ||||
| Rental Revenue on Operating Lease | $ | 26,793 | $ | 27,988 | ||||
| Expenses | 23,581 | 26,473 | ||||||
| Net Income | $ | 3,212 | $ | 1,515 | ||||
(5) CRYSTECH, LLC:
On May 28, 1998, the Company entered into an agreement with Newcourt Capital U.S.A., Inc. to form a joint venture (special purpose) entity, Crystech. Crystech was formed to acquire, construct, finance, operate and maintain a molasses desugarization facility at the Company's Hillsboro, North Dakota sugar factory together with certain sugar processing equipment located at the Hillsboro, North Dakota and Moorhead, Minnesota sugar factories. The Company acquired an initial 50% ownership interest in Crystech through a $1.5 million cash contribution. The Company accounts for its investment in the joint venture using the equity method. The molasses desugarization facility became operational on February 1, 2000.
As of August 31, 2000 and 1999, respectively, the Company had outstanding notes receivable from Crystech totaling $13.9 million and $11.9 million. The notes are subordinate to long-term debt of Crystech totaling $82.9 million and $73.5 million as of August 31, 2000 and 1999, respectively. The notes bear interest at rates of 6.41% to 8.17%. Interest income related to these notes totaled $1.0 million and $.7 million during 2000 and 1999, respectively. The Company had a receivable from Crystech, related to the interest on these notes of $.3 million and $.2 million as of August 31, 2000 and 1999 respectfully. Repayments of principal are not permitted until the senior debt has been paid in full. The subordinated notes are due and payable in December 2007. The Company also had an outstanding payable to Crystech of $6.0 million as of August 31, 2000, related to the tolling services agreement. The Company had outstanding receivables of $.7 million and $1.8 million as of August 31, 2000 and 1999, respectively, primarily relating to capital expenditures paid on behalf of Crystech.
A-12
The Company has a 12-year tolling services agreement with Crystech whereby the Company pays for tolling services for processing sugarbeet molasses delivered to Crystech with title and risk of loss throughout the process maintained by the Company. The tolling agreement may be terminated by the Company if the specified plant performance is not achieved and maintained. Following is summary financial information for Crystech:
| (In Thousands) |
2000 |
1999 |
||||||
|---|---|---|---|---|---|---|---|---|
| Current Assets | $ | 6,635 | $ | 5,980 | ||||
| Long-Term Assets | 95,462 | 88,413 | ||||||
| Total Assets | $ | 102,097 | $ | 94,393 | ||||
| Current Liabilities | $ | 14,633 | $ | 8,992 | ||||
| Long-Term Liabilities | 84,552 | 82,311 | ||||||
| Total Liabilities |
|
|
99,185 |
|
|
91,303 |
||
| Members' Equity | 2,912 | 3,090 | ||||||
| Total Liabilities and Members' Equity | $ | 102,097 | $ | 94,393 | ||||
| Revenue |
|
$ |
14,692 |
|
|
— |
||
| Operating Expenses | 10,588 | — | ||||||
| Other Expenses | 4,282 | — | ||||||
| Net Loss | $ | (178 | ) | — | ||||
(6) LONG-TERM AND SHORT-TERM DEBT:
The long-term debt outstanding as of August 31, 2000 and 1999, is summarized below:
| (In Thousands) |
2000 |
1999 |
||||||
|---|---|---|---|---|---|---|---|---|
| Term Loans from CoBank, Due in Varying Amounts through 2008, Interest at 5.54% to 8.58%, with senior lien on substantially all Non-Current Assets. | $ | 155,300 | $ | 155,300 | ||||
| Term Loans from Insurance Companies, Due in Varying Amounts from 2018 through 2028, Interest at 7.32% to 7.42%, with senior lien on substantially all Non-Current Assets. |
|
|
50,000 |
|
|
50,000 |
|
|
| Term Loans from US Bank, Minneapolis, Due in Equal Amounts through 2002, Interest at 8.25%, unsecured. |
|
|
3,000 |
|
|
4,000 |
|
|
| Term Loans from the Bank of North Dakota, Due in Equal Amounts through 2009, Interest at 6.34%, unsecured. |
|
|
7,200 |
|
|
8,000 |
|
|
| Pollution Control and Industrial Development Revenue Bonds, Due in Varying Amounts through 2018, Interest at fixed and varying rates, (8.00% and 4.55%, respectively, as of August 31, 2000), substantially secured by letters of credit. |
|
|
34,330 |
|
|
34,750 |
|
|
| Total Long-Term Debt | 249,830 | 252,050 | ||||||
| Less Current Maturities | (18,925 | ) | (18,915 | ) | ||||
| Long-Term Debt, Net of Current Maturities | $ | 230,905 | $ | 233,135 | ||||
A-13
Minimum annual principal payments for the next five years are as follows:
| (In Thousands) |
|
|||
|---|---|---|---|---|
| 2001 | $ | 18,925 | ||
| 2002 | 18,930 | |||
| 2003 | 18,940 | |||
| 2004 | 17,950 | |||
| 2005 | 17,965 | |||
As of August 31, 2000, the unused portion of the term loan line of credit with CoBank was $16.4 million.
During the year ended August 31, 2000, the Company borrowed from CoBank and the Commodity Credit Corporation, (CCC) and issued commercial paper to meet its short-term borrowing requirements. Under the CCC sugar loan program, the Company obtained non-recourse loans from the CCC on the 1999 crop sugar. The sugar under loan as of August 31, 2000, pledged to the CCC to satisfy the loan and interest was approximately 4.5 million hundredweight. The Company had no outstanding seasonal loans with CoBank as of August 31, 2000 or 1999. The Company had no outstanding short-term commercial paper debt as of August 31, 2000 and $60.8 million outstanding as of August 31, 1999. The Company had outstanding loans with the CCC of $103.4 million as of August 31, 2000. See Note (11) Subsequent Event.
As of August 31, 2000, the Company had available short-term lines of credit totaling $210.0 million.
Maximum borrowings, average borrowing levels and average interest rates for short-term debt for the years ended August 31, 2000 and 1999, follow:
| (In Thousands, Except Interest Rates) |
2000 |
1999 |
|||||
|---|---|---|---|---|---|---|---|
| Maximum Borrowings | $ | 197,055 | $ | 255,000 | |||
| Average Borrowing Levels |
|
$ |
116,489 |
|
$ |
161,454 |
|
| Average Interest Rates |
|
|
6.71 |
% |
|
5.61 |
% |
| |
|
|
|
|
|
|
|
The terms of the loan agreements contain certain covenants related to, among other matters, the: level of working capital; ratio of term liabilities to members' investment; current ratio; level of term debt to net funds generated; and investment in CoBank stock in amounts prescribed by the bank. Substantially all non-current assets are pledged to the senior lenders to provide security to support the Company's seasonal and long-term financing. As of August 31, 2000, the Company was in compliance with the terms of the loan agreements.
Interest paid was $19.2 million, $22.6 million and $15.8 million for the years ended August 31, 2000, 1999 and 1998, respectively.
(7) 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. 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.
A-14
Notes Receivable—Crystech, LLC—Based on current interest rates with similar maturities, the fair value of the notes receivable approximates the carrying value.
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, Investments in ProGold Limited Liability Company and Investments in Crystech, LLC—The Company 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 equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations.
(8) EMPLOYEE BENEFIT PLANS:
During 1999, the Company adopted Statement of Financial Accounting Standards No. 132 (SFAS 132), "Employers' Disclosures about Pensions and Other Post-Retirement Benefits". SFAS 132 revises employers' disclosures related to pension and other post-retirement plans by requiring, among other things, standardization of disclosures among such plans as well as additional information on the changes in benefit obligations and fair values of plan assets. SFAS 132 had no effect on the Company's financial position or results of operations as it did not change the measurement or recognition criteria for such plans.
Company-Sponsored Defined Benefit Pension and Other Post-Retirement Benefit Plans
Substantially all employees who meet eligibility requirements of age and length of service are covered by a Company-sponsored retirement plan. As of August 31, 2000, the pension plans were funded as required by the funding standards set forth by the Employee Retirement Income Security Act (ERISA). The Company also has a non-qualified supplemental executive retirement plan for certain employees.
The Company has a medical plan and a Medicare supplement plan which are available to substantially all the Company retirees. The costs of these plans are shared by the Company and plan participants.
A-15
The following schedules provide the components of the Net Periodic Pension and Post-Retirement Costs as of August 31, 2000, 1999 and 1998:
| Components of Net Periodic Pension Cost (In Thousands) |
2000 |
1999 |
1998 |
||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Service Cost | $ | 1,625 | $ | 1,816 | $ | 1,663 | |||||
| Interest Cost | 4,783 | 4,341 | 4,349 | ||||||||
| Expected Return on Plan Assets | (4,986 | ) | (4,923 | ) | (4,353 | ) | |||||
| Multiple Employer Adjustment | — | (1 | ) | (38 | ) | ||||||
| Amortization of Net Transition Assets | (296 | ) | (296 | ) | (296 | ) | |||||
| Amortization of Prior Service Costs | 447 | 1,090 | 424 | ||||||||
| Amortization of Net (Gain) Loss | 138 | (6 | ) | 161 | |||||||
| Net Periodic Pension Cost | $ | 1,711 | $ | 2,021 | $ | 1,910 | |||||
| Components of Net Periodic Post-Retirement Cost (In Thousands) |
|
2000 |
|
1999 |
|
1998 |
|
||||
| Service Cost | $ | 518 | $ | 619 | $ | 694 | |||||
| Interest Cost | 871 | 900 | 1,090 | ||||||||
| Amortization of Prior Service Costs | 2 | 2 | 2 | ||||||||
| Amortization of Net (Gain) Loss | (270 | ) | (100 | ) | — | ||||||
| Net Periodic Post-Retirement Cost | $ | 1,121 | $ | 1,421 | $ | 1,786 | |||||
For measurement purposes, a 7.75% annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2000. The rate is assumed to decline to 5.5% over the next three years.
Assumed healthcare trends can have a significant effect on the amounts reported for healthcare plans. A 1% change in the assumed healthcare trend rates would have the following effects:
| (In Thousands) |
1% Increase |
1% Decrease |
|||||
|---|---|---|---|---|---|---|---|
| Effect on total service and interest cost components of net periodic post-retirement benefit costs | $ | 253 | $ | (205 | ) | ||
| Effect on the accumulated post-retirement benefit obligation | $ | 1,775 | $ | (1,449 | ) | ||
A-16
(8) EMPLOYEE BENEFIT PLANS:
The following schedules set forth a reconciliation of the changes in the plans' benefit obligation and fair value of assets for the years ending August 31, 2000 and 1999 and a statement of the funded status and amounts recognized in the Balance Sheets as of August 31, 2000 and 1999:
| |
Pension |
Post-Retirement |
||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In Thousands) |
2000 |
1999 |
2000 |
1999 |
||||||||||
| Change in Benefit Obligation | ||||||||||||||
| Obligation at the Beginning of the Year | $ | 65,357 | $ | 63,493 | $ | 11,802 | $ | 13,085 | ||||||
| Service Cost | 1,625 | 1,816 | 518 | 619 | ||||||||||
| Interest Cost | 4,783 | 4,341 | 871 | 900 | ||||||||||
| Plan Participant Contributions | — | — | (277 | ) | (442 | ) | ||||||||
| Amendments | 833 | — | — | — | ||||||||||
| Actuarial (Gain)/Loss | (4,991 | ) | (1,277 | ) | 174 | (2,156 | ) | |||||||
| Benefits Paid by Employer | (3,159 | ) | (3,016 | ) | (527 | ) | (204 | ) | ||||||
| Other | — | — | — | — | ||||||||||
| Obligation at the End of the Year | $ | 64,448 | $ | 65,357 | $ | 12,561 | $ | 11,802 | ||||||
| Change in Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value at the Beginning of the Year | $ | 55,230 | $ | 55,950 | $ | — | $ | — | ||||||
| Actual Return on Plan Assets | 9,752 | 1,927 | — | — | ||||||||||
| Plan Participant Contributions | — | — | 277 | 442 | ||||||||||
| Employer Contributions | 3,427 | 369 | 527 | 204 | ||||||||||
| Benefits Paid | (3,159 | ) | (3,016 | ) | (804 | ) | (646 | ) | ||||||
| Other | — | — | — | — | ||||||||||
| Fair Value at the End of the Year | $ | 65,250 | $ | 55,230 | $ | — | $ | — | ||||||
| Funded Status |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Funded Status as of August 31, | $ | 802 | $ | (10,127 | ) | $ | (12,561 | ) | $ | (11,802 | ) | |||
| Unrecognized Net Transition Asset | (865 | ) | (1,161 | ) | — | — | ||||||||
| Unrecognized Actuarial Loss/(Gain) | (2,717 | ) | 6,255 | (5,236 | ) | (5,403 | ) | |||||||
| Unrecognized Prior Service Cost | 3,180 | 3,627 | — | 7 | ||||||||||
| Net Amount Recognized | $ | 400 | $ | (1,406 | ) | $ | (17,797 | ) | $ | (17,198 | ) | |||
| Amounts Recognized in the Balance Sheets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Prepaid Pension Cost | $ | 2,545 | $ | 519 | $ | — | $ | — | ||||||
| Accrued Benefit Liability | (3,062 | ) | (8,269 | ) | (17,797 | ) | (17,198 | ) | ||||||
| Intangible Asset | 262 | 2,256 | — | — | ||||||||||
| Accumulated Other Comprehensive Income | 655 | 4,088 | — | — | ||||||||||
| Net Amount Recognized | $ | 400 | $ | (1,406 | ) | $ | (17,797 | ) | $ | (17,198 | ) | |||
| Change in Additional Minimum Liability (for the current year) |
|
|
|
|
|
|
|
|||||||
| |
2000 |
|
|
|
||||||||||
| Other Comprehensive Income | $ | 3,432 | ||||||||||||
| Intangible Asset Decrease | $ | 1,995 | ||||||||||||
| Accrued Pension Liability Decrease | $ | 5,427 | ||||||||||||
A-17
The assumptions used in the measurement of the Company's benefit obligations are shown below:
| |
Pension |
Post-Retirement |
||||||
|---|---|---|---|---|---|---|---|---|
| Weighted Average Assumptions as of August 31, |
2000 |
1999 |
2000 |
1999 |
||||
| Discount Rate | 8.25% | 7.5% | 8.25% | 7.5% | ||||
| Expected Return on Plan Assets | 9.0% | 9.0% | N/A | N/A | ||||
| Rate of Compensation Increase (Non-Union Plan Only) |
5.0% | 5.0% | N/A | N/A | ||||
Long-Term Incentive Plans
The 1995 and 1999 Long-Term Incentive Plans provide deferred compensation to certain key executives of the Company. The plans create financial incentives that are based upon contract rights which are available to the executive under the terms of the plans, the value of which is related to the value of preferred shares of the Company. As of August 31, 2000, under the 1995 Plan there were 562 rights issued and outstanding of which 234 rights were 100% vested and 328 rights were 75% vested. Under the 1999 Plan, there were 413 rights issued and outstanding, none of which were vested as of August 31, 2000.
Defined Contribution Plans
The Company also has qualified 401(k) plans for all eligible employees. The plans provide for immediate vesting of benefits. Participants may contribute a percentage of their gross earnings each pay period as provided in the participation agreement. The Company matches the non-union and union year-round participants' contributions up to 4% and 2% respectively, of their gross earnings. The Company's contributions to these plans totaled $1.4 million for each of the years ended August 31, 2000, 1999 and 1998, respectively.
(9) ENVIRONMENTAL MATTERS:
The Company 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. The Company conducts an ongoing pollution control program designed to meet these environmental laws and regulations. In June 1998, a dike failure occurred near the East Grand Forks, Minnesota factory. The Minnesota Pollution Control Agency (MPCA) commenced enforcement action related to this incident. On April 14, 2000, the company and the MPCA entered into a stipulation agreement settling this matter. This agreement required the company, among other conditions, to pay penalties in the amount of $127,000.
(10) COMMITMENTS AND CONTINGENCIES:
The Company had outstanding letters of credit totaling $49.6 million as of August 31, 2000.
The Company 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.
The Company had outstanding commitments of approximately $9.4 million as of August 31, 2000, for consulting services, equipment and construction contracts related to various capital projects.
(11) SUBSEQUENT EVENT:
On September 30, 2000, the Company forfeited approximately 4.5 million hundredweight of 1999 crop sugar to the CCC in satisfaction of the remaining $101.5 million in outstanding non-recourse loans and $3.8 million of accrued interest. The financial effect of this forfeiture on the members' 1999 crop beet payment has been reflected in the net realizable value calculation of the August 31, 2000, sugar inventory.
A-18
EXHIBIT INDEX TO ANNUAL REPORT
ON FORM 10-K
FOR FISCAL YEAR ENDED AUGUST 31, 2000
| Item No. |
|
Method of Filing |
||
|---|---|---|---|---|
| 3.1 | Restated Articles of Incorporation of American Crystal Sugar Company | Incorporated by reference to Exhibit 3(i) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 3.2 | Restated By-laws of American Crystal Sugar Company | Incorporated by reference to Exhibit 3(ii) from the Company's Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. | ||
| 4.1 | Restated Articles of Incorporation of American Crystal Sugar Company | See Exhibit 3.1 | ||
| 4.2 | Restated By-laws of American Crystal Sugar Company | See Exhibit 3.2 | ||
| 10.1 | Growers' Contract (5-year Agreement) | Incorporated by reference to Exhibit 10(f) from the Company's Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. | ||
| 10.2 | Growers' Contract (Annual Contract) | Incorporated by reference to Exhibit 10(g) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.3 | Trademark License Agreement between Registrant and United Sugars Corporation, dated November 1, 1993 | Incorporated by reference to Exhibit 10(l) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.4 | Uniform Member Marketing Agreement, Pool Basis between Registrant and Midwest Agri-Commodities Company, dated April 14, 1992 | Incorporated by reference to Exhibit 10(m) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
E-1
| 10.5 | Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency | Incorporated by reference to Exhibit 10(n) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.6 | Amended and Restated Loan Agreement between Registrant and First Bank National Association, dated November 22, 1993 | Incorporated by reference to Exhibit 10(q) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.7 | Pension Contract and Amendments | Incorporated by reference to Exhibit 10(r) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.8 | Form of Operating Agreement between Registrant and ProGold Limited Liability Company | Incorporated by reference to Exhibit 10(u) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.9 | Form of Member Control Agreement between Registrant and ProGold Limited Liability Company | Incorporated by reference to Exhibit 10(v) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.10 | Administrative Services Agreement between Registrant and ProGold Limited Liability Company | Incorporated by reference to Exhibit 10(w) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. | ||
| 10.11 | Uniform Member Marketing Agreement | Incorporated by reference to Exhibit 10(x) from the Company's Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
E-2
| †10.12 | Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25, 1995 | Incorporated by reference to Exhibit 10(y) from the Company's Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. | ||
| †10.13 | Coal Transportation Agreement between Registrant and Northern Coal Transportation Company, dated August 25, 1995 | Incorporated by reference to Exhibit 10(z) from the Company's Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. | ||
| †10.14 | Gas Sales Contract between Registrant and Coastal Gas Marketing Company, dated as of March 20, 1996 | Incorporated by reference to Exhibit 10(aa) from the Company's Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. | ||
| †10.15 | Trademark License Agreement between Registrant and The Pillsbury Company, dated as of April 9, 1997 | Incorporated by reference to Exhibit 10(dd) from the Company's Registration Statement on Form S-1 (File No. 333-32251), declared effective October 24, 1997. | ||
| 10.16 | Pledge Agreement between Registrant and First Union Trust Company, NA | Incorporated by reference to Exhibit 10(ee) from the Company's Annual Report on Form 10-K for the year ended August 31, 1998. | ||
| 10.17 | Indemnity Agreement between Registrant, Newcourt Capital USA Inc., Crystech, LLC and Crystech Senior Lender Trust | Incorporated by reference to Exhibit 10(ff) from the Company's Annual Report on Form 10-K for the year ended August 31, 1998. | ||
| 10.18 | Tolling Services Agreement between Crystech, LLC and Registrant | Incorporated by reference to Exhibit 10(gg) from the Company's Annual Report on Form 10-K for the year ended August 31, 1998. | ||
| 10.19 | Operations and Maintenance Agreement between Crystech, LLC and Registrant | Incorporated by reference to Exhibit 10(hh) from the Company's Annual Report on Form 10-K for the year ended August 31, 1998. |
E-3
| ‡10.20 | Limited Liability Company Agreement of Crystech, LLC | Incorporated by reference to Exhibit 10(ii) from the Company's Annual Report on Form 10-K for the year ended August 31, 1998. | ||
| 10.21 | Master Agreement between the Registrant and Bakery, Confectionery, Tobacco Workers & Grain Millers AFL-CIO, CLC | Incorporated by reference to Exhibit 10.22 from the Company's Annual Report on Form 10-K for the year ended August 31, 1999 | ||
| 10.22 | Uniform Member Beet Sugar Marketing Agreement | Incorporated by reference to Exhibit 10.23 from the Company's Annual Report on Form 10-K for the year ended August 31, 1999 | ||
| 10.23 | Registrant's Senior Note Purchase Agreement | Incorporated by reference to Exhibit 10.24 from the Company's Annual Report on Form 10-K for the year ended August 31, 1999 | ||
| 10.24 | Registrant's Senior Note Intercreditor and Collateral Agency | Incorporated by reference to Exhibit 10.25 from the Company's Annual Report on Form 10-K for the year ended August 31, 1999 | ||
| 10.25 | Registrant's Senior Note Restated Mortgage and Security Agreement | Incorporated by reference to Exhibit 10.26 from the Company's Annual Report on Form 10-K for the year ended August 31, 1999 | ||
| 10.26 | Employment Agreement between the Registrant and James J. Horvath | Incorporated by reference to Exhibit 10.28 from the Company's Annual Report on Form 10-K form the year ended August 31, 1999 | ||
| 10.27 | Term and Seasonal Loan Agreements between the Registrant and CoBank, ACB dated March 31, 2000 | Incorporated by reference to Exhibit 10.27 from the Company's Form 10-Q for the quarter ended May 31, 2000 | ||
| 10.28 | Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency, dated April 4, 2000 | Incorporated by reference to Exhibit 10.28 from the Company's Form 10-Q for the quarter ended May 31, 2000 | ||
| 10.29 | Board of Directors Deferred Compensation Plan, dated June 30, 1994 | Filed herewith electronically | ||
| 10.30 | Long Term Incentive Plan, dated September 1, 1995 | Filed herewith electronically | ||
| 10.31 | Long Term Incentive Plan, dated June 23, 1999 | Filed herewith electronically | ||
| 21.1 | List of Subsidiaries of the Registrant | Incorporated by reference to Exhibit 21.1 from the Company's Annual Report on Form 10K for the year ended August 31, 1999 |
E-4
| 23.1 | Consent of Eide Bailly LLP | Filed herewith electronically | ||
| 27 | Financial Data Schedule | Filed herewith electronically |
E-5
|
|