SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended November 30, 1997.
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to
____________ .
Commission File Number 333-17865
HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0251095
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
1667 NORTH SNELLING AVENUE, ST. PAUL, MN 55108
(Address of principal executive offices and zip code)
(612) 646-9433
(Registrant's telephone number
including area code)
Include 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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
NONE NONE
(Class) (Number of shares outstanding at
November 30, 1997)
<PAGE>
INDEX
PAGE
NO.
PART I. FINANCIAL INFORMATION
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of May 31, 1997, and November 30, 1997
Consolidated Statements of Earnings for the three months and six months
ended November 30, 1996, and November 30, 1997
Consolidated Statement of Capital for the six months ended
November 30, 1997
Consolidated Statements of Cash Flows for the three months and six months
ended November 30, 1996, and November 30, 1997
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
Item 1. Financial Statements (Unaudited)
Balance Sheets as of May 31, 1997, and November 30, 1997
Statements of Earnings for the three months and six months ended November
30, 1996, and November 30, 1997
Statement of Defined Business Unit Equity for the six months ended
November 30, 1997
Statements of Cash Flows for the three months and six months ended November
30, 1996, and November 30, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
Item 1. Financial Statements (Unaudited)
Balance Sheets as of May 31, 1997, and November 30, 1997
Statements of Earnings for the three months and six months ended November
30, 1996, and November 30, 1997
Statement of Defined Business Unit Equity for the six months ended
November 30, 1997
Statements of Cash Flows for the three months and six months ended November
30, 1996 and November 30, 1997
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Items 1 through 5 have been omitted since all items are inapplicable or
answers are negative
Item 6. Exhibits and Reports on Form 8-K
SIGNATURE PAGE
<PAGE>
PART I. FINANCIAL INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q may contain forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. Factors that might cause such differences include,
but are not limited to:
SUPPLY AND DEMAND FORCES. The Company may be adversely affected by supply and
demand relationships, both domestic and international. Supply is affected by
weather conditions, disease, insect damage, acreage planted, government
regulation and policies and commodity price levels. Demand may be affected by
foreign governments and their programs, relationships of foreign countries
with the United States, the affluence of foreign countries, acts of war,
currency exchange fluctuations, and substitution of commodities. Demand may
also be affected by changes in eating habits, by population growth and
increased or decreased per capita consumption of some products.
PRICE RISKS. Upon purchase, the Company has risks of carrying grain, including
price changes and performance risks (including delivery, quality, quantity and
shipment period), depending upon the type of purchase contract entered into.
The Company is exposed to risk of loss in the market value of positions held,
consisting of grain inventory and purchase contracts at a fixed or partially
fixed price, in the event market prices decrease. The Company is also exposed
to risk of loss on its fixed price or partially fixed price sales contracts in
the event market prices increase. To reduce the price change risks associated
with holding fixed priced positions, the Company generally takes opposite and
offsetting positions by entering into grain commodity futures contracts
(either a straight futures contract or an option futures contract) on
regulated commodity futures exchanges.
PROCESSING AND REFINING BUSINESS COMPETITION. The industry is highly
competitive. Competitors are adding new plants and expanding capacity of
existing plants. Unless exports increase or existing refineries are closed,
this extra capacity is likely to put additional pressure on prices and erode
margins, adversely affecting the profitability of the Processing and Refining
Defined Business Unit.
MILLING BUSINESS COMPETITIVE TRENDS. Certain major competitors of the Wheat
Milling Defined Business Unit have developed long-term relationships with
customers by locating plants adjacent to pasta manufacturing plants. This
trend could potentially decrease the future demand for semolina from
nonintegrated millers.
The forward-looking statements herein are qualified in their entirety by the
cautions and risk factors set forth in Exhibit 99, under the caption "Cautionary
Statement" to the Quarterly Report on Form 10-Q, for the quarter ended November
30, 1997.
<PAGE>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
May 31, November 30,
1997 1997
-------------- --------------
(unaudited)
CURRENT ASSETS:
Cash $ 38,064,191 $ 2,245,153
Receivables 267,517,690 436,004,025
Inventories 248,373,247 233,143,744
Prepaid expenses and deposits 25,562,366 27,867,010
-------------- --------------
Total current assets 579,517,494 699,259,932
OTHER ASSETS:
Investments 126,547,616 133,854,590
Other 46,489,678 45,500,573
-------------- --------------
Total other assets 173,037,294 179,355,163
PROPERTY PLANT AND EQUIPMENT 224,150,965 230,106,239
-------------- --------------
$ 976,705,753 $1,108,721,334
============== ==============
LIABILITIES AND CAPITAL
CURRENT LIABILITIES:
Notes payable $ 98,000,000 $ 90,000,000
Patron credit balances 25,190,513 60,514,205
Advances received on grain sales 125,071,207 222,668,118
Drafts outstanding 32,698,943 22,845,140
Accounts payable and accrued expenses 152,451,010 165,600,322
Patronage dividends payable 13,200,000 6,700,000
Current portion of long-term debt 21,094,774 15,967,258
-------------- --------------
Total current liabilities 467,706,447 584,295,043
LONG-TERM DEBT 113,363,692 106,653,062
OTHER LIABILITIES 10,536,301 11,389,648
COMMITMENTS AND CONTINGENCIES
CAPITAL 385,099,313 406,383,581
-------------- --------------
$ 976,705,753 $1,108,721,334
============== ==============
See notes to consolidated financial statements
<PAGE>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
--------------------------------------------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Sales:
Grain and oilseed $1,672,730,009 $1,442,338,208 $3,548,642,198 $2,472,385,914
Processed grain and oilseed 161,829,937 162,169,586 396,378,362 292,939,241
Feed and farm supplies 52,821,096 57,313,351 113,824,347 112,519,011
-------------- -------------- -------------- --------------
1,887,381,042 1,661,821,145 4,058,844,907 2,877,844,166
Patronage dividends 223,055 142,660 4,727,294 5,323,088
Other revenues 18,969,411 24,397,301 33,809,212 42,536,389
-------------- -------------- -------------- --------------
1,906,573,508 1,686,361,106 4,097,381,413 2,925,703,643
COSTS AND EXPENSES:
Cost of good sold 1,873,001,959 1,643,680,869 4,029,924,953 2,851,116,998
Marketing, general and administrative 17,332,582 19,057,335 36,927,696 35,220,185
Interest 3,796,463 4,506,994 8,418,249 7,642,071
-------------- -------------- -------------- --------------
1,894,131,004 1,667,245,198 4,075,270,898 2,893,979,254
-------------- -------------- -------------- --------------
EARNINGS BEFORE INCOME TAXES 12,442,504 19,115,908 22,110,515 31,724,389
INCOME TAXES 1,450,000 2,200,000 2,600,000 3,600,000
-------------- -------------- -------------- --------------
NET EARNINGS $ 10,992,504 $ 16,915,908 $ 19,510,515 $ 28,124,389
============== ============== ============== ==============
</TABLE>
See notes to consolidated financial statements
<PAGE>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CAPITAL
<TABLE>
<CAPTION>
WHEAT
PATRONAGE NONPATRONAGE MILLING
TOTAL CERTIFICATES CERTIFICATES EPUs
------------- ------------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE AT MAY 31, 1997:
Stated as capital $ 385,099,313 $ 267,384,011 $ 15,144,440 $9,574,000
Stated as current liability 13,200,000
Distribution of patronage dividends payable for
preceding year including cash payment of
$13,414,713 (unaudited) (13,414,713) 31,300,952
Redemption of capital equity certificates (unaudited) (3,626,759) (3,393,381) (233,378)
Equities issued (unaudited) 3,684,195 3,684,195
Other (unaudited) 17,156 66,928 (287)
Net earnings (unaudited) 28,124,389
Patronage dividends payable in cash, stated
as a current liability (unaudited) (6,700,000)
------------- ------------- ------------ ----------
BALANCE AT NOVEMBER 30, 1997 (unaudited) $ 406,383,581 $ 299,042,705 $ 14,910,775 $9,574,000
============= ============= ============ ==========
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
OILSEED
PROCESSING &
REFINING PATRONAGE CAPITAL
EPUs PAYABLE RESERVE
------------ ------------ -----------
<S> <C> <C> <C>
BALANCE AT MAY 31, 1997:
Stated as capital $ 4,296,000 $ 30,800,000 $57,900,862
Stated as current liability 13,200,000
Distribution of patronage dividends payable for
preceding year including cash payment of
$13,414,713 (unaudited) (44,000,000) (715,665)
Redemption of capital equity certificates (unaudited)
Equities issued (unaudited)
Other (unaudited) (49,485)
Net earnings (unaudited) 22,300,000 5,824,389
Patronage dividends payable in cash, stated
as a current liability (unaudited) (6,700,000)
------------ ------------ -----------
BALANCE AT NOVEMBER 30, 1997 (unaudited) $ 4,296,000 $ 15,600,000 $62,960,101
============ ============ ===========
</TABLE>
See notes to consolidated financial statements
<PAGE>
HARVEST STATES COOPERATIVES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
November 30, November 30,
-------------------------------------------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 10,992,504 $ 16,915,908 $ 19,510,515 $ 28,124,389
Adjustments to reconcile net earnings to
net cash flows:
Depreciation and amortization 4,061,721 5,239,505 9,775,558 11,150,634
Noncash income from joint ventures (2,553,358) (4,134,017) (4,306,933) (7,286,418)
Noncash portion of patronage dividends received (292,824) (18,447) (3,205,478) (3,562,753)
Loss (gain) on sale of property, plant, and
equipment 156,504 (106,158) 188,574 (206,209)
Change in assets and liabilities:
Receivables 43,193,921 (162,704,766) (6,914,154) (168,518,517)
Inventories (47,234,295) (65,459,436) 213,976,059 15,229,503
Patron credit balances 49,882,979 22,232,293 100,880,153 35,323,693
Advances received on grain and oilseed sales 33,677,071 83,848,289 57,896,714 97,596,912
Accounts payable, accrued expenses, and
drafts outstanding 33,332,287 21,462,485 24,595,349 4,185,902
Prepaid expenses, deposits, and other (4,634,110) 578,849 10,306,262 (540,744)
------------- ------------- ------------- -------------
Total adjustments 109,589,896 (99,061,403) 403,192,104 (16,627,997)
------------- ------------- ------------- -------------
Net cash provided by (used in) operating
activities 120,582,400 (82,145,495) 422,702,619 11,496,392
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant, and
equipment 916,051 11,469,798 1,005,267 11,968,907
Investments redeemed 4,377,730 3,775,363 5,900,025 5,384,630
Acquisition of property, plant, and equipment (13,939,249) (11,957,345) (25,347,024) (27,322,614)
Payments on notes receivable 13,606 41,078 213,701 101,559
Investments (1,252,156) (545,000) (1,252,156) (550,000)
Investments in joint ventures (1,300,000) (5,000) 7,215,059 (5,000)
Other (621,747) (8,522) 381,976 (23,294)
------------- ------------- ------------- -------------
Net cash (used in) provided by investing
activities (11,805,765) 2,770,372 (11,883,152) (10,445,812)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net repayments under line of credit
agreements (9,000,000) 90,000,000 (324,000,000) (8,000,000)
Long-term debt borrowings 10,000,000 10,000,000
Principal payments on long-term debt (3,316,422) (3,640,045) (6,398,286) (6,944,261)
Principal payments under capital lease obligations (7,964) (8,929) (542,881) (4,883,885)
Redemption of capital equity certificates (1,602,892) (1,474,146) (3,242,136) (3,626,759)
Cash patronage dividends paid (13,295,713) (13,414,713) (13,295,713) (13,414,713)
------------- ------------- ------------- -------------
Net cash (used in) provided by financing
activities (17,222,991) 71,462,167 (337,479,016) (36,869,618)
------------- ------------- ------------- -------------
INCREASE (DECREASE) IN CASH 91,553,644 (7,912,956) 73,340,451 (35,819,038)
CASH AT BEGINNING OF PERIOD 3,213,034 10,158,109 21,426,227 38,064,191
------------- ------------- ------------- -------------
CASH AT END OF PERIOD $ 94,766,678 $ 2,245,153 $ 94,766,678 $ 2,245,153
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements
<PAGE>
HARVEST STATES COOPERATIVES AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED MAY 31, 1997 AND THREE MONTHS AND SIX MONTHS ENDED
NOVEMBER 30, 1997 AND 1996 (UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such unaudited consolidated
financial statements include all adjustments (consisting of only normal,
recurring accruals) necessary for a fair presentation thereof. Operating results
for the six-month period ended November 30, 1997 are not necessarily indicative
of the results that may be expected for the year ending May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in the Company's financial statements for the year ended May
31, 1997 included in the Company's Report on Form 10-K dated August 26, 1997,
previously filed with the Commission.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year presentation.
NOTE 2. RECEIVABLES
May 31, November 30,
1997 1997
---------------- ------------------
Trade............................. $213,501,012 $368,640,510
Elevator accounts................. 56,172,256 71,604,143
Other............................. 8,819,422 7,588,987
---------------- ------------------
278,492,690 447,833,640
Less allowance for losses......... (10,975,000) (11,829,615)
---------------- ------------------
$267,517,690 $436,004,025
================ ==================
NOTE 3. INVENTORIES
May 31, November 30,
1997 1997
---------------- ------------------
Grain and oilseed.................... $176,605,333 $180,145,795
Processed grain and oilseed products. 35,139,534 36,647,015
Feed and Farm supplies............... 36,628,380 16,350,934
================ ==================
$248,373,247 $233,143,744
================ ==================
NOTE 4. SUPPLEMENTAL CASH FLOW STATEMENT INFORMATION
Additional information concerning supplemental disclosures of cash
flow activities are as follows:
November 30, November 30,
1996 1997
---------------- ------------------
Net cash paid during the six months ended:
Interest . . . . . . . . . . . . . . $ 10,632,954 $ 7,909,406
Income taxes . . . . . . . . . . . . 3,415,580 1,337,582
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
On November 17, 1997 the boards of directors of the Company and Cenex, Inc.
entered into a non-binding memorandum of intent which outlined the process and
desired timetable for the regional cooperatives unification discussions. These
discussions are still ongoing. Cenex, Inc. is a cooperative with operations
centering on providing supplies and services to its members, including refined
fuels, propane, lubricants, tires and accessories, plant food and crop
protection products. In fiscal year ending September 30, 1997 Cenex had annual
sales of approximately $3 billion and had equity of approximately $600 million.
The Company already has close ties with Cenex, since it is one of Cenex's
largest customers for agronomy products. The two cooperatives also have similar
membership areas.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 1997 WITH 1996
The Company's consolidated net earnings for the three months ended November
30, 1997 and 1996 were $16,900,000 and $11,000,000, respectively, which
represents a $5,900,000 (54%) increase for the period ended in 1997. This
increase in net earnings is primarily the result of improved grain margins in
the 1997 period compared to 1996.
Consolidated net sales of $1,662,000,000 decreased $225,000,000 (12%) during
the three-month period ended November 30, 1997 compared to the same period in
1996. Grain volume of approximately 306,000,000 bushels during the three months
ended November 30, 1997 declined 68,000,000 bushels compared to 1996. This
decline in grain volume was partially offset by a 23 cent a bushel weighted
average price increase for all commodities sold during the current three-month
period compared to the same period in 1996.
Patronage dividends received for the three months ended November 30, 1997
and 1996 were $140,000 and $220,000, respectively, which represents an $80,000
(36%) decrease.
Other revenue of $24,400,000 for the three months ended November 30, 1997
increased $5,400,000 (29%) compared to the same period in 1996. Earnings from
the Company's nonconsolidated consumer products packaging joint venture
increased approximately $1,400,000 for the three months ended November 30, 1997
compared to the same period in 1996. The balance of the 1997 change is
attributable primarily to the increased service revenues at the Company's
terminal facilities.
Cost of goods sold of $1,650,000,000 decreased $230,000,000 (12%) for the
three months ended November 30, 1997 compared to the same period
<PAGE>
in 1996. This decrease is primarily attributable to the decline in bushel volume
discussed in the sales section of this analysis, partially offset by a 21 cent a
bushel weighted average price increase for all commodities purchased during the
current three-month period compared to the same period in 1996.
Marketing and administrative expenses of $19,100,000 for the three months
ended November 30, 1997 increased $1,800,000 (10%) compared to the same three
months ended in 1996. $800,000 of this increase is attributable to additional
staffing and system expansion within the Wheat Milling Defined Business Unit
related to the Houston Mill and in anticipation of future volumes from Mt.
Pocono. A significant portion of the balance of the change is related to the
Farm Marketing & Supply Division, which has acquired a number of additional
facilities within the past year.
Interest expense of $4,500,000 for the three months ended November 30, 1997
represents an increase of $700,000 (19%) compared to the same period in 1996.
This change is primarily the result of increased working capital requirements
during the three months ended November 30, 1997 compared with the same period of
1996.
Income tax expense of $2,200,000 and $1,450,000 for the three-month periods
ended November 30, 1997 and 1996, respectively, result in effective tax rates of
11.5% and 11.7%.
COMPARISON OF SIX MONTHS ENDED NOVEMBER 30, 1997 WITH 1996
The Company's consolidated net earnings for the six months ended November
30, 1997 and 1996 were $28,100,000 and $19,500,000, respectively, which
represents an $8,600,000 (44%) increase for the period ended in 1997. This
increase in net earnings is primarily the result of improved grain and soybean
processing margins in the 1997 period compared to 1996.
Consolidated net sales of $2,878,000,000 decreased $1,181,000,000 (29%)
during the six-month period ended November 30, 1997 compared to the same period
in 1996. Grain volume of approximately 560,000,000 bushels during the six months
ended November 30, 1997 declined 130,000,000 bushels compared to 1996. In
addition to the volume decrease, the weighted average sales price for all
commodities declined 70 cents a bushel for the six months ended November 30,
1997 compared to the same period a year ago.
Patronage dividends received increased $600,000 (13%) for the six months
ended November 30, 1997 compared to 1996 resulting from higher patronage
earnings distributed by cooperative customers and suppliers.
Other revenue of $42,500,000 for the six months ended November 30, 1997
increased $8,700,000 (26%) compared to the same period in 1996. This increase is
primarily attributable to the recognition of approximately $3,500,000 of
additional earnings from the Company's nonconsolidated consumer products
packaging joint venture, and additional service income from both terminal
facilities and grain marketing operations.
<PAGE>
Cost of goods sold of $2,851,000,000 decreased $1,179,000,000 (29%) for the
six months ended November 30, 1997 compared to the same period in 1996. This
decrease is primarily attributable to the decline in bushel volume discussed in
the sales section of this analysis, as well as a 72 cent a bushel decline in
weighted average purchase price for all commodities during the current six-month
period compared to the same period in 1996.
Marketing and administrative expenses declined $1,700,000 (5%), from
$36,900,000 during the six months ended November 30, 1996 to $35,200,000 for the
current six-month period. While some operations of the Company incurred
additional marketing and administrative costs in 1997 due to expansion of
operations, such costs of approximately $4,000,000 incurred in 1996 were
eliminated as the result of transferring the Company's consumer products
packaging operation to a nonconsolidated joint venture on August 30, 1996.
Interest expense of approximately $7,600,000 for the six months ended
November 30, 1997 represents a decrease of $800,000 (9%) compared to the same
period of 1996. This reduced expense is the result of decreased grain volume and
lower grain prices in 1997.
Income tax expense of $3,600,000 and $2,600,000 for the six-month periods
ended November 30, 1997 and 1996, respectively, result in effective tax rates of
11.3% and 11.8%.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company used net cash of $82,100,000 for the
three months ended November 30, 1997. Net cash used by operations during this
period is attributable to increased working capital requirements of
approximately $100,000,000. Operating activities provided net cash of
$120,600,000 during the three months ended November 30, 1996 as working capital
requirements decreased for that period by approximately $104,000,000.
For the six months ended November 30, 1997, operating activities provided
net cash of $11,500,000. Net earnings of $28,100,000 and net noncash income and
expenses of $300,000 were partially offset by increased working capital
requirements of approximately $16,900,000 during that period. Operating
activities for the six months ended November 30, 1996 provided net cash of
$422,700,000, primarily the result of reduced working capital requirements.
CASH FLOWS FROM INVESTING
Investing activities during the three months ended November 30, 1997
provided net cash of $2,800,000. This net cash provided is primarily
attributable to a sale-leaseback transaction of certain processing equipment
within the Oilseed Processing and Refining Defined Business Unit which generated
$10,300,000, the receipt of $3,800,000 from several joint ventures and
investments, partially offset by spending for the acquisition of property,
plant, and equipment of approximately $12,000,000. Investing
<PAGE>
activities during the three months ended November 30, 1996 used net cash of
$11,800,000. Expenditures for the acquisition of property, plant, and equipment
during that period totaled $13,900,000.
Investing activities for the six months ended November 30, 1997 used net
cash of $10,400,000. Expenditures for the acquisition of plant, property, and
equipment during that period of $27,300,000 was partially offset by the
$10,300,000 in proceeds from the sale-leaseback transaction described above, and
by approximately $5,400,000 received from joint ventures and investments.
Investing activities during the six months ended November 30, 1996 used net cash
of approximately $11,900,000. Expenditures for the acquisition of plant,
property, and equipment of $25,300,000 were partially offset by incoming cash
from joint ventures and investments of approximately $13,100,000.
On August 30, 1996 the Company formed a joint venture with a regional
consumer products packaging company, and contributed substantially all of the
net assets of the consumer products packaging division then owned by the Company
as its capital investment in the joint venture. In return for these assets, the
Company received $9,000,000 and a 40% interest in the joint venture and the
joint venture assumed debt to the Company of approximately $33,700,000.
CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit with the banks for cooperatives and commercial banks. The Company entered
into a new loan agreement in October 1997, and as of November 30, 1997 the
Company had short-term lines of credit totaling $525,000,000, all of which is
committed, with $90,000,000 outstanding. On May 31, 1997, the Company had
$98,000,000 of this credit line outstanding.
The Company has financed its long-term capital needs, primarily for the
acquisition of property, plant, and equipment, with long-term agreements through
the banks for cooperatives with maturities through the year 2007. Total
indebtedness of these agreements totaled $118,000,000 and $125,000,000 on
November 30, 1997 and May 31, 1997, respectively.
The Company had no new long-term debt borrowings during the three months
ended November 30, 1997, while in 1996, for the same three-month period, the
Company incurred $10,000,000 of additional long-term debt. During the three
months ended November 30, 1997 and 1996, the Company repaid long-term debt of
$3,650,000 and $3,325,000, respectively.
The Company had no new long-term debt borrowings during the six months ended
November 30, 1997 while in 1996, for the same six-month period, the Company
incurred $10,000,000 of additional long-term debt. During the six months ended
November 30, 1997 and 1996, the Company repaid long-term debt of $11,830,000 and
$6,940,000, respectively.
The Company has announced intentions to construct a flour mill in central
<PAGE>
Florida and a soybean crushing and refining plant in either southwestern
Minnesota or in southeastern South Dakota. Plans are subject to due diligence,
routine regulatory review and cost verification. Projected cost for the mill is
approximately $35,000,000. Projected cost for the crushing and refining plant is
approximately $90,000,000. These projects may be financed with additional
long-term borrowing, equity, including additional equity participation units or
with a combination of these financing alternatives.
In accordance with the bylaws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting patrons
following the close of each year and are based on amounts reportable for federal
income tax purposes as adjusted in accordance with the bylaws. Cash patronage
for fiscal year 1997 distributed in November, 1997 totaled approximately
$13,400,000.
The Board of Directors authorized the redemption of patronage certificates
held by patrons who were 72 years of age and those held by estates of deceased
patrons during the three months ended November 30, 1997 and 1996. These amounts
totaled $1,475,000 and $1,600,000, respectively. Redemptions made during the six
months ended November 30, 1997 and 1996 were $3,625,000 and $3,240,000,
respectively.
During the year ended May 31, 1997, the Company offered registered
securities in the form of Equity Participation Units in its Wheat Milling and
Oilseed Processing and Refining divisions. These equity participation units give
the holder the right and the obligation to deliver to Harvest States a stated
number of bushels in return for a prorata share of the undiluted grain based
patronage earnings of these respective divisions. The offering resulted in the
issuance of such equity with a stated value of $13,870,000 and generated
additional capital and cash of $10,836,690, after issuance cost and conversion
privileges.
Holders of the Units will not be entitled to payment of dividends by virtue
of holding such Units. However, holders of the Units will be entitled to receive
patronage refunds attributable to the patronage sourced income from operations
of the applicable Defined Business Unit on the basis of wheat or soybeans
delivered pursuant to the Marketing Agreement. The Board of Directors' goal is
to distribute patronage refunds attributable to the Units in the form of 75%
cash and 25% Patrons' Equities, and to retire those Patron Equities on a
revolving basis seven years after declaration. However, the decision as to the
percentage of cash patronage will be made each fiscal year by the Board of
Directors and will depend upon the cash and capital needs of the respective
Defined Business Units and is subject to the discretion of the Board of
Directors. The redemption policy will also be subject to change at the
discretion of the Board of Directors.
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
MAY 31, NOVEMBER 30,
1997 1997
----------- -----------
(Unaudited)
CURRENT ASSETS:
Receivables $34,169,676 $35,711,060
Inventories 22,850,699 19,136,896
Prepaid expenses and deposits 2,310,163 1,831,311
----------- -----------
Total current assets 59,330,538 56,679,267
PROPERTY, PLANT AND EQUIPMENT 33,085,560 33,551,687
----------- -----------
$92,416,098 $90,230,954
=========== ===========
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Harvest States Cooperatives $25,584,178 $28,200,816
Accounts payable and accrued expenses 13,440,922 8,639,140
----------- -----------
Total current liabilities $39,025,100 $36,839,956
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY 53,390,998 53,390,998
----------- -----------
$92,416,098 $90,230,954
=========== ===========
See notes to financial statements
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Processed oilseed sales $ 96,206,403 $108,181,066 $209,352,293 $194,530,213
Other revenue (22,934) 212,119 576,487 1,416,274
------------- ------------ ------------ ------------
96,183,469 108,393,185 209,928,780 195,946,487
COSTS AND EXPENSES:
Cost of goods sold 87,471,703 95,871,302 195,305,454 178,332,487
Marketing, general, and administrative 1,246,593 1,343,052 2,441,463 2,590,331
Interest 16,400 154,829 35,500 164,280
------------- ------------ ------------ ------------
88,734,696 97,369,183 197,782,417 181,087,098
------------- ------------ ------------ ------------
EARNINGS BEFORE INCOME TAXES 7,448,773 11,024,002 12,146,363 14,859,389
INCOME TAXES 850,000 125,000 1,200,000 800,000
------------- ------------ ------------ ------------
NET EARNINGS $ 6,598,773 $ 10,899,002 $ 10,946,363 $ 14,059,389
============= ============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENT OF DEFINED BUSINESS UNIT EQUITY
BALANCE AT MAY 31, 1997 $53,390,998
Net earnings (unaudited) 14,059,389
Defined Business Unit equity distributed (unaudited) (14,059,389)
---------------------
BALANCE AT NOVEMBER 30, 1997 (UNAUDITED) $53,390,998
=====================
See notes to financial statements
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 6,598,773 $ 10,899,002 $ 10,946,363 $ 14,059,389
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 411,917 466,349 823,957 938,168
Gain on disposal of property,
plant, and equipment (11,732) (202,188) (11,732) (658,290)
Changes in assets and liabilities:
Receivables (8,708,453) (8,474,711) (11,132,731) (1,541,384)
Inventories (17,628,190) (10,539,185) (3,807,124) 3,713,803
Prepaid expenses and deposits (210,678) 858,034 (1,585,073) 478,852
Accounts payable and accrued
expenses 8,821,466 (2,018,324) 9,383,114 (4,801,782)
------------ ------------ ------------ ------------
Total adjustments (17,325,670) (19,910,025) (6,329,589) (1,870,633)
Net cash (used in) provided by ------------ ------------ ------------ ------------
operating activities (10,726,897) (9,011,023) 4,616,774 12,188,756
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceed from disposition of property,
plant, and equipment 10,266,854 10,722,956
Acquistion of property, plant, and
equipment (4,454,946) (3,241,903) (7,168,676) (11,468,961)
------------ ------------ ------------ ------------
Net cash used in investing activities (4,454,946) 7,024,951 (7,168,676) (746,005)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from Harvest
States Cooperatives 21,780,616 12,885,074 13,498,265 2,616,638
Defined business unit equity distributed (6,598,773) (10,899,002) (10,946,363) (14,059,389)
Net cash provided by (used in) ------------ ------------ ------------ ------------
financing activities 15,181,843 1,986,072 2,551,902 (11,442,751)
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH 0 0 0 0
CASH AT BEGINNING OF PERIOD -- -- -- --
------------ ------------ ------------ ------------
CASH AT END OF PERIOD -- -- -- --
============ ============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited Defined Business Unit financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such unaudited Defined
Business Unit financial statements include all adjustments (consisting of only
normal, recurring accruals) necessary for a fair presentation thereof. Operating
results for the six-month period ended November 30, 1997 are not necessarily
indicative of the results that may be expected for the year end May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in the Defined Business Unit financial statements for the
year ended May 31, 1997 which is included in the Harvest States Cooperatives'
Report on Form 10-K dated August 26, 1997, previously filed with the Commission.
NOTE 2. INVENTORIES
May 31, November 30,
1997 1997
---------------- ---------------------
Oilseed..................... $11,740,227 $ 8,566,680
Processed Oilseed Products.. 11,110,472 10,570,216
---------------- ---------------------
$22,850,699 $19,136,896
================ =====================
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Patronage refunds to the Oilseed Processing and Refining Defined Business
Unit holders will be calculated on the basis of tax earnings per bushel. Because
of this, the Company believes that the calculation below is an important measure
of the Defined Business Unit's performance.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------------------------------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Pretax Earnings $ 7,448,773 $ 11,024,002 $ 12,146,363 $ 14,859,389
Earnings from purchased oil (2,058,432) 113,344 (3,298,357) (1,815,475)
Nonpatronage joint venture income (4,651) (571,744) (737,836)
Book to tax differences
----------- ------------ ------------ ------------
Tax basis earnings $ 5,385,690 $ 11,137,346 $ 8,276,262 $ 12,306,078
=========== ============ ============ ============
Bushels Processed 7,655,836 9,253,464 15,983,653 13,860,830
Earnings per Bushel $ 0.70 $ 1.20 $ 0.52 $ 0.89
=========== ============ ============ ============
</TABLE>
Certain operating information pertaining to the Oilseed Processing and
Refining Defined Business Unit is set forth below, as a percentage of sales.
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
---------------------------------
1996 1997 1996 1997
---- ---- ---- ----
Gross Margin percentage 9.08% 11.38% 6.71% 8.33%
Marketing and Administrative 1.30% 1.24% 1.17% 1.33%
Interest 0.14% 0.08%
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 1997 AND 1996
The Oilseed Processing and Refining Defined Business Unit's net earnings of
$10,900,000 for the three months ended November 30, 1997 represents a $4,300,000
increase (65%) compared to the same period in 1996. This increase is primarily
attributable to improved gross margins on soymeal.
Net sales of $108,200,000 for the three-month period ended November 30, 1997
increased by $12,000,000 (12%) compared to the same period in 1996. Improved
soymeal volume for the three months ended November 30, 1997 compared to the same
period of a year ago contributed $8,100,000 to this increase. A higher average
sales price for refined soyoil during the three months ended November 30, 1997
contributed approximately $7,700,000 to the increase. These favorable variances
were partially offset by a lower average price per ton for processed soybean
products during the three-month period ended November 30, 1997 when compared to
the same three-month period of a year ago.
Other revenues increased $235,000 for the three-month period ended November
30, 1997 compared to the same period ended November 30, 1996. The primary cause
of this increase was the sale of equipment which produced a gain of about
$200,000.
Cost of goods sold for the three months ended November 30, 1997 increased
$8,400,000 (10%) compared to the same period ended November 30, 1996. During the
three-month period ended November 30, 1997, the Defined Business Unit crushed
approximately 9,250,000 bushels of soybeans compared to 7,650,000 bushels during
<PAGE>
the same period a year ago. This increase in volume contributed approximately
$11,100,000 in additional cost, which was partially offset by a decline in the
average price for soybeans, from $7.39 for the three-month period ended November
30, 1996 to $6.70 for the same period during the current fiscal year. On the
refinery portion of the business, a four cent a pound increase in the cost of
crude soybean oil during the three months ended November 30, 1997 compared to
the same period in 1996 contributed an additional $5,400,000 in costs, which was
partially offset by a decline in refined oil volume for the three months ended
November 30, 1997, down 12% from the 153,400,000 pounds produced during the
three months ended November 30, 1996.
Marketing and administrative expenses increased $100,000 (8%) for the
three-month period ended November 30, 1997 compared to 1996.
Interest expense increased $138,000 for the three months ended November 30,
1997 compared to the same three-month period of a year ago. This increase is
primarily attributable to the increase in crush volume which creates higher
levels of inventory and receivables which must be financed with debt.
Income taxes for the three-month period ended November 30, 1997 of $125,000
decreased $725,000 compared to the three-month period ended November 30, 1996.
This decrease is primarily attributable to a decline in the purchase of
nonpatronage eligible crude soybean oil during the current three-month period
compared to the same period of a year ago. Effective tax rates were 1.1% and
11.4% for the three months ended November 30, 1997 and 1996, respectively.
COMPARISON OF SIX MONTHS ENDED NOVEMBER 30, 1997 AND 1996
The Oilseed Processing and Refining Defined Business Unit's net earnings of
$14,100,000 for the six months ended November 30, 1997 represents a $3,100,000
increase (28%) compared to the same period in 1996. This increase is primarily
attributable to improved gross margins on both processed soybean products and
refined oils.
Net sales of $194,500,000 for the six-month period ended November 30, 1997
decreased by $14,800,000 (7%) compared to the same period in 1996. This decrease
is primarily attributable to the crushing plant shutdown for 41 days during the
first quarter of the current fiscal year to allow for the installation of new
equipment.
Other revenues increased $800,000 for the six-month period ended November
30, 1997 compared to 1996, primarily the result of a gain of $450,000 on
replaced equipment sold for salvage value, a gain of $200,000 on the other
equipment sold, and an increase of about $150,000 in income from an oilseed
joint venture.
Cost of goods sold for the six months ended November 30, 1997 decreased
$17,000,000 (9%) compared to the same period ended November 30, 1996. The
primary cause of this decrease was the crushing plant shutdown to allow for the
installation of new equipment. During the six months ended November 30, 1997,
the Defined Business Unit crushed approximately 13,900,000 bushels of soybeans,
compared with about 16,000,000 bushels for the same period in 1996. Also
contributing to this reduction in costs was a lower average cost per bushel for
soybeans in 1997, from $7.58 per bushel for the first six months last fiscal
year to $7.19 per bushel for the first six months of the current fiscal year.
Marketing and administrative expenses increased $150,000 (6%) for the
six-month period ended November 30, 1997 compared to 1996.
Interest expense increased $129,000 for the six months ended November 30,
1997 compared to the same six-month period of a year ago. This increase is
primarily attributable to somewhat higher capital spending during the current
fiscal year and increased working capital requirements during the second quarter
of the fiscal year.
Income tax expense of $800,000 and $1,200,000 for the six months ended
November 30, 1997 and 1996 respectively, results in effective tax rates of 5.4%
and 9.9%. This decrease in the effective tax rate is the result of a higher
percentage of patronage eligible crude oil purchases during the current
<PAGE>
fiscal year, compared to similar purchases during the first six months of the
prior fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Oilseed Processing and Refining Defined Business Unit's cash
requirements result from capital improvements and from a need to finance
additional inventories and receivables based on increased raw material costs or
levels. These cash needs are expected to be fulfilled by the Company.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended November 30, 1997 and 1996,
used net cash of $9,000,000 and $10,700,000, respectively. Net earnings of
$10,900,000 and $6,600,000 for the three-month periods ended November 30, 1997
and 1996 were offset by increases in working capital requirements of $20,200,000
and $17,700,000 during these periods, respectively.
Operating activities for the six months ended November 30, 1997 and 1996,
respectively, provided net cash of $12,200,000 and $4,600,000 due to net
earnings of $14,100,000 and $10,900,000, partially offset by increases in
working capital requirements of $2,200,000 and $7,100,000.
CASH FLOWS FROM INVESTING
Investing activities for the three months ended November 30, 1997 provided
net cash of $7,000,000. During this period, the Defined Business Unit entered
into a sale and operating leaseback of certain equipment purchased and installed
within the past twelve months. Proceeds received in this transaction were
approximately $10,300,000 and were partially offset by additions to property,
plant and equipment of $3,300,000 during the period. The Defined Business Unit
used $4,500,000 for the addition of property, plant and equipment during the
three months ended November 30, 1996.
Investing activities during the six-month period ended November 30, 1997
used net cash of $750,000. Additions to property, plant, and equipment of
$11,500,000 were partially offset by sales proceeds of $10,700,000, of which
$10,300,000 were related to the sales-leaseback transaction described in the
cash flow analysis of investing activities for the three-month period. During
the six months ended November 30, 1996, cash of approximately $7,200,000 was
used for the acquisition of property, plant, and equipment.
CASH FLOWS FROM FINANCING
The Defined Business Unit's financing activities are coordinated through the
Company's cash management department. Cash from all of the Company's operations
are deposited with the Company's cash management department and disbursements
are made centrally. As a result, the Defined Business Unit has a zero cash
position. Financing is available from the Company to the extent the Company's
working capital position and corporate loan agreements with various banks, and
cash requirements of all other Company operations.
Working capital requirements for each division and Defined Business Unit of
the Company are reviewed on a periodic basis, and could potentially be
restricted based upon management's evaluation of the prevailing business
conditions and availability of funds.
The Defined Business Unit has announced intentions to construct a soybean
crushing and refining plant in southwestern Minnesota or southeastern South
Dakota. Plans are subject to due diligence, routine regulatory review and cost
verification. Anticipated cost is approximately $90,000,000 and may be financed
with additional debt, open member capital from the Company, additional equity
participation units, or a combination of these financing alternatives.
Debt outstanding and payable to the Company on November 30, 1997 was
$28,200,000, an increase from May 31, 1997 of $2,600,000, which reflects working
capital requirements and fixed asset financing requirements.
<PAGE>
Debt outstanding to the Company on May 31, 1997 was $25,600,000 which
represents working capital and fixed asset financing requirements through that
date.
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
BALANCE SHEETS
ASSETS
MAY 31, NOVEMBER 30,
1997 1997
------------ ------------
(Unaudited)
CURRENT ASSETS:
Receivables $ 26,860,772 $ 43,626,838
Due from Harvest States Cooperatives
Inventories 12,271,615 17,510,119
Prepaid expenses and deposits 840,730 491,705
------------ ------------
Total current assets 39,973,117 61,628,662
OTHER ASSETS 11,814,555 11,281,215
PROPERTY, PLANT AND EQUIPMENT 69,130,520 74,033,852
------------ ------------
$120,918,192 $146,943,729
============ ============
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Harvest States Cooperatives $ 22,413,445 $ 7,771,194
Accounts payable and accrued expenses 9,493,405 16,488,692
Current portion of long-term debt 10,005,000 10,005,000
------------ ------------
Total current liabilities 41,911,850 34,264,886
LONG-TERM DEBT 51,209,270 46,081,771
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY 27,797,072 66,597,072
------------ ------------
$120,918,192 $146,943,729
============ ============
See notes to financial statements
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------------- ---------------------------
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
REVENUES:
Processed grain sales $55,778,511 $ 53,988,519 $111,426,460 $98,409,027
Other income 83,527 370,294
----------- ------------ ------------ -----------
55,778,511 54,072,046 111,426,460 98,779,321
COSTS AND EXPENSES:
Cost of goods sold 51,052,202 49,211,588 102,375,248 89,781,884
Marketing, general, and administrative 1,399,469 2,184,212 2,503,655 3,825,795
Interest 1,414,846 959,686 2,825,979 2,039,098
----------- ------------ ------------ -----------
53,866,517 52,355,486 107,704,882 95,646,777
----------- ------------ ------------ -----------
EARNINGS BEFORE INCOME TAXES 1,911,994 1,716,560 3,721,578 3,132,544
INCOME TAXES 125,000 150,000 250,000 275,000
----------- ------------ ------------ -----------
NET EARNINGS $ 1,786,994 $ 1,566,560 $ 3,471,578 $ 2,857,544
=========== ============ ============ ===========
</TABLE>
See notes to financial statements
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENT OF DEFINED BUSINESS UNIT EQUITY
BALANCE AT MAY 31, 1997 $27,797,072
Harvest States capital contributed (unaudited) 38,800,000
Net earnings (unaudited) 2,857,544
Defined Business Unit equity distributed (unaudited) (2,857,544)
--------------
BALANCE AT NOVEMBER 30, 1997 (UNAUDITED) $66,597,072
==============
See notes to financial statements
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
1996 1997 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings $ 1,786,994 $ 1,566,560 $ 3,471,578 $ 2,857,544
Adjustments to reconcile net earnings
to net cash flows:
Depreciation and amortization 1,029,531 919,792 2,027,064 2,138,134
Changes in assets and liabilities:
Receivables 4,304,473 (5,347,514) 4,733,785 (16,766,066)
Inventories 4,939,251 (3,960,608) (869,926) (5,238,504)
Prepaid expenses and deposits 9,424 (188,150) (101,287) 349,025
Accounts payable and accrued
expenses (5,898,628) (1,380,158) 1,523,701 6,995,288
------------ ------------ ------------ ------------
Total adjustments 4,384,051 (9,956,638) 7,313,337 (12,522,123)
Net cash provided by (used in) ------------ ------------ ------------ ------------
operating activities 6,171,045 (8,390,078) 10,784,915 (9,664,579)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquistion of property, plant, and
equipment (5,037,098) (4,214,677) (9,122,234) (6,508,126)
------------ ------------ ------------ ------------
Net cash used in investing activities (5,037,098) (4,214,677) (9,122,234) (6,508,126)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings from (repayments to)
Harvest States Cooperatives (6,074,661) 16,610,065 (4,918,811) (14,642,251)
Capital from Harvest States Cooperatives 38,800,000
Long term debt borrowings 10,000,000 10,000,000
Principal payments on long-term debt (3,272,292) (2,438,750) (3,272,292) (5,127,500)
Defined business unit equity distributed (1,786,994) (1,566,560) (3,471,578) (2,857,544)
Net cash (used in) provided by ------------ ------------ ------------ ------------
financing activities (1,133,947) 12,604,755 (1,662,681) 16,172,705
------------ ------------ ------------ ------------
INCREASE (DECREASE) IN CASH 0 0 0 0
CASH AT BEGINNING OF PERIOD -- -- -- --
------------ ------------ ------------ ------------
CASH AT END OF PERIOD -- -- -- --
============ ============ ============ ============
</TABLE>
See notes to financial statements
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. ACCOUNTING POLICIES
The accompanying unaudited Defined Business Unit Financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, such unaudited Defined
Business Unit financial statements include all adjustments (consisting of only
normal, recurring accruals) necessary for a fair presentation thereof. Operating
results for the six-month period ended November 30, 1997 are not necessarily
indicative of the results that may be expected for the year end May 31, 1998.
These statements should be read in conjunction with the financial statements and
footnotes included in the Defined Business Unit's financial statements for the
year ended May 31, 1997 which is included in the Harvest States Cooperatives'
Report on Form 10-K dated August 26, 1997, previously filed with the Commission.
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
RESULTS OF OPERATIONS
Patronage refunds to the Wheat Milling Defined Business Unit holders will be
calculated on the basis of tax earnings per bushel. Because of this, the Company
believes that the calculation below is an important measure of the Defined
Business Unit's performance.
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-----------------------------------------------------
1996 1997 1996 1997
---- ---- ---- ----
Pretax Earnings $1,911,994 $1,716,560 $ 3,721,578 $ 3,132,544
Book to tax differences
---------- ---------- ----------- -----------
Tax basis earnings $1,911,994 $1,716,560 $ 3,721,578 $ 3,132,544
========== ========== =========== ===========
Bushels Milled 7,732,922 7,924,825 14,704,395 14,934,510
Earnings per Bushel $ 0.25 $ 0.22 $ 0.25 $ 0.21
========== ========== =========== ===========
Certain operating information pertaining to the Wheat Milling Defined
Business Unit is set forth below, as a percentage of sales.
THREE MONTHS ENDED SIX MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
-----------------------------
1996 1997 1996 1997
---- ---- ---- ----
Gross Margin percentage .... 8.47% 8.85% 8.12% 8.77%
Marketing and Administrative 2.51% 4.05% 2.25% 3.89%
Interest ................... 2.54% 1.78% 2.54% 2.07%
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 1997 WITH 1996
The Wheat Milling Defined Business Unit's net earnings of $1,600,000 for the
three-month period ended November 30, 1997 decreased $200,000 (12%) compared to
the same period in 1996. While total volume and resulting gross margin remained
essentially unchanged between the two periods, the Houston mill, which commenced
operations in June, operated at only 36% of its production capacity during the
three months ended November 30, 1997. Total gross margins generated from this
mill were inadequate to cover increased expenses related to its operation and
this situation resulted in a deterioration of net earnings for the Defined
Business Unit.
Net sales for the three months ended November 30, 1997 of $54,000,000
decreased $1,800,000 (3%) compared to the same period in 1996. Essentially all
of this decrease is attributable to declining prices, as overall volumes were
nearly the same as a year ago.
Interest income of $80,000 was generated during the three months ended
<PAGE>
November 30, 1997 on the Wheat Milling Defined Business Unit's working capital
account with Harvest States. This income was primarily the result of the
additional capital of $38,800,000 contributed by Harvest States on June 1, 1997
for the purpose of constructing the mill at Mt. Pocono, Pennsylvania.
Construction at Mt. Pocono commenced in early September, 1997, and as
disbursements are made for that purpose, interest generating funds have declined
so that as of November 30, the Defined Business Unit is in a payable position to
Harvest States on the working capital account.
Cost of goods sold of $49,200,000 for the three months ended November 30,
1997, decreased $1,800,000 (4%) compared to the same period in 1996. This change
is primarily the result of reduced cost per bushel for raw material during the
three months ended November 30, 1997 compared to 1996. The mill expense
component of cost of goods sold remained essentially unchanged in total,
although the components of that total did change considerably. While Houston
incurred new milling expenses during the three months ended November 30, 1997 of
$700,000, the other three mills, particularly Rush City because of reduced run
time, operated with approximately the same amount of reduced milling costs.
Marketing and administrative expenses were $2,200,000 during the three months
ended November 30, 1997, an increase of $800,000 (56%) compared to 1996. This
increase is primarily attributable to additional staffing and system expansion
costs related to the Houston mill, and in anticipation of future volumes from
the Mt. Pocono mill.
The Wheat Milling Defined Business Unit incurred interest expense of
$1,000,000 and $1,400,000 during the three months ended November 30, 1997 and
1996, respectively. This decrease of approximately $400,000 (32%) in 1997 is
primarily the result of additional capital contributed by Harvest States on June
1, which decreased short term borrowing requirements.
Income tax expenses of $150,000 and $125,000 for the three months ended
November 30, 1997 and 1996, respectively, result in effective tax rates of 8.7%
and 6.5%.
COMPARISON OF SIX MONTHS ENDED NOVEMBER 30, 1997 WITH 1996
The Wheat Milling Defined Business Unit's net earnings of $2,900,000 for the
six-month period ended November 30, 1997 decreased $600,000 (18%) compared to
the same period in 1996. The primary cause of this decrease in net earnings is
the under-utilization of the Houston, Texas mill, which commenced operations in
June. For the six months ended November 30, 1997, the Houston mill has operated
at approximately 31% of its production capacity. Gross margins generated from
this limited volume have been inadequate to cover related expenses and has
resulted in a deterioration of net earnings for the Defined Business Unit.
Net sales for the six months ended November 30, 1997 of $98,400,000
decreased $13,000,000 (12%) compared to the same period in 1996. Essentially all
of this decrease is attributable to declining prices, as overall volumes were
nearly the same as a year ago.
Interest income of $370,000 was generated during the six months ended
November 30, 1997 on the Wheat Milling Defined Business Unit's working capital
account with Harvest States. This income was primarily the result of additional
capital of $38,800,000 contributed by Harvest States on June 1, 1997 for the
purpose of constructing the mill at Mt. Pocono, Pennsylvania. Construction at
Mt. Pocono commenced in early September, 1997, and as disbursements have been
made for that purpose, interest generating funds have declined so that as
<PAGE>
of November 30, the Defined Business Unit is in a payable position to Harvest
States on the working capital account.
Cost of goods sold of $89,800,000 for the six months ended November 30,
1997, decreased $12,600,000 (12%) compared to the same period in 1996. The raw
material component of cost of goods sold decreased $13,200,000 compared with
1996, primarily because of a favorable price variance. The plant expense
component of cost of goods sold increased approximately $600,000 in 1997, which
was primarily the result of additional run time at Kenosha, the commencement of
operations at Houston in June, offset partially by reduced variable costs at
Rush City. The Rush City, Minnesota mill was closed throughout the month of June
and early July, operated at approximately one-third of its normal production
capacity from mid July through October, and at about two-thirds normal
production capacity in November.
Marketing & administrative expenses were $3,800,000 during the six months
ended November 30, 1997, an increase of $1,300,000 (53%) compared to 1996. This
increase is primarily attributable to additional staffing and system expansion
costs related to the Houston mill, and in anticipation of future volumes from
the Mt. Pocono mill.
The Wheat Milling Defined Business Unit incurred interest expense of
$2,000,000 and $2,800,000 during the six months ended November 30,1997 and 1996,
respectively. This decrease of approximately $800,000 (28%) in 1997 is primarily
the result of additional capital contributed by Harvest States on June 1, which
decreased short term borrowings.
Income tax expenses of $275,000 and $250,000 for the six months ended
November 30, 1997 and 1996, respectively, result in effective tax rates of 8.8%
and 6.7%.
LIQUIDITY AND CAPITAL RESOURCES
The Wheat Milling Defined Business Unit's cash requirements result from
capital improvements and from a need to finance additional inventories and
receivables based on increased raw material cost and levels. These cash needs
are expected to be fulfilled by the Company.
CASH FLOWS FROM OPERATIONS
Operating activities used net cash of $8,400,000 during the three-month
period ended November 30, 1997. Net earnings of $1,600,000 and noncash expenses
of $900,000 were offset by increased working capital requirements of
approximately $10,900,000. Operating activities for the three-month period ended
November 30, 1996 provided net cash of $6,200,000. Net earnings of $1,800,000,
noncash expenses of $1,000,000, and a decrease in working capital of
approximately $3,400,000 generated that net cash change.
Operating activities used net cash of $9,700,000 during the six-month period
ended November 30, 1997. Net earnings of $2,900,000 and noncash expenses of
$2,100,000 were offset by increased working capital requirements of
approximately $14,700,000. Operating activities for the six-month period ended
November 30, 1996 provided net cash of $10,800,000. Net earnings of $3,500,000,
noncash expenses of $2,000,000, and a decrease in working capital of
approximately $5,300,000 generated that net cash change.
CASH FLOWS USED FOR INVESTING
<PAGE>
Cash expended for the acquisition of property, plant and equipment during
the three-month periods ended November 30, 1997 and 1996 totaled $4,200,000 and
$5,000,000, respectively.
Cash expended for the acquisition of property, plant and equipment during
the six-month periods ended November 30, 1997 and 1996 totaled $6,500,000 and
$9,100,000, respectively.
CASH FLOWS FROM FINANCING
The Wheat Milling Defined Business Unit's Financing activities are
coordinated through the Company's cash management department. Cash from all of
the Company's operations is deposited with the Company's cash management
department and disbursements are made centrally. As a result, the Wheat Milling
Defined Business Unit has a zero cash position. Financing is available from the
Company to the extent of the Company's working capital position and corporate
loan agreements with various banks and cash requirements of all other Company
operations.
Working capital requirements for each division and Defined Business Unit of
the Company are reviewed on a periodic basis, and could potentially be
restricted based upon management's evaluation of the prevailing business
conditions and availability of funds.
On November 30, 1997, the Wheat Milling Defined Business Unit had short-term
debt to Harvest States of $7,800,000, compared with short-term debt of
$22,400,000 due to Harvest States on May 31, 1997. This change is primarily the
result of $38,800,000 in additional capital contributed by Harvest States for
the construction of the Mt. Pocono plant.
On May 31, 1997 the Wheat Milling Defined Business Unit had long-term debt
of $61,200,000 which was incurred for the acquisition, expansion and
construction of its various plants since 1990. During the six months ended
November 30, 1997, this balance was reduced by repayments of $5,127,500.
Construction of the Mt. Pocono, Pennsylvania mill commenced during the month
of September. Total cost for this mill is expected to be $41,350,000.
Approximately $4,900,000 of these costs have been expended through November 30,
1997.
The Defined Business Unit has announced intentions to construct a mill in
central Florida. Plans are subject to due diligence, routine regulatory review
and cost verification. Anticipated cost is approximately $35,000,000 and may be
financed with additional debt, open member capital from the Company, additional
equity participation units, or a combination of these financing alternatives.
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- ----------------------------------------------------
10.17 Amended and Restated Fourth Supplement dated
July 25, 1997 to Master Syndicated Loan Agreement by
and among Harvest States Cooperatives, CoBank, ACB
(successor to the National Bank for Cooperatives)
and the St. Paul Bank for Cooperatives dated
October 28, 1996.
10.18 First Amendment dated October 31, 1997 to Revolving
Credit Agreement by and among Harvest States
Cooperatives, Banque Nationale de Paris et al., the
St. Paul Bank for Cooperatives and CoBank, ACB dated
November 1, 1996.
99 Cautionary Statement
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
HARVEST STATES COOPERATIVES
---------------------------
(Registrant)
/s/ T. F. Baker
1/12/98 ---------------
(Date) T. F. Baker
Group Vice-President - Finance
Harvest States Cooperatives
Amended and Restated Loan No. ML0154T3
ML0154T3
AMENDED AND RESTATED FOURTH SUPPLEMENT
TO MASTER SYNDICATED LOAN AGREEMENT
THIS AMENDED AND RESTATED FOURTH SUPPLEMENT to the Master Syndicated
Loan Agreement is entered into as of July 25, 1997, by and among HARVEST STATES
COOPERATIVES (the "Company"), COBANK, ACB (successor to the National Bank for
Cooperatives ("CoBank")) and the ST. PAUL BANK FOR COOPERATIVES ("St. Paul")
(collectively, the "Banks") and amends and restates the Supplement dated October
28, 1996, and numbered ML0154T3.
SECTION 1. THE COMMITMENTS. On the terms and conditions set forth in this
Supplement and the Amended and Restated Master Syndicated Loan Agreement dated
October 28, 1996, (the "MLA"), the Banks agree to make loans to the Company
during the period commencing on October 31, 1997, and ending on but not
including October 31, 1998, in an aggregate principal amount for each Bank not
to exceed $25,000,000 (the "Commitments"). Loans will be made directly by each
Bank to the Company in the manner set forth below. However, all loans will be
made on a pro rata basis so that at all times each Bank shall have the same
amount outstanding hereunder. Amounts borrowed under the Commitments and later
repaid may not be reborrowed.
SECTION 2. PURPOSE. The purpose of the Commitments is to finance fixed
asset expenditures.
SECTION 3. AVAILABILITY. Subject to Section 1 hereof, loans will be made
available on any Business Day upon the telephonic or written request of an
authorized employee of the Company. Requests for loans must be received by the
Banks no later than 12:00 noon, Company's local time on the day the loan is
desired. Unless otherwise agreed, all loans will be made available by wire
transfer of immediately available funds. Wire transfers will be made to such
account(s) as the Company may authorize from time to time on forms supplied by
the Banks. In making loans on telephonic request, each Bank shall be entitled to
rely on (and shall incur no liability to the Company in acting upon) any request
made by a person identifying himself or herself as one of the persons authorized
by the Company to request loans hereunder.
SECTION 4. INTEREST AND FEES.
(A) INTEREST RATE OPTIONS. The Company agrees to pay interest on the
unpaid principal balance of the loans in accordance with one or more of the
following options, as selected by the Company in accordance with the terms
hereof:
(i) VARIABLE RATE OPTION. At a rate per annum equal at all
times to the rate of interest announced by CoBank from time to time as its
National Variable Rate which Rate is intended by CoBank to be a reference rate
and not its lowest rate. The National Variable Rate
<PAGE>
will change on the date established by CoBank as the effective date of any
change therein and CoBank agrees to notify the Company and St. Paul promptly
after any such change.
(ii) FIXED RATE OPTION. At a fixed rate per annum equal to:
(1) in the case of rates fixed on or before August 30, 1998, 90 basis points
above the Banks' Estimated Cost of Funds for periods ranging from 30 days to the
life of the loan, as selected by the Company; and (2) in the case of rates fixed
after August 30, 1998, at a rate to be quoted by the Banks in their sole
discretion in each instance. Upon the expiration of any fixed rate period,
interest shall automatically accrue at the variable rate provided for above
unless the amount fixed is repaid or fixed for an additional period. Interest
shall be calculated on the actual number of days each loan is outstanding on the
basis of a year consisting of 360 days and shall be payable monthly in arrears
by the 20th day of the following month.
(B) ARRANGEMENT FEE. In consideration of the Commitment, the Company
agrees to pay to the Banks an arrangement fee on the unadvanced portion of the
Commitment at the rate of .125% per annum which is $21,875.00 for each Bank,
payable in equal quarterly installments due on November 20, 1997, February 20,
1998, May 20, 1998, and August 20, 1998. If any installment due date is not a
Business Day, then such installment shall be payable on the next Business Day.
SECTION 5. REPAYMENT. The loans made by each Bank shall be repaid in
thirty-two (32) equal consecutive quarterly installments, with the first
installment due on November 20, 1998, and the last installment due on August 20,
2006. If any installment due date is not a Business Day, then such installment
shall be payable on the next Business Day. This note replaces and supersedes,
but does not constitute payment of the indebtedness evidenced by, the promissory
note set forth in the Supplement being amended and restated hereby.
SECTION 6. PREPAYMENT. The loans may be prepaid on any Business Day on
one Business Days' prior written notice. Unless the Banks otherwise agree, all
prepayments will be applied pro rata to principal installments owing to each
Bank in the inverse order of their maturity and to the various fixed and
variable rate balances outstanding on the loans in the following order: (i)
first, to any balances fixed for the periods being prepaid; and (ii) next, to
such balances, fixed or variable, as the Company may elect; provided, however,
that the Company may not elect to apply prepayments in such a manner as to cause
the Company to have to repay any fixed rate balance prior to the last day of its
fixed rate period in order to pay any scheduled installment of principal.
Notwithstanding the foregoing, the Company's right to prepay any fixed rate
balance shall be conditioned upon the payment of a prepayment surcharge
calculated in accordance with Section 12 of the MLA.
SECTION 7. MANNER AND TIME OF PAYMENT. All payments shall be made by wire
transfer of immediately available funds to: (i) in the case of CoBank, ABA
#30-70-88754 for advice to and credit of CoBANK; and (ii) in the case of St.
Paul, ABA #296090471 (or to such
<PAGE>
other account as either CoBank or St. Paul may designate by notice). The Company
shall give the Banks telephonic notice no later than 12:00 noon, Company's local
time, of its intent to pay by wire transfer. Wire transfers received after 3:00
p.m., Company's local time, shall be credited on the next business day.
IN WITNESS WHEREOF, the parties have caused this Supplement to be
executed by their duly authorized officers as of the date shown above.
COBANK, ACB HARVEST STATES COOPERATIVES
By: By:
/s/ J. Daniel Malan /s/ T. F. Baker
-------------------------- -----------------------------
Title: Title:
Vice President Group Vice President, Finance
-------------------------- -----------------------------
ST. PAUL BANK FOR COOPERATIVES
By:
/s/ Marvin L. Lindo
---------------------------------------------
Title:
Senior Vice President
---------------------------------------------
FIRST AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
THIS FIRST AMENDMENT TO REVOLVING CREDIT AGREEMENT is made as of
October 31, 1997 among HARVEST STATES COOPERATIVES, a Minnesota cooperative
corporation ("Borrower"), COBANK, ACB ("CoBank"), ST. PAUL BANK FOR COOPERATIVES
("St. Paul Bank"), COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLENBANK B.A. "RABOBANK
NEDERLAND", NEW YORK BRANCH, BANQUE NATIONALE DE PARIS, NATIONSBANK, N.A.
(formerly known as Boatmen's National Bank), CAISSE NATIONALE DE CREDIT
AGRICOLE, DG BANK DEUTSCHE GENOSSENSCHAFTSBANK, FIRST BANK NATIONAL ASSOCIATION,
HARRIS TRUST AND SAVINGS BANK, NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION,
(each a "Bank" and collectively, the "Banks"), CoBank, as administrative agent
for the Banks (in such capacity, together with its successors in such capacity,
"Administrative Agent"), CoBank, as syndication agent for the Banks (in such
capacity, together with its successors in such capacity, "Syndication Agent"),
St. Paul Bank, as syndication agent for the Banks (in such capacity, together
with its successors in such capacity, "Syndication Agent"), and CoBank, as bid
agent for the Banks (in such capacity, together with its successors in such
capacity, "Bid Agent").
RECITALS
A. As of November 1, 1996, CoBank, St. Paul Bank, and the Banks entered
into a Revolving Credit Agreement ("Credit Agreement") with HARVEST STATES
COOPERATIVES ("Borrower").
B. On August 27, 1997, CoBank, as Administrative Agent, gave written
notification ("Renewal Notice") to the Banks seeking renewed commitments to the
364 Day Facility pursuant to the provisions of Section 12.14 of the Credit
Agreement.
C. Pursuant to the provisions of Section 12.14 of the Credit Agreement
and as referenced in the Renewal Notice, all Banks receiving the Renewal Notice
were to submit written confirmation of renewal to CoBank by September 15, 1997.
In accordance with the provisions of Section 12.14, the failure of a Bank to
give notice by such date shall be deemed to be a rejection of such extension by
such Bank.
D. All of the Banks (with the exception of Harris Trust and Savings
Bank) have sent to the Administrative Agent on or before September 15, 1997,
their agreement to renew the 364 Day Facility at the current amounts of their
respective Individual 364 Day Facility Commitments.
<PAGE>
E. Harris Trust and Savings Bank has formally elected not to renew its
Individual 364 Day Facility Commitment, which Individual 364 Day Facility
Commitment represents $25,000,000 of the 364 Day Facility Commitment or 4.5455%
of such 364 Day Facility Commitment.
F. The parties hereto desire to amend the Credit Agreement in order to
the renew of the 364 Day Facility by the Banks at the reduced 364 Day Facility
Commitment of $525,000,000 and to otherwise amend the Credit Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein, the parties hereto hereby agree as follows:
1. RENEWAL OF 364 DAY FACILITY COMMITMENT. Pursuant to the provisions
of Section 12.14 of the Credit Agreement, the 364 Day Facility Commitment is
renewed as of the Effective Date (hereinafter defined) in an amount equal to
$525,000,000 and the term 364 Day Facility Maturity Date shall mean October 30,
1998. The amount of the Individual 364 Day Facility Commitment for each Bank
shall remain unchanged from the amounts set forth in the Credit Agreement and
shall be the amount set forth opposite such Bank's name on the signature page
hereto. The 364 Day Facility Notes and the Bid Notes of the Banks executing this
Amendment shall remain in full force and effect.
2. AMENDMENTS IN SECTION 1.01. Section 1.01 shall be amended as
follows:
a. The definition entitled "Commitment Fee" shall be deleted in
its entirety.
b. The definition of "Fees" shall be amended in its entirety as
follows:
"Fee" means the Facility Fee.
3. AMENDMENT OF SECTION 2.08. Section 2.08, entitled "Fees" is hereby
amended with in its entirety as follows:
"SECTION 2.08. Borrower agrees to pay to each Bank an annual
facility fee ("Facility Fee") in an amount equal to ten basis points
(.10%) per annum on the amount of such Bank's Individual 364 Day
Facility Commitment payable in quarterly installments, on the fifth
Banking Day after each Quarterly Date, commencing on November 30, 1997,
and on the 364 Day Facility Maturity Date.
Administrative Agent shall provide to Borrower promptly after
each Quarterly Date written notice of the amount of the Commitment Fee
and Facility Fee due to it to be due and payable on the fifth Banking
Day after such Quarterly Date. Failure of
<PAGE>
Administrative Agent to provide such written notice, however, shall not
affect Borrower's obligation to pay such Fee.
Borrower agrees to pay to the Facility Agents and the
Syndication Agents the fees set forth in the Fee Letter."
4. AMENDMENT TO SECTION 3.03. Section 3.03, entitled "Outstanding
Letters of Credit" is hereby amended by attaching an amended
Schedule 3.03 in the form attached hereto.
5. AMENDMENT OF SECTION 7.09. Section 7.09, entitled "Loans" ,
Subsection (4) is hereby amended by deleting "$35,000,000" and
inserting "$50,000,000."
6. EFFECTIVE DATE OF AMENDMENT. This Amendment shall become effective
on October 31, 1997 (the "Effective Date"), provided, however, on or before that
date the Administrative Agent receives: (1) an original copy of this Amendment
(or original counterparts thereof) duly executed by each party hereto; and (2) a
certificate signed by a duly authorized officer of the Borrower dated the date
hereof stating that, after giving effect to this Amendment and the transactions
contemplated hereby:
(a) The representations and warranties contained in the
Credit Agreement and in each of the other Loan
Documents are correct on and as of the date hereof as
though made on and as of such date in all material
respects if such representation and warranty is not
subject to a Material Adverse Change exception, and
if such representation and warranty is subject to
such an exception, is correct; and
(b) No Default or Event of Default has occurred and is
continuing; and
Upon the satisfaction of all conditions precedent hereto, the Administrative
Agent will notify each party hereto in writing and will provide copies of all
documentation in connection herewith.
7. REFERENCE TO AND EFFECT ON THE LOAN DOCUMENTS.
(a) Upon the effectiveness of paragraphs 1 and 2 hereof,
on and after the date hereof each reference in the
Credit Agreement to "this Agreement", "hereunder",
"hereof", "herein" or words of like import, and each
reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby.
(b) The execution, delivery and effectiveness of this
Amendment shall not operate as a waiver of any right,
power or remedy of any Bank Party under
<PAGE>
any of the Loan Documents, nor constitute a waiver of
any provision of any of the Loan Documents, and the
Credit Agreement and each other Loan Document shall
remain in full force and effect and are hereby
ratified and confirmed.
8. COSTS, EXPENSES AND TAXES. The Borrower agrees to reimburse the
Administrative Agent and the Bid Agent on demand for all out-of-pocket costs,
expenses and charges (including, without limitation, all fees and charges of
external legal counsel for the Administrative Agent and the Bid Agent) incurred
by the Administrative and the Bid Agent in connection with the preparation,
reproduction, execution and delivery of this Amendment and any other instruments
and documents to be delivered hereunder.
9. GOVERNING LAW. This Amendment shall be governed by and construed in
accordance with the laws of the State of Minnesota.
10. COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties to this Amendment in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
11. CONFIRMATION. To the extent not inconsistent herewith, all other
terms and conditions of the Credit Agreement shall remain in full force and
effect.
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their duly authorized officers as of the date shown above.
HARVEST STATES COOPERATIVES
By: /s/ T. F. Baker
Name: T.F. Baker
Title: Group Vice President - Finance
<PAGE>
COBANK, ACB,
as Syndication Agent, Administrative Agent, Bid Agent and Bank
Commitments:
364 Day Facility
Commitment: $277,000,000
By: /s/ J. Daniel Malan
Name: J. Daniel Malan
Title: Vice President
ST. PAUL BANK FOR COOPERATIVES,
as Syndication Agent and Bank
Commitments:
364 Day Facility
Commitment: $123,000,000
By: /s/ Jeff Swanhorst
Name: Jeff Swanhorst
Title: Associate Vice President
BANQUE NATIONALE DE PARIS,
as Bank
Commitments:
364 Day Facility
Commitment: $20,000,000
By: /s/ Arnaud Collin du Bolage
Name: Arnaud Collin du Bolage
Title: E.V.P. and General Manager
<PAGE>
NATIONSBANK, N.A.
as Bank
Commitments:
364 Day Facility
Commitment: $15,000,000
By: /s/ Steven O. Stoecker
Name: Steven O. Stoecker
Title: Senior Vice President
CAISSE NATIONALE DE CREDIT AGRICOLE,
as Bank
Commitments:
364 Day Facility
Commitment: $20,000,000
By: /s/ W. Leroy Startz
Name: W. Leroy Startz
Title: First Vice President
<PAGE>
COOPERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK NEDERLAND", NEW YORK BRANCH,
as Bank
Commitments:
364 Day Facility
Commitment: $20,000,000
By: /s/ Johannes F. Breukhoven
Name: Johannes F. Breukhoven
Title: Vice President
By: /s/ W. Peter C. Kodde
Name: W. Peter C. Kodde
Title: Vice President
DG BANK DEUTSCHE GENOSSENSCHAFTSBANK,
as Bank
Commitments:
364 Day Facility
Commitment: $15,000,000
By: /s/ Mark Connelly
Name: Mark Connelly
Title: Vice President
By: /s/ Pamela D. Ingram
Name: Pamela D. Ingram
Title: Assistant Vice President
<PAGE>
FIRST BANK NATIONAL ASSOCIATION
as Bank
Commitments:
364 Day Facility
Commitment: $20,000,000
By: /s/ John E. Besse
Name: John E. Besse
Title: Senior Vice President
NORWEST BANK MINNESOTA, NATIONAL ASSOCIATION
as Bank
Commitments:
364 Day Facility
Commitment: $15,000,000
By: /s/ Douglas A. Lindstrom
Name: Douglas A. Lindstrom
Title: Assistant Vice President
EXHIBIT 99
CAUTIONARY STATEMENT
Harvest States Cooperatives (the "Company"), or persons acting on behalf of
the Company, or outside reviewers retained by the Company making statements on
behalf of the Company, or underwriters, from time to time, may make, in writing
or orally, "forward-looking statements" as defined under the Private Securities
Litigation Reform Act of 1995 (the "Act"). This Cautionary Statement is for the
purpose of qualifying for the "safe harbor" provisions of the Act and is
intended to be a readily available written document that contains factors which
could cause results to differ materially from those projected in such
forward-looking statements. These factors are in addition to any other
cautionary statements, written or oral, which may be made or referred to in
connection with any such forward-looking statement.
The following matters, among others, may have a material adverse effect on
the business, financial condition, liquidity, results of operations or
prospects, financial or otherwise, of the Company. Reference to this Cautionary
Statement in the context of a forward-looking statement shall be deemed to be a
statement that any one or more of the following factors may cause actual results
to differ materially from those which might be projected, forecast, estimated or
budgeted by the Company in such forward-looking statement or statements:
COMPANY SUBJECT TO SUPPLY AND DEMAND FORCES. The Company may be adversely
affected by supply and demand relationships, both domestic and international.
Supply is affected by weather conditions, disease, insect damage, acreage
planted, government regulation and policies and commodity price levels. The
business is also affected by transportation conditions, including rail, vessel,
barge and truck. Demand may be affected by foreign governments and their
programs, relationships of foreign countries with the United States, the
affluence of foreign countries, acts of war, currency exchange fluctuations and
substitution of commodities. Demand may also be affected by changes in eating
habits, by population growth and increased or decreased per capita consumption
of some products.
The Freedom to Farm Act of 1996, enacted in April 1996, may affect crop
production in several ways. The Act more narrowly defines what will qualify as
environmentally sensitive acreage for purposes of the conservation reduction
program, with the result that 3 to 4 million acres may be put back into
agricultural production in the future from a present enrollment of 36.4 million
acres. The Act also removes restrictions on the type of crops planted (other
than fruit and vegetables), allowing farmers to plant crops having favorable
prices and thereby increasing the production of those crops. Increased
production may lower prices of certain crops but increase the amount available
for export. However, the Act also reduces Export Enhancement Program subsidies,
which may adversely affect the ability of U.S. exports to compete with those of
other countries.
COMPANY SUBJECT TO PRICE RISKS. Upon purchase, the Company has risks of carrying
grain, including price changes and performance risks (including delivery,
quality, quantity and shipment period), depending upon the type of purchase
contract entered into. The Company is exposed to risk of loss in the market
value of positions held, consisting of grain inventory and purchase contracts at
a fixed or partially fixed price, in the event market prices decrease. The
Company is also exposed to risk of loss on its fixed price or partially fixed
price sales contracts in the event market prices increase.
To reduce the price change risks associated with holding fixed price positions,
the Company generally takes opposite and offsetting positions by entering into
grain commodity futures contracts (either a straight futures contract or an
options futures contract) on regulated commodity futures exchanges. While
hedging activities reduce the risk of loss from changing market values of grain,
such activities also limit the gain potential which otherwise could result from
changes in market prices of grain. Hedging arrangements do not protect against
nonperformance of a contract. The Company's policy is to generally maintain
hedged positions in grain which is hedgeable, but the Company can be long or
short at any time. The Company's profitability is primarily derived from margins
on grain merchandised and processed, not from hedging transactions.
At any one time the Company's inventory and purchase contracts for delivery to
the Company may be substantial.
<PAGE>
OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. Competition in the soybean
processing and refining business is driven by price, transportation costs,
service and product quality. The industry is highly competitive. Competitors are
adding new plants and expanding capacity of existing plants. Media newsletters
and other publications indicate that new crush plants and refinery operations
are being constructed or under strong consideration. Should those facilities be
constructed, the Company estimates that domestic crush capacity would increase
from 10 to 15% and domestic refining capacity would increase from 20 to 30%.
Unless exports increase or existing refineries are closed, this extra capacity
is likely to put additional pressure on prices and erode margins, adversely
affecting the profitability of the Oilseed Processing and Refining Defined
Business Unit. Several competitors operate over various market segments and may
be suppliers to or customers of other competitors.
MILLING BUSINESS COMPETITIVE TRENDS. Certain major competitors of the Wheat
Milling Defined Business Unit have developed long-term relationships with
customers by locating plants adjacent to pasta manufacturing plants. This trend
could potentially decrease the future demand for semolina from nonintegrated
millers.
TAXATION OF COOPERATIVES COULD CHANGE. Although under Subchapter T of the
Internal Revenue Code patronage refunds are excluded in determining taxable
income of a cooperative and patronage refunds are taxable to the recipient,
current income tax laws, regulations and interpretations pertaining to the
receipt of patronage refunds could be changed.
DEPENDENCE ON CERTAIN CUSTOMERS. Each of the Wheat Milling Defined Business Unit
and the Oilseed Processing and Refining Defined Business Unit has certain major
customers. Loss of or a decline in the business done with one or more of these
customers could have a material adverse effect on the operations of the affected
Defined Business Unit. In addition, the Wheat Milling Defined Business Unit
would be adversely affected by a decline in pasta production in the United
States.
The foregoing review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company prior to the effective date of the Act.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAY-31-1998
<PERIOD-END> NOV-30-1997
<CASH> 2,245,153
<SECURITIES> 0
<RECEIVABLES> 368,640,510
<ALLOWANCES> 11,829,615
<INVENTORY> 233,143,744
<CURRENT-ASSETS> 699,259,932
<PP&E> 444,345,984
<DEPRECIATION> 214,239,745
<TOTAL-ASSETS> 1,108,721,334
<CURRENT-LIABILITIES> 584,295,043
<BONDS> 212,620,320
0
0
<COMMON> 0
<OTHER-SE> 406,383,581
<TOTAL-LIABILITY-AND-EQUITY> 1,108,721,334
<SALES> 2,877,844,166
<TOTAL-REVENUES> 2,925,703,643
<CGS> 2,851,116,998
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 35,220,185
<LOSS-PROVISION> 854,615
<INTEREST-EXPENSE> 7,642,071
<INCOME-PRETAX> 31,724,389
<INCOME-TAX> 3,600,000
<INCOME-CONTINUING> 28,124,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,124,389
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
