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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: FEBRUARY 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
Commission file: No. 33-94644
MINN-DAK FARMERS COOPERATIVE
----------------------------
(Exact named of registrant as specified in its charter)
North Dakota 23-7222188
------------ ----------
(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
7525 Red River Road
Wahpeton, North Dakota 58075
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(Address of principal (Zip Code)
executive offices)
(701) 642-8411
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, 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.
Outstanding at
Class of Common Stock April 12, 1999
--------------------- --------------
$250 Par Value 475
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<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEB 28, 1999 AUGUST 31, 1998
ASSETS (UNAUDITED) (AUDITED)
------------- ---------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 257 $ 1,849
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Current portion of long-term note receivable 288 288
------------- -------------
Receivables:
Trade accounts 17,702 14,045
Growers 17 3,540
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17,719 17,585
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Advances to affiliate 60 2,898
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Inventories:
Refined sugar, pulp and molasses to be sold
on a pooled basis 48,880 27,804
Nonmember refined sugar 460 326
Yeast 66 79
Materials and supplies 4,042 5,211
Beet Inventory 23,782 --
Other 72 72
------------- -------------
77,302 33,492
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Deferred charges 582 1,273
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Prepaid expenses 179 246
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Property and equipment available for sale 588 588
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Total current assets 96,975 58,218
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PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 20,161 20,133
Buildings 35,298 34,736
Factory equipment 107,261 103,922
Other equipment 3,438 3,700
Construction in progress 1,486 4,176
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167,644 166,667
Less accumulated depreciation (57,296) (56,098)
------------- -------------
110,348 110,569
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LONG-TERM NOTES RECEIVABLE, NET OF
CURRENT PORTION 3,221 2,944
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OTHER ASSETS:
Investments restricted for capital lease projects 0 --
Investment in stock of other corporations, unconsolidated
marketing subsidiaries and other cooperatives 9,853 9,602
Deferred income taxes 2,652 2,652
Other 897 845
------------- -------------
13,402 13,099
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See Notes to Consolidated Financial Statements $ 223,945 $ 184,830
============= =============
</TABLE>
<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FEB 28, 1999 AUGUST 31, 1998
(UNAUDITED) (AUDITED)
------------- ---------------
<S> <C> <C>
LIABILITIES AND MEMBERS' INVESTMENT
CURRENT LIABILITIES:
Short-term notes payable $ 53,079 $ 26,855
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Current portion of long-term debt 743 5,613
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Accounts payable:
Trade (3,637) 5,124
Growers 19,030 5,971
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15,394 11,094
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Accrued liabilities 3,431 3,486
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Total current liabilities 72,647 47,048
LONG-TERM DEBT, NET OF CURRENT PORTION 49,179 42,185
OBLIGATION UNDER CAPITAL LEASE 11,270 12,000
OTHER 1,485 748
COMMITTMENTS AND CONTINGENCIES -- 0
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Total liabilities 134,581 101,981
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MINORITY INTEREST IN EQUITY OF SUBSIDIARY 884 767
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MEMBERS' INVESTMENT:
Preferred stock:
Class A - 100,000 shares authorized, $105 par value;
72,200 shares issued and outstanding at Feb 28, 1999
and 66,967 at August 31, 1998 7,581 7,581
Class B - 100,000 shares authorized, $75 par value;
72,200 shares issued and outstanding at Feb 28, 1999
and 66,967 at August 31, 1998 5,415 5,415
Class C - 100,000 shares authorized, $76 par value;
72,200 shares issued and outstanding at Feb 28, 1999
and 66,967 at August 31, 1998 5,487 5,487
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18,483 18,483
Common stock, 600 shares authorized, $250 par value;
issued and outstanding, 477 shares at Feb 28, 1999
and 481 shares at August 31, 1998 119 121
Paid in capital in excess of par value 32,094 32,094
Unit retention capital 7,567 7,584
Qualified allocated patronage 3,977 3,981
Nonqualified allocated patronage 26,351 20,072
Retained earnings (deficit) (111) (254)
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88,480 82,082
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See Notes to Consolidated Financial Statements $ 223,945 $ 184,830
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</TABLE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MINN-DAK FARMERS COOPERATIVE
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 28, FEBRUARY 28,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
From sales of sugar, by-products, and
yeast, net of discounts $ 43,510 $ 55,862 $ 96,859 $ 101,940
Other income 214 134 137 (653)
---------- ---------- ---------- ----------
43,724 55,996 96,996 101,287
---------- ---------- ---------- ----------
EXPENSES:
Production costs of sugar, by-products,
and yeast sold 13,490 14,490 25,958 25,085
Marketing (includes freight and storage) 5,944 4,981 12,909 10,705
General and administrative 1,460 1,326 2,829 2,277
Interest 1,512 1,524 2,742 2,584
(Gain) loss on disposition of property and equipment 47 97 72 99
---------- ---------- ---------- ----------
22,453 22,419 44,510 40,750
---------- ---------- ---------- ----------
NET PROCEEDS RESULTING FROM MEMBER AND
NONMEMBER BUSINESS $ 21,271 $ 33,578 $ 52,486 $ 60,537
========== ========== ========== ==========
DISTRIBUTION OF NET PROCEEDS:
Credited to members' investment:
Components of net income:
Income (loss) from non-member business $ 250 $ 430 $ 491 $ (50)
Patronage income 1,010 3,784 6,335 8,509
---------- ---------- ---------- ----------
Net income 1,260 4,214 6,826 8,459
Unit retention capital 0 240 0 861
---------- ---------- ---------- ----------
Net credit to members' investment 1,260 4,454 6,826 9,320
Payments to members for sugarbeets, net of unit
retention capital 20,011 29,124 45,660 51,217
---------- ---------- ---------- ----------
NET PROCEEDS RESULTING FROM MEMBER AND
NONMEMBER BUSINESS $ 21,271 $ 33,578 $ 52,486 $ 60,537
========== ========== ========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FEBRUARY 28,
-------------------------
1999 1998
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income allocated to members' investment $ 6,501 $ 9,029
Add (deduct) noncash items:
Depreciation and amortization 3,165 2,731
Equipment disposals - loss 72 99
Discount on estate payout 27 0
Net income allocated from unconsolidated marketing subsidiaries (24) (570)
Noncash portion of patronage capital credits (228) 1
Retention of nonqualified unit retains 0 861
Changes in operating assets and liabilities:
Accounts receivable and advances 2,704 2,295
Inventory and prepaid expenses (43,743) (54,703)
Deferred charges 691 642
Other assets (52) (81)
Accounts payable, advances, and accrued liabilities 7,318 10,836
---------- ----------
NET CASH (USED IN)/PROVIDED BY OPERATING ACTIVITIES (23,569) (28,860)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from disposition of property, plant and equipment 2 1
Capital expenditures (3,021) (3,732)
Investment in stock of other corporations, unconsolidated
marketing subsidiaries and other cooperatives (277) 513
Minority interest in equity of subsidiaries 117 130
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (3,179) (3,088)
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from issuance of short-term debt 26,224 23,320
Payment of long-term debt (1,406) (1,006)
Payment of unit retains and allocated patronage (2,460) (3,440)
Issuance of long-term debt 2,800 (1)
Provision for long-term tax 0 0
Sale and repurchase of common stock, net (2) 0
Issuance of stock 0 9,681
Issuance of long term tax-exempt bonds 0 0
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 25,155 28,554
---------- ----------
NET INCREASE (DECREASE) IN CASH (1,591) (3,394)
CASH, BEGINNING OF YEAR 1,849 1,235
---------- ----------
CASH, END OF QUARTER $ 257 $ (2,160)
========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash payments for:
Interest $ 2,713 $ 2,974
========== ==========
Income taxes, net of refunds $ 10 $ 6
========== ==========
</TABLE>
See Notes to Consolidated Financial Statements.
<PAGE>
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MINN-DAK FARMERS COOPERATIVE
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The condensed consolidated financial statements for the three month periods
ended February 28, 1999 and February 28, 1998 are unaudited and reflect all
adjustments (consisting only of normal recurring adjustments) which are, in
the opinion of management, necessary for a fair presentation of the
financial position and operating results for the interim period. The
condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto, together with
management's discussion and analysis of financial condition and results of
operations, contained in the Company's Annual Report to Stockholders
previously submitted in the Company's Annual 10-K for the fiscal year ended
August 31, 1998. The results of operations for the three months ended
February 28, 1999 are not necessarily indicative of the results for the
entire fiscal year ending August 31, 1999.
2. In August 1998, the company declared a revolvement of 35% of the 1990 crop
per unit retains and allocated patronage. That amount, $2.4 million, was
paid to the stockholders on October 17, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR THE THREE MONTHS ENDED AND SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998
The following discussion and analysis relates to the financial condition and
results of operations of Minn-Dak Farmers Cooperative ("the Company") for the
three months ended February 28, 1999 (the second quarter of the Company's
1998-1999 fiscal year) and 1998 (the second quarter of the Company's 1997-1998
fiscal year). The Company's fiscal year runs from September 1 to August 31.
This discussion contains the Company's current estimates of the financial
results to be obtained from the Company's processing of the 1998 sugar beet
crop. Given the nature of the estimates required in connection with the payments
to members for their sugar beets, this discussion includes forward-looking
statements regarding the quantity of sugar to be produced from the 1998 sugar
beet crop, the net selling price for the sugar and by-products produced by the
Company and the Company's operating costs. These forward-looking statements are
based largely upon the Company's expectations and estimates of future events; as
a result, they are subject to a variety of risks and uncertainties. Some of
those estimates, such as the selling price for the Company's products and the
quantity of sugar produced from the sugarbeet crop are beyond the Company's
control. The actual results experienced by the Company could differ materially
from the forward-looking statements contained herein.
RESULTS FROM OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED FEBRUARY 28, 1999 AND 1998
Revenue for the three months ended February 28, 1999 decreased $12.3 million
from the 1998 period, a decrease of 22%. Revenue from the sale of finished goods
increased $2.4 million, while the change in the value of finished goods
inventory decreased $14.8 million. Other income increased $0.1 million.
Revenue from the sales of sugar increased $1.5 million or 5%, reflecting a 4%
increase in volume, and a 1% increase in the price for sugar. The increase in
volume is the result of a slightly higher estimate of sugar to be produced in
fiscal year 1999 (and thus more sugar to ship), and generally more customer
orders for the current period versus the last. For the fiscal year 1998-1999
period, inventories of sugar ended below recent historical levels, but at levels
desirable for this time of year. Based upon marketing information developed by
United Sugars Corporation, the Company's marketing agent, the current estimate
is that the average net selling price of the Company's sugar will increase less
than 2% from the prior year.
Revenue from pulp (wet and dry pelleted) sales increased $0.4 million or 24%,
reflecting a 61% increase in sales volume, offset by a 23% decrease in the
average gross selling price. The larger volume of wet and pelleted pulp sales
for this period is the result of the larger volume 1998 beet crop delivered for
processing. Based upon marketing information developed by Midwest
Agri-Commodities Company, the Company's marketing agent, the Company's current
estimate is that the average net selling price of the Company's pulp will
decrease 23% from the prior year. The expected decrease in pulp prices is
attributable to a combination of tremendous excess supply of competing products,
lower demand in Europe because of reduced cattle and swine herds, poor economic
conditions in Japan and a stronger US dollar.
Revenue from beet molasses sales increased $0.3 million or 34%, reflecting an
83% increase in sales volume, offset by a 27% decrease in the average gross
selling price. The increase in molasses sales volume is due to an estimated 36%
more production of beet molasses for fiscal year 1998-1999 versus the previous
year and the timing of customer shipments that allow for the clearing of storage
at the plant site. The larger volume of beet molasses is the result of the
larger volume, lower quality 1998 beet crop delivered for processing. Based upon
marketing information developed by Midwest Agri-Commodities Company, the
Company's marketing agent, the Company's current estimate is that the average
net selling price of the Company's beet molasses will be approximately 43% less
than the prior year. The expected decrease in beet molasses prices is
attributable to abundant, low-priced
<PAGE>
competing product - both domestic and international, lower priced corn markets
and soft feed market conditions in the beet molasses marketplace.
Revenues from yeast sales from the Company's subsidiary yeast production
facility, Minn-Dak Yeast Company ("MDYC"), increased $0.2 million or 11%,
reflecting a 13% increase in sales volume, offset by a 2% decrease in the
average selling price. Sales volume is up because of continued strong demand of
bagged fresh yeast from Red Star Yeast & Products, the company that is
contractually obligated annually to purchase minimum levels of fresh yeast
produced by the yeast company.
The other contributing factor to the change in revenues results from the
increase or decrease in finished goods inventories. The increase in the value of
finished goods inventories for the three months ended February 28, 1999 amounted
to $9.2 million or $14.8 million less than the increase in the value of finished
goods inventories for February 28, 1998. The reduction in the increase in
finished goods inventory mainly results from the level of the inventory of sugar
on hand at the end of the period. Lower inventories of sugar are the result of a
greater level of sugar orders for the current reporting period versus last.
In the consolidated statements of operations, Expenses section, Production costs
of sugar, by-products and yeast sold decreased $1.0 million, or 7%. The decrease
in production costs is due to 5% less sugarbeets being processed for the period
versus last. Marketing costs (which include freight and storage) are $1.0
million or 19% more than the prior period because of the increase in sales
volume for sugar and by-products. Depreciation and interest expenses for fiscal
year 1998-1999 are expected to be higher than fiscal year 1997-1998 due to the
Company's large capital expansion program that was basically competed at the end
of fiscal year 1998. The Company's plant Depreciation expense is expected to
increase approximately $0.6 million or 12% in fiscal year 1998-1999 versus the
prior year, while Interest expense is expected to increase approximately $0.7
million or 14%.
In the section Distribution of Net Proceeds, payments to members for sugarbeets
(net of unit retention capital and unprocessed sugarbeet inventory) decreased
$9.0 million or 31% from the 1997-1998 period. For fiscal year 1998-1999 the
Company is projecting a payment to growers for sugarbeets totaling $63.4
million, which is $8.3 million or 11% less than the prior fiscal year. The
payment is based upon (i) an average delivered sugar content of 17.43%, (ii) a
total sugarbeet crop to process of 1.971 million tons and (iii) the Company's
projected selling price for its sugar, which is currently estimated to increase
less than 2% from the prior year. This forward-looking material is based on the
Company's expectations regarding the processing of the 1998 sugar beet crop. The
actual production results obtained by processing those sugar beets could differ
materially from the Company's current estimate as a result of factors such as
changes in production efficiencies and storage conditions for the Company's
sugar beets.
COMPARISON OF THE SIX MONTHS ENDED FEBRUARY 28, 1999 AND 1998
Revenue for the six months ended February 28, 1999 decreased $4.3 million from
the 1998 period, a decrease of 4%. Revenue from the sale of finished goods
increased $9.0 million, while the change in the value of finished goods
inventory decreased $14.1 million. Other income increased $0.8 million.
Revenue from the sales of sugar increased $8.0 million or 14%, reflecting a 15%
increase in volume, and offset by a 1% decrease in the price for sugar. The
increase in volume is the result of a slightly higher estimate of sugar to be
produced in fiscal year 1999 (and thus more sugar to ship), and generally more
customer orders for the current period versus the last. Based upon marketing
information developed by United Sugars Corporation, the Company's marketing
agent, the current estimate is that the average net selling price of the
Company's sugar will increase less than 2% from the prior year.
Revenue from pulp (wet and dry pelleted) sales increased $0.6 million or 15%,
reflecting a 36% increase in sales volume, offset by a 15% decrease in the
average gross selling price. The larger volume of wet and pelleted pulp sales
for this period is the result of the larger volume 1998 beet crop delivered for
processing. Based upon marketing information developed by Midwest
Agri-Commodities Company, the Company's marketing agent, the Company's current
estimate is that the average net selling price of the Company's pulp will
decrease 23% from the prior year. The expected decrease in pulp prices is
attributable to a combination
<PAGE>
of tremendous excess supply of competing products, lower demand in Europe
because of reduced cattle and swine herds, poor economic conditions in Japan and
a stronger US dollar.
Revenue from beet molasses sales increased $0.2 million or 12%, reflecting a 53%
increase in sales volume, but offset by a 26% decrease in the average gross
selling price. The larger volume of beet molasses is the result of the larger
volume, lower quality 1998 beet crop delivered for processing. Based upon
marketing information developed by Midwest Agri-Commodities Company, the
Company's marketing agent, the Company's current estimate is that the average
net selling price of the Company's beet molasses will be approximately 43% less
than the prior year. The expected decrease in beet molasses prices is
attributable to abundant, low-priced competing product - both domestic and
international, lower priced corn markets and soft feed market conditions in the
beet molasses marketplace.
Revenues from yeast sales from the Company's subsidiary yeast production
facility, Minn-Dak Yeast Company ("MDYC"), increased $0.2 million or 7%,
reflecting a 10% increase in sales volume, but offset by a 2% decrease in the
average selling price. Sales volume is up because of continued strong demand of
bagged fresh yeast from Red Star Yeast & Products, the company that is
contractually obligated annually to purchase minimum levels of fresh yeast
produced by the yeast company.
The other contributing factor to the change in revenues results from the
increase or decrease in finished goods inventories. The increase in the value of
finished goods inventories for the six months ended February 28, 1999 amounted
to $21.1 million or $14.1 million less than the increase in the value of
finished goods inventories for February 28, 1998. The reduction in the increase
in finished goods inventory mainly results from the level of the inventory of
sugar on hand at the end of the period. Lower inventories of sugar are the
result of a greater level of sugar orders for the current reporting period
versus last.
In the consolidated statements of operations, Expenses section, Production costs
of sugar, by-products and yeast sold increased $0.9 million or 3%. The increase
in production costs for the six months ended February 28, 1999 is mainly due to
the 10 additional operating days (+6%) for the current period ending versus the
same period last year. Marketing costs (which include freight and storage) are
$2.2 million or 21% more than the prior period because of the increase in sales
volume for sugar and by-products. Depreciation and interest expenses for fiscal
year 1998-1999 are expected to be higher than fiscal year 1997-1998 due to the
Company's large capital expansion program that was basically competed at the end
of fiscal year 1998. The Company's plant Depreciation expense is expected to
increase approximately $0.6 million or 12% in fiscal year 1998-1999 versus the
prior year, while Interest expense is expected to increase approximately $0.7
million or 14%.
In the section Distribution of Net Proceeds, payments to members for sugarbeets
(net of unit retention capital and unprocessed sugarbeet inventory) decreased
$5.6 million or 11% from the 1997-1998 period. For fiscal year 1998-1999 the
Company is projecting a payment to growers for sugarbeets totaling $63.4
million, which is $8.3 million or 11% less than the prior fiscal year. The
payment is based upon (i) an average delivered sugar content of 17.43%, (ii) a
total sugarbeet crop to process of 1.971 million tons and (iii) the Company's
projected selling price for its sugar, which is currently estimated to increase
less than 2% from the prior year. This forward-looking material is based on the
Company's expectations regarding the processing of the 1998 sugar beet crop. The
actual production results obtained by processing those sugar beets could differ
materially from the Company's current estimate as a result of factors such as
changes in production efficiencies and storage conditions for the Company's
sugar beets.
ESTIMATED FISCAL YEAR 1999 INFORMATION
The agreements between the Company and its members regarding the delivery of
sugar beets to the Company require payment for members' sugar beets in several
installments throughout the year. As only the final payment is made after the
close of the fiscal year, the first payments to members for their sugar- beets
are based upon the Company's then-current estimates of the financial results to
be obtained from processing the crop and the subsequent sale of the products
produced from the processing the crop. This discussion contains a summary of the
Company's current estimates of the financial results to be obtained from the
Company's processing of the 1998 sugarbeet crop. Given the nature of the
estimates required in connection with the payments to members for their
sugarbeets, this discussion includes forward-looking statements regarding the
quantity of sugar to be produced
<PAGE>
from the 1998 sugarbeet crop, the net selling price for the sugar and
by-products produced by the Company and the Company's operating costs. These
forward-looking statements are based largely upon the Company's expectations and
estimates of future events; as a result, they are subject to a variety of risks
and uncertainties. Some of those estimates, such as the selling price for the
Company's products and the quantity of sugar produced from the sugar beet crop
are beyond the Company's control. The actual results experienced by the Company
could differ materially from the forward-looking statements contained herein.
The completed harvest of the sugar beet crop grown during 1998 produced a total
of 1,772,648 tons of sugarbeets. The sugar content on the 1998 crop is 17.43%.
The Company also purchased approximately 200,000 tons of sugarbeets from another
sugarbeet processor in the area. The 1.971 million tons of sugarbeets to process
will take approximately 262 days of plant operations. As of this filing, no
significant sugarbeet storage problems have been encountered. While unseasonably
warm temperatures have occurred from time to time in the months of November
through February, the amount of deterioration of the sugarbeets appears to be
normal to slightly better than normal.
The Company expects to produce 1% more sugar from the 1998 sugarbeet crop
(including sugarbeets purchased from another sugarbeet processing company) than
the prior year. However due to lower quality of the 1998 crop, the 1% increase
in sugar produced will result from 14% more sugarbeets being processed.
Currently, the factory is averaging a sugarbeet slice rate of 7,558 tons per
day, 58 tons per day above the rated capacity of the plant and 42 tons per day
below the fiscal year 1999 budget standard.
From the revenues generated from the sale of products produced from each ton of
sugarbeets, the Company's operating and fixed costs must be deducted, which when
done, results in an estimated gross beet payment of $35.80 per ton of sugar
beets.
In preparation for the Year 2000, the Company has developed preliminary plans to
address the possible exposures related to the impact on its information systems
and the company as a whole of the Year 2000 issue. Such plans include
identification of software and hardware systems, and equipment and processing
machinery with imbedded technology that may be affected by the Year 2000
problem; determination of the existence of problems; remediation of problems
identified; testing of systems and machinery and equipment where remediation
will be required; and identification of risks of the Year 2000 issue relative to
third parties which have a material relationship with the Company.
The Company expects to complete its plan to deal with the Year 2000 issue before
the end of calendar year 1999. To date the Company has upgraded its information
system and anticipates that its operations systems will also be ready for the
Year 2000. Key customers and suppliers have been contacted, and to date the
Company has identified no significant concerns. However, the Company continues
to bear some risk related to the Year 2000 issue if other entities not directly
affiliated with the Company do not appropriately address their own Year 2000
compliance issues. A contingency plan will be developed to deal with material
vendors and suppliers who are identified as not being Year 2000 compliant.
Based upon its assessment to date, the Company's management presently believes
that problems related to the Year 2000 issue will be not have a material effect
on operations and financial results.
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Because the Company operates as a cooperative, payments for member-delivered
sugarbeets, the principal raw material used in producing the sugar and
agri-products it sells, are subordinated to all member business expenses. In
addition, actual cash payments to members are spread over a period of
approximately one year following delivery of sugarbeet crops to the Company and
are net of unit retains and patronage allocated to them, all three of which
remain available to meet the Company's capital requirements. This member
financing arrangement may result in an additional source of liquidity and
reduced outside financing requirements in comparison to a similar business
operated on a non-cooperative basis. However, because sugar is sold throughout
the year (while sugarbeets are processed primarily between September and April)
and because substantial amounts of equipment are required for its operations,
the Company has utilized substantial outside financing on both a seasonal and
long-term basis to fund such operations. The financing has been provided by the
St. Paul Bank for Cooperatives (the "Bank"). The Company has a short-term line
of credit with the Bank for calendar years 1998 and 1999 of $55.0 million.
The loan agreements between the Bank and the Company obligate the company to
maintain the following financial covenants, and in accordance with GAAP:
1. Maintain working capital of not less than $8.0 million as of August 31,
1999 and $9.0 million as of August 31, 2000.
2. Maintain a long-term debt and capitalized leases to equity ratio of not
greater than 1.05:1.
3. Maintain a current ratio of not less than 1.0:1.0 based on monthly
financial statements and attain a current ratio of not less than 1.2:1.0
based on fiscal year end audits.
As of February 28, 1999 the Company was in compliance with its loan agreement
covenants with the Bank.
Working Capital as of February 28, 1999 totals $24.3 million compared to $11.2
million at August 31, 1998, an increase of $13.1 million for the period .
Increased working capital is a result of normal financing, operational and
capital expenditure activities of the Company.
The targeted working capital for August 31, 1999 is approximately $12.0 million
dollars and, in the Company's opinion, will be attained. The August 31, 1999
working capital estimate is substantially higher than historical fiscal year end
working capital targets. The working capital increases are the result of the
January 1999 loan agreement with the Company's primary lender, the St. Paul Bank
for Cooperatives, in which lower interest rate incentives were provided in
return for a higher working capital position. The funding for increased working
capital was generated by shifting approximately $4.5 million in seasonal debt to
long term debt. The net result for the Company will be savings in annual
interest costs, without incurring added overall debt.
The St Paul Bank for Cooperatives has announced merger plans with Co-Bank,
Denver, Colorado. The banks are working toward a July 1, 1999 merger date. If
this merger takes place, the Company does not expect to encounter any material
impact in its ability to borrow from the merged bank or in its cost of funds.
The primary factor for the changes in the Company's financial condition for the
six months ended February 28, 1999 was due to the seasonal needs of the
1998/1999 sugarbeet-processing season. The cash used to provide for operations
of $23.5 million and for investing activities of $3.2 million was funded through
cash flow financing activities, and a reduction in cash. The net cash provided
through financing activities of $25.1 million was primarily provided through
proceeds from the issuance of short term debt of $26.2 million; net long term
debt borrowings of $1.4 million; 35% payment of the 1990 crop unit retains and
allocated patronage payment of $2.4 million and estate equity buy outs of $0.1
million.
Capital expenditures for the six months ended February 28, 1999 totaled $3.0
million. Capital expenditures for fiscal year 1999 are currently estimated at
$6.2 million, $2.0 million resulting from the carryover of fiscal 1998 projects.
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the annual meeting of the shareholders which was held on December 8, 1998
four proposed changes to the Cooperative's by-laws were voted upon by the
shareholders. The first by-law change dealt with Section 1 of Article III -
meetings of members. The by-law change proposal passed by a vote of 190
shareholders for the changes and 4 shareholders against. The second by-law
change proposal dealt with Section 2 Article IV - election, qualification and
tenure of the board of directors. The by-law change proposal passed by a vote of
191 shareholders for the changes and 5 shareholders against. The third by-law
change dealt with Section 6 Article IV - special meetings of the board of
directors. The by-law change proposal passed by a vote of 191 shareholders for
the changes and 4 shareholders against. The fourth by-law change proposal dealt
with Article 7 - the Chairman's duties. The by-law change proposal passed by a
vote of 187 shareholders for the changes and 8 shareholders against. The
Cooperative also held election of directors. Elected to three year terms by
voice vote and unanimous consent were the following directors: Russell Mauch,
district two; Ed Moen, Jr., district three and Victor Krabbenhoft, district
nine. In addition, the following directors (including current expiration date of
term) continued on following the Cooperative's annual meeting: Jerry Meyer,
district one (2000); Michael Hasbargen, district four (1999); Jack Lacey,
district five (1999); John Hought, district six (2000), Paul Summer, district
seven (1999); and Doug Etten, district eight (2000).
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
<PAGE>
================================================================================
SIGNATURES
Pursuant to the requirement 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.
MINN-DAK FARMERS COOPERATIVE
----------------------------
(Registrant)
Date: April 13, 1999 /s/ LARRY D. STEWARD
-------------------- -----------------------------------
Larry D. Steward
President and Chief Executive Officer
Date: April 13, 1999 /s/ STEVEN M. CASPERS
-------------------- -----------------------------------
Steven M. Caspers
Executive Vice President, and
Chief Financial Officer
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