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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 November 30, 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
(Address of principal executive offices and zip code) number including area
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
November 30, 2000)
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<PAGE>
INDEX
<TABLE>
<CAPTION>
PAGE
NO.
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PART I. FINANCIAL INFORMATION ......................................................... 1
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
<S> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 2000 (unaudited), August 31,
2000 and November 30, 1999 (unaudited) ............................................ 2
Consolidated Statements of Operations for the three months ended November 30, 2000
and 1999 (unaudited) .............................................................. 3
Consolidated Statements of Cash Flows for the three months ended November
30, 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 ................ 12
OILSEED PROCESSING AND REFINING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
Item 1. Financial Statements
Balance Sheets as of November 30, 2000 (unaudited), August 31, 2000 and
November 30, 1999 (unaudited) ..................................................... 13
Statements of Operations for the three months ended November 30, 2000
and 1999 (unaudited) .............................................................. 14
Statements of Cash Flows for the three months ended November 30, 2000
and 1999 (unaudited) .............................................................. 15
Notes to Financial Statements (unaudited) ......................................... 16
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................... 17
WHEAT MILLING DEFINED BUSINESS UNIT
(A DEFINED BUSINESS UNIT OF CENEX HARVEST STATES COOPERATIVES)
Item 1. Financial Statements
Balance Sheets as of November 30, 2000 (unaudited), August 31, 2000 and
November 30, 1999 (unaudited) ..................................................... 2O
Statements of Operations for the three months ended November 30, 2000
and 1999 (unaudited) .............................................................. 21
Statements of Cash Flows for the three months ended November 30, 2000
and 1999 (unaudited) .............................................................. 22
Notes to Financial Statements (unaudited) ......................................... 23
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations ..................................................................... 24
PART II. OTHER INFORMATION
Items 1 through 3 have been omitted since all items are inapplicable or
answers are negative
Item 4. Submission of Matters to a Vote of Security Holders ....................... 27
Item 5 has been omitted since the answer is negative
Item 6. Exhibits and Reports on Form 8-K .......................................... 27
SIGNATURE PAGE ........................................................................ 28
</TABLE>
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. The current short supply and
high demand for natural gas will impact the supply of fertilizer. 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 inventories 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 November
30, 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
November 30, August 31, November 30,
(DOLLARS IN THOUSANDS) 2000 2000 1999
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(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 87,537 $ 56,393 $ 56,142
Receivables 839,826 834,743 721,771
Inventories 686,308 602,385 673,647
Other current assets 50,377 37,777 40,030
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Total current assets 1,664,048 1,531,298 1,491,590
Investments 454,233 451,211 416,966
Property, plant and equipment 1,035,722 1,034,768 978,815
Other 196,015 155,403 119,676
----------------------------------------------
Total assets $ 3,350,018 $ 3,172,680 $ 3,007,047
==============================================
LIABILITIES AND EQUITIES
Current liabilities:
Notes payable $ 308,055 $ 217,926 $ 229,354
Current portion of long-term debt 28,573 30,173 21,221
Patrons' credit balances 73,863 36,779 47,639
Patrons' advance payments 129,077 131,935 250,552
Checks and drafts outstanding 72,774 84,086 36,900
Accounts payable 645,349 624,772 473,030
Accrued expenses 136,308 147,710 133,522
Patronage dividends and equity retirements payable 67,957 43,694 36,089
----------------------------------------------
Total current liabilities 1,461,956 1,317,075 1,228,307
Long-term debt 473,384 480,327 455,601
Other liabilities 92,265 84,929 79,697
Minority interests in subsidiaries 126,800 125,923 121,165
Commitments and contingencies
Equities 1,195,613 1,164,426 1,122,277
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Total liabilities and equities $ 3,350,018 $ 3,172,680 $ 3,007,047
==============================================
</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
Three Months Ended
November 30,
-------------------------------
(DOLLARS IN THOUSANDS) 2000 1999
---- ----
<S> <C> <C>
REVENUES:
Net sales $ 2,168,782 $ 2,018,758
Patronage dividends 425 258
Other revenues 30,130 25,980
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2,199,337 2,044,996
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COSTS AND EXPENSES:
Cost of goods sold 2,110,960 1,984,813
Marketing, general and administrative 38,410 39,292
Interest 15,572 12,956
Minority interests 3,733 537
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2,168,675 2,037,598
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INCOME BEFORE INCOME TAXES AND
CUMULATIVE EFFECT OF ACCOUNTING CHANGE 30,662 7,398
Income taxes (32,123) (1,721)
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NET INCOME BEFORE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE 62,785 9,119
Cumulative effect of accounting change,
net of income tax benefit (3,263)
-------------------------------
NET INCOME $ 59,522 $ 9,119
===============================
</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
Three Months Ended
November 30,
-------------------------------
(DOLLARS IN THOUSANDS) 2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 59,522 $ 9,119
Adjustments to reconcile net income to
net cash (used in) provided by operating activities:
Cumulative effect of accounting change, net
of income tax benefit 3,263
Depreciation and amortization 24,755 22,178
Noncash net (income) loss from joint ventures (2,360) 823
Minority interests 3,733 537
Noncash portion of patronage dividends received (151) (70)
Gain on sale of property, plant and
equipment (626) (76)
Changes in operating assets and liabilities:
Receivables (5,018) (115,292)
Inventories (83,923) (69,545)
Other current assets and other assets (57,936) (1,068)
Patrons' credit balances 37,084 2,669
Patrons' advance payments (2,858) 122,797
Accounts payable and accrued expenses 9,175 37,050
Other liabilities 7,336 (8,476)
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Net cash (used in) provided by
operating activities (8,004) 646
-------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment (24,412) (31,854)
Proceeds from disposition of property, plant and
equipment 1,515 456
Investments (7,481) (3,164)
Investments redeemed 7,733 11,589
Changes in notes receivable (32) 53
Distribution to minority owners (3,988) (1,248)
Other investing activities, net 1,076 689
-------------------------------
Net cash used in investing
activities (25,589) (23,479)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable 90,129 32,368
Long-term debt borrowings 565
Principal payments on long-term debt (9,108) (5,844)
Changes in checks and drafts outstanding (11,312) (11,705)
Retirements of equity (5,537) (11,511)
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Net cash provided by financing
activities 64,737 3,308
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NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 31,144 (19,525)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 56,393 75,667
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CASH AND CASH EQUIVALENTS AT END
OF PERIOD $ 87,537 $ 56,142
===============================
</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 November 30, 2000 and 1999, and
the statements of operations and cash flows for the three months ended November
30, 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 financial position and 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, 2000 was derived from audited
consolidated financial statements but does not include all disclosures required
by accounting principles generally accepted in the United States of America.
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.
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, 2000, included in the
Company's Report on Form 10-K previously filed with the Securities and Exchange
Commission on November 22, 2000.
EQUITIES
The Company's Board of Directors approved a resolution to compute patronage
distributions based on audited earnings for financial statement purposes rather
than tax basis earnings effective September 1, 2000. The resolution was ratified
by the Company's members on December 1, 2000 at the Company's annual meeting.
Beginning in fiscal year 2001 patronage distributions will be based on audited
financial statement earnings.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The Company adopted SFAS No. 133, as amended, a standard related to the
accounting for derivative transactions and hedging activities, effective
September 1, 2000. The effect of adoption was a loss of $3.6 million ($3.3
million net of income tax benefit), relating to the energy segment.
All of the Company's derivatives are designated as non-hedge derivatives. The
futures, options, and forward contracts utilized by the Company are discussed
below. Although the contracts are effective economic hedges of specified risks,
they are not designated as and accounted for as hedging instruments.
The Company, as part of its trading activity, utilizes futures and option
contracts offered through regulated commodity exchanges to reduce risk. The
Company is exposed to risk of loss in the market value of inventories and fixed
or partially fixed purchase and sale contracts. To reduce that risk, the Company
generally takes opposite and offsetting positions using future contracts or
options.
Certain commodities cannot be hedged with future or option contracts because
such contracts are not offered for these commodities by regulated commodity
exchanges. Inventories and purchase contracts for those commodities are hedged
with forward sales contracts to the extent practical so as to arrive at a net
commodity position within the formal position limits set by the Company and
deemed prudent for each of those commodities. Commodities for which future
contracts and options are available are also typically hedged first in this
manner, with futures and options used to hedge within position limits that
portion not covered by forward contracts.
Unrealized gains and losses on futures contracts and options used to hedge grain
and oilseed inventories and fixed priced contracts are recognized currently for
financial reporting, and the inventories
5
<PAGE>
and fixed priced contracts are marked to market so that gains and losses on the
derivative contracts are offset by gains and losses on inventories and fixed
priced contracts during the same accounting period.
Unrealized gains and losses on futures contracts and options used to hedge
energy inventories and fixed priced contracts are also recognized currently for
financial reporting. The inventories hedged with these derivatives are valued at
the lower of cost or market, and the fixed priced contracts are marked to
market.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements".
The SAB summarizes certain of the SEC staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. In June 2000, the SEC issued SAB 101B,
which delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
does not believe that adoption of this SAB will materially impact its financial
statements.
NOTE 2. RECEIVABLES
November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
Trade $ 830,540 $ 834,349 $ 739,048
Other 32,478 23,643 6,399
------------ ------------ ------------
863,018 857,992 745,447
Less allowances for doubtful accounts 23,192 23,249 23,676
------------ ------------ ------------
$ 839,826 $ 834,743 $ 721,771
============ ============ ============
NOTE 3. INVENTORIES
November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
Energy $ 289,398 $ 286,276 $ 319,992
Grain and oilseed 299,289 215,570 207,662
Agronomy -- -- 80,943
Processed grain and oilseed 24,558 32,993 11,066
Feed and farm supplies 69,210 63,909 50,953
Other 3,853 3,637 3,031
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$ 686,308 $ 602,385 $ 673,647
============ ============ ============
NOTE 4. INVESTMENTS
The following provides summarized unuadited financial information for Ventura
Foods, LLC and Agriliance, LLC for the three month periods indicated below.
VENTURA FOODS, LLC
November 30, November 30,
2000 1999
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Net sales $ 223,922 $ 224,475
Gross profit 33,877 35,744
Net income 11,464 12,787
AGRILIANCE, LLC
November 30,
2000
------------
Net sales $ 660,881
Gross profit 56,998
Net loss (22,637)
6
<PAGE>
NOTE 5. COMPREHENSIVE INCOME
During the three months ended November 30, 2000 and 1999, total comprehensive
income amounted to $60.9 million and $9.2 million, respectively. Accumulated
other comprehensive loss on November 30, 2000, August 31, 2000 and November 30,
1999 was $(1.0) million, $(2.4) million and $(1.1) million, respectively.
NOTE 6. SEGMENT REPORTING
Effective September 1, 2000, the Company's management reorganized the way its
businesses are managed and internally reported. A new segment called Country
Operations was created. This new segment includes the former Farm Marketing &
Supply business previously included in the Grain Marketing and Farm Marketing &
Supply segment, and also the Country Services, Hedging and Insurance services
formerly included in Other. With the reorganization there are now five segments.
These segments, which are based on products and services, include Agronomy,
Energy, Grain Marketing, Country Operations, and Processed Grain and Consumer
Products. Reconciling items represent the elimination of intra-company sales
between segments. Intra-company sales from Country Operations to Grain Marketing
were $205.5 million and $182.4 million for the three months ended November 30,
2000 and 1999, respectively. Intra-company sales from Energy to Country
Operations were $20.0 million and $11.4 million for the three months ended
November 30, 2000 and 1999, respectively. The prior year's segment information
has been restated to reflect the change in segments. 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 ended November 30, 2000 and 1999 is as
follows:
<TABLE>
<CAPTION>
PROCESSED GRAIN
GRAIN COUNTRY AND CONSUMER RECONCILING
AGRONOMY ENERGY MARKETING OPERATIONS PRODUCTS OTHER AMOUNTS TOTAL
-------- ------ --------- ---------- -------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2000
Net sales $ 873,396 $ 967,490 $ 401,885 $ 151,539 $(225,528) $2,168,782
Patronage dividends $ 268 9 57 33 $ 58 425
Other revenues (5,229) 902 7,260 20,426 5,733 1,038 30,130
----------------------------------------------------------------------------------------------------
(4,961) 874,307 974,807 422,344 157,272 1,096 (225,528) 2,199,337
Cost of goods sold 830,386 965,302 400,979 139,821 (225,528) 2,110,960
Marketing, general and
administrative 1,790 9,750 5,508 12,208 7,377 1,777 38,410
Interest (1,171) 7,080 2,165 3,737 3,708 53 15,572
Minority interests 3,730 3 3,733
----------------------------------------------------------------------------------------------------
(Loss) income before income
taxes and cumulative effect
of accounting change $ (5,580) $ 23,361 $ 1,832 $ 5,417 $ 6,366 $ (734) $ -- $ 30,662
====================================================================================================
Total identifiable assets $ 220,982 $ 1,379,552 $ 336,740 $ 786,490 $ 407,392 $ 218,862 $ -- $3,350,018
====================================================================================================
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 1999
Net sales $ 102,063 $ 670,619 $ 956,343 $ 347,380 $ 136,152 $(193,799) $2,018,758
Patronage dividends 111 15 29 44 $ 59 258
Other revenues (7,810) 639 7,283 19,088 5,246 1,534 25,980
----------------------------------------------------------------------------------------------------
94,364 671,273 963,655 366,512 141,398 1,593 (193,799) 2,044,996
Cost of goods sold 95,570 655,351 953,859 347,935 125,897 (193,799) 1,984,813
Marketing, general and
administrative 4,412 11,634 5,456 11,830 4,635 1,325 39,292
Interest 1,331 5,215 2,219 2,124 1,536 531 12,956
Minority interests 515 22 537
----------------------------------------------------------------------------------------------------
(Loss) income before income
taxes $ (6,949) $ (1,442) $ 2,121 $ 4,601 $ 9,330 $ (263) $ -- $ 7,398
====================================================================================================
Total identifiable assets $ 393,150 $ 1,206,680 $ 352,784 $ 567,272 $ 322,006 $ 165,155 $ -- $3,007,047
====================================================================================================
</TABLE>
Assets included in "Other" primarily consisted of corporate facilities and
assets not allocated to business segments.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Effective September 1, 2000, the Board of Directors approved a resolution
requiring the Company to compute patronage distributions using audited earnings
for financial statement purposes rather than tax basis earnings. The resolution
was ratified by the members on December 1, 2000 at the Company's annual meeting.
Beginning in fiscal year 2001, patronage distributions will be based on audited
financial statement earnings.
The Company adopted SFAS No. 133, as amended, a standard related to the
accounting for derivative transactions and hedging activities, effective
September 1, 2000. The effect of adoption was a loss of $3.6 million ($3.3
million net of income tax benefit) related to the energy segment. All of the
Company's derivatives are designated as non-hedge derivatives. The Company
utilizes futures, options and forward contracts related to grain and energy
inventories. Although the contracts are effective economic hedges of specified
risks, they are not designated as and accounted for as hedging instruments.
RESULTS OF OPERATIONS
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
Consolidated net income for the three months ended November 30, 2000 was
$59.5 million compared to net income of $9.1 million for the same three-month
period in 1999, which represents a $50.4 million increase. This increase in
profitability is primarily attributable to an increase in net income from the
Company's energy segment of $21.2 million and a change in the tax rate applied
to the Company's cumulative temporary differences between earnings for financial
statement purposes and tax basis earnings resulting in an increase in deferred
tax assets of approximately $34.2 million during the current quarter, which was
partially offset by current income tax expense of $1.7 million. The Company's
calculation of its patronage distribution using audited earnings for financial
statement purposes rather than tax earnings prompted the rate change.
Consolidated net sales of $2.2 billion for the three months ended November
30, 2000 increased approximately $150.0 million (7%) compared to the same three
months ended in 1999.
Company-wide grain and oilseed net sales of $1.0 billion increased $17.5
million (2%) during the three months ended November 30, 2000 compared to the
same three months ended in 1999. Sales for the three months ended November 30,
2000 were $967.5 million and $258.4 million from Grain Marketing and Country
Operations, respectively. Sales for the three months ended November 30, 1999
were $956.3 million and $229.0 million from Grain Marketing and Country
Operations, respectively. The Company eliminated all intra-company sales from
Country Operations to its Grain Marketing segments, of $205.5 million and $182.4
million, for the three months ended November 30, 2000 and 1999, respectively.
The increase in sales was primarily due to an increase in grain volume of
approximately 9%, which was partially offset by a decrease of $0.20 per bushel
in the average sales price of all grain and oilseed marketed by the Company
compared to the same three months ended in 1999.
Energy sales of $873.4 million increased $202.8 million (30%) during the
three months ended November 30, 2000 compared to the same period in 1999. This
increase is primarily attributable to an increase in the average sales price of
refined fuels of $0.33 per gallon, which was partially offset by a volume
decrease of 9% compared to the same three months ended in 1999. In addition, the
average sales price of propane increased by $0.20 per gallon and volume
increased by 32% compared to the same three months ended in 1999. Effective
August 30, 2000, National Cooperative Refining Association (NCRA) gave notice of
its intent to terminate and dissolve Cooperative Refining Association, LLC
(CRLLC), in accordance with the agreements no later than September 1, 2001. The
Company owns 58% of CRLLC through its 75% ownership in NCRA and therefore will
consolidate CRLLC's business activity up to the time of dissolution. The
dissolution will tentatively occur in the second quarter of fiscal year 2001.
The Company did not record Agronomy sales during the three months ended
November 30, 2000 compared to $102.1 million for the same three-month period in
1999. Effective January 1, 2000, the Company exchanged its agronomy operations
for an ownership interest in Agriliance, LLC (owned
8
<PAGE>
indirectly through United Country Brands, LLC). As of July 31, 2000, the Company
recorded the results of its 25% ownership in Agriliance, LLC on the equity
method, and as such, income or losses are reflected in other revenues.
Country Operations feed and farm supply sales of $143.5 million increased by
$25.1 million (21%) during the three months ended November 30, 2000 compared to
the same three months ended in 1999. This increase is primarily due to
additional volume from new acquisitions and price increases primarily in
agronomy and energy products.
Processed Grain and Consumer Products sales of $151.5 million increased $15.4
million (11%) during the three months ended November 30, 2000 compared to the
same three months ended in 1999. Sales of processed oilseed increased by $4.6
million due to volume and price increases compared to the same three months
ended in 1999. Sales of processed wheat increased by $1.7 million compared to
the same three months ended in 1999, primarily due to increased volume. The
addition of tortilla operations as the result of the acquisition of Sparta
Foods, Inc. on June 1, 2000 added $9.1 million of sales to the first quarter of
fiscal year 2001.
Other revenues of $30.1 million increased $4.2 million (16%) during the three
months ended November 30, 2000 compared to the same three months ended in 1999.
The most significant change within other revenues was a decrease in the losses
from the agronomy segment of $2.6 million. The Company records its 25% share of
Agriliance, LLC, on the equity method as discussed above. In addition, service
and other revenues increased $1.6 million, primarily at the Company's Country
Operations facilities.
Cost of goods sold of approximately $2.1 billion increased $126.1 million
(6%) during the three months ended November 30, 2000, compared to the same three
months ended in 1999. During the three months ended November 30, 2000 the
average cost of refined fuels and propane increased by $0.28 and $0.21 per
gallon, respectively compared to the same three months ended in 1999. Country
Operations cost of goods sold increased by $53.0 million compared to the same
three months ended in 1999 primarily due to increased purchases related to new
acquisitions and cost increases primarily in agronomy and energy products.
Within the Company's food processing operations the volume of processed soybeans
and wheat increased and additional costs were reported due to the addition of
the tortilla operation compared to the same three months ended in 1999. These
increases were partially offset by the impact of recording the Company's share
of its agronomy operation on the equity method as described in the sales
analysis above, which caused a reduction in cost of good sold of $95.6 million
compared to the three months ended in 1999.
Marketing, general and administrative expenses of $38.4 million for the three
months ended November 30, 2000 were essentially unchanged from the same three
months ended in 1999.
Interest expense of $15.6 million for the three months ended November 30,
2000 increased by $2.6 million (20%) compared to the same three months ended in
1999. Although the average level of short-term borrowings was slightly less
during the three months ended November 30, 2000 compared to the same period of a
year ago, such borrowings were at a 1.25% greater interest rate than a year ago.
Minority interests in operations of $3.7 million for the three months ended
November 30, 2000 increased by $3.2 million compared to the same three months
ended in 1999. Substantially all minority interests is related to NCRA. This net
change in minority interests during the current year was reflective of more
profitable operations within the Company's majority owned subsidiaries as
compared to the same three months ended in 1999.
Income tax benefits of $32.1 million and $1.7 million were reported for the
three months ended November 30, 2000 and 1999, respectively. An income tax
benefit of $34.2 million for the three-month period ended November 30, 2000
resulted due to a change in the tax rate applied to the Company's cumulative
temporary differences between income for financial statement purposes and income
used for tax reporting purposes. The Company's calculation of its patronage
distribution using audited earnings for financial statement purposes rather than
tax basis earnings prompted the rate change. The benefit was offset by tax
expense for the three months ended November 30, 2000 of $1.7 million, which
compares to a $1.7 million tax benefit for the same period in 1999. The income
tax benefit or expense and effective
9
<PAGE>
tax rate varies from period to period based upon the profitability and
non-patronage business activity during each of the comparable periods.
A cumulative effect of an accounting change was incurred due to the adoption
of SFAS No. 133, as amended, related to the energy segment. The loss incurred
was $3.6 million ($3.3 million net of income tax benefit).
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company used net cash of $8.0 million and
provided net cash of $0.6 million for the three months ended November 30, 2000
and 1999, respectively. For the period ended in 2000, net income of $59.5
million and net non-cash income and expenses of approximately $28.6 million were
offset by increased working capital requirements of approximately $96.1 million.
For the three-month period ended November 30, 1999, net income of $9.1 million
and net non-cash income and expenses of approximately $23.4 million were
partially offset by increased working capital requirements of approximately
$31.9 million.
CASH FLOWS FROM INVESTING
Investing activities of the Company used net cash of $25.6 million during the
three-month period ended November 30, 2000. Expenditures for the acquisition of
property, plant and equipment of $24.4 million, investments of $7.5 million,
distributions to minority owners of $4.0 million and the net change in notes
receivable were partially offset by investments redeemed of $7.7 million,
proceeds from the disposition of property plant and equipment of $1.5 million
and other investing activities. For the fiscal year ending August 31, 2001, the
Company projects that total expenditures for the acquisition of property, plant
and equipment will be approximately $104.3 million.
Investing activities of the Company used net cash of $23.5 million during the
three months ended November 30, 1999. Expenditures for the acquisition of
property, plant and equipment of $31.9 million, investments of $3.2 million and
distributions to minority owners of $1.2 million were partially offset by
investments redeemed of $11.6 million, proceeds from the disposition of property
plant and equipment of $0.5 million, the net change in notes receivable and
other investing activities.
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 $400.0 million to $500.0 million
committed. In addition to this short-term line of credit, the Company has 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 November 30, 2000, August
31, 2000 and November 30, 1999, the Company had total short-term indebtedness on
these various facilities and other short-term notes payable totaling $308.1
million, $217.9 million and $229.4 million, respectively.
In June 1998, the Company established a five-year revolving credit facility
with a syndication of banks, with $200.0 million committed. On November 30, 2000
and August 31, 2000 the Company had outstanding balances of $45.0 million and
$45.0 million, respectively, categorized as long-term debt. The outstanding
balance was drawn during the third quarter of the fiscal year ended August 31,
2000.
The Company has financed its long-term capital needs, 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 fiscal year 2009. The commitment expired on May 31, 1999. The
amount outstanding on this credit facility was $155.8 million on November 30,
2000, $157.4 million on August 31, 2000 and $162.4 million on November 30, 1999,
respectively, with zero remaining available. Repayments of approximately $1.6
million were made on this facility during each of the three months ended
November 30, 2000 and 1999.
10
<PAGE>
Also in June 1998, the Company entered into a private placement with several
insurance companies for long-term debt in the amount of $225.0 million.
Repayments will be made in equal installments of $37.5 million each in the years
2008 through 2013.
On November 30, 2000 the Company had total long-term debt outstanding of
$502.0 million, of which approximately $256.3 million was bank financing, $225.0
million was private placement proceeds and $20.7 million was industrial revenue
bonds, capitalized leases and other notes payable. Long-term debt of NCRA
represented $44.9 million of the total long-term debt outstanding on November
30, 2000. On August 31, 2000 and November 30, 1999, the Company had long-term
debt outstanding of $510.5 million and $476.8 million, respectively.
During the three-month periods ended November 30, 2000 and 1999, the Company
repaid long-term debt of $9.1 million and $5.8 million, respectively, and had
additional long-term borrowings of $0.6 million during the three months ended
November 30, 2000.
In accordance with the By-Laws 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. Effective September 1, 2000, patronage refunds
are calculated based on audited earnings for financial statement purposes rather
than based on amounts reportable for federal income tax purposes as had been the
practice prior to this date. This change was authorized through a By-Law
amendment at the Company's annual meeting on December 1, 2000. The patronage
earnings from the fiscal year ended August 31, 2000 are expected to be
distributed during the second quarter of the current fiscal year. The cash
portion of this distribution, deemed by the Board of Directors to be 75% for
Equity Participation Units and 30% for other patronage earnings, is expected to
be approximately $26.2 million and is classified as a current liability on the
November 30, 2000 and the August 31, 2000 balance sheets.
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, 2000, to be distributed in the current fiscal year, are expected to
be approximately $17.5 million, of which approximately $5.5 million was redeemed
during the three months ended November 30, 2000. During the three months ended
November 30, 1999 the Company redeemed approximately $11.5 million of equity.
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.
11
<PAGE>
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 December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements".
The SAB summarizes certain of the SEC staff's views in applying accounting
principles generally accepted in the United States of America to revenue
recognition in financial statements. In June 2000, the SEC issued SAB 101B,
which delays the implementation date of SAB 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
does not believe that adoption of this SAB will materially impact its financial
statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Effective September 1, 2000, unrealized gains and losses on futures contracts
and options used to hedge energy inventories and fixed priced contracts are
recognized currently for financial reporting. The inventories hedged with these
derivatives are valued at the lower of cost or market, and the fixed priced
contracts are marked to market. The effect of this change was a loss of $3.6
million ($3.3 million net of income tax benefit).
There have been no other changes since the Company's fiscal year end August
31, 2000 that are considered material.
12
<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
November 30, August 31, November 30,
(DOLLARS IN THOUSANDS) 2000 2000 1999
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Receivables $ 40,283 $ 30,011 $ 26,876
Inventories 22,458 25,449 16,016
Other current assets 651 18 25
------------ ------------ ------------
Total current assets 63,392 55,478 42,917
Property, plant and equipment 40,766 40,270 39,060
Other assets 378
------------ ------------ ------------
Total assets $ 104,536 $ 95,748 $ 81,977
============ ============ ============
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
Current liabilities:
Due to Cenex Harvest States Cooperatives $ 24,046 $ 15,891 $ 9,537
Accounts payable 5,335 9,028 5,380
Accrued expenses 6,461 5,976 5,866
------------ ------------ ------------
Total current liabilities 35,842 30,895 20,783
Commitments and contingencies
Defined business unit equity 68,694 64,853 61,194
------------ ------------ ------------
Total liabilities and defined business
unit equity $ 104,536 $ 95,748 $ 81,977
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements (unaudited).
13
<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
Three Months Ended
(DOLLARS IN THOUSANDS) November 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Processed oilseed sales $ 88,193 $ 83,557
Other revenues 14 329
---------------------------
88,207 83,886
---------------------------
COSTS AND EXPENSES:
Cost of goods sold 83,602 77,364
Marketing, general and administrative 1,346 1,356
Interest 289
---------------------------
85,237 78,720
---------------------------
INCOME BEFORE INCOME TAXES 2,970 5,166
(Benefit) provision for income taxes (871) 300
---------------------------
NET INCOME $ 3,841 $ 4,866
===========================
</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 CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
(DOLLARS IN THOUSANDS) November 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $ 3,841 $ 4,866
Adjustments to reconcile net income
to net cash (used in) provided by operating activities:
Depreciation 692 624
Loss on sale of property, plant and 35
equipment
Changes in operating assets and liabilities:
Receivables (10,272) (2,226)
Inventories 2,991 1,068
Other current assets and other assets (1,011) (25)
Accounts payable and accrued expenses (3,208) 1,251
---------------------------
Net cash (used in) provided by operating activities (6,967) 5,593
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and
equipment (1,188) (718)
---------------------------
Net cash used in investing activities (1,188) (718)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in due to Cenex Harvest States
Cooperatives 8,155 (9)
Defined Business Unit Equity distributed to the Company (4,866)
---------------------------
Net cash provided by (used in) financing activities 8,155 (4,875)
---------------------------
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).
15
<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 November 30, 2000 and 1999, and the
statements of operations and cash flows for the three months ended November 30,
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 financial position and 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, 2000 was derived from audited financial
statements but does not include all disclosures required by accounting
principles generally accepted in the United States of America.
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, 2000, which are included in
the Company's Report on Form 10-K previously filed with the Securities and
Exchange Commission on November 22, 2000.
NOTE 2. RECEIVABLES
November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
Trade $ 40,678 $ 30,406 $ 27,271
Less allowances for doubtful accounts 395 395 395
------------ ------------ ------------
$ 40,283 $ 30,011 $ 26,876
============ ============ ============
NOTE 3. INVENTORIES
November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
Processed oilseed products $ 16,544 $ 22,075 $ 9,272
Oilseed 5,914 3,374 6,744
------------ ------------ ------------
$ 22,458 $ 25,449 $ 16,016
============ ============ ============
16
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company's Board of Directors adopted a resolution to issue, at no charge,
to each Defined Member of the Oilseed Processing and Refining Defined Business
Unit an additional 1/4 Equity Participation Unit (EPU) for each EPU held, due to
increased crush volume. At the time of issuance, the Oilseed Processing and
Refining EPUs were based on a normal crush of 30,500,000 bushels, and since the
date of issuance, the actual annual crush has expanded and is projected to be
38,100,000 bushels in the fiscal year ending August 31, 2001.
See the Management's Discussion and Analysis for the Company in regard to new
accounting pronouncements.
RESULTS OF OPERATIONS
Effective September 1, 2000, patronage refunds from the Oilseed Processing
and Refining Defined Business Unit were calculated on the basis of financial
statement earnings per bushel. Prior to September 1, 2000 patronage refunds from
the Oilseed Processing and Refining Defined Business Unit were calculated on the
basis of tax earnings per bushel. The Company believes the calculation below is
an important measure of the Defined Business Unit's performance.
(IN THOUSANDS EXCEPT PER Three months ended
BUSHEL INFORMATION) November 30,
------------
2000 1999
---- ----
Income before income taxes $2,970 $5,166
Income from purchased oil (610) (1,541)
Non-patronage joint venture income (153)
Book to tax differences -- 24
------ ------
Patronage income from processed soybeans $2,360 $3,496
====== ======
Bushels processed 9,870 9,227
Patronage income per bushel $0.239 $0.379
Certain operating information pertaining to the Oilseed Processing and
Refining Defined Business Unit is set forth below, as a percentage of processed
oilseed sales, except processing margins.
Three months ended
November 30,
------------
2000 1999
---- ----
Gross margin 5.21% 7.41%
Marketing, general and administrative 1.53% 1.62%
Interest 0.33% 0.00%
Processing margins
Crushing/bushel $ 0.16 $ 0.16
Refining/pound $.0103 $.0170
Because of the volatility of commodity prices, the Company believes that
processing margins are a better measure of the Defined Business Unit's
performance than gross margin percentages.
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
The Oilseed Processing and Refining Defined Business Unit net income of $3.8
million for the three months ended November 30, 2000 represents a $1.0 million
decrease (21%) compared to the three-month period ended November 30, 1999. A
decrease in the refined oil margin of approximately 7 tenths of a cent per pound
was the primary factor in this net decrease in net income for the three-month
period ended November 30, 2000, compared to the three-month period ended
November 30, 1999. The three-month period ended November 30, 2000 included an
increase in deferred tax assets of $1.0 million related to the Company's Bylaws
amended to calculate patronage on audited earnings for financial statement
purposes.
17
<PAGE>
Net sales of $88.2 million for the three months ended November 30, 2000
increased by $4.6 million (6%) compared to the three months ended November 30,
1999. An increase in the sales price for processed soybeans of approximately $23
per ton, a 5% increase in sales volume of refined oil, and a 6% increase in
sales volume for processed soybean products, was partially offset by $0.02 per
pound reduction in the sales price for refined oil during the three-month period
compared to the same period of a year ago.
Other revenues decreased approximately $315 thousand (96%) during the three
months ended November 30, 2000 compared to the three months ended November 30,
1999. During the three months ended November 30, 1999, the Defined Business Unit
recognized interest income of $197 thousand, accounting for most of this
decrease.
Cost of goods sold of $83.6 million for the three months ended November 30,
2000 increased $6.2 million (8%) compared to the three months ended November 30,
1999. Increases in refining volume (approximately 17.1 million pounds), a 7%
increase in crush volume (approximately 643 thousand bushels), higher plant
expense of $1.0 million, and an increase in cost for soybeans averaging $0.27
per bushel was partially offset by a decrease in crude soybean oil averaging
$0.02 per pound during the three months ended November 30, 2000, compared to the
three months ended November 30, 1999.
Marketing, general and administrative expenses of $1.3 million for the three
months ended November 30, 2000 was unchanged as compared to the three months
ended November 30, 1999.
The Oilseed Processing and Refining Defined Business Unit incurred $289
thousand of interest expense for the three-month period ended November 30, 2000,
compared to interest income, included with other revenue, for the same period
ended in 1999. This unfavorable variance is primarily attributable to additional
borrowings due to increased working capital needs during this period in 2000 as
compared to the same period in 1999.
Income tax benefit of $871 thousand for the three-month period ended November
30, 2000 was primarily due to a change in the tax rate applied to the Oilseed
Processing and Refining Defined Business Unit's cumulative temporary differences
between income for financial statement purposes and income used for tax
reporting purposes. The Oilseed Processing and Refining Defined Business Unit's
calculation of its patronage distribution using audited earnings for financial
statement purposes rather than tax basis earnings prompted this rate change. The
benefit was offset with tax expense for the three-month period ending November
30, 2000 of $144 thousand, which compares to $300 thousand for the same period
in 1999. The effective tax rates exclusive of the tax benefit during the
three-month period ended November 30, 2000 were 4.9% as compared to 5.8% for the
three-month period ended November 30, 1999. 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 Oilseed Processing and Refining Defined Business Unit's cash requirements
result from capital improvements and a need to finance inventories and
receivables based on 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 November 30, 2000 used net
cash of $7.0 million. Net income of $3.8 million and non-cash expenses of $0.7
million were exceeded by an increase in working capital requirements of $11.5
million to generate this net use of cash. For the three-month period ended
November 30, 1999, operating activities provided net cash of $5.6 million.
During that period, net income of $4.9 million, non-cash expenses of
approximately $0.6 million and decreased working capital requirements of
approximately $0.1 million provided this net cash from operating activities.
CASH FLOWS FROM INVESTING
During the three-month periods ended November 30, 2000 and 1999, the Oilseed
Processing and Refining Defined Business Unit used cash for investing activities
of $1.2 million and $0.7 million, respectively, for the acquisition of property,
plant and equipment.
18
<PAGE>
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 the cash
requirements of all other Company operations.
Working capital requirements for a 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 debt
outstanding to the Company of $15.9 million on August 31, 2000 compared with
$24.0 million on November 30, 2000. These interest-bearing balances reflect
working capital and fixed asset financing requirements at the end of the
respective periods.
19
<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
(DOLLARS IN THOUSANDS) November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C>
Current assets:
Receivables $ 40,585 $ 33,737 $ 38,115
Inventories 22,233 19,537 21,386
Other current assets 529 83 267
------------ ------------ ------------
Total current assets 63,347 53,357 59,768
Property, plant and equipment 127,710 128,151 109,569
Other assets 8,218 8,348 9,148
------------ ------------ ------------
Total assets $ 199,275 $ 189,856 $ 178,485
============ ============ ============
LIABILITIES AND DEFINED BUSINESS UNIT EQUITY
Current liabilities:
Due to Cenex Harvest States Cooperatives $ 66,118 $ 67,956 $ 56,138
Accounts payable 17,430 5,201 15,542
Accrued expenses 4,036 3,462 4,388
Current portion of long-term debt 7,397 7,410 10,005
------------ ------------ ------------
Total current liabilities 94,981 84,029 86,073
Long-term debt 38,509 40,100 26,072
Commitments and contingencies
Defined Business Unit equity 65,785 65,727 66,340
------------ ------------ ------------
Total liabilities and Defined Business
Unit equity $ 199,275 $ 189,856 $ 178,485
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the financial
statements (unaudited).
20
<PAGE>
WHEAT MILLING DEFINED BUSINESS UNIT
(A Defined Business Unit of Cenex Harvest States Cooperatives)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
(DOLLARS IN THOUSANDS) November 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
REVENUES:
Processed grain sales $ 54,295 $ 52,594
---------------------------
COSTS AND EXPENSES:
Cost of goods sold 49,971 48,533
Marketing, general and administrative 2,647 2,733
Interest 2,077 1,495
---------------------------
54,695 52,761
---------------------------
LOSS BEFORE INCOME TAXES (400) (167)
Income tax benefit (458) (15)
---------------------------
NET INCOME (LOSS) $ 58 $ (152)
===========================
</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 CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the
Three Months Ended
(DOLLARS IN THOUSANDS) November 30,
---------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 58 $ (152)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization 1,995 1,690
Changes in operating assets and liabilities:
Receivables (6,848) (7,155)
Inventories (2,696) (7,047)
Other current assets and other assets (582) (57)
Accounts payable and accrued expenses 12,803 8,252
---------------------------
Net cash provided by (used in) operating activities 4,730 (4,469)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and
equipment (1,288) (445)
---------------------------
Net cash used in investing activities (1,288) (445)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Change in due to Cenex Harvest
States Cooperatives (1,838) 7,200
Long-term debt borrowings 436
Principal payments on long-term debt (2,040) (2,438)
Defined Business Unit equity distributed to the Company 152
---------------------------
Net cash (used in) provided by financing activities (3,442) 4,914
---------------------------
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).
22
<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 November 30, 2000 and 1999, and the
statements of operations and cash flows for the three months ended November 30,
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 financial position and 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, 2000 was derived from audited financial
statements but does not include all disclosures required by accounting
principles generally accepted in the United States of America.
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, 2000, which are included in the
Company's Report on Form 10-K previously filed with the Securities and Exchange
Commission on November 22, 2000.
NOTE 2. RECEIVABLES
November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
Trade $ 41,336 $ 34,576 $ 39,715
Other 958 810 228
------------ ------------ ------------
42,294 35,386 39,943
Less allowances for doubtful accounts 1,709 1,649 1,828
------------ ------------ ------------
$ 40,585 $ 33,737 $ 38,115
============ ============ ============
NOTE 3. INVENTORIES
November 30, August 31, November 30,
2000 2000 1999
------------ ------------ ------------
Grain $ 15,314 $ 9,610 $ 19,593
Processed grain products 6,037 9,288 1,125
Other 882 639 668
------------ ------------ ------------
$ 22,233 $ 19,537 $ 21,386
============ ============ ============
23
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
See the Management's Discussion and Analysis for the Company in regard to new
accounting pronouncements.
RESULTS OF OPERATIONS
Effective September 1, 2000, patronage refunds from the Wheat Milling Defined
Business Unit are calculated on the basis of financial statement earnings per
bushel rather than the tax basis, as had been the practice prior to this date.
This change was authorized through By-Law amendment at the Company's annual
meeting on December 1, 2000. The Company believes the calculation below is an
important measure of the Defined Business Units performance.
(IN THOUSANDS EXCEPT PER Three months ended
BUSHEL INFORMATION) November 30,
------------
2000 1999
---- ----
Loss before income taxes $ (400) $ (167)
Book to tax differences 101
------- -------
Patronage loss $ (400) $ (66)
======= =======
Bushels processed 12,009 10,868
Patronage loss per bushel $(0.033) $(0.006)
Certain operating information pertaining to the Wheat Milling Defined Business
Unit is set forth below, as a percentage of sales.
Three months ended
November 30,
------------
2000 1999
---- ----
Gross margin 7.96% 7.72%
Marketing, general and administrative 4.88% 5.20%
Interest 3.83% 2.84%
COMPARISON OF THREE MONTHS ENDED NOVEMBER 30, 2000 AND 1999
The Wheat Milling Defined Business Unit reported net income of $58 thousand
for the three months ended November 30, 2000 compared to a net loss of $152
thousand for the three months ended November 30, 1999, for an improvement of
$210 thousand. This improvement is primarily attributable to a change in the tax
rate applied to the Wheat Milling Defined Business Unit's cumulative temporary
differences between earnings for financial statement purposes and tax basis
earnings and resulted in an increase in deferred tax assets of approximately
$406 thousand during the three months ended November 30, 2000, and was partially
offset by an increase in interest costs. The Wheat Milling Defined Business
Unit's calculation of its patronage distribution using audited earnings for
financial statement purposes rather than tax basis earnings prompted this
rate change. Effective September 1, 2000, the Company's Board of Directors
approved a resolution to compute patronage distributions based on audited
earnings for financial statement purposes rather than tax basis earnings. The
resolution was ratified by the members at the Company's December 2000, annual
meeting.
Net sales of $54.3 million for the three months ended November 30, 2000
increased $1.7 million (3%) compared to the three months ended November 30,
1999. This increase is attributable to a 10% increase in volume, resulting
primarily through business generated at the Fairmount, North Dakota mill, which
was acquired in April 2000. The average sales price per hundred weight of all
products decreased $0.50 per hundred weight in the three months ended November
30, 2000 compared to the same period in 1999.
Cost of goods sold of $50.0 million for the three months ended November 30,
2000 increased $1.4 million (3%) compared to the three months ended November 30,
1999. An increase in bushel volume of 1.1 million bushels was partially offset
by a $0.38 per bushel decline in the average price for these bushels, compared
with the business activity conducted during the three months ended November 30,
24
<PAGE>
1999. Milling expense attributable to this additional volume increased $1.5
million in the three months ended November 30, 2000 compared to the same period
in 1999, primarily attributable to the operation of the Fairmount mill.
Marketing, general and administrative expenses of $2.6 million for the three
months ended November 30, 2000 decreased $86 thousand (3%) compared to the same
period ended in 1999.
Interest expense of $2.1 million for the three months ended November 30, 2000
increased approximately $600 thousand (39%) compared to the three months ended
November 30, 1999. Most of this increase is attributable to the acquisition of
the Fairmount mill, purchased in April 2000 for approximately $19.9 million and
a 1.25% increase in short-term borrowing rates.
The income tax benefit of $458 thousand for the three months ended November
30, 2000 was primarily due to a change in the tax rate applied to the Wheat
Milling Defined Business Unit cumulative temporary differences between income
for financial statement purposes and income used for tax reporting purposes. The
Wheat Milling Defined Business Unit's calculation of its patronage distribution
using audited financial statement earnings rather than tax basis earning
prompted this rate change. An additional tax benefit for the three-month
period in 2000 of $51 thousand was recorded based on a pretax loss of $400
thousand. This compares to a $15 thousand tax benefit for the same period in
1999 on a pretax loss of $167 thousand. The effective tax rates of the income
tax benefit for the three months ended November 30, 2000 and 1999 were 12.8% and
8.9%, respectively. 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 a need to finance inventories and receivables based on
raw material costs and levels. These cash needs are expected to be fulfilled by
the Company.
CASH FLOWS FROM OPERATIONS
Operating activities for three months ended November 30, 2000 provided net
cash of $4.7 million. Net income of $58 thousand, noncash expenses of $2.0
million and decreased working capital requirements of $2.7 million all
contributed to this net cash provided by operating activities.
Operating activities for the three months ended November 30, 1999 used net
cash of $4.5 million. The net loss of $152 thousand and increased working
capital requirements of $6.0 million were offset by non-cash expenses of $1.7
million.
CASH FLOWS FROM INVESTING
Cash flows expended for the acquisition of property, plant, and equipment
during the three months ended November 30, 2000 and 1999 totaled $1.3 million
and $0.4 million, 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 the cash requirements of all other
Company operations.
Working capital requirements for a 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 condition and availability of
funds.
The Wheat Milling Defined Business Unit had short-term debt outstanding and
payable to the Company of $66.1 million on November 30, 2000, compared to $68.0
million on August 31, 2000. This reduction is primarily attributable to reduced
working capital requirements.
The Wheat Milling Defined Business Unit had long-term debt outstanding to the
Company of $45.9 million on November 30, 2000 compared with $47.5 million on
August 31, 2000. During the
25
<PAGE>
three-month period ended November 30, 2000 the Wheat Milling Defined Business
Unit made principal payments to the Company of $2.0 million. During this same
period the Company, on behalf of the Wheat Milling Defined Business Unit assumed
an 'interest free' Rural Economic Development Loan in conjunction with the
Fairmount, North Dakota mill acquisition totaling $450 thousand. This
non-interest bearing loan, payable in monthly installments over nine years, has
been discounted at 8% to reflect a present value principal balance due of $320
thousand and an interest discount of $130 thousand. In addition to this loan,
the Company also incurred long-term debt during the quarter on behalf of the
Defined Business Unit in the amount of $116 thousand, payable to the Minnesota
Department of Transportation quarterly over 120 months at 5.7% interest for the
purpose of rail track rehabilitation at the Rush City mill.
26
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
1) At the Company's Annual Meeting held on November 30 - December 1, 2000, the
following directors were re-elected to the Board of Directors: Duane
Stenzel, Elroy Webster, Leonard Larsen, Merlin Van Walleghen, James Kile and
Robert Elliott. The following directors' terms of office continued after the
meeting: Steven Burnet, Bruce Anderson, Michael Toelle, Robert Bass, Curt
Eischens, Robert Grabarski, Jerry Hasnedl, Glen Keppy, Gerald Kuster,
Richard Owen and Richard Traphagen.
2) The Company's Board of Directors approved a resolution to compute patronage
distributions based on audited earnings for financial statement purposes
rather than tax basis earnings effective September 1, 2000. The resolution
was ratified by the Company's members on December 1, 2000 at the Company's
annual meeting. Beginning in fiscal year 2001 patronage distributions will
be based on audited financial statement earnings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
------- ------------------------------------------------------------
10.1 Resolution of the Board of Directors of Cenex Harvest States
Cooperatives
99 Cautionary Statement
(b) Reports on Form 8-K
None.
27
<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)
January 10, 2001 /s/ John Schmitz
---------------- ----------------
(Date) John Schmitz
Executive Vice President and Chief Financial Officer
28
