UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File
February 29, 2000 Number 0000927536
ALLIANCE FARMS COOPERATIVE ASSOCIATION
(Exact name of small business issuer as specified in its charter)
Colorado 84-1270685
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
503 East 8th Avenue, Yuma, Colorado 80759
(Address of principal executive offices)
970-848-3231
(Issuers telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
At April 14, 2000, there were 190 shares of the issuer's common stock
outstanding, of which 136 were shares of Class A common stock and 54 were shares
of Class B common stock.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
BALANCE SHEETS
UNAUDITED
February 29, 2000 August 31, 1999
<S> <C> <C>
ASSETS
Current Assets:
Receivables, trade $14,016 $14,701
Receivables, non-trade (Note 4) 149,200 17,215
Inventory (Note 5) 4,051,763 4,260,949
Other current assets 80,461 85,612
Total current assets $4,295,440 $4,378,477
Property, plant and equipment, at cost $29,426,300 $29,896,188
Less accumulated depreciation 5,521,548 4,686,614
$23,904,752 $25,209,574
Breeding stock $3,747,539 $3,707,900
Less accumulated depreciation 1,197,836 1,166,528
$2,549,703 $2,541,372
Other assets, net of $152,504 and $142,695
accumulated amortization $848,104 $390,123
$31,597,999 $32,519,546
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank Overdraft $355,941 $700,960
Current maturities of long-term debt (Note 6) 1,812,000 1,812,000
Accounts payable (Note 4) 375,126 1,052,504
Patronage refund payable 0 200,000
Accrued property tax 586,045 481,796
Accrued payroll 153,343 157,503
Other accrued expenses 520,531 588,481
Total current liabilities $3,802,986 $4,993,244
Long-term debt (Note 6) $17,197,722 $15,898,422
Shareholders' equity:
Class A common stock of $.01 par value; authorized
5,000 shares, issued and outstanding 136 shares $1 $1
Class B common stock of $.01 par value; authorized
2,500 shares, issued and outstanding 54 shares 1 1
Class C common stock of $.01 par value;
authorized 2,500 shares, none issued 0 0
Additional paid-in capital 13,177,409 13,177,409
Patronage refund for reinvestment 1,379,116 1,379,116
Accumulated deficit (3,959,236) (2,928,647)
Total shareholders' equity $10,597,291 $11,627,880
Commitments and Contingencies (Note 8) ------ ------
$31,597,999 $32,519,546
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
Three Month Periods Ended Six Month Periods Ended
February 29 & 28 February 29 & 28
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Net sales (Notes 3 and 4) $4,344,666 $4,205,780 $9,176,247 $8,507,687
Cost of goods sold (Note 4) 4,548,744 3,590,028 8,893,501 7,278,842
Gross income (loss) (204,078) 615,752 282,746 1,228,845
Expenses related to start-up
of new production facilities 0 0 0 85,698
Administrative expenses 237,425 231,816 503,934 496,773
Loss on sale of breeding stock 37,292 288,616 163,250 537,267
Operating income (loss) ($478,795) $95,320 ($384,438) $109,107
Other income (expense):
Interest expense (448,402) (374,259) (861,184) (774,500)
Other 211,818 94,643 215,033 104,631
(236,584) (279,616) (646,151) (669,869)
Net loss ($715,379) ($184,296) ($1,030,589) ($560,762)
See accompanying notes to financial statements
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE FARMS COOPERATIVE ASSOCIATION
STATEMENTS OF CASH FLOWS
UNAUDITED
Six Month Periods Ended
February 29 & 28
2000 1999
<S> <C> <C>
Cash flows from operating activities:
Net loss ($1,030,589) ($560,762)
Adjustment to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 1,493,645 1,317,326
Loss on sale of breeding stock 163,250 537,267
Changes in assets and liabilities:
Receivables (131,300) 105,238
Inventory 209,186 (377,933)
Other current assets 5,151 (262,962)
Other assets (467,790) 16,377
Accounts payable (677,378) 131,304
Accrued expenses 32,139 113,836
Net cash provided by (used in) operating ($403,686) $1,019,691
activities
Cash flows from investing activities:
Capital expenditures ($1,459,864) ($4,520,308)
Proceeds from sale of breeding stock 1,109,269 249,712
Net cash used in investing activities ($350,595) ($4,270,596)
Cash flows from financing activities:
Proceeds from issuance of long term debt $0 $1,531,518
Net increase in revolving term credit 2,205,300 1,078,486
Payment on long term debt (906,000) (906,000)
Decrease in note payable to Farmland 0 (633,400)
Payment of patronage refund (200,000) (433,115)
Issuance of common shares, net of offering cost 0 2,431,107
Increase (decrease) in bank overdraft (345,019) 182,309
Net cash provided by
financing activities: $754,281 $3,250,905
Change in cash $0 $0
Cash at beginning of period 0 0
Cash at end of period $0 $0
See accompanying notes to financial statements
</TABLE>
Alliance Farms Cooperative Association
Notes to Condensed Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies
(a) Derivative Commodity Instruments
Alliance Farms Cooperative Association (Alliance) uses derivative commodity
instruments, consisting of futures contracts, to reduce its exposure to
risk of loss from changes in commodity prices. These derivative commodity
instruments are designated as hedges and changes in value exhibit high
correlation to changes in value of the underlying position are accounted
for as hedges.
Gains and losses on hedges of inventory are deferred as part of the
carrying amount of the related inventories and, upon sale of the inventory,
recognized in cost of sales. When a qualifying hedge is terminated or
ceases to meet the specified criteria for use of hedge accounting, any
deferred gains or losses through that date continue to be deferred. To the
extent an anticipated transaction is no longer likely to occur, related
hedges are closed with gains or losses charged to operations.
2. Interim Financial Statements
The accompanying condensed unaudited financial statements reflect all
adjustments (consisting of only normal recurring adjustments) which in the
opinion of management, are necessary for a fair presentation of the
financial position, results of operations and cash flows for the interim
periods presented. Income taxes have not been provided because Alliance
expects to derive nearly 100% of its net income from the sale of feeder and
weaned pigs to its members which will be apportioned and distributed to
members of Alliance on a patronage basis in accordance with its by-laws.
Certain information and footnote disclosures normally included in financial
statements presented in accordance with generally accepted accounting
principles have been condensed or omitted. The August 31, 1999 balance
sheet presented in the accompanying condensed financial statements was
derived from the financial statements in Alliance's August 31, 1999 Annual
Report on Form 10-KSB. The accompanying unaudited condensed financial
statements should be read in conjunction with the financial statements and
notes in Alliance's August 31, 1999 Annual Report on Form 10-KSB.
3. Sales
Alliance has sold virtually all of its feeder and weaned pigs to its
members for the three and six month periods ended February 29 and 28, 2000
and 1999 at a contractual price which is based on Alliance's operating
costs (which are based on a five month rolling average), debt service and
an additional amount of $0 to $4.50 per pig sold as determined periodically
by the Board of Directors at its discretion. For the six months ended
February 29 and 28, 2000 and 1999 no additional amount per pig was charged
in addition to the operating costs and debt service for feeder and weaned
pigs.
Because the contractual price for the sale of a feeder and a weaned pig is
determined based upon, among other things, a five month historical rolling
average of operating costs and to the extent that current operating costs
per pig exceed the historical average operating costs, Alliance may incur a
negative gross margin on the sale of its feeder and weaned pigs during
periods of per head rising costs.
Alliance's average net sales price and the average industry market price
were as follows:
Three Months Ended Six Months
Ended
February 29 & 28 February 29 & 28
2000 1999 2000 1999
Feeder Pig Average Net Sales Price 44.27 51.76 44.29 50.96
Feeder Pig Average Industry 52.76 39.91 42.79 34.83
Market*
Weaned Pig Average Net Sales Price 33.48 37.71 33.24 37.41
Weaned Pig Average Industry 37.38 23.23 30.09 20.12
Market*
* From the USDA's Market News Service
4. Transactions with Farmland, Yuma Cooperative and Effingham Equity
As of February 29, 2000 and 28, 1999, Farmland Industries, Inc. (Farmland)
owned approximately 35.3% and 34.2%, respectively, of the Common Stock of
Alliance, Yuma Farmers' Milling and Mercantile Cooperative (Yuma
Cooperative) owned approximately 6.3% and 6.3%, respectively, of the Common
Stock of Alliance, and Effingham Equity owned approximately 1.1% and 0.5%,
respectively, of the Common Stock of Alliance.
Alliance purchased feed from Yuma Cooperative, animal health supplies and
breeding stock from Farmland, and feed and propane from Effingham Equity,
based on market prices. Yuma Cooperative, Farmland and Effingham Equity
are members of Alliance. Alliance also sold feeder or weaned pigs to
Farmland, Yuma Cooperative and Effingham Equity. Such purchases and sales
were as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
February 29 & 28 February 29 & 28
2000 1999 2000 1999
<S> <C> <C> <C> <C>
Feed Purchases $1,181,439 $1,233,500 $2,295,770 $2,366,195
Propane Purchases 41,650 30,146 52,811 46,221
Animal Health Purchases 105,297 115,189 426,241 212,540
Breeding Stock Purchases 700,217 709,992 1,024,216 1,106,410
Feeder & Weaned Pig Sales 2,086,686 1,987,558 4,085,317 4,211,722
</TABLE>
Alliance and Farmland equally share the rent for an administrative office
in Yuma, Colorado. Farmland also performs administrative, advisory and
consulting services on behalf of Alliance pursuant to a contractual
agreement. The agreement provides that Farmland will be compensated for
such services in an amount equal to one dollar per pig shipped adjusted
annually for inflation for a term of ten years commencing July 13, 1994.
Amounts paid by Alliance to Farmland under such agreement were as follows:
Three Months Ended Six Months Ended
February 29 & 28 February 29 & 28
2000 1999 2000 1999
Management Fee $118,015 $98,810 $252,800 $201,161
Alliance had $149,200 and $17,215 of non-trade receivables at February 29,
2000 and August 31, 1999, respectively. The $149,200 due Alliance at
February 29, 2000 was due from CoBank for patronage, from Chubb for an
insurance claim, from Farmland for a hedging gain and from Pig Producers I,
LP ("Pig Producers"), a limited partnership in which Farmland holds a 12.5%
interest, for the reimbursement of wages, benefits and other costs
attributable to Alliance employees that are assigned to perform various
duties at Pig Producers, as well as for items received out of Alliance's
shop stock inventory. The $17,215 due Alliance at February 28, 1999 was
due from Pig Producers I, LP for the reimbursement of wages, benefits and
other costs attributable to Alliance employees that are assigned to perform
various duties at Pig Producers, as well as for items received out of
Alliance's shop stock inventory.
Alliance owed $130,201, $47,992 and $15,420 at February 29, 2000 and
$318,604, $95,292 and $32,147 at August 31, 1999 to Farmland, Yuma and
Effingham, respectively, for goods and services. Alliance is also obligated
to Farmland in the amount of $333,172 at February 29, 2000 for funds used
to purchase land for future expansion. See note 5.
5. Inventories
Major components of inventories as of February 29, 2000 and August 31, 1999
are as follows:
February 29 August 31
2000 1999
Feeder and Weaned Pigs $ 3,927,965 $ 4,125,765
Other 123,798 135,184
$ 4,051,763 $ 4,260,949
6. Long-Term Debt
Long term debt at February 29, 2000 and August 31, 1999 consisted of the
following:
February 29 August 31
2000 1999
CoBank Term Loan $12,455,800 $13,361,800
CoBank Construction Loan 4,015,450 4,015,450
CoBank Revolving Term 2,205,300 0
Credit
Note Payable to Farmland 333,172 333,172
$19,009,722 $17,710,422
Less Current Maturities 1,812,000 1,812,000
$17,197,722 $15,898,422
The Company has entered into various loan agreements with CoBank, ACB
("CoBank") related to a secured credit facility which provides for up to
$26,846,700 of non-revolving term debt, $7,660,000 of revolving term
credit and $18,400,00 of construction financing. Term debt is available to
finance the construction or acquisition of additional pig production
facilities. Revolving term credit is available to provide working capital.
Construction loans are available for the construction or acquisition of pig
production facilities and are advanced by CoBank as construction costs are
incurred by Alliance. The actual advance of funds under this credit
facility is subject to the satisfaction of certain conditions and may be
withdrawn or terminated by CoBank under certain circumstances. The unused
portion of the credit facility expires August 31, 2001 with the unpaid
balance on that date due by September 30, 2011 with respect to the
revolving term credit, December 31, 2001 with respect to the non-revolving
term debt and September 30, 2001 with respect to the construction
financing.
The availability of non-revolving term debt, revolving term credit and
construction debt under the CoBank credit facility is subject to specified
equity investment levels in the Company being satisfied. As of February
29, 2000, $2,674,250 was immediately available to Alliance under its credit
facility. The availability of $14,390,900 of unused term loans and
$3,645,000 of revolving term credit and $13,520,000 of construction loans
under the CoBank credit facility is restricted and may be available only as
additional shares of common stock are sold ($2,110,000 of term loans and
$610,000 of revolving term credit for every $1,360,000 of Class A common
stock sold and $1,675,000 of term loans and $485,000 of revolving term
credit for every $1,080,000 of Class B or Class C common stock sold).
The CoBank credit facility provides for the monthly payment of principal
and interest. Principal payments pursuant to the existing non-revolving
term debt are to be made in equal monthly installments of $151,000, with
the remaining unpaid balance being due and payable on that date which is
ninety-nine months after the final advance under the non-revolving term
loan. Principal payments pursuant to each $2,110,000 of new non-revolving
term loans are to be made in monthly installments of $21,800 each,
beginning on the 20th day of the eighteenth month following the date of the
initial advance of such $2,110,000 loan. For each $2,720,000 of new
construction loans, payment of the entire outstanding principal balance is
to be made on that date that is sixteen (16) months after the date of the
initial advance for construction of the proposed facility. The revolving
loan commitment will be reduced in 40 equal payments commencing on August
31, 2001, such that after the fortieth reduction, the revolving loan
commitment will be zero. To the extent that the outstanding principal
balance under the revolving loan exceeds the revolving loan commitment, the
Company will be required to immediately make a principal payment in a
amount sufficient to reduce the outstanding principal balance under the
revolving loan to an amount not exceeding the revolving loan commitment.
Interest accrues on the outstanding principal balance of the loan at a rate
equal to either (i) a variable rate equal to CoBank's then national
variable rate plus a base rate margin of 1.25% for non-revolving term loans
and for revolving loans or 2.25% for construction loans, or (ii) CoBank's
then quoted rates for fixed rate loans, as may be elected from time to time
by the Company, and is payable monthly in arrears by the 20th day of the
following month. During the period in which principal under the loan is
outstanding, portions of such principal may bear interest at such variable
rate while other portions may bear interest at such fixed rate. As of
February 29, 2000, interest accrued on the outstanding principal balance on
the respective loan portions under variable rates at 10% per annum for
non-revolving term loans, 10% per annum for revolving term loans and 11%
per annum for construction loans and between 8.01% and 9.14% for those
portions under fixed rates. The interest rates applicable to the loan are
subject to reduction at specified times upon the Company's satisfaction of
certain conditions relating to the Company's equity level and debt service
coverage ratio. As of February 29, 2000, no reductions in the Company's
interest rate had been made. The Company is permitted to prepay the loan
at any time without penalty, except that in the event that fixed rate
balances are prepaid, the Company is required to pay CoBank a surcharge in
an amount equal to CoBank's funding losses with respect thereto. Alliance
capitalized $68,142 of interest on construction for the three months ended
February 28, 1999 and $102,852 of interest on construction for the six
months ended February 28, 1999.
In obtaining the secured credit facility, and for each year in which the
credit facility is effective, the Company is required to pay a commitment
fee equal to 0.5% on the outstanding revolving loan commitment and 0.25% on
the unadvanced amount of the construction loan commitment. In addition, the
Company will be required to pay an activation fee equal to 1% on the amount
withdrawn under the construction loan, along with a $6,000 fee with respect
to the origination of each $2,110,000 of new non-revolving term loans. The
Company was also required to grant a first perfected lien and security
interest on substantially all of its properties and assets to CoBank and to
assign to CoBank all of the Company's rights in and to the existing and
future Pig Purchase Agreements. The Company is required to comply with
various affirmative and negative covenants, including but not limited to
(i) maintenance of at least a 0.35 ratio of total equity to total assets,
(ii) maintenance of a debt service coverage ratio (calculated by dividing
average annual cash flow by the current debt) of not less than one, and
(iii) restrictions on the declaration and payment of the cash portion of
patronage distributions and other distributions or allocations of the
Company's earnings, surplus or assets. As of February 29, 2000 the Company
was in compliance with all covenants except for maintaining a total equity
to total assets ratio of 0.35. CoBank provided a waiver for this violation
allowing for a total equity to total assets ratio of not less than .335. As
of March 31, 2000 the Company’s total equity to total assets ratio was
less than .335 and the Company was in violation of the covenant. Management
has communicated this violation to CoBank and intends to seek a waiver.
As of February 29, 2000, Alliance has borrowed $333,172 from Farmland to
purchase land for future expansion. The loan agreement with Farmland for
the purchase of land is evidenced by a promissory note providing for
amortization over a ten-year period, at a variable rate of interest equal
to CoBank's prime rate (9.5% at February 29, 2000). The payment schedule
for this loan requires the Company to make interest-only payments for the
life of the loan, with a final balloon payment of all principal to be made
upon the expiration of the ten-year term in September 30, 2005.
Long-term debt as of February 29, 2000 matures during the fiscal years
ending August 31 in the following amounts:
2000 $ 906,000
2001 2,140,833
2002 2,942,790
2003 2,942,790
Thereafter 10,077,309
$ 19,009,723
6.Nonmonetary Transaction
In December 1999, Alliance exchanged a parcel of land for a lake, a dam and
the rights and license to apply hog effluent on certain property owned by
persons other than Alliance for a period of thirty years. Alliance
recorded the lake and the dam at fair market value as a component of
property, plant and equipment. The spreading rights were recorded at fair
market value as a component of other assets, and are being amortized over
their thirty-year life. The fair market values of the assets acquired were
determined based upon the fair value of the land surrendered to obtain
them. This was estimated utilizing an outstanding land purchase option
agreement held by Alliance for the purchase of land near the exchanged
land. This exchange resulted in no gain or loss.
8. Commitments and Contingencies
In the November 1998 general election, Colorado voters adopted amendments
to the Colorado Revised Statutes concerning the regulation of housed
commercial swine feeding operations. Such amendments may have material and
adverse consequences to Alliance Farms and its business. These amendments
mandate certain water and air quality control measures that must be
implemented by commercial swine feeding operations housing at least 800,000
pounds of swine or which are deemed commercial under local law.
Regulations implementing the amendments were recently promulgated and the
amendments are applicable to Alliance's Colorado operations.
Alliance has obtained the initial operating permits required to comply with
the new provisions. These permits include requirements to manage the
application of manure as a fertilizer according to specified agronomic crop
production requirements, to control off-site odors and to identify and
evaluate cover alternatives for anaerobic treatment lagoons. Alliance has
implemented and is evaluating the use of various technologies, including
biological feed and lagoon additives, in an effort to comply with
applicable requirements governing off-site odor management and cover
requirements. Alliance's permit to operate allows for continued evaluation
of experimental covers and odor-control measures until July 1, 2000, after
which time the applicable regulatory authorities will determine whether the
control measures implemented are an acceptable cover technology. Costs to
comply with the applicable requirements are expensed as incurred.
Alliance continues to evaluate the impact that the new statutes and
regulations may have; however Alliance presently is unable to estimate the
costs that reasonably could be expected to be incurred to comply with them.
If Alliance is required to place rigid covers over its waste lagoons, it
may have a material adverse impact on Alliance and its business.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
STATEMENTS MADE IN THIS REPORT THAT ARE NOT HISTORICAL IN NATURE, OR THAT
STATE ALLIANCE'S, OR MANAGEMENT'S INTENTIONS, HOPES, BELIEFS, EXPECTATIONS, OR
PREDICTIONS OF THE FUTURE, ARE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING
OF SECTION 21E OF THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED, AND
INVOLVE RISKS AND UNCERTAINTIES. IT IS IMPORTANT TO NOTE THAT ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE EXPRESSED IN SUCH FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES
INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED UNDER THE CAPTION *FACTORS
THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS, FINANCIAL CONDITION OR BUSINESS*
IN ALLIANCE'S ANNUAL REPORT ON FORM 10-KSB FOR THE FISCAL YEAR ENDED AUGUST
31, 1999, AS WELL AS THOSE DISCUSSED ELSEWHERE IN ALLIANCE'S REPORTS FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION FROM TIME TO TIME.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
At February 29, 2000, Alliance reported working capital of $492,454 and
total assets of $31,597,999.
As of February 29, 2000, Alliance has 136 shares of Class A Common Stock
issued and outstanding, 54 shares of Class B Common Stock issued and outstanding
and no issued and outstanding shares of Class C Common Stock. As of February 29,
2000, Alliance had $2,674,250 immediately available under its credit facility
with CoBank, consisting of $864,550 of construction loans and $1,809,700 of
revolving term credit. The availability of non-revolving term debt and revolving
term credit under the CoBank credit facility is subject to specified equity
investment levels in the Company being satisfied and compliance with certain
covenants. At February 29, 2000 Alliance was not in compliance with one covenant
for which a waiver was obtained. At March 31, 2000 Alliance was in violation of
the requirements stipulated in the waiver. Management has communicated this
violation to CoBank and intends to seek a waiver.
As of February 29, 2000, Alliance has borrowed $333,172 from Farmland to
purchase land for future expansion. The loan agreement with Farmland for the
purchase of land is evidenced by a promissory note providing for amortization
over a ten-year period, at a variable rate of interest equal to CoBank's prime
rate (9.5% at February 29, 2000). The payment schedule for this loan requires
the Company to make interest-only payments for the life of the loan, with a
final balloon payment of all principal to be made upon the expiration of the
ten-year term in September 30, 2005.
Major uses of cash during the six months ended February 29, 2000 include
$1,459,864 for breeding stock purchases and capital expenditures on facilities,
$906,000 of principal payments on long term debt, $200,000 payment of patronage
refunds and $403,686 of cash used in operating activities. Major sources of
cash include $1,109,269 of proceeds from the sale of breeding stock and a
$2,205,300 increase in revolving term credit.
THREE MONTHS ENDED FEBRUARY 29 & 28, 2000 AND 1999
<TABLE>
<CAPTION>
Three Months Ended February 29 & 28
2000 1999 Variance %
<S> <C> <C> <C> <C>
Feeder Pig Volume 73,037 67,506 5,531 8.19%
Weaned Pig Volume 33,180 18,866 14,314 75.87%
Total Volume 106,217 86,372 19,845 22.98%
Feeder Net Sales $3,233,659 $3,494,339 ($260,680) (7.46%)
Weaned Net Sales $1,111,007 $711,441 $399,566 56.16%
Total Net Sales $4,344,666 $4,205,780 $138,886 3.30%
</TABLE>
Shipments of feeder pigs and weaned pigs were higher for the three months
ended February 29, 2000 than in the prior year. This increase is due to
additional facilities, partially offset by lower production. Seven 2,450-sow
feeder pig units, two 2,450-sow weaned pig units and one 5,000-sow unit (2,500
feeder and 2,500 weaned pig unit) were in operation for the quarter ended
February 29, 2000. Seven 2,450-sow feeder pig units and two 2,450-sow weaned
pig units were in operation for the quarter ended February 28, 1999. Average
net sales prices for feeder and weaned pigs were $44.27 and $33.48 during the
quarter ended February 29, 2000 and $51.76 and $37.71 during the quarter ended
February 28, 1999, respectively.
Alliance recorded a negative gross margin of $204,078 and a positive gross
margin of $615,752 for the three month periods ended February 29 and 28, 2000
and 1999, respectively. This reduction in gross margin is primarily due to the
nature of the contractual pricing arrangements applicable to Alliance's sale of
feeder and weaned pigs to its members. As previously described, the selling
price for Alliance's feeder and weaned pigs is based on, among other things, the
five-month rolling average of operating costs per pig for feeder and weaned
pigs. During periods of per head rising costs a negative margin will be
incurred. Once the per head cost levels the five-month pricing will increase
sales and offset the negative margin. Alliance has experienced health
challenges in recent months. These challenges have resulted in reduced pig
production. For the quarter ended February 29, 2000, Alliance's current
production costs exceeded the average net sales price for feeder and weaned pigs
by $1.92 per pig sold. For the quarter ended February 28, 1999, the net sales
price exceeded then current production costs by $7.13 per pig sold.
Sales to Farmland, Yuma Cooperative and Effingham Equity for the three
months ended February 29 and 28, 2000 and 1999 were $2,086,686 and $1,987,558,
respectively. The average feeder pig net sales price per head was $44.27 and
$51.76 and the average feeder pig industry market price per head was $52.76 and
$39.91 during the quarters ended February 29 and 28, 2000 and 1999,
respectively. The average weaned pig net sales price per head was $33.48 and
$37.71 and the average weaned pig industry market price per head was $37.38 and
$23.23 during the quarters ended February 29 and 28, 2000 and 1999,
respectively.
Administrative expenses were $237,425 for the three months ended February
29, 2000 compared to $231,816 for the prior year period.
Loss on sale of breeding stock was $37,292 for the three months ended
February 29, 2000 compared to $288,616 for the prior year period. This decrease
is attributable to improved market conditions during the three months ended
February 29, 2000 as compared to the prior year period.
Interest expense of $448,402 for the three months ended February 29, 2000
as compared to $374,259 for the prior year period, was incurred in financing the
development of the ten existing production facilities. This increase is
partially due to an increase in the outstanding loan balance. In addition,
interest rates were higher for the three months ended February 29, 2000 as
compared to the prior year period. As of February 29, 2000, Alliance had
borrowed $18,676,550 from CoBank for construction and start up costs and
$333,172 from Farmland for the purchase of land intended to be used for future
expansion.
Alliance incurred a net loss of $715,379 for the three months ended
February 29, 2000 compared to a net loss of $184,296 for the prior year period.
The net loss for the second quarter of fiscal 2000 was attributable to the
current costs per pig exceeding the rolling average cost that the per pig sales
are based on by $6.74 per feeder and weaned pig shipped, caused primarily by a
decline in production. The net loss for the second quarter of fiscal 1999 was
attributable to the current costs per pig exceeding the rolling average cost
that per pig sales are based on by $2.13 per feeder and weaned pig shipped, as
well as a decline in production and approximately $289,000 of losses incurred on
the sale of breeding stock due to market conditions. In addition to operating
risks and uncertainties associated with any business, Alliance's ability to
generate net income is limited by any start-up expenses that are incurred with
respect to facilities development and the Company's selling price formula that
contains a production margin.
SIX MONTHS ENDED FEBRUARY 29 & 28, 2000 AND 1999
<TABLE>
<CAPTION>
Six Months Ended February 29 & 28
2000 1999 Variance %
<S> <C> <C> <C> <C>
Feeder Pig Volume 156,474 138,506 17,968 12.97%
Weaned Pig Volume 67,562 38,762 28,800 74.30%
Total Volume 224,036 177,268 46,768 26.38%
Feeder Net Sales $6,930,791 $7,057,741 ($126,950) (1.80%)
Weaned Net Sales $2,245,456 $1,449,946 $795,510 54.86%
Total Net Sales $9,176,247 $8,507,687 $668,560 7.86%
</TABLE>
Shipments of feeder pigs and weaned pigs were higher for the six months
ended February 29, 2000 than in the prior year. This increase is due to
additional facilities, partially offset by lower production. Seven 2,450-sow
feeder pig units, two 2,450-sow weaned pig units and one 5,000-sow unit (2,500
feeder and 2,500 weaned pig unit) were in operation for the six months ended
February 29, 2000. Seven feeder pig units were in operation for the six months
ended February 28, 1999. One weaned pig unit was in operation for five weeks
and two weaned pig units were in operation for twenty-one weeks of the first
half of fiscal 1999. Average net sales prices for feeder and weaned pigs were
$44.29 and $33.24 during the six months ended February 29, 2000 and $50.96 and
$37.41 during the six months ended February 28, 1999, respectively.
Alliance earned gross margins of $282,746 and $1,228,845 for the six month
periods ended February 29 and 28, 2000 and 1999, respectively. This reduction
in gross margin is primarily due to the nature of the contractual pricing
arrangements applicable to Alliance's sale of feeder and weaned pigs to its
members. As previously described, the selling price for Alliance's feeder and
weaned pigs is based on, among other things, the five-month rolling average of
operating costs per pig for feeder and weaned pigs. For the first half of
fiscal 2000, Alliance's average net sales price for feeder and weaned pigs
exceeded then current production costs by $1.26 per pig sold. For the first
half of fiscal 1999, Alliance's net sales price exceeded then current production
costs by $6.93 per pig sold.
Sales to Farmland, Yuma Cooperative and Effingham Equity for the six month
periods ended February 29 and 28, 2000 and 1999 were $4,085,317 and $4,211,722,
respectively. The average feeder pig net sales price per head was $44.29 and
$50.96 and the average feeder pig industry market price per head was $42.79 and
$34.83 during the six month period ended February 29 and 28, 2000 and 1999,
respectively. The average weaned pig net sales price per head was $33.24 and
$37.41 and the average weaned pig industry market price per head was $30.09 and
$20.12 during the six month period ended February 29 and 28, 2000 and 1999.
No start-up costs were recorded for the six month period ended
February 29, 2000. Alliance recorded $85,698 of start-up costs relating
primarily to the operation of the weaned pig production facility under
construction in Yuma County, Colorado during the six months ended February 28,
1999. All costs for the six month period ended February 28, 1999 were comprised
of utilities, feed, labor and other general expenses prior to the operation of
the new pig production facilities.
Administrative expenses were $503,934 for the six months ended February 29,
2000 compared to $496,773 for the prior year period.
Loss on sale of breeding stock was $163,250 for the six months ended
February 29, 2000 compared to $537,267 for the prior year period. This decrease
is attributable to improved market conditions during the first half of fiscal
2000 as compared to the first half of fiscal 1999.
Interest expense of $861,184 for the six months ended February 29, 2000 as
compared to $774,500 for the prior year period, was incurred in financing the
development of ten pig production facilities. This increase is primarily due to
the increase in the outstanding loan balance, partially offset by the
capitalization of $102,852 of interest in the first half of fiscal 1999. No
interest was capitalized in the first half of fiscal 2000. As of February 29,
2000, Alliance had borrowed $18,676,550 from CoBank for construction and start
up costs and $333,172 from Farmland for the purchase of land which is intended
to be used for future expansion.
Alliance incurred a net loss of $1,030,589 for the six months ended
February 29, 2000 compared to a net loss of $560,762 for the prior year period.
The net loss for the first half of fiscal 2000 was attributable to the current
costs per pig exceeding the rolling average cost that the per pig sales are
based on by $4.60 per feeder and weaned pig shipped, caused primarily by a
decline in production. The net loss for the first half of fiscal 1999 was
attributable to the current costs per pig exceeding the rolling average cost
that per pig sales are based on by $3.16 per feeder and weaned pig shipped,
caused primarily by the elimination of the additional $4.50 margin charged on
every feeder pig sold as well as a decline in production and approximately
$537,000 of losses incurred on the sale of breeding stock due to market
conditions. In addition to operating risks and uncertainties associated with
any business, Alliance's ability to generate net income is limited by any start-
up expenses that are incurred with respect to facilities development and the
Company's selling price formula that contains a production margin.
YEAR 2000
Alliance has not experienced any significant problems related to Year 2000
issues. Also, we do not anticipate encountering significant Year 2000 problems
in the future. The cost of replacement software was approximately $20,000.
RECENT ACCOUNTING PRONOUNCEMENTS
Statements of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" was issued in June 1998 by the
FASB and is effective for fiscal periods beginning after June 15, 2000. We are
currently evaluating the impact, if any, that adoption of the provisions of SFAS
No. 133 will have on our financial statements.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of the Members of Alliance Farms Cooperative Association was
held on December 7, 1999. The following matters were submitted to a vote of the
members:
Item 1. Election of Directors
Wayne N. Snyder, Merl Daniel, Loren Keppy, Jim Ensz, Philip Dukes and Larry
Welsh each were elected as directors of Alliance Farms for a term expiring
at the 2000 Annual Meeting of Members and until their respective successors
are duly elected and qualified or until their earlier resignation or
removal. The vote with respect to the election of directors was as
follows:
Nominee Affirmative Votes Withheld Authority
Mr. Snyder 130 1
Mr. Daniel 142 0
Mr. Keppy 145 0
Mr. Ensz 146 0
Mr. Dukes 132 0
Mr. Welsh 120 0
Mr. Saxton 29 0
Item 2. Selection of Independent Auditors
KPMG LLP was selected as the Association's independent auditors for the
fiscal year ending August 31, 2000. The vote with respect to the approval
of KPMG LLP was as follows:
Affirmative Votes.....132
Negative Votes..........0
Abstentions.............0
Item 6. Exhibits and Report on Form 8-K
(a) Exhibits
The exhibits listed below are filed as part of Form 10-QSB for the quarter
ended February 29, 2000.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended February 29,
2000.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
Registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
ALLIANCE FARMS COOPERATIVE ASSOCIATION
(Registrant)
/s/ GERALD LEEPER
Gerald Leeper
Chairman of the Board, President
and Director
(Principal Executive Officer and Principal
Financial and Accounting Officer)
Dated: April 17, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-2000
<PERIOD-START> SEP-01-1999
<PERIOD-END> FEB-29-2000
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 163,216
<ALLOWANCES> 0
<INVENTORY> 4,051,763
<CURRENT-ASSETS> 4,295,440
<PP&E> 29,426,300
<DEPRECIATION> 5,521,548
<TOTAL-ASSETS> 31,597,999
<CURRENT-LIABILITIES> 3,802,986
<BONDS> 0
0
0
<COMMON> 2
<OTHER-SE> 10,597,291
<TOTAL-LIABILITY-AND-EQUITY> 31,597,999
<SALES> 9,176,247
<TOTAL-REVENUES> 9,176,247
<CGS> 8,893,501
<TOTAL-COSTS> 9,560,685
<OTHER-EXPENSES> (215,033)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 861,184
<INCOME-PRETAX> (1,030,589)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,030,589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,030,589)
<EPS-BASIC> 0.000
<EPS-DILUTED> 0.000
</TABLE>
