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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MAY 31, 2000.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 333-17865
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CENEX HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0251095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 CENEX DRIVE, (651) 451-5151
INVER GROVE HEIGHTS, MN 55077 (Registrant's telephone number
(Address of principal executive offices including area code)
and zip code)
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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
May 31, 2000)
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<PAGE>
INDEX
PAGE
NO.
----
PART I. FINANCIAL INFORMATION
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
Item 1. Financial Statements
Consolidated Balance Sheets as of May 31, 2000 (unaudited), August 31,
1999 and May 31, 1999 (unaudited) ........................................ 2
Consolidated Statements of Operations for the three months and nine
months ended May 31, 2000 and 1999 (unaudited) ........................... 3
Consolidated Statements of Cash Flows for the three months and nine
months ended May 31, 2000 and 1999 (unaudited) ........................... 4
Notes to Consolidated Financial Statements (unaudited) ................... 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 8
Item 3. Quantitative and Qualitative Disclosures about Market Risk ....... 13
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
Item 1. Financial Statements
Balance Sheets as of May 31, 2000 (unaudited), August 31, 1999 and
May 31, 1999 (unaudited) ................................................. 14
Statements of Operations for the three months and nine months ended
May 31, 2000 and 1999 (unaudited) ........................................ 15
Statements of Cash Flows for the three months and nine months ended
May 31, 2000 and 1999 (unaudited) ........................................ 16
Notes to Financial Statements (unaudited) ................................ 17
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 18
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
Item 1. Financial Statements
Balance Sheets as of May 31, 2000 (unaudited), August 31, 1999 and
May 31, 1999 (unaudited) ................................................. 21
Statements of Operations for the three months and nine months ended
May 31, 2000 and 1999 (unaudited) ........................................ 22
Statements of Cash Flows for the three months and nine months ended
May 31, 2000 and 1999 (unaudited) ........................................ 23
Notes to Financial Statements (unaudited) ................................ 24
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations .................................................... 25
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 ................................. 28
SIGNATURE PAGE ............................................................ 29
i
<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 the following:
SUPPLY AND DEMAND FORCES. The Company may be adversely affected by supply
and demand relationships, both domestic and international. Supply may be
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. The
current monetary crises in Asia has impacted, and is expected to continue to
impact exports of U.S. agricultural products. Reduced demand for U.S.
agricultural products may also adversely affect the demand for fertilizer,
chemicals and petroleum products sold by the Company and used to produce crops.
Demand may also be affected by changes in eating habits, population growth and
increased or decreased per capita consumption of some products.
PRICE RISKS. Upon purchase, the Company has risks of carrying grain and
petroleum, including price changes and performance risks (including delivery,
quality, quantity and shipment period), depending upon the type of purchase
contract. The Company is exposed to risk of loss in the market value of
positions held, consisting of grain and petroleum 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
commodity futures contracts (either a straight futures contract or an option
futures contract) on regulated commodity futures exchanges.
OILSEED PROCESSING AND REFINING BUSINESS COMPETITION. This 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 Oilseed Processing and Refining
Defined Business Unit.
MILLING BUSINESS COMPETITIVE TRENDS. Certain major durum milling
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. In addition, baking and bread flour demand has
declined during a period when the milling industry has been expanding, which
will continue to put pressure on gross margins.
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 this Quarterly Report on Form 10-Q for the quarter
ended May 31, 2000.
1
<PAGE>
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
---------- ---------- ----------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 42,914 $ 75,667 $ 44,760
Receivables ................................................ 963,705 606,641 678,963
Inventories ................................................ 674,876 549,703 513,815
Other current assets ....................................... 58,620 39,414 86,231
---------- ---------- ----------
Total current assets ...................................... 1,740,115 1,271,425 1,323,769
INVESTMENTS ................................................. 466,718 427,896 367,369
PROPERTY, PLANT AND EQUIPMENT ............................... 1,025,730 968,333 956,068
OTHER ....................................................... 135,023 120,010 114,423
---------- ---------- ----------
Total assets .............................................. $3,367,586 $2,787,664 $2,761,629
========== ========== ==========
LIABILITIES AND EQUITIES
CURRENT LIABILITIES:
Notes payable .............................................. $ 343,037 $ 196,986 $ 170,000
Current portion of long-term debt .......................... 20,602 21,562 19,627
Patrons' credit balances ................................... 36,427 44,970 37,514
Patrons' advance payments .................................. 138,404 127,755 115,680
Checks and drafts outstanding .............................. 58,726 48,605 70,231
Accounts payable ........................................... 758,682 449,774 501,341
Accrued expenses ........................................... 141,092 119,728 103,226
Patronage dividends and equity retirements payable ......... 29,828 43,000 16,894
---------- ---------- ----------
Total current liabilities ....................... ......... 1,526,798 1,052,380 1,034,513
LONG-TERM DEBT .............................................. 490,359 461,104 466,281
OTHER LIABILITIES ........................................... 79,808 88,173 80,326
MINORITY INTERESTS IN SUBSIDIARIES .......................... 121,851 68,371 62,256
COMMITMENTS AND CONTINGENCIES
EQUITIES .................................................... 1,148,770 1,117,636 1,118,253
---------- ---------- ----------
Total liabilities and equities ............................ $3,367,586 $2,787,664 $2,761,629
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements (unaudited).
2
<PAGE>
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------ --------------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Net sales:
Grain and oilseed ........................... $ 843,693 $ 625,002 $2,767,198 $2,656,966
Energy ...................................... 759,616 323,590 2,071,648 908,224
Agronomy .................................... 323,600 254,260 552,620 481,547
Feed and farm supplies ...................... 231,412 176,145 439,242 383,679
Processed grain and oilseed ................. 130,450 137,548 396,937 409,358
--------- --------- ---------- ----------
2,288,771 1,516,545 6,227,645 4,839,774
Patronage dividends ........................... 3,495 1,008 5,019 4,910
Other revenues ................................ 53,786 33,794 98,630 82,165
--------- --------- ---------- ----------
2,346,052 1,551,347 6,331,294 4,926,849
--------- --------- ---------- ----------
COSTS AND EXPENSES:
Cost of goods sold ............................ 2,216,414 1,450,121 6,103,220 4,714,477
Marketing, general and administrative ......... 40,459 42,331 121,850 116,281
Interest ...................................... 16,051 11,509 43,008 31,481
Minority interests ............................ 13,653 4,411 4,487 3,655
--------- --------- ---------- ----------
2,286,577 1,508,372 6,272,565 4,865,894
--------- --------- ---------- ----------
INCOME BEFORE INCOME TAXES ..................... 59,475 42,975 58,729 60,955
INCOME TAXES ................................... 8,313 4,340 2,576 5,375
--------- --------- ---------- ----------
NET INCOME ..................................... $ 51,162 $ 38,635 $ 56,153 $ 55,580
========= ========= ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements (unaudited).
3
<PAGE>
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------- -------------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ..................................................... $ 51,162 $ 38,635 $ 56,153 $ 55,580
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization ................................ 22,724 20,377 66,697 60,523
Noncash net income from joint ventures ....................... (29,848) (15,728) (21,238) (16,995)
Minority interests ........................................... 13,653 4,411 4,487 3,655
Adjustment of inventories to market value .................... -- (14,946) -- (10,117)
Noncash portion of patronage dividends received .............. (2,294) (3,356) (3,368) (6,822)
Loss (gain) on sale of property, plant and equipment ......... 255 (314) (577) (1,635)
Other, net ................................................... -- 3,593 378 2,603
Changes in operating assets and liabilities:
Receivables ................................................. (256,548) (136,791) (354,411) (207,880)
Inventories ................................................. (4,327) 7,450 (70,773) (23,964)
Other current assets and other assets ....................... 121,162 38,265 (28,728) (70,572)
Patrons' credit balances .................................... (18,783) (15,557) (8,543) (3,810)
Patrons' advance payments ................................... (105,509) (45,828) 10,649 (32,341)
Accounts payable and accrued expenses ....................... 121,506 179,236 330,272 102,033
Other liabilities ........................................... 1,442 170 (8,365) 4,536
---------- ---------- ---------- ----------
Net cash (used in) provided by operating activities (85,405) 59,617 (27,367) (145,206)
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ................ (61,219) (23,782) (121,763) (94,725)
Proceeds from disposition of property, plant and
equipment .................................................. 3,099 1,496 4,494 6,348
Investments ................................................. (33,620) 2,371 (35,283) (6,839)
Investments redeemed ........................................ 7,181 3,707 20,207 9,131
Changes in notes receivable ................................. 457 (176) (1,124) 2,475
Other investing activities, net ............................. (9,954) (62) (14,591) (1,373)
---------- ---------- ---------- ----------
Net cash used in investing activities ..................... (94,056) (16,446) (148,060) (84,983)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable .................................... 117,562 (77,000) 146,051 169,525
Long-term debt borrowings ................................... 45,000 30,000 45,000 40,565
Principal payments on long-term debt ........................ (6,487) (4,514) (17,126) (11,771)
Changes in checks and drafts outstanding .................... 21,376 14,034 10,121 15,489
Retirements of equity ....................................... (10,360) (4,518) (23,452) (15,117)
Cash patronage dividends paid ............................... 50 (67) (17,920) (43,750)
---------- ---------- ---------- ----------
Net cash provided by (used in) financing activities 167,141 (42,065) 142,674 154,941
---------- ---------- ---------- ----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS ............................................... (12,320) 1,106 (32,753) (75,248)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD ............................................ 55,234 43,654 75,667 120,008
---------- ---------- ---------- ----------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD ...................................................... $ 42,914 $ 44,760 $ 42,914 $ 44,760
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements (unaudited).
4
<PAGE>
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited consolidated balance sheets as of May 31, 2000 and 1999, and
the statements of operations and cash flows for the three months and nine months
ended May 31, 2000 and 1999, reflect, in the opinion of management of Cenex
Harvest States Cooperatives (the Company), all normal, recurring adjustments
necessary for a fair statement of the results of operations and cash flows for
the interim periods. The results of operations and cash flows for any interim
period are not necessarily indicative of results for the full year. The
consolidated balance sheet data as of August 31, 1999 was derived from audited
consolidated financial statements but does not include all disclosures required
by accounting principles generally accepted in the United States.
The unaudited consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
The Company's current policy in regard to planned major maintenance
activities is to accrue for those estimated costs, which primarily consist of
direct maintenance expenses. The planned major maintenance activities are
primarily related to the Company's petroleum refinery operations.
Certain reclassifications have been made to the prior year's financial
statements to conform to the current year presentation. These reclassifications
had no effect on previously reported net income or equity.
These statements should be read in conjunction with the consolidated
financial statements and footnotes for the year ended August 31, 1999, included
in the Company's Report on Form 10-K previously filed with the Securities and
Exchange Commission on November 22, 1999.
NOTE 2. RECEIVABLES
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
-------- -------- --------
Trade .................................. $972,865 $595,403 $689,535
Other .................................. 15,002 34,493 12,672
-------- -------- --------
987,867 629,896 702,207
Less allowance for doubtful accounts ... 24,162 23,255 23,244
-------- -------- --------
$963,705 $606,641 $678,963
======== ======== ========
NOTE 3. INVENTORIES
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
-------- -------- --------
Energy .............................. $294,622 $209,661 $199,330
Grain and oilseed ................... 208,948 202,166 135,463
Agronomy ............................ 80,684 69,050 85,626
Processed grain and oilseed ......... 21,551 14,342 14,810
Feed and farm supplies .............. 65,447 50,908 75,594
Other ............................... 3,624 3,576 2,992
-------- -------- --------
$674,876 $549,703 $513,815
======== ======== ========
NOTE 4. COMPREHENSIVE INCOME
During the three months ended May 31, 2000 and 1999, total comprehensive
income amounted to $51.8 million and $37.5 million, respectively. Total
comprehensive income was $55.7 million and $55.8 million for the nine months
ended May 31, 2000 and 1999, respectively. Accumulated other comprehensive
(loss) income on May 31, 2000 August 31, 1999 and May 31, 1999 was $(1.6)
million, $(1.2) million and $0.1 million, respectively.
5
<PAGE>
NOTE 5. SEGMENT REPORTING
The Company's businesses are organized, managed and internally reported as
four segments. These segments, which are based on products and services, include
agronomy, energy, grain marketing and farm marketing & supply, and processed
grain and consumer products. Due to cost allocations and intersegment activity,
management does not represent that these segments if operated independently,
would report the income before income taxes and other financial information
presented. Segment information for the three months and nine months ended May
31, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
GRAIN MARKETING PROCESSED GRAIN
AND FARM AND CONSUMER
AGRONOMY ENERGY MARKETING & SUPPLY PRODUCTS OTHER TOTAL
----------- ----------- ------------------ --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
For the three months ended
May 31, 2000:
Net sales ................... $ 323,600 $ 759,616 $ 1,075,105 $ 130,450 $ 2,288,771
Patronage dividends ......... 20 191 3,027 100 $ 157 3,495
Other revenues .............. 16,133 875 22,295 10,242 4,241 53,786
----------- ----------- ----------- ----------- ----------- -----------
339,753 760,682 1,100,427 140,792 4,398 2,346,052
Cost of goods sold .......... 307,350 720,709 1,066,934 121,421 2,216,414
Marketing, general and
administrative ............. 3,637 11,397 15,495 5,737 4,193 40,459
Interest .................... (1,533) 7,899 7,111 2,396 178 16,051
Minority interests .......... 13,620 33 13,653
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes ............... $ 30,299 $ 7,057 $ 10,887 $ 11,238 $ (6) $ 59,475
=========== =========== =========== =========== =========== ===========
For the three months ended
May 31, 1999:
Net sales ................... $ 254,260 $ 323,590 $ 801,147 $ 137,548 $ 1,516,545
Patronage dividends ......... 13 154 2,364 (98) $ (1,425) 1,008
Other revenues .............. 36 21,257 7,348 5,153 33,794
----------- ----------- ----------- ----------- ----------- -----------
254,273 323,780 824,768 144,798 3,728 1,551,347
Cost of goods sold .......... 244,075 280,588 793,300 132,158 1,450,121
Marketing, general and
administrative ............. 3,915 12,474 16,020 5,292 4,630 42,331
Interest .................... 214 4,729 4,684 1,789 93 11,509
Minority interests .......... 4,361 10 40 4,411
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes ............... $ 6,069 $ 21,628 $ 10,754 $ 5,559 $ (1,035) $ 42,975
=========== =========== =========== =========== =========== ===========
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
GRAIN MARKETING PROCESSED GRAIN
AND FARM AND CONSUMER
AGRONOMY ENERGY MARKETING & SUPPLY PRODUCTS OTHER TOTAL
----------- ----------- ------------------ --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
For the nine months ended
May 31, 2000:
Net sales .................... $ 552,620 $ 2,071,648 $ 3,206,440 $ 396,937 $ 6,227,645
Patronage dividends .......... 131 279 4,213 100 $ 296 5,019
Other (losses) revenues ...... (1,676) 2,400 65,341 17,458 15,107 98,630
----------- ----------- ----------- ----------- ----------- -----------
551,075 2,074,327 3,275,994 414,495 15,403 6,331,294
Cost of goods sold ........... 517,539 2,024,624 3,192,374 368,683 6,103,220
Marketing, general and
administrative .............. 13,688 35,312 44,024 15,790 13,036 121,850
Interest ..................... (1,786) 20,481 16,389 5,841 2,083 43,008
Minority interests ........... 4,403 84 4,487
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes ....................... $ 21,634 $ (10,493) $ 23,207 $ 24,181 $ 200 $ 58,729
=========== =========== =========== =========== =========== ===========
Total identifiable assets ... $ 465,891 $ 1,364,749 $ 938,064 $ 377,846 $ 221,036 $ 3,367,586
=========== =========== =========== =========== =========== ===========
For the nine months ended
May 31, 1999:
Net sales .................... $ 481,547 $ 908,224 $ 3,040,645 $ 409,358 $ 4,839,774
Patronage dividends .......... 330 182 5,784 (34) $ (1,352) 4,910
Other revenues ............... 709 61,964 6,311 13,181 82,165
----------- ----------- ----------- ----------- ----------- -----------
481,877 909,115 3,108,393 415,635 11,829 4,926,849
Cost of goods sold ........... 451,846 841,473 3,030,277 390,881 4,714,477
Marketing, general and
administrative .............. 12,287 38,574 40,006 13,112 12,302 116,281
Interest ..................... 1,083 11,802 13,947 4,728 (79) 31,481
Minority interests ........... 3,481 78 96 3,655
----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes ....................... $ 16,661 $ 13,785 $ 24,085 $ 6,914 $ (490) $ 60,955
=========== =========== =========== =========== =========== ===========
Total identifiable assets ... $ 427,863 $ 1,095,083 $ 759,719 $ 314,789 $ 164,175 $ 2,761,629
=========== =========== =========== =========== =========== ===========
</TABLE>
Assets included in "Other" primarily consisted of intercompany transactions and
corporate facilities.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Noel K. Estenson, Chief Executive Officer of the Company announced his
retirement effective June 1, 2000. John D. Johnson, previously President and
General Manager has been appointed as President and Chief Executive Officer to
succeed Mr. Estenson.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED MAY 31, 2000 AND 1999
The Company had consolidated net income for the three months ended May 31,
2000 of $51.2 million compared to net income of $38.6 million for the same
three-month period in 1999, which represents a $12.6 million (32%) increase.
This increase in profitability is attributable to the majority of operations of
the Company, which was offset by a tax expense increase of $4.0 million.
Consolidated net sales of $2.3 billion for the three months ended May 31,
2000 increased approximately $772.2 million (51%) compared to the same three
months ended in 1999.
Grain and oilseed sales of $843.7 million increased $218.7 million (35%)
during the three months ended May 31, 2000 compared to the same three months
ended in 1999. The primary cause for the increased sales was an increase of 60
cents per bushel in the average sales price of all grain and oilseed marketed by
the Company along with a combined grain volume increase of 9% compared to the
same period in 1999.
Energy sales of $759.6 million increased $436.0 million (135%) during the
three months ended May 31, 2000 compared to the same period in 1999. This
increase is primarily attributable to the formation of a refinery joint venture
whereby the Company, through its 75% ownership in National Cooperative Refining
Association (NCRA), which in turn owns approximately 57% of the refining joint
venture (Cooperative Refining, LLC), consolidates the sales made to the minority
owner. In addition, the average sales price of refined fuels and propane
increased by 36 cents and 19 cents per gallon, respectively compared to the same
period in 1999.
Agronomy sales of $323.6 million increased $69.3 million (27%) during the
three months ended May 31, 2000 compared to the same three-month period in 1999.
Crop protection sales increased $47.3 million in 2000 compared to 1999 primarily
due to increased volumes from new acquisitions. In addition, plant food volumes
increased 18% at an average selling price of $2.88 per ton more than a year ago.
During the next quarter it is expected that Agriliance, the newly formed
wholesale agronomy joint venture, will begin to operate as a principle and the
Company will no longer record sales; instead the Company will include in other
revenues its 25% share of earnings or losses of Agriliance.
Feed and farm supplies sales of $231.4 million increased by $55.3 million
(31%) during the three months ended May 31, 2000 compared to the same three
months of a year ago, and is primarily due to increased volumes from newly
acquired facilities and an earlier spring planting season.
Processed grain and oilseed sales of $130.5 million decreased $7.1 million
(5%) during the three months ended May 31, 2000 compared to the same three
months ended in 1999. Sales of processed soybean products decreased by 17% due
to decreases in both price and volume. This decrease was partially offset by an
increase in wheat milling sales of 19% due to increases in both price and
volume. During the next quarter, processed grain and oilseed sales will include
the sales of Sparta Foods, Inc. which was purchased on June 1, 2000. This new
business operation primarily includes the manufacturing of tortillas and chips.
Patronage dividends of $3.5 million increased by $2.5 million during the
three months ended May 31, 2000 compared to the same three months of a year ago.
The increase is primarily due to a St. Paul Bank for Cooperatives investment
impairment of $3.1 million, which was taken in the three months ended 1999.
Other revenues of $53.8 million increased $20.0 million (59%) during the
three months ended May 31, 2000 compared to the same three months ended in 1999.
The most significant changes within other revenues were the cash receipt and
gain of $7.4 million from Land O'Lakes, Inc. (LOL) for the
8
<PAGE>
sale of 1.455% of the Company's economic interest in Agriliance and an increase
in the Company's share of earnings from both the agronomy and consumer products
packaging joint ventures of $7.9 million and $3.1 million, respectively.
Cost of goods sold of approximately $2.2 billion increased $766.3 million
(53%) during the three months ended May 31, 2000, compared to the same three
months ended in 1999. The increase is primarily attributable to the formation of
Cooperative Refining, LLC, which was referenced to in the sales section of this
analysis and to an increase in the price of petroleum crude oil. During the
three months ended May 31, 2000 the average cost of refined fuels and propane
increased by 37 cents and 25 cents per gallon, respectively. Also, during the
three months ended May 31, 2000, agronomy cost of goods increased by 26%
compared to the same three months ended in 1999 primarily due to increased
volume because of new acquisitions. The cost of all grains and oilseed procured
by the Company through its grain marketing and country elevator operations
increased 56 cents per bushel along with a volume increase of 9% compared to the
same three months ended in 1999. Within the Company's food processing
operations, the average cost of soybeans and volume decreased, which was
partially offset by an increase in the average cost and volume of wheat compared
to the same three months ended in 1999.
Marketing, general and administrative expenses of $40.5 million for the
three months ended May 31, 2000 decreased $1.9 million (4%) compared to the same
three months ended in 1999. The reduction in expenses is primarily related to
Y2K costs, which were incurred in the three-month period ended in 1999 and
expense synergies realized from joint ventures during 2000.
Interest expense of $16.1 million for the three months ended May 31, 2000
increased by $4.5 million (39%) compared to the same three months ended in 1999.
The average seasonal borrowings during 2000 increased as a result of higher
working capital needs, and long-term borrowings which reflected financial
activities related to the acquisition of property, plant and equipment,
generated most of this additional expense.
Minority interests in operations for the three-month period ended May 31,
2000 changed by $9.2 million compared to the same three months ended in 1999.
Substantially all minority interests is related to NCRA, which operates a
petroleum refinery near McPherson, Kansas. This net change in minority interests
during the current year is reflective of more profitable operations within the
Company's majority owned subsidiaries as compared to the previous years quarter.
Income tax expense of $8.3 million and $4.3 million for the three months
ended May 31, 2000 and 1999, respectively, resulted in effective tax rates of
14.0% and 10.1%. The increased 2000 effective tax rate is reflective of
increased nonpatronage earnings in agronomy.
COMPARISON OF NINE MONTHS ENDED MAY 31, 2000 AND 1999
The Company's consolidated net income for the nine months ended May 31,
2000 and 1999 was $56.2 million and $55.6 million, respectively, which
represents an $.6 million (1%) increase. This increase in profitability is
primarily attributable to the Company's consumer products packaging joint
venture and processed grain and agronomy operations. These increases are
partially offset by decreases in the energy and grain marketing operations.
These decreases are primarily attributable to tight energy margins brought on by
high crude oil costs and low grain prices in grain marketing operations.
Consolidated net sales of $6.2 billion for the nine months ended May 31,
2000 increased approximately $1.4 billion (29%) compared to the same nine months
ended in 1999.
Grain and oilseed sales of $2.8 billion increased $110.2 million (4%)
during the nine months ended May 31, 2000 compared to the same nine months ended
in 1999. Grain volumes increased approximately 8%, which were partially offset
by a decline of 8 cents per bushel in the average sales price of all grain and
oilseed marketed by the Company.
Energy sales of $2.1 billion increased $1.2 billion (128%) during the nine
months ended May 31, 2000 compared to the same nine months of a year ago. This
increase is primarily attributable to the formation of a refinery joint venture
whereby the Company, through its 75% ownership in NCRA, which in turn owns
approximately 57% of the refining joint venture (Cooperative Refining, LLC),
consolidates the sales made to the minority owner. In addition, there was an
increase in the average sales
9
<PAGE>
price of refined fuels of 30 cents per gallon with volumes consistent to the
same time period of a year ago, which along with an increase in the average
sales price of propane of 13 cents per gallon, was partially offset by an 18%
decrease in volume.
Agronomy sales of $552.6 million increased $71.1 million (15%) compared to
the same nine months of a year ago. This increase was primarily attributable to
increases in volumes of both crop protection products and plant food.
Feed and farm supplies sales of $439.2 million increased $55.6 million
(14%) during the nine months ended May 31, 2000 compared to the same nine months
of a year ago. The increase in sales is primarily attributable to increased
volumes from newly acquired facilities and an earlier spring planting season as
compared to the same nine months ended in 1999.
Processed grain and oilseed sales of $396.9 million decreased $12.4 million
(3%) during the nine months ended May 31, 2000 compared to the same nine months
ended in 1999. This decrease was primarily attributable to an 8 cent per pound
reduction in the average sales price of refined oils, which was partially offset
by an increase in the average sales price and volumes of processed soybean
products. The decrease was partially offset with an increase in volumes of
milled wheat products.
Other revenues of $98.6 million increased $16.5 million (20%) during the
nine months ended May 31, 2000 compared to the same nine months ended in 1999.
The most significant change within other revenues was an increase in the
Company's share of income and losses from joint ventures and the cash receipt
and gain of $7.4 million from LOL for the sale of 1.455% of the Company's
economic interest in Agriliance. The Company's share of its consumer products
packaging and grain marketing joint ventures increased by $11.2 million and $3.8
million, respectively. These increases were partially offset by losses of $9.9
million from the agronomy joint venture during the nine months ended May 31,
2000.
Cost of goods sold of approximately $6.1 billion increased $1.4 billion
(29%) during the nine months ended May 31, 2000 compared to the same nine months
ended in 1999. The increase is primarily attributable to the formation of
Cooperative Refining, LLC, which was referenced to in the sales section of this
analysis and to an increase in the purchase price of petroleum crude oil. During
the nine months ended May 31, 2000, the average cost of refined fuels and
propane increased by 31 cents and 14 cents per gallon, respectively as compared
to the same nine months ended in 1999. Also, during the nine months ended May
31, 2000, agronomy cost of goods increased by 15% compared to the same nine
months ended in 1999, primarily due to increased volume from new acquisitions.
The cost of all grains and oilseed procured by the Company through its grain
marketing and country elevator operations increased by 5%. Although the cost of
grain decreased by 9 cents per bushel, this was offset by a volume increase of
8% compared to the same nine months ended in 1999. These increases were
partially offset by a net decrease within the Company's food processing
operations. A reduced average costs of soybeans along with a decrease in
refining volume was partially offset by an increase in wheat milling expenses,
primarily due to volume, compared to the same nine months ended in 1999.
Marketing, general and administrative expenses of $121.9 million for the
nine months ended May 31, 2000 increased by $5.6 million (5%) compared to the
same nine months ended in 1999. This increase is primarily related to additional
locations and expansion of many of the Company's business segments, which was
partially offset by joint venture expense synergies realized during 2000.
Interest expense of $43.0 million for the nine months ended May 31, 2000
increased by $11.5 million (37%) compared to the same nine months ended in 1999.
During 2000 the average seasonal borrowings increased as a result of higher
working capital needs, and long-term borrowings, which reflected financial
activities related to the acquisition of property, plant and equipment,
generated most of this additional expense.
Minority interests in operations of $4.5 million for the nine months ended
May 31, 2000 changed by $0.8 million (23%) compared to the same nine months
ended in 1999. Substantially all minority interests is related to NCRA. This net
change in minority interests during the current year is reflective of more
profitable operations within the Company's majority owned subsidiaries compared
to the same period of a year ago.
10
<PAGE>
Income tax expense of $2.6 million and $5.4 million for the nine months
ended May 31, 2000 and 1999, respectively, resulted in effective tax rates of
4.4% and 8.8%. The decreased 2000 effective tax rate is reflective of
nonpatronage losses in agronomy.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company used net cash of $85.4 million and
provided net cash of $59.6 million for the three months ended May 31, 2000 and
1999, respectively. For the period ended in 2000, net income of $51.2 million
and net non-cash income and expenses of approximately $4.5 million were offset
by increased working capital requirements of approximately $141.1 million. For
the three-month period ended May 31, 1999, net income of $38.6 million and
decreased working capital requirements of approximately $27.0 million were
partially offset by net non-cash income and expenses of approximately $6.0
million.
Operating activities of the Company used net cash of $27.4 million and
$145.2 million for the nine months ended May 31, 2000 and 1999, respectively.
For the nine-month period ended May 31, 2000, net income of approximately $56.2
million and net non-cash income and expenses of approximately $46.3 million were
offset by increased working capital requirements of approximately $129.9
million. For the nine-month period ended May 31, 1999, net income of $55.6
million and net non-cash income and expenses of approximately $31.2 million were
offset by increased working capital requirements of approximately $232.0
million.
CASH FLOWS FROM INVESTING
Investing activities of the Company used net cash of $94.1 million during
the three-month period ended May 31, 2000. Expenditures for the acquisition of
property, plant and equipment of $61.2 million, investments of $33.6 million and
other investing activities of $10.0 were partially offset by investments
redeemed of $7.2 million, proceeds from the disposition of property plant and
equipment of $3.1 million and the net change in notes receivable. Investments
for the three months ended May 31, 2000 included the purchase of an additional
10% interest in Ventura Foods, LLC (Ventura Foods), the Company's consumer
products and packaging joint venture, for approximately $25.6 million. The
Company now has a 50% interest in that joint venture. For the fiscal year ending
August 31, 2000, the Company projects that total expenditures for the
acquisition of property, plant and equipment will be approximately $139.6
million.
Investing activities of the Company used net cash of $16.4 million during
the three months ended May 31, 1999. Expenditures for the acquisition of
property, plant and equipment of $23.8 million, the net change in notes
receivable and other investing activities were partially offset by investments
redeemed of $3.7 million, proceeds from the disposition of property plant and
equipment of $1.5 million and the net change in investments.
Investing activities of the Company used net cash of $148.1 million during
the nine months ended May 31, 2000. Expenditures for the acquisition of
property, plant and equipment of $121.8 million, investments of $35.3 million,
other investing activities of $14.6 million and the net change in notes
receivable were partially offset by investments redeemed of $20.2 million and
proceeds from the disposition of property, plant and equipment of $4.5 million.
Investing activities of the Company used net cash of $85.0 million during
the nine-month period ended May 31, 1999. Expenditures for the acquisition of
property, plant and equipment of $94.7 million, investments of $6.8 million and
other investing activities were partially offset by investments redeemed of $9.1
million, proceeds from the disposition of property, plant and equipment of $6.3
million and the net change in notes receivable.
CASH FLOWS FROM FINANCING
The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In May 2000, the Company renewed and
expanded its 364-day credit facility from $400 million to $500 million
committed. In addition to this short-term line of credit, the Company has
11
<PAGE>
a 364-day credit facility dedicated to NCRA, with a syndication of banks in the
amount of $50.0 million, all of which is committed. On May 31, 2000 and 1999,
the Company had total short-term indebtedness on these various facilities and
other short-term notes payable totaling $343.0 million and $170.0 million,
respectively. On August 31, 1999 the Company had $197.0 million outstanding on
its short-term lines of credit and other notes payable.
In June 1998, the Company established a five-year revolving credit facility
with a syndication of banks, with $200 million committed. As of May 31, 2000,
the Company had an outstanding balance of $45 million, categorized as long-term
debt. This outstanding balance was drawn during the three months ended May 31,
2000 to finance the purchase of an additional 10% interest in Ventura Foods and
other capital expenditures.
The Company has financed its long-term capital needs in the past, primarily
for the acquisition of property, plant and equipment, with long-term loan
agreements through the banks for cooperatives. In June 1998, the Company
established a long-term credit agreement through the banks for cooperatives.
This facility committed $200.0 million of long-term borrowing capacity to the
Company, with repayments through the fiscal year 2009. The commitment expired on
May 31, 1999. The amount outstanding on this credit agreement was $159.1 million
on May 31, 2000 and $164.0 million on August 31, 1999 and May 31, 1999,
respectively, with zero remaining available. Repayments of approximately $1.6
million and $4.9 million were made on this facility during the three months and
nine months ended May 31, 2000, respectively.
Also in June 1998, the Company entered into a private placement with
several insurance companies for long-term debt in the amount of $225 million.
Repayments will be made in equal installments of $37.5 million each in the years
2008 through 2013.
On May 31, 2000 the Company had total long-term debt outstanding of $511.0
million, of which approximately $262.9 million was bank financing, $225.0
million was private placement proceeds and $23.1 million was industrial revenue
bonds, capitalized leases and miscellaneous notes payable. Long-term debt of
NCRA represented $51.2 million of the total long-term debt outstanding on May
31, 2000. On August 31, 1999 and May 31, 1999, the Company had long-term debt
outstanding of $482.7 million and $485.9 million, respectively.
During the nine months ended May 31, 2000 and 1999, the Company repaid
long-term debt of $17.1 million and $11.8 million, respectively, and had
additional long-term debt borrowings of $45.0 and $40.6 million during those
same periods, respectively. During the three-month periods ended May 31, 2000
and 1999, the Company repaid long-term debt of $6.5 million and $4.5 million,
respectively, and had additional long-term borrowings of $45.0 million and $30.0
million, respectively.
In accordance with the By-Laws and by action of the Board of Directors,
annual net savings 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 By-Laws. The patronage
earnings from the fiscal year ended August 31, 1999 were distributed in January
and February 2000. The cash portion of this distribution, deemed by the Board of
Directors to be 75% for Equity Participation Units and 30% for regular earnings,
was approximately $17.9 million. During the nine months ended May 31, 1999 the
Company paid out cash patronage of approximately $43.8 million from the
patronage earnings of the former Harvest States Cooperatives fiscal year ended
May 31, 1998, the former Cenex, Inc. for the period ended May 31, 1998 and the
patronage earnings resulting from the combined operations of the Company for the
three months ended August 31, 1998.
The current equity redemption policy, as authorized by the Board of
Directors, allows for the redemption of capital equity certificates held by
inactive direct members and patrons and active members and patrons at age 72 or
death who were age 61 or older on June 1, 1998. For active direct members and
patrons who were age 60 or younger on June 1, 1998, and member cooperatives,
equities will be redeemed annually based on a prorata formula where the
numerator is dollars available for such purpose as determined by the Board of
Directors, and the denominator is the sum of the patronage certificates held by
such eligible members and patrons. Such redemptions related to the year ended
August 31, 1999, to be distributed in the current fiscal year, are expected to
be approximately $25.7 million, of which approximately $23.5 million was
redeemed during the nine months ended
12
<PAGE>
May 31, 2000. During the nine months ended May 31, 1999 the Company redeemed
approximately $15.1 million of equity. Approximately $10.4 million and $4.5
million of equity was redeemed by the Company during the three-month periods
ended May 31, 2000 and 1999, respectively.
During the year ended May 31, 1997, the Company offered securities in the
form of Equity Participation Units (EPUs) in its Wheat Milling and Oilseed
Processing and Refining Defined Business Units. These EPUs give the holder the
right and obligation to deliver to the Company a stated number of bushels in
return for a prorata share of the undiluted grain based patronage earnings of
these respective Defined Business Units. The offering resulted in the issuance
of such equity with a stated value of $13,870,000 and generated additional
capital and cash of $10,837,000, after issuance cost and conversion privileges.
Conversion privileges allowed a member to elect to use outstanding patrons'
equities for the payment of up to one-sixth the purchase price of the EPUs.
Holders of the EPUs 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 Member Marketing Agreement. The Board of Directors'
goal is to distribute patronage refunds attributable to the EPUs in the form of
75% cash and 25% capital equity certificates, and to retire those capital equity
certificates 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.
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company's management believes that inflation and foreign currency
fluctuations have not had a significant effect on its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, a new standard related to the accounting for derivative transactions
and hedging activities. In June 1999, the FASB issued SFAS No. 137 which defers
the effective date of SFAS No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. While management does not believe this standard
will materially impact the financial position and results of operations of the
Company, it is currently evaluating the reporting requirements under this new
standard.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes since the Company's fiscal year end
August 31, 1999.
13
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
------- ---------- -------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Receivables ................................................. $28,224 $24,650 $28,915
Inventories ................................................. 24,764 17,084 17,221
Other current assets ........................................ 20
------- ------- -------
Total current assets ....................................... 53,008 41,734 46,136
PROPERTY, PLANT AND EQUIPMENT ................................ 39,750 39,001 38,345
------- ------- -------
Total assets ............................................... $92,758 $80,735 $84,481
======= ======= =======
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Cenex Harvest States Cooperatives .................... $ 6,673 $ 9,546 $17,270
Accounts payable ............................................ 4,862 5,768 4,478
Accrued expenses ............................................ 5,848 4,227 4,256
------- ------- -------
Total current liabilities .................................. 17,383 19,541 26,004
COMMITMENTS AND CONTINGENCIES
DEFINED BUSINESS UNIT EQUITY ................................. 75,375 61,194 58,477
------- ------- -------
Total liabilities and defined business unit equity ......... $92,758 $80,735 $84,481
======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements
(unaudited).
14
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
-------------------- ----------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Processed oilseed sales ....................... $77,319 $93,021 $240,075 $279,794
Other revenue ................................. 232 160 811 232
------- ------- -------- --------
77,551 93,181 240,886 280,026
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold ............................ 70,491 88,801 221,912 265,688
Marketing, general and administrative ......... 1,405 1,435 3,943 4,084
Interest ...................................... 100 694
------- ------- -------- --------
71,896 90,336 225,855 270,466
------- ------- -------- --------
INCOME BEFORE INCOME TAXES ..................... 5,655 2,845 15,031 9,560
INCOME TAXES ................................... 335 50 850 325
------- ------- -------- --------
NET INCOME ..................................... $ 5,320 $ 2,795 $ 14,181 $ 9,235
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
(unaudited).
15
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------- ---------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income .......................................... $ 5,320 $ 2,795 $ 14,181 $ 9,235
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation ...................................... 631 388 1,876 1,500
Loss on disposal of property, plant and
equipment ........................................ 35
Changes in operating assets and liabilities:
Receivables ...................................... (3,590) 318 (3,574) (212)
Inventories ...................................... (7,359) 9,210 (7,680) 1,348
Other current assets ............................. 3 (20)
Accounts payable and accrued expenses ............ 493 (4,947) 715 (586)
-------- -------- -------- --------
Net cash (used in) provided by operating
activities .................................... (4,502) 7,764 5,533 11,285
-------- -------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ..... (1,075) (752) (2,683) (4,252)
Proceeds from disposition of property, plant
and equipment ................................... 23 23 3
-------- -------- -------- --------
Net cash used in investing activities .......... (1,052) (752) (2,660) (4,249)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to Cenex Harvest States
Cooperatives .................................... 5,554 (4,217) (2,873) 2,199
Defined business unit equity distributed to
the Company ..................................... (2,795) (9,235)
-------- -------- -------- --------
Net cash provided by (used in) financing
activities .................................... 5,554 (7,012) (2,873) (7,036)
-------- -------- -------- --------
NET INCREASE (DECREASE) IN CASH ...................... -- -- -- --
CASH AT BEGINNING OF PERIOD .......................... -- -- -- --
-------- -------- -------- --------
CASH AT END OF PERIOD ................................ -- -- -- --
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
(unaudited).
16
<PAGE>
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited balance sheets as of May 31, 2000 and 1999, and the
statements of operations and cash flows for the three months and nine months
ended May 31, 2000 and 1999 reflect, in the opinion of management of Cenex
Harvest States Cooperatives (the Company), all normal, recurring adjustments
necessary for a fair statement of the results of operations and cash flows for
the interim periods. The results of operations and cash flows for any interim
period are not necessarily indicative of results for the full year. The balance
sheet data as of August 31, 1999 was derived from audited financial statements
but does not include all disclosures required by accounting principles generally
accepted in the United States.
These statements should be read in conjunction with the financial
statements and footnotes included in the Oilseed Processing and Refining Defined
Business Unit financial statements for the year ended August 31, 1999, which are
included in the Company's Report on Form 10-K previously filed with the
Securities and Exchange Commission on November 22, 1999.
NOTE 2. RECEIVABLES
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
------- ---------- --------
Trade ................................. $28,619 $25,045 $29,310
Less allowance for doubtful accounts .. 395 395 395
------- ------- -------
$28,224 $24,650 $28,915
======= ======= =======
NOTE 3. INVENTORIES
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
------- ---------- -------
Processed oilseed products ............ $18,921 $11,918 11,803
Oilseed ............................... 5,843 5,166 $ 5,418
------- ------- -------
$24,764 $17,084 $17,221
======= ======= =======
17
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
See the Management Discussion and Analysis for the Company for discussion
of new accounting pronouncements.
RESULTS OF OPERATIONS
Patronage refunds to the Oilseed Processing and Refining Defined Business
Unit holders are 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 NINE MONTHS ENDED
MAY 31, MAY 31,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
(IN THOUSANDS EXCEPT PER BUSHEL INFORMATION)
<S> <C> <C> <C> <C>
Income before income taxes ................. $ 5,655 $ 2,845 $15,031 $ 9,560
Income from purchased oil .................. (1,035) (523) (3,851) (1,396)
Non-patronage joint venture income ......... (1) (154)
Book to tax differences .................... 24 1 69 5
------- ------- ------- -------
Taxable income ............................. $ 4,643 $ 2,323 $11,095 $ 8,169
======= ======= ======= =======
Bushels processed .......................... 9,819 9,166 29,064 26,784
Income per bushel .......................... $ 0.473 $ 0.253 $ 0.382 $ 0.305
</TABLE>
Certain operating information pertaining to the Oilseed Processing and
Refining Defined Business Unit is set forth below, as a percentage of processed
oilseed sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------- -------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Gross margin .............................. 8.83% 4.54% 7.57% 5.04%
Marketing, general and administrative ..... 1.82% 1.54% 1.64% 1.46%
Interest .................................. 0.00% 0.11% 0.00% 0.25%
</TABLE>
COMPARISON OF THREE MONTHS ENDED MAY 31, 2000 AND 1999
The Oilseed Processing and Refining Defined Business Unit net income of
$5.3 million for the three months ended May 31, 2000 represents a $2.5 million
increase (90%) compared to the three-month period ended May 31, 1999. An
increase in gross margin for soymeal of approximately $5.90 per ton, and an
increase in the refined oil margin of approximately 5 tenths of a cent per
pound, along with improved volumes of processed soybean products were the
primary factors in this improvement in net income for the three-month period
ended May 31, 2000 compared to the three-month period ended May 31, 1999.
Net sales of $77.3 million for the three months ended May 31, 2000
decreased by $15.7 million (17%) compared to the three months ended May 31,
1999. A reduction in the sales price for refined oil of approximately $0.07 per
pound and a reduction in refined oil sales volume of 34% was partially offset by
an increase of approximately $12 per ton for processed soybean products, and a
9% increase in sales volume for processed soybean products during the current
three-month period compared to the same period of a year ago.
Other revenues increased approximately $72 thousand (45%) during the three
months ended May 31, 2000 compared to the three months ended May 31, 1999.
During the 2000 period, the Defined Business Unit recognized interest income of
$211 thousand, accounting for most of this increase.
Cost of goods sold of $70.5 million for the three months ended May 31, 2000
decreased $18.3 million (21%) compared to the three months ended May 31, 1999.
Reduced cost for soybeans averaging $0.10 per bushel and reduced cost for crude
soybean oil averaging $0.11 per pound during the three months ended May 31,
2000, compared to the three months ended May 31, 1999 and a 16% decrease in
refining volume (approximately 26.6 million pounds) were partially offset by a
5% increase in crush volume (approximately 653 thousand bushels).
18
<PAGE>
Marketing, general and administrative expenses of approximately $1.4
million for the three months ended May 31, 2000 decreased approximately $30
thousand (2%) compared to the three months ended May 31, 1999.
During the three-month period ended May 31, 2000, the Oilseed Processing
and Refining Defined Business Unit incurred no net interest expense compared to
interest expense of approximately $100 thousand during the same period ended in
1999. This favorable variance is primarily attributable to the lower price of
raw material and finished products, which resulted in no excess borrowings based
on average outstanding daily balances.
Income tax expense of $335 thousand and $50 thousand for the three-month
periods ended May 31, 2000 and 1999, respectively, resulted in effective tax
rates of 5.9% and 1.8%. The effective tax rate varies from period to period
based upon the percentage of non-patronage business activity to total business
activity.
COMPARISON OF NINE MONTHS ENDED MAY 31, 2000 AND 1999
The Oilseed Processing and Refining Defined Business Unit net income of
$14.2 million for the nine months ended May 31, 2000 represents a $4.9 million
increase (54%) compared to the nine-month period ended May 31, 1999. This
improvement in income during the nine-month period ended May 31, 2000 compared
to the nine months ended May 31, 1999 was a result of an increase in gross
margin for refined oil of approximately 4 tenths of a cent per pound, an
increase in refined oil volume of approximately 3%, and an increase in processed
soybean product volume of approximately 9% which was partially offset by a
decline in the gross margin for the processed soybean products of $5.74 per ton.
Net sales of $240.1 million for the nine months ended May 31, 2000
decreased by $39.7 million (14%) compared to the nine months ended May 31, 1999.
A reduction in the sales price for refined oil of approximately $0.08 per pound
was partially offset by an increase of approximately $15 per ton for processed
soybean products, a 9% increase in sales volume for processed soybean products,
and a 3% increase in sales volume for refined oil during the current nine-month
period compared to the same period of a year ago.
Other revenues increased approximately $.6 million during the nine months
ended May 31, 2000 compared to the nine months ended May 31, 1999. During the
nine months ended May 31, 2000, the Defined Business Unit recognized interest
income of approximately $.7 million, and received approximately $.2 million from
an oilseed joint venture. These two income items accounted for nearly all of the
change in other revenues between the two periods.
Cost of goods sold of $221.9 million for the nine months ended May 31, 2000
decreased $43.8 million (16%) compared to the nine months ended May 31, 1999.
Reduced cost for crude soybean oil averaging $0.10 per pound, reduced cost for
soybeans averaging $0.37 per bushel, and a 2% decrease in refining volume
(approximately 9.1 million pounds) during the nine months ended May 31, 2000,
compared to the nine months ended May 31, 1999, were partially offset by a 9%
increase in crush volume (approximately 2.3 million bushels).
Marketing, general and administrative expenses of approximately $3.9
million for the nine months ended May 31, 2000 declined approximately $141
thousand (3%) compared to the nine months ended May 31, 1999.
During the nine-month period ended May 31, 2000, the Oilseed Processing and
Refining Defined Business Unit incurred no net interest expense compared to
interest expense of approximately $0.7 million during the same period ended in
1999. This favorable variance is primarily attributable to the lower price of
raw material and finished products, which resulted in no excess borrowings based
on average outstanding daily balances.
Income tax expense of $850 thousand and $325 thousand for the nine-month
periods ended May 31, 2000 and 1999, respectively, resulted in effective tax
rates of 5.7% and 3.4%. The effective tax rate varies from period to period
based upon the percentage of non-patronage business activity to total business
activity.
19
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Oilseed Processing and Refining Defined Business Unit's cash
requirements relate primarily to capital improvements and a need to finance
additional inventories and receivables based on increased raw material costs and
levels. These cash needs are expected to be fulfilled by the Company.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended May 31, 2000 used net cash
of $4.5 million. Net income of $5.3 million and non-cash expenses of $0.6
million were exceeded by an increase in working capital requirements of $10.4
million to generate this net use of cash. For the three-month period ended May
31, 1999, operating activities provided net cash of $7.8 million. During that
period, net income of $2.8 million, non-cash expenses of approximately $0.4
million and reduced working capital requirements of approximately $4.6 million
provided this net cash from operating activities.
Operating activities for the nine months ended May 31, 2000 provided net
cash of $5.5 million. Net income of $14.2 million and non-cash expenses of $1.9
million were partially offset by an increase in working capital requirements of
$10.6 million. For the nine-month period ended May 31, 1999, operating
activities provided net cash of $11.3 million. During that period, net income of
$9.2 million, non-cash expenses of approximately $1.5 million and reduced
working capital requirements of approximately $0.6 million provided this net
cash.
CASH FLOWS FROM INVESTING
During the three-month periods ended May 31, 2000 and 1999, the Oilseed
Processing and Refining Defined Business Unit used cash for investing activities
of $1.1 million and $0.8 million, respectively, primarily for the acquisition of
property, plant and equipment.
During the nine-month periods ended May 31, 2000 and 1999, the Oilseed
Processing and Refining Defined Business Unit used cash for investing activities
of $2.7 million and $4.2 million, respectively, primarily for the acquisition of
property plant and equipment.
CASH FLOWS FROM FINANCING
The Oilseed Processing and Refining 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
Oilseed Processing and Refining 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.
The Oilseed Processing and Refining Defined Business Unit had amounts
payable to the Company of $6.7 million on May 31, 2000 compared to $9.5 million
on August 31, 1999 and $17.3 million on May 31, 1999. These interest-bearing
balances reflect working capital and fixed asset financing requirements, and are
influenced by the prices of soybeans and crude soybean oil.
20
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
ITEM 1. FINANCIAL STATEMENTS
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
------------- ------------ ------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Receivables .................................................. $ 31,631 $ 30,960 $ 32,579
Inventories .................................................. 18,691 14,339 15,910
Other current assets ......................................... 144 210 93
-------- -------- --------
Total current assets ........................................ 50,466 45,509 48,582
PROPERTY, PLANT AND EQUIPMENT ................................. 128,745 110,547 111,254
INTANGIBLE ASSETS ............................................. 8,614 9,415 9,681
-------- -------- --------
Total assets ................................................ $187,825 $165,471 $169,517
======== ======== ========
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
CURRENT LIABILITIES:
Due to Cenex Harvest States Cooperatives ..................... $ 81,488 $ 48,938 $ 45,597
Accounts payable ............................................. 8,686 7,238 12,236
Accrued expenses ............................................. 4,210 4,440 2,447
Current portion of long-term debt ............................ 10,005 10,005 10,005
-------- -------- --------
Total current liabilities ................................... 104,389 70,621 70,285
LONG-TERM DEBT, CENEX HARVEST STATES
COOPERATIVES ................................................. 21,194 28,510 31,199
COMMITMENTS AND CONTINGENCIES .................................
DEFINED BUSINESS UNIT EQUITY .................................. 62,242 66,340 68,033
-------- -------- --------
Total liabilities and defined business unit equity ......... $187,825 $165,471 $169,517
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
(unaudited).
21
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
---------------------- ----------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Processed grain sales ......................... $53,132 $44,528 $156,862 $129,565
------- ------- -------- --------
COSTS AND EXPENSES:
Cost of goods sold ............................ 50,844 43,356 146,685 125,193
Marketing, general and administrative ......... 3,570 3,580 9,786 8,259
Interest ...................................... 1,805 1,522 4,874 3,601
------- ------- -------- --------
56,219 48,458 161,345 137,053
------- ------- -------- --------
LOSS BEFORE INCOME TAXES ....................... (3,087) (3,930) (4,483) (7,488)
INCOME TAXES ................................... (255) (325) (385) (600)
------- ------- -------- --------
NET LOSS ....................................... ($ 2,832) ($ 3,605) ($ 4,098) ($ 6,888)
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
(unaudited).
22
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
------------------------ -----------------------
(DOLLARS IN THOUSANDS) 2000 1999 2000 1999
------- -------- -------- --------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................... ($ 2,832) ($ 3,605) ($ 4,098) ($ 6,888)
Adjustments to reconcile net loss to net cash provided
by (used in) operating activities:
Depreciation and amortization ............................ 1,687 1,528 5,065 4,146
Changes in operating assets and liabilities:
Receivables ............................................. 5,190 186 (671) 2,649
Inventories ............................................. (584) 7,227 (4,352) 2,985
Other current assets .................................... (5) 72 66 337
Accounts payable and accrued expenses ................... (566) (842) 1,218 2,013
------- ------- -------- --------
Net cash provided by (used in) operating activities ..... 2,890 4,566 (2,772) 5,242
------- ------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ............... (21,305) (1,937) (22,462) (17,172)
------- ------- -------- --------
Net cash used in investing activities ................. (21,305) (1,937) (22,462) (17,172)
-------- ------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to Cenex Harvest States Cooperatives ......... 20,854 (3,795) 32,550 12,359
Principal payments on long-term debt ....................... (2,439) (2,439) (7,316) (7,317)
Defined business unit equity distributed to the Company .... 3,605 6,888
------- ------- -------- --------
Net cash provided by (used in) financing
activities ........................................... 18,415 (2,629) 25,234 11,930
------- ------- -------- --------
NET INCREASE (DECREASE) IN CASH ............................. -- -- -- --
CASH AT BEGINNING OF PERIOD ................................. -- -- -- --
------- ------- -------- --------
CASH AT END OF PERIOD ....................................... -- -- -- --
======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements
(unaudited).
23
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited balance sheets as of May 31, 2000 and 1999, and the
statements of operations and cash flows for the three months and nine months
ended May 31, 2000 and 1999 reflect, in the opinion of management of Cenex
Harvest States Cooperatives (the Company), all normal, recurring adjustments
necessary for a fair statement of the results of operations and cash flows for
the interim periods. The results of operations and cash flows for any interim
period are not necessarily indicative of results for the full year. The balance
sheet data as of August 31, 1999 was derived from audited financial statements
but does not include all disclosures required by accounting principles generally
accepted in the United States.
These statements should be read in conjunction with the financial
statements and footnotes included in the Wheat Milling Defined Business Unit
financial statements for the year ended August 31, 1999, which are included in
the Company's Report on Form 10-K previously filed with the Securities and
Exchange Commission on November 22, 1999.
NOTE 2. RECEIVABLES
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
------- --------- -------
Trade ................................... $32,253 $32,274 $33,471
Other ................................... 626 454 1,088
------- ------- -------
32,879 32,728 34,559
Less allowance for doubtful accounts .... 1,248 1,768 1,980
------- ------- -------
$31,631 $30,960 $32,579
======= ======= =======
NOTE 3. INVENTORIES
MAY 31, AUGUST 31, MAY 31,
2000 1999 1999
------- --------- -------
Grain ................................... $15,450 $11,915 $12,903
Processed grain products ................ 2,630 1,815 2,114
Other ................................... 611 609 893
------- ------- -------
$18,691 $14,339 $15,910
======= ======= =======
24
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In April 2000, the Wheat Milling Defined Business Unit purchased a mill
located near Fairmount, North Dakota at a cost of $19.9 million. The mill has an
annual grind capacity of approximately 6.1 million bushels and produces baking
flour.
In June 2000, the Wheat Milling Defined Business Unit signed a contract to
become the major supplier of the flour required to make the pasta for Kraft's
blue box macaroni & cheese. The flour will be mainly produced at the Rush City,
Minnesota mill. Flour could also be supplied by the Huron, Ohio and Kenosha,
Wisconsin mills.
See the Management's Discussion and Analysis for the Company for discussion
of new accounting pronouncements.
RESULTS OF OPERATIONS
Patronage refunds to the Wheat Milling Defined Business Unit holders are
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>
FOR THE FOR THE
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(IN THOUSANDS EXCEPT PER BUSHEL INFORMATION)
Loss before income taxes ................... $ (3,087) $ (3,930) $ (4,483) $ (7,488)
Book to tax differences .................... 102 96 304 289
-------- -------- -------- --------
Taxable loss ............................... $ (2,985) $ (3,834) $ (4,179) $ (7,199)
======== ======== ======== ========
Bushels processed .......................... 10,957 9,719 31,785 26,278
Loss per bushel ............................ $ (0.27) $ (0.39) $ (0.13) $ (0.27)
-------- -------- -------- --------
</TABLE>
Certain operating information pertaining to the Wheat Milling Defined
Business Unit is set forth below, as a percentage of sales.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MAY 31, MAY 31,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Gross margin .................................. 4.31% 2.63% 6.49% 3.37%
Marketing, general and administrative ......... 6.72% 8.04% 6.24% 6.37%
Interest ...................................... 3.40% 3.42% 3.11% 2.78%
</TABLE>
COMPARISON OF THREE MONTHS ENDED MAY 31, 2000 AND 1999
The Wheat Milling Defined Business Unit incurred a net loss of
approximately $2.8 million for the three months ended May 31, 2000 compared to a
net loss of $3.6 million during the three months ended May 31, 1999, which
resulted in an improvement of approximately $.8 million (21%). This improvement
in operating results is primarily attributable to a $0.15 per hundred weight
increase in the average gross margin for all products and a 13% increase in
volume.
Net sales of $53.1 million for the three months ended May 31, 2000
increased approximately $8.6 million (19%) compared to the three-month period
ended May 31, 1999. An increase in the average sales price of $0.46 per hundred
weight and a .7 million hundred-weight volume increase accounted for these
additional sales dollars.
Cost of goods sold of $50.8 million for the three months ended May 31, 2000
increased $7.4 million (17%) compared to the three-month period ended May 31,
1999. An increase of $0.26 in the average cost per bushel of raw material and an
increase in bushel grind of approximately 1.2 million bushels during the current
three-month period produced this additional cost. Mill expenses were essentially
unchanged.
25
<PAGE>
Marketing, general and administrative expenses of $3.6 million for the
three months ended May 31, 2000 were unchanged compared to the three months
ended May 31, 1999.
Interest expense of $1.8 million during the three months ended May 31, 2000
increased approximately $0.3 million (19%) compared to the three-month period
ended May 31, 1999. This increase in interest expense is attributable to the
purchase of the Fairmount, North Dakota mill in April 2000, slightly increased
working capital requirements and a half a percent increase in the overall
effective interest rate on short-term indebtedness.
An income tax benefit of $.3 million for the three months ended May 31,
2000 is based upon an effective tax rate of 8.3% applied to the pretax loss of
approximately $3.1 million. For the three months ended May 31, 1999, an income
tax benefit of $.3 million was based upon an effective tax rate of 8.3% applied
to a pretax loss of $3.9 million. The effective tax rate varies from period to
period based upon the percentage of non-patronage business activity to total
business activity.
COMPARISON OF NINE MONTHS ENDED MAY 31, 2000 AND 1999
The Wheat Milling Defined Business Unit incurred a net loss of
approximately $4.1 million for the nine months ended May 31, 2000 compared to a
net loss of $6.9 million during the nine months ended May 31, 1999, for an
improvement of approximately $2.8 million (41%). This improvement in operating
results is primarily attributable to a $0.25 per hundred weight increase in the
average gross margin for all products and a 21% increase in volume.
Net sales of $156.9 million for the nine months ended May 31, 2000
increased approximately $27.3 million (21%) compared to the nine months ended
May 31, 1999. A reduction to the average sales price of $0.03 per hundred weight
was offset by a 3.4 million hundred weight volume increase. The increased volume
is primarily attributable to the Mount Pocono mill which commenced operations in
January of 1999, and the Huron mill, which during the 1999 period, was under
conversion of one of its lines from semolina to bakery flour.
Cost of goods sold of $146.7 million for the nine months ended May 31, 2000
increased $21.5 million (17%) compared to the nine-month period ended May 31,
1999. While the average cost per bushel of raw material declined $0.09 during
the nine months ended May 31, 2000 compared to the same nine months of a year
ago, increased bushel grind of approximately 5.5 million bushels and increased
milling expense of approximately $1.7 million offset this price variance.
Essentially all of the increased mill expense is attributable to Mount Pocono,
which commenced operations in January, 1999.
Marketing, general and administrative expenses of $9.8 million for the nine
months ended May 31, 2000 increased approximately $1.5 million (18%) compared to
the nine months ended May 31, 1999. Most of this increase is attributable to
activities of the Mount Pocono mill, which operated on a limited basis during
the 1999 period.
Interest expense of $4.9 million during the nine months ended May 31, 2000
increased approximately $1.3 million (35%) compared to the nine-month period
ended May 31, 1999. Most of this increase in interest expense is attributable to
the capitalized cost for the Mount Pocono mill.
An income tax benefit of $.4 million for the nine months ended May 31, 2000
is based upon an effective tax rate of 8.6% applied to the pretax loss of
approximately $4.5 million. For the nine months ended May 31, 1999, an income
tax benefit of $.6 million was based upon an effective tax rate of 8.0% applied
to a pretax loss of $7.5 million. The effective tax rate varies from period to
period based upon the percentage of non-patronage business activity to total
business activity.
LIQUIDITY AND CAPITAL RESOURCES
The Wheat Milling Defined Business Unit's cash requirements result from
capital improvements and the need to finance additional inventories and
receivables based on increased raw material costs and levels. These cash needs
are expected to be fulfilled by the Company.
CASH FLOWS FROM OPERATIONS
Operating activities for the three months ended May 31, 2000 provided net
cash of approximately $2.9 million. Non-cash expenses of $1.7 million and
reduced working capital requirements of $4.0 million
26
<PAGE>
were partially offset by the net operating loss of $2.8 million. Operating
activities for the three months ended May 31, 1999 provided net cash of
approximately $4.6 million. Non-cash expenses of approximately $1.5 million and
decreased working capital requirements of $6.7 million were partially offset by
the net operating loss of $3.6 million incurred during that period.
Operating activities for the nine months ended May 31, 2000 used net cash
of approximately $2.8 million. Non cash expenses of $5.1 million were offset by
the net operating loss of $4.1 million and increased working capital
requirements of approximately $3.8 million. Increased working capital
requirements were primarily attributable to increased volume activity. Operating
activities for the nine months ended May 31, 1999 provided net cash of
approximately $5.2 million. Non-cash expenses of approximately $4.1 million and
reduced working capital requirements of approximately $8.0 million were
partially offset by the net operating loss of $6.9 million.
CASH FLOWS FROM INVESTING
Cash expended for the acquisition of property, plant and equipment during
the three-month periods ended May 31, 2000 and 1999, totaled approximately $21.3
million and $1.9 million, respectively. During the three months ended May 31,
2000, the Wheat Milling Defined Business Unit acquired a mill near Fairmount,
North Dakota at a total cost of $19.9 million.
Cash expended for the acquisition of property, plant and equipment during
the nine-month periods ended May 31, 2000 and 1999, totaled approximately $22.5
million and $17.2 million, respectively. The majority of the capital
expenditures during the 1999 period were for the completion of the Mount Pocono
mill.
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 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 availability of funds.
The Wheat Milling Defined Business Unit had amounts payable to the Company
of $81.5 million on May 31, 2000 compared to $48.9 million on August 31, 1999,
and $45.6 million on May 31, 1999. This increase is primarily attributable to
the acquisition of the mill in Fairmount, North Dakota in April 2000, and
repayments of long-term debt which effectively transfers long-term debt to
short-term debt.
The Wheat Milling Defined Business Unit had long-term debt outstanding and
payable to the Company of $31.2 million on May 31, 2000 compared with $38.5
million on August 31, 1999, and $41.2 million of May 31, 1999. This debt was
originally incurred for the acquisition, expansion, and construction of certain
mills within the Wheat Milling Defined Business Unit. Approximately $10.0
million of the current balance is payable within the next twelve months.
27
<PAGE>
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
(a) Exhibits
EXHIBIT DESCRIPTION
------- ------------------------------------------------------------
10.41 Second Amendment to Credit Agreement (Revolving Loan) dated
May 23, 2000 by and among Cenex Harvest States Cooperatives,
CoBank, ACB, Bank of America, Sun Trust Bank and the
Syndication Parties
10.42 Second Amendment to Credit Agreement (Term Loan) dated May
23, 2000 by and among Cenex Harvest States Cooperatives,
CoBank, ACB, St. Paul Bank for Cooperatives and the
Syndication Parties
99 Cautionary Statement
27 Financial Data Schedule (EDGAR filing only)
(b) Reports on Form 8-K
None.
28
<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.
CENEX HARVEST STATES COOPERATIVES
-------------------------------------------
(Registrant)
NAME TITLE DATE
---- ----- ----
/S/ JOHN SCHMITZ Executive Vice President and July 10, 2000
-------------------- Chief Financial Officer
John Schmitz
29
