UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the fiscal year ended
AUGUST 31, 2000
Or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
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Commission File
No. 33-94644
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MINN-DAK FARMERS COOPERATIVE
(Exact name of registrant as specified in its charter)
North Dakota 23-7222188
(State of incorporation) (I.R.S. Employer Identification Number)
7525 Red River Road
Wahpeton, North Dakota 58075 (701) 642-8411
(Address of principal executive offices)(Registrant's telephone number)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
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 (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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of November 19, 2000, 484 shares of the Registrant's Common Stock
and 72,200 "units" of the Registrant's Preferred Stock, each consisting of 1
share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share
of Class C Preferred Stock, were outstanding. There is only a limited, private
market for shares of the Company's Common or Preferred Stock, as such shares may
be held only by farmer-producers who are eligible for membership in the Company.
The Company's shares are not listed for trading on any exchange or quotation
system. Although transfers of the Company's shares may occur only with the
consent of the Company's Board of Directors, the Company does not verify
information regarding the transfer price in connection with such transfers. A
number of stock transfers, representing approximately 4% of available stock,
were not arms length (estate settlements, estate planning from one generation to
the next, etc.) and an accurate value for that stock was not available.
Management believes that less than 2% of the Company's available stock was
traded at arm's length during the fiscal year ended August 31, 2000. Of the
stock transferred at arms length, the transfers were made during the first,
second and third quarters of the Company's fiscal year and range in price from
$2,200 to $1,600 per unit. Prices early in the fiscal year ranged from $2,200 to
$1,800 per unit while prices in the third and final quarter of trading ranged
from $1,800 to $1,600 per unit.
DOCUMENTS INCORPORATED BY REFERENCE
Certain exhibits to this Report are incorporated by reference
from the Company's Registration Statement on Form S-1 (File
number 33-94644), declared effective on September 11, 1995
and from the Company's Annual Report on Form 10-K for the
fiscal years ended August 31, 1996 through 1999.
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ITEM 1. BUSINESS
Minn-Dak Farmers Cooperative ("Minn-Dak" or the "Company") is a North
Dakota agricultural cooperative that was formed in 1972 and has 484 members.
Membership in the Company is limited to sugarbeet growers located in those areas
of North Dakota and Minnesota within an approximate fifty (50) mile radius of
the Company's offices and sugarbeet processing facilities in Wahpeton, North
Dakota. The Company's facilities allow the members to process their sugarbeets
into sugar and other products. The products are pooled and then marketed through
the services of a marketing agent under contract with the Company. The sugar
marketing agent, United Sugars Corporation, is a cooperative association owned
by its members, the Company, American Crystal Sugar Company, Southern Minnesota
Beet Sugar Cooperative and United States Sugar Corporation. The Company's beet
molasses and beet pulp pellets are also marketed through a marketing agent,
Midwest Agri-Commodities Company. Midwest Agri-Commodities Company is a
cooperative association owned by its members, the Company, American Crystal
Sugar Company and Southern Minnesota Beet Sugar Cooperative.
Minn-Dak's corporate headquarters are located at 7525 Red River Road,
Wahpeton, North Dakota 58075 (telephone number (701) 642-8411). Its fiscal year
ends August 31.
PRODUCTS AND PRODUCTION
The Company is engaged primarily in the production and marketing of
sugar from sugarbeets. The Company also markets certain co-products of the sugar
it produces, such as beet molasses and beet pulp pellets. The Company also owns
an 80% interest in Minn-Dak Yeast Company, Inc., which has facilities located
near the Company's sugar production location. Minn-Dak Yeast Company, Inc.
produces fresh baker's yeast and provided revenues totaling approximately 3% of
the Company's gross revenues for the fiscal year ended August 31, 2000.
The Company processes sugarbeets grown by its members at its sugar mill
located in Wahpeton, North Dakota. The period during which the Company's plant
is in operation to process sugarbeets into sugar and co-products is referred to
as the "campaign." The campaign is expected to begin in September of each year
and continues until the available supply of beets has been depleted, which
generally occurs in March or April of the following year, depending on the size
of the crop. Based on current processing capacity, an average campaign lasts
approximately 210-225 days, assuming normal crop yields.
Once the sugarbeets are harvested, rapid processing is important to
maximize sugar extraction and minimize spoilage. Members transport their crop by
truck to receiving stations designated by the Company. Beets are then stored in
the Company's factory yard and at outlying piling stations until processed.
Under the Company's "growers agreement" with its members, the Company furnishes
all loading equipment at loading stations and, after delivery of the beets to
the Company, pays all freight and mileage charges for hauling the sugarbeets
from the piling stations to the factory for processing.
The Company's total sugar production is influenced by the amount and
quality of sugarbeets grown by its members, by the processing capacity of the
Company's plant and by the ability to store harvested beets. Most of the beet
harvest is stored in piles. Although piled sugarbeets that have been frozen by
the winter temperatures may be stored for extended periods, beets stored in
unprotected piles at temperatures above freezing must be processed within
approximately 160 days.
Sugarbeets deteriorate in storage due to the organic nature of their
existence. Beets harvested prior to obtaining a root temperature of fifty
degrees or less must be processed as soon as possible or sugar loss will occur
and they will deteriorate. The plant start up in the fall is timed to the
anticipated end of processing in the spring. The plan of the Company is to
finish processing unprotected beets prior to March 10, ventilated beets prior to
March 31, and storage shed beets as soon thereafter as is possible.
Unprotected beets are "split" by processing the center of the piles
first. This method allows the processing of the center beets, which do not
freeze and therefore deteriorate more rapidly, at the earliest possible date.
Ventilated beets have culverts with air holes running every eleven feet
into the pile. Prior to freezing of the beets, air is blown into the piles to
bring the pile temperature to an average temperature of approximately
thirty-five degrees Fahrenheit. When a week or more of sub zero temperatures are
forecast, the fans are turned on when the temperature reaches zero degrees and
continues to ventilate until the pile temperature reaches zero to five degrees.
Storage shed beets are handled in the same manner as the ventilated
beets. The difference between the processes is the building itself, which
insulates the beets from sun, wind, and warmer spring temperatures. With the
buildings, storage of the beets can run as late as mid May of each year.
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In addition, unprotected and ventilated beets will, in long campaigns,
have extra steps taken to extend their life. Beets are sprayed with lime to
create a reflectant and reduce the harmful impact from the sun's rays in the
spring. Straw is also applied to the sides of some later processed piles to
further insulate the beets from sun, wind, and temperature.
Once the sugarbeets arrive in the factory, the basic steps in producing
sugar from them include: washing; slicing into thin strips called "cossettes";
extracting the sugar from the cossettes in a diffuser; purifying the resulting
"raw juice" and boiling it, first in an evaporator to thicken it and then in
vacuum pans to crystallize the sugar; separating the sugar crystals in a
centrifuge; drying the sugar; and storing sugar in bulk form for bulk and bag
shipping.
The Company's sugarbeet co-products include beet molasses and beet pulp
pellets. After the extraction of raw juice from the cossettes, the remaining
pulp is dried and processed into and sold as animal feeds. The beet molasses is
the sugar juice left after all economical means have been taken to extract the
sugar from the sugar juice. The beet molasses is sold primarily to yeast and
pharmaceutical manufacturers and for use in animal feeds. The beet molasses and
beet pulp pellets are marketed through Midwest Agri-Commodities Company.
RECENT CROPS
The Company's members harvested 2.1 million tons of sugarbeets from the
2000 crop. The crop yield for the 2000 crop was a new record yield, exceeding by
10% the Company's five year average tons per acre. In the late summer of 2000,
the USDA instituted a cost savings program called Payment In Kind (PIK) that
compensated growers for destroying sugarbeet acres. Of the 106,000 planted
acres, 8% were converted to the PIK program making the 2000 crop harvested acres
7% below the 1999 crop harvested acres. Sugar content of the 2000 crop at
harvest was 3% above the average of the five most recent years. The Company's
projected production of sugar from the 2000 crop sugarbeets is expected to be
well above the five year average of sugar produced, but slightly below the
levels of the 1999 crop. This forward-looking material is based on the Company's
expectations regarding the processing of the 2000 sugarbeet crop; the actual
production results obtained by processing those sugarbeets 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
sugarbeets.
For a discussion of the 1999, 1998 and 1997 crops and results of
operations for fiscal years 2000, 1999 and 1998, see "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
MARKETING, CUSTOMERS AND PRICING
Since January 1, 1994 United Sugars Corporation, a common marketing
agency operating on a cooperative basis, owned by the Company and three other
sugar producing companies (American Crystal Sugar Company, Southern Minnesota
Beet Sugar Cooperative and United States Sugar Corporation) to market sugar
produced by the four member owners, has marketed the Company's sugar.
At August 31, 2000 the Company had an ownership interest in United
Sugars Corporation (year to date contributed capital) totaling $1.0 million,
which represented approximately 9.4% of the total.
The Company, as well as the other members of United Sugars
Corporation, has entered into a "Uniform Member Marketing Agreement" with United
Sugars Corporation. Under that agreement, the sugar produced by the Company is
pooled with sugar produced by the other sugar-producing member owners and is
then sold through the efforts of United Sugars Corporation. The Company receives
payment for its sugar by receiving its pro rata share of the net proceeds from
the sale of the pooled sugar. The net proceeds of such sales represent the gross
proceeds of the sale of the sugar, adjusted for the various costs and expenses
of marketing the pooled sugar, including the Company's pro rata share of the
marketing and sales expenses incurred by United Sugars Corporation. Any net
proceeds from the operation of United Sugars Corporation are distributed to the
various members on a patronage basis.
United Sugars Corporation sells industrial bulk sugar, industrial
bagged sugar, retail bagged sugar and specialty sugars. It is able to distribute
both cane sugar and beet sugar, and distribute sugar to customers over a large
geographical area. The Company's sugar is marketed by United Sugars Corporation
primarily to industrial users such as confectioners, breakfast cereal
manufacturers and bakeries. The customer base of United Sugars Corporation
includes most of the large industrial sugar users. The customer base also
includes retail grocery and wholesalers. The Company has no single customer,
which
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accounts for more than ten percent (10%) of its consolidated revenues. For the
fiscal year ended August 31, 2000, 95% of the Company's sugar was shipped in
bulk form, mostly to industrial users, and 5% in bagged powdered sugar.
The prices at which United Sugars Corporation sells the Company's sugar
fluctuate periodically based on changes in domestic sugar supply and demand. The
largest portion of the Company's sales are contracted one or more quarters in
advance, with the effect of stabilizing fluctuations in revenue from quarter to
quarter. Retail (grocery) products are sold on a spot basis. Current net selling
prices for sugar are forecast to be lower than the prior two years because (1)
the domestic market continues to be oversupplied from large domestic crops and
excess foreign sugar and (2) consumption is expected to increase less than the
long-term US consumption rates.
A licensing agreement with Pillsbury Company will allow United Sugars
Corporation to sell sugar nationwide under the "Pillsbury" name.
The Company markets its co-products, dried beet pulp pellets and beet
molasses, through Midwest Agri-Commodities Company, a marketing cooperative
whose shareholders are the Company, American Crystal Sugar Company and Southern
Minnesota Beet Sugar Cooperative. Midwest Agri-Commodities Company markets beet
pulp pellets, beet molasses and other liquid products for its member owners as
well as non-member sugar companies. Beet pulp pellets are marketed to dairymen
and consumers in the United States and foreign markets. The sales and marketing
arrangement with Midwest Agri-Commodities Company is evidenced by a "Uniform
Member Marketing Agreement." Under that agreement, the beet pulp pellets and
beet molasses produced by the Company are pooled with beet pulp pellets and beet
molasses produced by the other pool members and is then sold through the efforts
of Midwest Agri-Commodities Company. The Company receives payment for its beet
pulp pellets and beet molasses by receiving its pro rata share of the net
proceeds from the sale of the pooled beet pulp pellets and beet molasses. The
net proceeds of such sales represent the gross proceeds of the sale of the beet
pulp pellets and beet molasses, adjusted for the various marketing costs and
transportation expenses including the Company's pro rata share of General and
Administrative expenses incurred by Midwest Agri-Commodities Company. Any net
proceeds from the operation of Midwest Agri-Commodities Company are distributed
to the various members on a patronage basis.
For the year ended August 31, 2000, approximately 65% of the Company's
pulp production was exported to Japan and Europe, and the remaining 35% was sold
domestically. The market for beet pulp pellets is affected by the availability
and quality of competitive feedstuffs. Dried beet pulp pellet prices improved in
FY 2000 due the improved Asian economics, revisions in European grain policies
and the worldwide shortage of beet pulp pellets. Beet molasses is marketed
primarily to yeast manufacturers, pharmaceutical houses, liquid supplement
manufactures and livestock feeders. Beet molasses prices increased in FY 2000
due to a smaller domestic supply. Co-product sales accounted for approximately
8% of the Company's total consolidated net sales revenues during FY 2000. This
relationship is primarily a function of the average market prices for sugar,
beet pulp pellets, beet molasses and fresh yeast and is not necessarily
indicative of future relationships between co-product, fresh yeast and sugar
revenues, because prices of these products fluctuate independently of each
other.
The Company is an eighty percent equity owner of Minn-Dak Yeast
Company, Inc. Minn-Dak Yeast Company, Inc. manufactures fresh baker's yeast in a
plant located adjacent to the Company's sugar plant in Wahpeton, North Dakota.
The Company started the yeast business in 1989 in order to add value to its
co-product beet molasses. Beet molasses is the main ingredient (growth medium)
in the fermentation process used to grow baker's yeast to commercial volumes. A
portion of the Company's beet molasses production is used in the Minn-Dak Yeast
Company, Inc.'s process and is sold through a supply agreement between the two
companies. Universal Foods Corporation, Milwaukee, Wisconsin, holds the
remaining twenty percent equity stake. Minn-Dak Yeast Company, Inc. also has a
long-term marketing agreement whereby Universal Foods Corporation will buy all
production of baker's yeast produced by Minn-Dak Yeast Company, Inc. in return
for certain guaranteed sales volumes.
JOINT VENTURE WITH PROGOLD LIMITED LIABILITY COMPANY
Minn-Dak is a five percent (5%) equity owner in ProGold Limited
Liability Company ("ProGold"). ProGold was formed in 1994 by three entities for
the purpose of building a plant to produce from corn and market high fructose
corn syrup; and to produce and market corn gluten feed, corn gluten meal and
corn germ, all co-products produced by the plant. The other two equity owners
are American Crystal Sugar Company, Moorhead, Minnesota (46% ownership share)
and Golden Growers Cooperative, Fargo, North Dakota (49% ownership share). The
Company has contributed approximately $5.2 million in exchange for its 5%
ownership position.
Because of unexpected market conditions, ProGold the business, as it
was structured as of August 31, 1997, was expected to suffer significant losses
for several years. Given the continued expectation of significant losses for
several years for ProGold, on September 30, 1997 ProGold entered into a letter
of intent with Cargill, Inc. ("Cargill") for Cargill to lease
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ProGold's corn wet-milling plant. On November 1, 1997 ProGold signed a 10 year
lease agreement with Cargill, which expires on October 31, 2007, to lease
ProGold's corn wet-milling plant. Under the lease arrangement, the Company and
the other ProGold members would retain ownership of the plant, while Cargill
will operate the plant and sell the finished products. ProGold will receive
rental payments in a base amount fixed for each year during the term of the
lease. ProGold would also receive supplemental rent equal to fifty percent (50%)
of the amount by which earnings before taxes from operations of the facility
exceeds a specified base.
The arrangement between ProGold and Cargill also specifies a variety of
alternatives that may take effect upon expiration of the initial lease. These
alternatives include agreeing to enter into another long-term lease upon
mutually agreeable terms and conditions, or ProGold could offer to sell to
Cargill, at fair market value, a fifty percent (50%) or one hundred percent 100%
ownership interest in ProGold.
To date the lease with Cargill has provided ProGold, as an entity, with
(i) rental payments of a fixed amount, with the opportunity to receive
supplemental rental payments in the event that the ProGold facility is operated
profitably. As a result, the lease arrangement has provided protection from the
exposure of the risks of participation in the corn sweetener market, including a
risk of future, material financial losses by ProGold and the necessity of
additional capital investment from the Company to cover such future losses.
GROWERS' AGREEMENTS
The Company purchases virtually all of its sugarbeets from members
under contract with the Company. All members have three-year contracts with the
Company covering the growing seasons of 2000 through 2002 (the "Growers'
Agreements"). At the end of each year, the Growers Agreement automatically
extends for an additional year, so that such agreements always have a remaining
term of three years, unless the Company prior to the automatic renewal has given
notice of termination. In that situation, the agreement will not renew, but will
continue in effect for the two year period then remaining under the agreement.
Each Unit of Preferred Stock currently entitles a member to grow 1.35 acres of
sugarbeets for sale to the Company. The Company's Board of Directors has the
discretion to adjust the acreage, which may be planted for each Unit of
Preferred Stock held by the members. For the 2000 crop year the Company's Board
of Directors authorized members to plant 1.45 acres per unit.
Under the terms of the Growers Agreement, each member receives payment
for his or her sugarbeets based on a price per pound of extractable sugar. The
price per pound of extractable sugar is determined by dividing the total grower
distribution of net proceeds (less the amount credited to members investment
from member patronage and credited to retained earnings from non-member
patronage) by the total of members' pounds of extractable sugar. Extractable
pounds of sugar are obtained by the processing of beet samples taken from
members' sugarbeets during harvest. Each member's grower payment is obtained by
multiplying that member's total pounds of extractable sugar times the price per
pound of extractable sugar as determined above.
Under the Growers Agreement, each member receives an initial
installment of the payment for his or her sugarbeets on or about November 15,
soon after delivery of his or her crop to the Company. That initial installment
is subject to adjustment by the Cooperative's Board of Directors and management,
but will not exceed 65% of the estimated price per pound of extractable sugar. A
second installment is paid in early February; that installment, in combination
with the first installment, will not exceed 70% of the estimated price per pound
of extractable sugar. A third installment is paid in early April, with the
aggregate of all installments paid to that date not to exceed 80% of the
estimated price per pound of extractable sugar. A fourth installment payment is
paid in early July, with the total of installment payments to that date not to
exceed 95% of the estimated price per pound of extractable sugar. The final
payment is determined after the end of the Company's fiscal year, ending on
August 31, and is in an amount necessary to bring the total of all payments to
the price to be paid per pound of extractable sugar to all growers during the
applicable fiscal year. In addition, the Company's annual patronage net income,
which is equal to the Company's sales less all expenditures and member beet
payments, is distributed to the members on the basis of the pounds of
extractable sugar obtained from each of the members' sugarbeets; such amounts
are distributed in either cash payments or in the form of patronage credits to
the member's patronage credit account on the books of the Company.
COMPANY DISTRICTS
The Company's by-laws provide that the Company's members are to be
divided into districts for the purposes of voting and the election of members of
the Board of Directors. Those districts do not have specific geographic
boundaries but, instead, contain a loosely defined area representing the area
served by a particular piling station to which members deliver
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their sugarbeets for storage until the sugarbeets are to be processed. When a
member joins the Company, he or she is assigned to a particular district based
upon criteria including: (i) the physical location of the shareholder's
sugarbeet growing acres relative to a piling site, (ii) if the previous criteria
do not clearly indicate the district to which the shareholder should be
assigned, then the physical location of the shareholder's base of farming
operations relative to a piling site (some members deliver sugarbeets to more
than one piling site due to the locations of their various fields, even though
they are assigned to membership in only one district) and (iii) if the first two
criteria do not provide a clear indication of the district to which the
shareholder should be assigned, then the shareholder is given the option of
being assigned to the district which would best serve the needs of that
shareholder.
Given that shareholders are assigned to districts based upon ease of
delivery of harvested sugarbeets and because shareholders own different numbers
of Units of Preferred Stock, each district includes a different number of acres
of sugarbeet production and, therefore, a different quantity of sugarbeets
delivered to the Company. However, none of the districts provides the Company
with a materially disproportionate quantity of the sugarbeets produced by the
Company's members. While the allocation of members to the various districts has
a significant impact on the election of directors, the Company does not believe
that the districts represent a significant factor in the day-to-day business
operations of the Company.
RESEARCH AND DEVELOPMENT
The Company is not involved in its own research and development
activities, but does participate in some sugar industry research and development
activities. Any research findings are then shared by the entire sugar industry.
Participatory research and development is accomplished through such
organizations as Beet Sugar Development Foundation, Sugar Association, and North
Dakota/Minnesota Research and Education Board. The Company participates in the
organizations listed above through the efforts of its representatives to the
boards of directors of those entities. The Company's representatives, either a
member of the Company's Board of Directors or a management employee of the
Company, allow the Company to participate in and help direct agricultural and
factory operations research and development activities carried out by the listed
organizations. Those organizations also have established various committees on
which the Company has placed certain of its employees. That practice is designed
to provide the company with direct access to any research and development
information available from the applicable committees. (Through its employees,
the Beet Sugar Development Foundation also provides some legislative and
lobbying efforts on a national level. Those efforts are directed at maintaining
funding for the various federal sugarbeet research facilities.) None of the
Company's employees or directors devotes a significant portion of their time and
energies to the activities described in this section; instead, such efforts are
a minor portion of their continuing duties on behalf of the Company.
During the fiscal year ended on August 31, 2000, the Company
contributed approximately $88,000 to the North Dakota/Minnesota Research and
Education Board to fund that entity's research and development activities.
$14,000 was given to the Beet Sugar Development Foundation in connection with
their research activities, and $83,000 to the Sugar Association for their
research activities and membership dues.
The Company also has established a sugarbeet seed committee, which
reviews the performance of new and existing sugarbeet seed varieties. The
committee then advises the Board of Directors with regard to those sugarbeet
seed varieties that should be approved for use by the Company's shareholders.
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ENVIRONMENTAL MATTERS
The Company is subject to many federal, state and local regulations
that govern air and water emissions, and solid and hazardous waste storage and
disposal. Currently, the Company is meeting all its obligations in water, solid
waste and hazardous waste.
The Company has approved a budget of $1.3 million to be spent on
environmental capital projects during the fiscal year ended on August 31, 2001.
The Company cannot accurately predict the extent to which future
changes in environmental laws or regulations will affect the cost of operating
its facilities and conducting its business. However, any changes could have
adverse financial consequences for the Company and its members.
EMPLOYEES
As of November 19, 2000, the Company had 244 full-time employees, of
whom 212 were hourly and 32 were salaried. It also employs approximately 320
additional hourly seasonal workers during the sugarbeet harvest and processing
campaign. In August 2000 the Company concluded the negotiations for a collective
bargaining agreement with the American Federation of Grain Millers (AFL-CIO)
union for its factory employee group. The written contract is in effect from
June 1, 2000 through May 31st of the year 2005. Office, clerical, management and
harvest employees are not unionized. Full time employees are provided with
health and dental insurance, a defined benefit pension retirement plan, a 401(k)
retirement savings plan, a short and long-term disability plan, term life
insurance, and vacation and holiday pay plans. Seasonal workers are provided
some of the above employee benefits. The Company considers its employee
relations to be excellent.
ITEM 2. PROPERTIES
The Company operates a single sugarbeet processing factory at Wahpeton,
North Dakota that is located in the Red River Valley. The Company owns the
factory, receiving sites, and the land on which they are located. The 1999 crop
set new records for average daily slice rate, sugar production and for tons of
beets sliced.
Minn-Dak Yeast Company, Inc. of which the Company is an 80% owner,
operates a single yeast processing factory at Wahpeton, North Dakota which is
located in the Red River Valley. Minn-Dak Yeast Company, Inc. owns the factory
and the land on which it is located. During fiscal 2000 fresh yeast was produced
and sold into the domestic yeast marketplace. Minn-Dak Yeast Company's
processing factory is exceeding its initial rated design capacity.
All properties are held subject to a mortgage by the Company's primary
lendor.
ITEM 3. LEGAL PROCEEDINGS
From time to time and in the ordinary course of its business, the
Company is named as a defendant in legal proceedings related to various issues,
including worker's compensation claims, tort claims and contractual disputes.
Other than as provided herein, the Company is not currently involved in legal
proceedings which have arisen in the ordinary course of its business, and the
Company is also unaware of certain other potential claims which could result in
the commencement of legal proceedings. The Company carries insurance that
provides protection against certain types of claims.
The Company is subject to extensive federal and state environmental
laws and regulations with respect to water and air quality, solid waste disposal
and odor and noise control. The Company conducts an ongoing and expanding
control program designed to meet these environmental laws and regulations.
Except as disclosed under "ENVIRONMENTAL MATTERS" above, there currently are no
pending regulatory enforcement actions and the Company believes that it is in
substantial compliance with applicable environmental laws and regulations.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's shareholders
during the quarter ended August 31, 2000.
At the Annual Meeting of Shareholders which is to be held on December
5th, 2000, the following seats on the board of directors will be up for
election: District #1, District #6, and District #8. A brief biography of each
of the candidates for the open seats follows.
DISTRICT #1
JERRY MEYER (incumbent) has been a director since 1994. Mr. Meyer has
been farming near Fairmount, ND since 1958. He also serves on the board of
directors for Minn-Dak Yeast Company. Mr. Meyer is running unopposed.
DISTRICT #6
JOHN HOUGHT (incumbent) is unable to seek re-election due to term
limits.
CHARLES STEINER has been farming near Foxhome, MN since 1969. He
graduated from Northwest School of Agriculture, University of MN, Crookston, MN.
He currently serves on the Rothsay, MN school board and the Oscar/Parke
Insurance Board. He is a past director and president of Rothsay Farmers Coop
Board in Rothsay, MN.
DOUGLAS TISCHER has been farming near Breckenridge, MN since 1974. He
earned a B.S. degree in Economics and Business from St. Cloud State University
in St. Cloud, MN. He currently serves on the Company's Seed Committee as well as
the Company's Trucking Committee. He is the Secretary/Treasurer for the Wilkin
County Crop Improvement Association and a member of the Minnesota Wheat
Association. In addition, he is active both in the past and presently in the
leadership of St. Mary's Catholic Church in Breckenridge, MN. Mr. Tischer's
shares are held and grown under the name of Kruse and Tischer Farms.
DISTRICT #8
KATHY DEAL has been farming near Doran, MN since 1981. She has been a
Minn-Dak stockholder since 1996. She earned a B.S. degree in Computer Science
and Business with a concentration in accounting and finance from North Dakota
State University (NDSU) and she later earned a Masters Degree in Educational
Administration from NDSU. She has been as Associate Professor in the Computer
Information Systems Department at the North Dakota State College of Science
since 1983. Ms. Deal is also a founding member and past co-chairperson of the
Company's Education/Leadership Development Committee and a founding member of
the Breckenridge High School Chapter of Dollars for Scholars. She was the 2000
Agassiz Leadership Award recipient for Wilkin County and is active in the
leadership of St. Mary's Catholic Church in Breckenridge, MN.
DOUGLAS ETTEN (incumbent) has been a director since 1997. Mr. Etten has
been farming near Foxhome, MN since graduating from Concordia College with a
degree in Business and Math in 1974. He also serves on the board of directors
for Midwest Agri-Commodities Company.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is only a limited, private market for shares of the Company's
Common or Preferred Stock, as such shares may be held only by farmer-producers
who are eligible for membership in the Company. The Company's shares are not
listed for trading on any exchange or quotation system. Although transfers of
the Company's shares may occur only with the consent of the Company's Board of
Directors, the Company does not verify information regarding the transfer price
in connection with such transfers. A number of stock transfers, representing
approximately 4% of available stock, were not arms length (estate settlements,
estate planning from one generation to the next, etc.) and an accurate value for
that stock was not available. Management believes that less than 2% of the
Company's available stock was traded at arm's length during the fiscal year
ended August 31, 2000. Of the stock transferred at arms length, the transfers
were made during the first, second and third quarters of the Company's fiscal
year and range in price from $2,200 to $1,600 per unit. Prices early in the
fiscal year ranged from $2,200 to $1,800 per unit while prices in the third and
final quarter of trading ranged from $1,800 to $1,600 per unit.
8
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data for each of the
last five completed fiscal years. The selected financial data of the Company
should be read in conjunction with the financial statements and related notes
included elsewhere in this Report.
Fiscal Year Ended August 31,
<TABLE>
<CAPTION>
FINANCIAL DATA
(Numbers in Thousands) 2000 1999 1998 1997 1996
<S> <C> <C> <C> <C> <C>
Revenues $170,151 $152,742 $149,574 $139,730 $114,335
Net Proceeds(1) 86,604 63,352 72,084 74,239 56,872
Total Assets 173,001 174,296 184,830 171,896 136,361
Long-term Debt, including current maturities, Net
of bond investments, 1998, 1997 & 1996 58,193 61,185 59,798 58,252 55,809
Members' Investment(2) 75,336 79,394 82,082 73,646 57,324
Property and Equipment Additions, net of
Retirements 2,404 2,962 10,893 24,547 34,457
Working Capital 12,234 13,403 11,170 10,163 11,845
Ratio of Long-Term Debt to Equity(3) .71 .71 .65 .75 .92
Ratio of Net Proceeds to Fixed Charges(4) 17.68 13.05 13.92 14.92 16.76
Dividends Paid on Common Stock 0 0 0 0 0
PRODUCTION DATA(5)
Acres harvested 102,086 97,336 91,374 82,575 74,802
Tons purchased (members) 2,201,776 1,772,648 1,721,240 1,506,646 1,458,917
Tons purchased (non-member) 198,770 44,065
Tons purchased per acre harvested 21.57 18.21 18.84 18.25 19.47
Net beet payment paid to member per ton of
sugarbeets delivered, plus allocated patronage
and unit retains(6) 39.19 35.34 41.68 49.97 38.34
Sugar hundredweight
Produced 5,739,893 4,750,921 4,788,131 4,136,172 3,348,629
Sold, including purchased sugar 5,220,321 5,324,764 4,672,631 3,794,313 3,841,443
Beet pulp pellet tons
Produced 97,541 100,215 89,263 77,042 77,352
Sold 96,452 127,160 105,270 82,705 74,743
Beet molasses tons
Produced 87,417 103,127 78,077 64,377 61,194
Sold 75,029 80,325 51,939 45,182 43,882
Used for Yeast Production 17,745 17,652 18,651 17,282 19,391
Yeast pounds (in thousands)
Produced 26,062 26,198 27,191 23,127 25,556
Sold 26,034 26,240 27,227 23,193 25,495
</TABLE>
9
<PAGE>
(1) Net Proceeds are the Company's gross revenues, less the costs and expenses
of producing, purchasing and marketing sugar, sugar co-products, and yeast, but
before payments to members for sugarbeets. (For a more complete description of
the calculation of Net Proceeds, see "Description of Business-Growers'
Agreements".)
(2) Members' investment includes preferred and common stock, unit retention
capital, allocated patronage and retained earnings (deficit).
(3) Calculated by dividing the Company's long-term debt, exclusive of the
current maturities of such debt, by equity.
(4) Computed by dividing (i) the sum of Net Proceeds plus fixed charges, plus
amortization of capitalized interest by (ii) the sum of interest expense and
interest capitalized. The Company does lease certain items, such as some office
equipment. Due to the proportionately small amounts involved, an interest factor
on lease payments has not been included in the total of the Company's fixed
charges or the calculation of this ratio. See Exhibit 12.
(5) Information for a fiscal year relates to the crop planted and harvested in
the preceding calendar year (e.g., information for the fiscal year ended August
31, 2000, relates to the 1999 crop).
(6) Reflects the total amount paid in cash and allocated to individual grower
equity accounts for each ton of beets delivered.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS:
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with the Company's
financial statements and notes included elsewhere in this Report. This
discussion contains forward-looking statements that involve risks and
uncertainties. The Company's actual future results may differ materially from
those anticipated in the forward-looking statements contained in this section;
such differences could arise as a result of a variety of factors including, but
not limited to, the market and regulatory factors described elsewhere in this
Report.
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 co-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 majority of such financing has been
provided by Co-Bank (the "Bank"). The Company has a short-term line of credit
with the Bank in 2000 of $45,000,000. Additional short-term financing
requirements are provided through the Department of Agriculture's CCC sugar loan
program.
On July 1, 1999, The Company's prior primary lender, St Paul Bank,
merged with the Bank. A new loan agreement was reached between the Company and
the Bank during fiscal year 2000 as a result of this merger.
The loan agreement between the Bank and the Company obligate the
Company to the following significant loan conditions: invest in Class C or other
stock of the bank, as may be designated, in such amounts as may be prescribed by
the board of directors of the bank; maintain working capital of not less than
$9.0 million; maintain a current ratio of not less than 1.2:1.0; maintain
long-term debt to equity ratio of no greater than 0.8:1; and maintain an
available cash to current long-term debt ratio as defined in the agreement of
not less than 1.25:1.0. As of August 31, 2000, the Company was in compliance
with all loan covenants in its loan agreement. The loan agreement is secured
with a first lien on substantially all property and equipment and current assets
of the Company. Sources for future Long-Term Debt payments are primarily plant
depreciation resulting from normal operations.
During fiscal year 2000, the Company sold certain notes receivable with
recourse. The Company's contingent liability related to these notes totaled $2.9
million as of August 31, 2000.
Working capital decreased $1.2 million for fiscal year 2000. As of
August 31, 2000, the Company achieved its targeted working capital position.
The company has protected itself from interest rate fluctuations
through the use of tax exempt financing and a term debt portfolio that fixes
rates into the future for set amounts of debt. The current term debt portfolio
is expected to provide the company stable term debt interest rates over the next
four years at below current market rates. An increase or decrease in the
interest rate market of 100 basis points is expected to have little or no impact
on the profitability of the company.
Capital expenditures for fiscal year 1998 were $10.9 million, fiscal
year 1999 were $5.2 million and fiscal year 2000 were $4.8 million. Capital
expenditures for fiscal year 2001 are currently estimated at $3.0 million. The
capital expenditures for fiscal year 1998 were mostly made up of assets needed
to complete the Company's three-year expansion plan that was undertaken starting
in fiscal year 1996.
COMPARISON OF THE YEARS ENDED AUGUST 31, 2000, AND 1999
Revenue for the year ended August 31, 2000 increased 11.4% or $17.4
million from 1999. Revenue from total sugar sales decreased 1.6% reflecting a
2.5% decrease in the average selling price per cwt and a 0.9% increase in cwt.
sold. Revenue from co-products decreased 5.1% reflecting an increase of 12.3% in
the average selling price per ton and 17.4% decrease in volume.
11
<PAGE>
Revenues from yeast sales decreased 11.4% reflecting a price decrease
of 10.6% and a decrease in volume of 0.8%.
Finished product inventories increased $10.5 million in fiscal year
2000 primarily due to higher volumes of ending sugar inventory resulting from
market conditions and anticipated sugar loan forfeitures.
Cost of product produced, exclusive of payments for sugarbeets and
grower trucking increased $0.6 million. The increase is primarily due to an
11.7% increase in sugarbeets processed and an increase in non-allocated costs
such as plant depreciation, taxes and insurance of 4.0%. Sales and Distribution
costs, net of CCC assessment fees, decreased less than $0.1 million or 0.2%.
Fiscal year 2000 had no CCC assessment fees compared to fiscal year 1999 with
$1.3 million. General and Administrative expenses increased $0.4 million or
7.4%. Interest expense decreased $0.1 million or 1.3%. The cost per cwt produced
decreased 15.5%, primarily due to the quality of the crop.
Non-member business income decreased $0.4 million in fiscal year 2000.
This decrease was primarily due to lower fresh yeast selling prices and cost
allocations associated with the Company's investment in Minn-Dak Yeast Company.
Net payments to members for sugarbeets increased by $23.7 million in
fiscal year 2000. This increase for 2000 vs 1999 was primarily due to 24.2%
higher volume of beets delivered, higher quality beets delivered, better storage
conditions and higher selling prices for co-products. This was partially offset
by lower selling prices for sugar.
COMPARISON OF THE YEARS ENDED AUGUST 31, 1999, AND 1998
Revenue for the year ended August 31, 1999 increased 14.6% or $21.4
million from 1998. Revenue from total sugar sales increased 16.7% reflecting a
1.0% increase in the average selling price per cwt and a 15.7% increase in cwt.
sold. Revenue from co-products increased 4.3% reflecting a decrease of 25.9% in
the average selling price per ton and 21.6% increase in volume.
Revenues from yeast sales decreased 5.8% reflecting a price decrease of
2.2% and a decrease in volume of 3.6%.
Finished product inventories decreased $10.6 million in fiscal year
1999 primarily due to lower volumes of ending sugar inventory.
Cost of product produced, exclusive of payments for sugarbeets and
grower trucking increased $3.7 million. The increase is primarily due to an 8.8%
increase in sugarbeets purchased and an increase in non-allocated costs such as
plant depreciation, taxes and insurance of 9.2%. Sales and Distribution costs
increased $3.2 million or 11.5%. General and Administrative expenses increased
$0.1 million or 2.0%. Interest expense decreased $0.1 million or 2.0%. The cost
per cwt produced increased 11.4%, primarily due to the quality of the crop.
Non-member business income increased $0.4 million in fiscal year 1999.
This increase was primarily due to the reduction in losses associated with the
Company's investment in ProGold.
Net payments to members for sugarbeets decreased by $8.2 million in
fiscal year 1999. This decrease was primarily due to a slightly higher volume
but lower quality of the beets delivered by members in fiscal year 1999 versus
fiscal year 1998, and the result of higher selling prices for sugar, but lower
selling prices for co-products.
ESTIMATED FISCAL YEAR 2001 INFORMATION
The agreements between the Company and its members regarding the
delivery of sugarbeets to the Company require payment for members' sugarbeets in
several installments throughout the year. As only the final payment is made
after the close of the fiscal year in question, the first payments to members
for their sugarbeets are based upon the Company's then-current estimates of the
financial results to be obtained from processing the crop in question and the
subsequent sale of the products obtained from processing those sugarbeets. 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 2000
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 from
the 2000 sugarbeet crop, the net selling price for the sugar and co-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
12
<PAGE>
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.
The recently completed harvest of the sugarbeet crop grown during 2000
exceeded that of the prior year in tons per harvested acre, but due to the PIK
program, there were less harvested acres (see section entitled "Recent Crops").
The sugar content of the 2000 crop, however, was more than that of the prior
year and the five year average for sugar . The Company expects to produce
slightly less hundredweight of sugar from the 2000 sugarbeet crop than the prior
year , but considerably more than the five year average production of sugar.
From the revenues generated from the sale of products produced from
each ton of sugarbeets must be deducted the Company's operating and fixed costs.
Revenues for the crop year 2000 are expected to be significantly below the 1999
crop year due to a reduced sugar price in an over-supplied market. The deduction
of those operating costs results in a 2000 crop gross payment to growers
estimated to be less than that of the prior crop year.
OTHER INFORMATION
The Company encountered no material disruptions or costs associated
with the Year 2000 computer concern.
The Company is not aware of any impact resulting from new FASB, GAAP,
or SEC rules.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET AND COMPETITION
Current US Government statistics estimate total US sugar consumption at
193.3 million cwt for the year beginning October 1, 1999 and ending September
30, 2000. For the same period ending in 1999, total consumption was 191.4
million cwt. Comparing the two years shows demand growth of 1.0% for US sugar
sellers.
The US government forecasts growth between 2000 and 2001 to be slightly
higher than 2%, which is slightly above trendline and includes consumption
increases due to population growth. The Company believes that domestic
consumption growth will trend to growth rates of 1 to 2% per year due to
population growth. Given the size of the domestic market, the Company's sugar
production and sales represent between 2 and 3% of the total domestic market for
refined sugar in 2000. United Sugars, which sells the Company's production
through a sugar marketing pool, represents approximately 24% share of the US
sugar market.
The US refined sugar market has continued to grow over the past twenty
years, despite the enormous amount of demand lost to the substitution of high
fructose corn syrups for sugar in beverages and certain food products.
Non-nutritive sweeteners such as aspartame have also been developed to
substitute for sugar. The substitution of corn sweeteners for sugar not only
reduced demand for sugar in the United States, but also resulted in a high
degree of sugar industry consolidation. For example, in 1978 there were 28 sugar
producers and sellers in the US market. Today there are eight sugar sellers,
with over 70% of US sugar market share concentrated in the top three sellers,
all of which are fully integrated beet and cane suppliers. The Company's main
competitors in the domestic market are Imperial Sugar Company, Tate & Lyle North
America, Amalgamated Sugar Company, and California and Hawaii Sugar Company.
Competition in the US sugar industry, because sugar is a fungible commodity, is
primarily based upon price, customer service and reliability as a supplier.
According to United States Department of Agriculture (USDA) statistics,
the Red River Valley is generally one of the most cost efficient sugarbeet
producing areas in the nation. As a result, the Company's management believes
that it possesses the ability to compete successfully with other American
producers of sugar. In spite of this competitive advantage, substitute sweetener
products and sugar imports could have a material adverse effect on the Company's
operations in the future.
GOVERNMENT PROGRAMS AND REGULATION
Domestic sugar prices are supported under a program administered by the
USDA. Under the current program, which was initiated in 1981 and extended under
the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act
13
<PAGE>
of 1990 and the Federal Agriculture Improvement and Reform Act of 1996 (the
"FAIR Act"). The USDA attempts to maintain sugar prices by regulating the
quantity of sugar imports. The FAIR Act maintained the 1999 national (weighted
average) loan rate for 1999 crop raw cane sugar at 18 cent per pound and for
refined beet sugar 22.90 cents per pound. The Federal Agriculture Improvement
and Reform Act of 1996 requires CCC to offer non-recourse loans to sugarbeet and
sugarcane processors if the sugar tariff-rate quota is established at or reaches
a level above 1.5 million short tons. The Secretary established the 2000 sugar
tariff-rate quota at 1,500,227 short tons, raw value, on September 15, 2000.
Loans made on a non-recourse basis enable the sugar processor to forfeit sugar
to Commodity Credit Corporation ("CCC") if sugar prices are below the loan rate.
If the tariff-rate quota is established below 1.5 million short tons
raw value, loans must be made on a recourse basis, meaning that processors will
not be able to forfeit sugar to CCC at its full loan value. In order to recover
the full value of a recourse loan, the CCC could require that cash or other
assets be provided in addition to the sugar used as collateral when the loan is
made.
Another provision of the FAIR Act is a one cent per pound penalty paid
by processors if the processor defaults on sugar price support loans. Such
support prices for sugar are in effect as long as the "Tariff Rate Quota" for
imports of sugar is 1.5 million short tons, raw value or more.
Under the tariff rate quota implemented October 1, 1990, certain sugar
producing countries are assigned a fixed quantity of imports duty-free or
subject to minimal duties. For 2001, unlimited additional quantities may be
imported upon payment of a Tier II tariff of 15.36 cents per pound raw sugar
(for countries other than Mexico) and 10.89 cents per pound raw sugar for
Mexico, prior to shipment (to date, very little sugar has been imported under
this higher tariff level). (Note: the Tier II tariff base for countries other
than Mexico was established at 18.08 cents for 1994 and declined .48 cents per
pound thru 1999 whereas it reached it's lowest level of 15.36 cents per pound
raw in 2000. Mexico's Tier II tariff base was established at 16.95 cents per
pound raw in 1993 and will continue to decline 1.56 cents per pound until 2008
when the tariff rate will reach zero.) Further, imports of sugar under the
tariff rate quota are based upon the difference between domestic sugar
consumption and domestic sugar production, with one exception. Under the terms
of the General Agreement on Tariffs and Trade (GATT) the minimum imports of
sugar are established at 1,257,000 short tons, raw value. Therefore, even if the
difference between domestic sugar consumption and production are less than
1,257,000 short tons, raw value, GATT will require that 1,257,000 short tons be
imported into the United States from the quota holding foreign countries.
In November 1999, the so-called Millennium Round of the World Trade
Organization (WTO) began in Seattle, Washington with the goal of continuing to
move toward multilateral free trade in all sectors. Any agreements reached at
the Millennium Round could represent a threat to the sugar industry because
sugar is one of the most highly protected sectors within world agricultural
trade and is thus a target for reform. The trend toward liberalization will most
likely focus on the minimum import requirement of 1,257,000 short tons. There
will likely be a movement to raise the minimum import requirement, and if
successful, such a movement could cause additional supply/demand pressure in the
United States.
The Company believes the North American Free Trade Agreement ("NAFTA")
represents the most serious public policy challenge to itself and the domestic
sugar industry. Under the terms of the original NAFTA text, Mexico would have
been allowed to ship any excess production of sugar into the United States if
Mexico were to achieve net surplus producer status two years in a row. Concerned
that Mexico's productive capabilities and possible conversion to the use of high
fructose corn sweeteners could quickly change Mexico from a net sugar importer
to a net sugar exporter, the U.S. sugar industry insisted that NAFTA be changed
to delay Mexico's access to the U.S. market. To embody these changes, a side
agreement on sugar was reached prior to passage of NAFTA to give Mexico
incrementally larger but capped volumes of duty-free access, and an ability to
send additional quantities if it were to pay a gradually descending second tier
tariff. The side agreement establishes a common market between the United States
and Mexico in sugar by 2008.
The Company is concerned that low world sugar prices and a trade
conflict between the U.S. and Mexico over high fructose corn sweeteners could
permit de facto acceleration of the side agreement under NAFTA. Under the NAFTA
tariff schedule, second tier sugar tariffs are set at approximately 14 cents in
1999 but decline by approximately 1.5 cents per year until reaching zero in
2008. Low world raw sugar prices could make it feasible for Mexican sugar to
enter the United States earlier than 2008. In contrast to Mexico's duty free
access to the United States sugar market (which rises from 25,000 metric tons to
250,000 metric tons per year in fiscal year 2001) NAFTA contains no restrictions
on second tier imports.
Under the current terms of NAFTA and the side agreement, the Company is
concerned that imports from Mexico could oversupply the U.S. market, forcing
sugar prices significantly lower. Any fluctuation in the price of sugar has a
direct impact on any sugarbeet payments that are made to members. The Company,
along with the domestic sugar industry, is seeking improvements to NAFTA and is
also pursuing legal remedies to address the matter. If the sugar industry is
14
<PAGE>
unsuccessful in these or any other endeavors it pursues to prevent the influx of
Mexican sugar into the U.S. market, there could be adverse financial
consequences to the Company and its members.
From fiscal years 1990 to 1996, the sugar industry was required to
remit to the Commodity Credit Corporation a nonrefundable marketing assessment
equivalent to 1.1794 percent of the raw cane sugar loan rate of 18 cents per
pound. The Federal Agriculture Improvement and Reform Act of 1996 increased the
assessment for fiscal year 1997 though 2003 to 1.47425 percent of the raw cane
sugar loan rate of 18 cents per pound. In response to the downturn in the
agriculture economy, congress included a provision in the fiscal year 2000
federal agricultural appropriations bill to alleviate the sugar industry from
paying the assessment for fiscal years 2000 and 2001. Thus, from October 1, 1999
to September 30, 2001, the Company will not be required to pay a marketing
assessment to the Commodity Credit Corporation.
Using the provisions of existing law, the USDA instituted a Payment In
Kind (PIK) program during the late summer and early fall of 2000 with the
intention of restoring balance to the sugar market. The United States Department
of Agriculture outlined the details of this program in "Notice SU-60". The Sugar
PIK program compensated sugarbeet growers with sugar that was forfeited to the
government on October 1, 2000 in exchange for destroying beet acres that were to
be harvested in the fall of 2000. The grower assigned the PIK sugar to the
Company and the Company has scheduled a one time payment for this sugar to the
grower on December 15, 2000. Approximately 8,700 acres of the Company's 2000
crop were destroyed and will be compensated by this program.
The current sugar program will expire after the 2002 crop and the
nature and scope of future legislation and United States trade policy affecting
the sugar market cannot be accurately predicted and there can be no assurance
that price supports will continue in their present form beyond the 2002 crop
year, or that there will even be enacted a sugar program beyond the existing
program. If the price support program including the Tariff Rate Quota system
described above, were eliminated in its entirety, or if the protection the
United States' price support program provides from foreign competitors were
materially reduced, the Company could be materially and adversely effected. In
such a situation if the Company were not able to adopt strategies which would
allow it to compete effectively in a greatly changed domestic market for sugar,
the adverse affects could impact the Company's continued viability and the
desirability of grower sugarbeets for delivery to the Company.
15
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota
We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers
Cooperative (a North Dakota cooperative association) as of August 31, 2000,
1999, and 1998, and the related consolidated statements of operations, changes
in members' investments and cash flows for the years then ended. These financial
statements are the responsibility of the cooperative's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Minn-Dak Farmers
Cooperative as of August 31, 2000, 1999, and 1998, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.
Eide Bailly, LLP
Fargo, North Dakota
September 29, 2000
16
<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS 2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT ASSETS
Cash $ 2,504,566 $ 546,345 $ 1,849,003
------------- ------------- -------------
Current portion of long-term note receivable 2,551 311,677 288,093
------------- ------------- -------------
Receivables
Trade accounts 11,115,705 16,236,385 13,586,827
Growers 3,996,356 4,056,821 3,539,710
Other 632,549 3,066,400 458,400
------------- ------------- -------------
15,744,610 23,359,606 17,584,937
------------- ------------- -------------
Advances to affiliate -- -- 2,897,718
------------- ------------- -------------
Inventories
Refined sugar, pulp and molasses
to be sold on a pooled basis 27,737,385 17,218,658 27,803,954
Nonmember refined sugar 2,642 1,389 326,289
Yeast 87,511 62,965 78,994
Materials and supplies 5,561,471 5,004,645 5,210,663
Beet -- 710,000 --
Other -- -- 71,950
------------- ------------- -------------
33,389,009 22,997,657 33,491,850
------------- ------------- -------------
Deferred charges 1,122,838 1,194,291 1,273,039
------------- ------------- -------------
Prepaid expenses 251,628 232,021 246,112
------------- ------------- -------------
Other 543,000 587,550 587,550
------------- ------------- -------------
Total current assets 53,558,202 49,229,147 58,218,302
------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT
Land and land improvements 20,968,468 20,423,153 20,133,021
Buildings 35,591,877 35,377,950 34,735,639
Factory equipment 111,922,358 110,134,188 103,921,887
Other equipment 3,527,618 3,463,000 3,699,820
Construction in progress 21,980 229,981 4,176,148
------------- ------------- -------------
172,032,301 169,628,272 166,666,515
Less accumulated depreciation 65,281,136 60,441,602 56,097,673
------------- ------------- -------------
106,751,165 109,186,670 110,568,842
------------- ------------- -------------
LONG-TERM NOTES RECEIVABLE,
NET OF CURRENT PORTION 28,058 2,915,360 2,944,020
------------- ------------- -------------
OTHER ASSETS
Investment in stock of other corporations, unconsolidated
marketing subsidiaries and other cooperatives 10,407,956 10,043,102 9,601,940
Deferred income taxes 1,240,000 1,962,000 2,652,000
Other 1,015,827 960,220 845,140
------------- ------------- -------------
12,663,783 12,965,322 13,099,080
------------- ------------- -------------
$ 173,001,208 $ 174,296,499 $ 184,830,244
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE>
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND MEMBERS' INVESTMENT 2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Short-term notes payable $ 15,458,800 $ 17,780,000 $ 26,855,000
------------- ------------- -------------
Current portion of long-term debt 3,012,500 3,012,500 5,612,500
Current portion of capital lease 775,000 730,000 --
------------- ------------- -------------
3,787,500 3,742,500 5,612,500
------------- ------------- -------------
Accounts payable
Trade 2,223,574 2,891,768 5,123,520
Growers 16,927,545 8,340,333 5,970,930
------------- ------------- -------------
19,151,119 11,232,101 11,094,450
------------- ------------- -------------
Advances to affiliate - Midwest Agri-Commodities Co.
and United Sugars Corporation 201,242 374,589 --
------------- ------------- -------------
Accrued liabilities 2,725,105 2,696,649 3,485,909
------------- ------------- -------------
Total current liabilities 41,323,766 35,825,839 47,047,859
LONG-TERM DEBT, NET OF CURRENT PORTION 43,910,416 46,172,917 42,185,417
OBLIGATION UNDER CAPITAL LEASE 10,495,000 11,270,000 12,000,000
OTHER 846,765 686,463 747,766
COMMITMENTS AND CONTINGENCIES (NOTE 12) -- -- --
------------- ------------- -------------
Total liabilities 96,575,947 93,955,219 101,981,042
------------- ------------- -------------
MINORITY INTEREST IN EQUITY OF SUBSIDIARY 1,089,320 946,924 767,481
------------- ------------- -------------
MEMBERS' INVESTMENT
Preferred stock
Class A - 100,000 shares authorized, $105 par value;
72,200 shares issued and outstanding 7,581,000 7,581,000 7,581,000
Class B - 100,000 shares authorized $75 par value;
72,200 shares issued and outstanding 5,415,000 5,415,000 5,415,000
Class C - 100,000 shares authorized, $76 par value;
72,200 shares issued and outstanding 5,487,200 5,487,200 5,487,200
------------- ------------- -------------
18,483,200 18,483,200 18,483,200
Common stock, 600 shares authorized, $250 par value;
484, 473, and 484, shares issued and outstanding
in 2000, 1999, and 1998, respectively 121,000 118,250 121,000
Paid in capital in excess of par 32,094,407 32,094,407 32,094,407
Unit retention capital 7,148,159 7,560,034 7,584,237
Qualified allocated patronage 3,816,607 3,854,558 3,981,031
Nonqualified allocated patronage 12,894,627 16,822,063 20,071,517
Retained earnings (deficit) 777,941 461,844 (253,671)
------------- ------------- -------------
75,335,941 79,394,356 82,081,721
------------- ------------- -------------
$ 173,001,208 $ 174,296,499 $ 184,830,244
============= ============= =============
</TABLE>
18
<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
------------- ------------- -------------
<S> <C> <C> <C>
REVENUE
From sales of sugar, sugar by-products,
and yeast, net of discounts $ 170,151,248 $ 152,741,993 $ 149,573,584
------------- ------------- -------------
EXPENSES
Production costs of sugar,
by-products, and yeast sold 44,866,025 50,330,497 41,854,177
Sales and distribution costs 26,610,203 27,913,271 24,697,769
General and administrative 5,418,727 5,002,270 4,906,549
Interest 5,198,876 5,264,307 5,372,221
------------- ------------- -------------
82,093,831 88,510,345 76,830,716
------------- ------------- -------------
OTHER INCOME (EXPENSE) (1,453,810) (879,326) (659,048)
------------- ------------- -------------
NET PROCEEDS RESULTING FROM
MEMBER AND NON-MEMBER BUSINESS $ 86,603,607 $ 63,352,322 $ 72,083,820
============= ============= =============
DISTRIBUTION OF NET PROCEEDS
Credited to members' investment
Components of net income
Income (loss) from
non-member business $ 316,097 $ 715,515 $ 335,688
Patronage income -- -- --
------------- ------------- -------------
Net income 316,097 715,515 335,688
Unit retention capital -- 4,630 884,562
------------- ------------- -------------
Net credit to members' investment 316,097 720,145 1,220,250
Payments to members for sugarbeets,
net of unit retention capital 86,287,510 62,632,177 70,863,570
------------- ------------- -------------
NET PROCEEDS RESULTING FROM
MEMBER AND NONMEMBER BUSINESS $ 86,603,607 $ 63,352,322 $ 72,083,820
============= ============= =============
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' INVESTMENT
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Paid in
Capital Unit Qualified Non-Qualified Retained
Preferred Common in Excess of Retention Allocated Allocated Earnings
Stock Stock Par Value Capital Patronage Patronage (Deficit) Total
----------- -------- ----------- ---------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 31, 1997 $17,143,552 $120,250 $23,753,005 $6,739,547 $4,081,381 $22,497,263 $(688,585) $73,646,413
Stock
Sales - common (10 shares) 2,500 2,500
Repurchases - common (7 shares) (1,750) (1,750)
Sales - preferred (5,233 shares) 1,339,648 8,341,402 9,681,050
Unit retention capital
Revolvement (39,872) (39,872)
Proceeds 884,562 884,562
Revolvment of prior years'
allocated patronage (100,350) (2,425,746) (2,526,096)
Economic development grant received
by investee 99,226 99,226
Net income for the year ended
August 31, 1998 335,688 335,688
----------- -------- ----------- ---------- ---------- ----------- --------- -----------
BALANCE, AUGUST 31, 1998 18,483,200 121,000 32,094,407 7,584,237 3,981,031 20,071,517 (253,671) 82,081,721
Stock
Sales - common (3 shares) 750 750
Repurchases - common (14 shares) (3,500) (3,500)
Unit retention capital
Revolvement (28,833) (28,833)
Proceeds 4,630 4,630
Revolvment of prior years'
allocated patronage (126,473) (3,249,454) (3,375,926)
Net income for the year ended
August 31, 1999 715,515 715,515
----------- -------- ----------- ---------- ---------- ----------- --------- -----------
BALANCE, AUGUST 31, 1999 18,483,200 118,250 32,094,407 7,560,034 3,854,558 16,822,063 461,844 79,394,356
Stock
Sales - common (22 shares) 5,500 5,500
Repurchases - common (11 shares) (2,750) (2,750)
Revolvement of unit retention
capita (411,875) (411,875)
Revolvment of prior years'
allocated patronage (37,951) (3,927,436) (3,965,387)
Net income for the year ended
August 31, 2000 316,097 316,097
----------- -------- ----------- ---------- ---------- ----------- --------- -----------
BALANCE, AUGUST 31, 2000 $18,483,200 $121,000 $32,094,407 $7,148,159 $3,816,607 $12,894,627 $ 777,941 $75,335,941
=========== ======== =========== ========== ========== =========== ========= ===========
</TABLE>
20
<PAGE>
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
AUGUST 31, 2000, 1999, AND 1998
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income allocated to members' investment $ 316,097 $ 715,515 $ 335,688
Add (deduct) noncash items
Depreciation and amortization 6,731,225 6,591,016 5,980,837
Equipment disposals - loss 528,422 155,761 220,932
Discount on redemption of estate payout -- (40,820) (63,610)
Net (income) loss allocated from
unconsolidated marketing subsidiaries (142,870) (214,375) 706,587
Noncash portion of patronage capital credits (273,292) (313,463) (736,751)
Deferred income taxes 709,000 730,000 728,000
Decrease (increase) in cash
surrender of officer life insurance (7,730) (87,628) 10,709
Stock cancellation - St. Paul Bank for Cooperatives 51,138 131,196 --
Changes in operating assets and liabilities:
Accounts receivable and advances 7,441,649 (2,502,362) (3,139,522)
Inventory and prepaid expenses (10,410,959) 10,508,284 (6,988,692)
Deferred charges and other 129,003 38,748 46,115
Other assets -- -- 28,500
Accounts payable, accrued liabilities, and other liabilities 8,031,619 (777,654) (262,355)
------------ ------------ ------------
NET CASH FROM (USED FOR) OPERATING ACTIVITIES 13,103,302 14,934,218 (3,133,562)
------------ ------------ ------------
INVESTING ACTIVITIES
Proceeds from disposition of
property, plant and equipment 59,391 12,494 40,676
Capital expenditures (4,709,902) (5,185,083) (8,293,687)
Investment in stock of other corporations, unconsolidated
marketing subsidiaries and other cooperatives -- (110,716) (139,941)
Issuance of note receivable (30,609) (283,017) (757,114)
Proceeds on note receivable 3,227,037 288,093 225,000
Net proceeds from patronage
refunds and equity revolvements 133 66,196 92,503
Minority interest in equity of subsidiaries 142,396 179,443 249,754
------------ ------------ ------------
NET CASH USED FOR INVESTING ACTIVITIES (1,311,554) (5,032,590) (8,582,809)
------------ ------------ ------------
FINANCING ACTIVITIES
Sale and repurchase of common stock, net 2,750 (2,750) 750
Net proceeds from issuance of short-term debt (2,321,200) (9,075,000) 6,965,000
Proceeds from issuance of long-term debt 1,750,000 2,800,000 --
Proceeds from sale of stock -- -- 9,681,050
Payment of financing fees (145,314) (154,726) (185,671)
Payment of long-term debt (4,742,501) (1,412,500) (2,512,500)
Retention of nonqualified unit retains -- 4,630 884,562
Payment of unit retains and allocated patronage (4,377,262) (3,363,940) (2,502,358)
------------ ------------ ------------
NET CASH FROM FINANCING ACTIVITIES (9,833,527) (11,204,286) 12,330,833
------------ ------------ ------------
NET CHANGE IN CASH 1,958,221 (1,302,658) 614,462
CASH, BEGINNING OF YEAR 546,345 1,849,003 1,234,541
------------ ------------ ------------
CASH, END OF YEAR $ 2,504,566 $ 546,345 $ 1,849,003
============ ============ ============
<CAPTION>
2000 1999 1998
------------ ------------ ------------
SUPPLEMENTAL DISCLOSURES
OF CASH FLOW INFORMATION
Cash payments for
Interest $ 4,583,074 $ 4,971,812 $ 4,244,771
============ ============ ============
</TABLE>
21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2000, 1999, and 1998
NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL BUSINESS ACTIVITY
Minn-Dak Farmers Cooperative (Minn-Dak) is a North Dakota cooperative
association owned by its member-growers for the purpose of processing sugarbeets
and marketing sugar and co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak
Yeast) is a North Dakota corporation engaged primarily in the production and
marketing of bakers yeast.
The majority of the net proceeds from Minn-Dak is from member business, whereas
Minn-Dak Yeast is considered non-member business.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of Minn-Dak and its subsidiary,
Minn-Dak Yeast, which is 80% owned by the cooperative.
CREDIT RISK
The cooperative and subsidiary grant credit to food processors located
throughout the United States. In addition, the cooperative grants credit to
members for sugarbeet seed, located in North Dakota and Minnesota.
INVENTORIES
Inventories of refined sugar, pulp pellets and beet molasses to be sold on a
pooled basis are valued at net realizable value, while third-party purchased
refined sugar to be sold on a pooled basis is valued at the lower of cost or
market. Inventory of yeast is valued at the lower of average cost or market.
Materials and supplies are valued at most recent purchase which approximates
cost.
In valuing inventories at net realizable value, the cooperative, in effect sells
the remaining inventory to the subsequent years sugar and co-product pool.
DEFERRED CHARGES
Agricultural development and labor procurement costs incurred in connection with
the beet crop to be harvested in September and October are deferred and
subsequently charged to expense during the ensuing processing period.
PROPERTY, PLANT, EQUIPMENT AND DEPRECIATION
Property, plant and equipment are stated at cost. Additions, renewals and
betterments are capitalized, whereas expenditures for maintenance and repairs
are charged to expense. The cost and related accumulated depreciation of assets
retired or sold are removed from the appropriate asset and depreciation accounts
and the resulting gain or loss is reflected in income.
22
<PAGE>
It is the policy of the cooperative to provide depreciation based on methods
designed to amortize the cost of the properties over their estimated useful
lives. Property, plant and equipment are depreciated for financial reporting
purposes, principally using declining balance methods, with estimated useful
lives ranging from 8 to 40 years. Statutory lives and methods are used for
income tax reporting purposes.
Indirect costs capitalized were $124,490, $168,399, and $588,605 for the years
ended August 31, 2000, 1999, and 1998. There were no construction
period-interest capitalized for the years ended August 31, 2000 and 1999.
Construction-period-interest capitalized for the year ended August 31, 1998 was
$199,417.
EQUITY VALUE INVESTMENTS
The investments in United Sugars Corporation, Midwest Agri-Commodities Company
and ProGold Limited Liability Company are accounted for using the equity method,
wherein the investment is recorded at the amount of the underlying equity in the
net assets of the investments and adjusted to recognize the cooperative's share
of the undistributed earnings or losses.
INVESTMENTS IN OTHER COOPERATIVES
The investments in stocks and capital credits of other cooperatives are stated
at cost, plus the cooperative's share of allocated patronage and capital
credits.
INCOME TAXES
A consolidated federal income tax return is filed for the cooperative and its
subsidiary. Deferred income taxes are provided for in the timing of certain
temporary deductions/increases for financial and income tax reporting purposes.
Significant temporary differences are as follows:
1. When nonqualified unit retention capital and allocated patronage are
elected by the board of directors, the cooperative is not allowed an
income tax deduction until they are distributed in cash to the
member-producers, whereas qualified unit retention capital and allocated
patronage are deducted when declared.
2. Depreciation - For financial reporting purposes, the companies use
straight-line and accelerated methods of depreciation with lives of 8 to
40 years, while, for income tax purposes, the companies use required
statutory depreciable lives and methods.
3. Non-qualified patronage credits from investments in other cooperatives -
For financial statement purposes, the companies recognize income when
the patronage credit notification is received while, for income tax
purposes, the companies recognize income when the patronage is received
in cash.
4. Inventory capitalization - For income tax reporting purposes, certain
overhead costs are included as a part of inventory costs in accordance
with inventory capitalization rules. These costs are charged to expense
as incurred for financial reporting purposes.
5. Deferred compensation - For financial reporting purposes, deferred
compensation is charged to expense as amounts are accrued. For income
tax purposes, deferred compensation is deductible when paid.
6. Recognition of vacation pay - For financial reporting purposes, vacation
pay is charged to expense as accrued, whereas, for income tax purposes,
vacation pay is deducted when paid.
23
<PAGE>
ACCOUNTING ESTIMATE
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
UNINSURED CASH BALANCE
The company maintains cash balances at various financial institutions throughout
the United States. Accounts at each institution are insured by the Federal
Deposit Insurance Corporation up to $100,000. At times during the year, the
company's balances exceeded this limit.
RECLASSIFICATIONS
Certain amounts have been reclassified in the 1999 and 1998 financial statements
to conform with the 2000 presentation. The reclassifications have no effect on
the results of operations.
NOTE 2 - NOTES RECEIVABLE
The cooperative's notes receivable total $30,609, $3,227,037 and $3,232,113 as
of August 31, 2000, 1999 and 1998, respectively. They are due from United Sugars
member processors. The notes receivable are unsecured, with a variable interest
rate, currently 8.25%. The notes will be received in equal annual installments
through August 31, 2012. The notes are subordinated to CoBank in 2000 and 1999,
and St. Paul Bank for Cooperatives in 1998. The current portion of the notes are
$2,551, $311,677, and $288,093 as of August 31, 2000, 1999 and 1998,
respectively.
During 2000, the cooperative sold certain notes receivable with recourse. The
cooperative's contingent liability related to these notes totaled $2,915,360 as
of August 31, 2000.
NOTE 3 - INVESTMENTS
The investment in stock of other corporations, unconsolidated marketing
subsidiaries and other cooperatives consists of the following:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
United Sugar Corporation $ 985,876 $ 1,007,957 $ 864,903
Midwest Agri-Commodities 47,576 43,225 21,947
ProGold, LLC 3,635,255 3,474,655 3,398,894
CoBank (St. Paul Bank for
Cooperatives in 1998) 2,851,355 2,902,494 2,956,944
Dakota Valley Electric (R.S.R. Electric
Cooperative in 1999 and 1998) 2,758,642 2,486,798 2,321,556
Other 129,252 127,973 37,696
----------- ----------- -----------
$10,407,956 $10,043,102 $ 9,601,940
=========== =========== ===========
</TABLE>
24
<PAGE>
SHORT-TERM DEBT
Information regarding short-term debt at August 31, 2000, 1999 and 1998, is as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Seasonal loan with CoBank in 2000 and 1999,
and St. Paul Bank for Cooperatives in
1998, due May 1, 2001, interest
variable, currently at 7.53% $ 4,980,000 $17,780,000 $26,855,000
Seasonal loan with Department of Agriculture,
due September 30, 2000, interest rate 8,200,800 -- --
at 7.00%
Seasonal loans with Department of Agriculture,
due September 30, 2000, interest rate
at 7.125% 2,278,000 -- --
----------- ----------- -----------
$15,458,800 $17,780,000 $26,855,000
=========== =========== ===========
</TABLE>
The cooperative has a $45,000,000 seasonal line of credit with CoBank. The line
is secured with a first lien on substantially all property and equipment and
current assets of Minn-Dak.
Maximum borrowings, average borrowing levels and average interest rates for
short-term debt for the years ended August 31, 2000, 1999 and 1998, are as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Maximum borrowings $42,030,000 $53,817,000 $47,320,000
=========== =========== ===========
Average borrowing levels $23,484,062 $34,660,931 $33,295,462
=========== =========== ===========
Average interest rates 6.84% 6.06% 6.48%
=========== =========== ===========
</TABLE>
25
<PAGE>
NOTE 4 - LONG-TERM DEBT
Information regarding long-term debt at August 31, 2000, 1999 and 1998, is as
follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Term loan with CoBank in 2000 and 1999, and
St. Paul Bank for Cooperatives in 1998, due
in varying principal repayments through
February 29, 2008, interest variable,
currently at 7.74%, with a first lien on
substantially all property and equipment
and current assets of Minn-Dak located in
Wahpeton, North Dakota $46,900,000 $49,150,000 $47,750,000
Term loan with Dakota Valley Electric Cooperative,
in 2000, and R.S.R. Electric Cooperative, Inc.
in 1999 and 1998, due October 12, 2002, interest
free, unsecured 22,916 35,417 47,917
----------- ----------- -----------
46,922,916 49,185,417 47,797,917
Less current maturities (3,012,500) (3,012,500) (5,612,500)
----------- ----------- -----------
$43,910,416 $46,172,917 $42,185,417
=========== =========== ===========
</TABLE>
Minn-Dak has complied with the terms of its loan agreement for the years ended
August 31, 2000, 1999 and 1998.
In addition, Minn-Dak can make special advance payments on its term loans with
CoBank after its seasonal loans have been paid in full, with the understanding
that the special advance payments will be readvanced subject to the
reinstatement provisions, prior to the granting of any new seasonal loans. Any
such advance payments are subject to a commitment fee of .25% of the daily
unadvanced commitment.
Interest expense, net of amount capitalized of $199,417 in 1998, totaled
$5,198,896, $5,264,307 and $5,372,221, for 2000, 1999 and 1998, respectively.
Principal amounts due on all the cooperative's long-term debt are as follows:
<TABLE>
<CAPTION>
Years ending August 31,
-----------------------------
<S> <C>
2001 $ 3,012,500
2002 4,800,000
2003 4,810,416
2004 4,800,000
2005 4,800,000
Thereafter 24,700,000
--------------
$46,922,916
==============
</TABLE>
26
<PAGE>
NOTE 5 - OBLIGATIONS UNDER CAPITAL LEASE
The cooperative has a capital lease with Richland County, North Dakota for
equipment relating to solid waste disposal. The county has financed the leased
assets with a bond issue and accordingly has structured the cooperative's lease
payments to correspond with the bond issue's interest and principal
requirements. Details relative to the cooperatives obligations under the lease
agreement are as follows:
<TABLE>
<CAPTION>
2000
------------------------------------------------------------
FINAL CURRENT 1999 1998
Payee INTEREST MATURITY PORTION TOTAL Total Total
------------------- ------------ ------------ --------------- --------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richland County,
North Dakota 4.55% 1/11 $1,296,538 $14,510,078 $15,763,935 $16,345,935
Less amount representing interest 521,538 3,240,078 3,763,935 4,345,935
--------------- --------------- --------------- --------------
$ 775,000 $11,270,000 $12,000,000 $12,000,000
=============== =============== =============== ==============
</TABLE>
Minimum future principal payments required on the obligations under capital
lease are as follows:
<TABLE>
<CAPTION>
Years ending August 31,
------------------------------
<S> <C>
2001 $ 775,000
2002 815,000
2003 860,000
2004 905,000
2005 960,000
Thereafter 6,955,000
--------------
$11,270,000
==============
</TABLE>
NOTE 6 - MEMBERS' INVESTMENT AND GROWER PAYMENTS
The ownership of non-dividend bearing common stock is restricted to a
"member-producer," as defined in the bylaws of Minn-Dak. Each member-producer
shall own only one share of common stock and is entitled to one vote at any
meeting of the members. Each member-producer is required to purchase one unit of
preferred stock for each 1.35 planted acres of sugarbeet crops grown under a
grower's contract with Minn-Dak. A unit consists of one share each of Class A,
Class B and Class C preferred stock. The preferred shares are nonvoting and
non-dividend bearing. All transfers and sales of stock must be approved by the
board of directors. The cooperative called for the final installment on 5,233
preferred stock units in January 1998.
Minn-Dak's net income, determined in accordance with generally accepted
accounting principles consistently applied, shall be distributed annually on the
basis of dollar volume of patronage, in cash or in the form of credits to each
member-producer's patronage credit account as established on the books of the
cooperative. In the event of a loss in any one year, the cooperative shall act
in such a manner as to first recoup the loss from those patrons who were patrons
in the year in which the loss occurred.
Under the terms of Minn-Dak's beet growing contracts with each of its
member-producers, Minn-Dak is obligated to pay the member-producers for beets
delivered at a price per pound of extractable sugar. However, if, in the opinion
of CoBank, the working capital position of the cooperative is insufficient,
Minn-Dak shall retain from the price to be paid per ton for beets
27
<PAGE>
such amounts as are deemed by the bank to be necessary for operations, the
deductions to be made at such time as the bank shall require. The amount so
retained shall be evidenced in the records of Minn-Dak by equity credits in
favor of the growers. The board of directors has the power to determine whether
such retains shall be "qualified" or "nonqualified" for income tax purposes.
For the year ended August 31, 2000, Minn-Dak did not deduct unit retention
capital from the members. For the year ended August 31, 1999, Minn-Dak had
retained $4,630 for frozen beet storage. For the year ended August 31, 1998,
Minn-Dak retained $860,729 and $23,833, respectively for facilities expansion
and frozen beet storage. For 1999 and 1998, the retainage is based on $.50 per
ton of beets delivered up to the maximum obligation required.
During the year ended August 31, 2000, Minn-Dak revolved the remaining 15% of
the unit retains and allocated patronage for the fiscal year ended August 31,
1991 and 70% of the unit retains and allocated patronage for the fiscal year
ended August 31, 1992, totaling $1,148,214 and $3,229,049, in each respective
year.
During the year ended August 31, 1999, Minn-Dak revolved 50% of the unit retains
and allocated patronage for the fiscal year ended August 31, 1991, totaling
$3,254,163. In addition, unit retains and allocated patronage owned by certain
estates were redeemed at a discount. The discount represented the difference
between the book value of these items, totaling $150,596, and the present value
of the estimated future redemptions.
During the year ended August 31, 1998, Minn-Dak revolved 35% of the allocated
patronage for the fiscal year ended August 31, 1991, totaling $2,383,126. In
addition, unit retains and allocated patronage owned by an estate were redeemed
at a discount. The discount represented the difference between the book value of
these items, totaling $183,924, and the present value of the estimated future
redemptions.
28
<PAGE>
NOTE 7 - INCOME TAXES
Minn-Dak Farmers Cooperative is a nonexempt cooperative as described under
Section 1381(a)(2) of the Internal Revenue Code of 1986. Accordingly, net
margins from business done with member patrons, which are allocated and paid as
prescribed in Section 1382 of the Code, will be taxable to the members and not
to the cooperative. To the extent that net margins are not allocated and paid as
stated above or arise from business done with non-members, the cooperative shall
have taxable income subject to corporate income tax rates.
The significant components of deferred tax assets and liabilities included on
the balance sheet at August 31, 2000, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
2000 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Deferred tax assets
Non-qualified unit retains and
allocated patronage due to members $ 8,017,000 $ 9,753,000 $11,060,000
Other 5,708,000 3,408,000 1,898,000
----------- ----------- -----------
Gross deferred tax assets 13,725,000 13,161,000 12,958,000
Less valuation allowance (563,000) (419,000) (1,441,000)
----------- ----------- -----------
Total deferred tax assets 13,162,000 12,742,000 11,517,000
----------- ----------- -----------
Deferred tax liabilities
Depreciation 9,351,000 8,544,000 7,560,000
Other 2,228,000 1,906,000 935,000
----------- ----------- -----------
Total deferred tax liabilities 11,579,000 10,450,000 8,495,000
----------- ----------- -----------
$ 1,583,000 $ 2,292,000 $ 3,022,000
=========== =========== ===========
Classified as follows
Current asset $ 343,000 $ 330,000 $ 370,000
Long-term asset 1,240,000 1,962,000 2,652,000
----------- ----------- -----------
Net deferred tax asset $ 1,583,000 $ 2,292,000 $ 3,022,000
=========== =========== ===========
</TABLE>
A provision for income taxes related to non-member income from Minn-Dak Yeast
Company, totaling $560,000, $700,000 and $278,000, for the year ended August 31,
2000, 1999 and 1998, respectively, is included in other expense.
The deferred tax asset valuation allowance reduces the estimated amount that
will be ultimately realized. Realization of the deferred tax asset is dependent
upon future non-member income during the period that deductible temporary
differences and carryforwards are expected to be available to reduce taxable
income.
29
<PAGE>
NOTE 8 - EMPLOYEES' PENSION PLAN
The cooperative has a non-contributory defined benefit plan which covers
substantially all employees who meet certain requirements of age, length of
service and hours worked per year. The benefits provided are based upon the
employee's average monthly compensation during the previous three highest
consecutive years multiplied by a formula and the participant's service ratio.
It is the cooperative's funding policy to contribute to the plan at least the
minimum amount required by ERISA as determined by the actuarial firm.
The assets of the cooperative plan are maintained via insurance contracts with
Lincoln National Life Insurance Company of Fort Wayne, Indiana, and mutual funds
with Strong Funds of Milwaukee, Wisconsin.
The following table sets forth the plan's funded status at August 31, 2000, 1999
and 1998:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $ 11,857,238 $ 10,125,507 $ 8,638,721
Service cost 577,611 581,912 487,480
Interest cost 838,130 793,722 698,420
Experience (gain)/loss due to participant changes (564,471) 566,160 572,797
Benefits paid (260,759) (210,063) (271,911)
------------ ------------ ------------
Benefit obligation at end of year 12,447,749 11,857,238 10,125,507
------------ ------------ ------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year 9,553,497 8,205,618 6,530,368
Actual return on plan assets 881,175 698,039 1,283,388
Employer contribution 790,029 859,903 663,773
Benefits paid (260,759) (210,063) (271,911)
------------ ------------ ------------
Fair value of plan assets at end of year 10,963,942 9,553,497 8,205,618
------------ ------------ ------------
Funded status (1,483,807) (2,303,741) (1,919,889)
Unrecognized net actuarial loss 805,973 1,474,612 977,175
Unrecognized prior service cost 355,070 409,943 464,816
Unrecognized transition asset (63,215) (81,481) (99,747)
------------ ------------ ------------
Prepaid (accrued) benefit cost $ (385,979) $ (500,667) $ (577,645)
============ ============ ============
2000 1999 1998
------------ ------------ ------------
WEIGHTED-AVERAGE ASSUMPTIONS AS OF AUGUST 31
Discount rate 7.5% 7.5% 7.5%
Expected return on plan assets 8.0% 8.0% 8.0%
Rate of compensation increase 5.0% 5.0% 5.0%
</TABLE>
30
<PAGE>
The net periodic pension cost for the years ended August 31, 2000, 1999 and
1998, includes the following components:
<TABLE>
<CAPTION>
2000 1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
COMPONENTS ON NET PERIODIC BENEFIT COST
Service cost $ 577,611 $ 581,912 $ 487,480
Interest cost 838,130 793,722 698,420
Expected return on plan assets (777,007) (667,728) (539,474)
Amortization of prior service cost 54,873 54,873 54,873
Amortization of transition amount (18,266) (18,266) (18,266)
Amortization of other -- 38,412 30,865
------------ ------------ ------------
Net periodic benefit cost $ 675,341 $ 782,925 $ 713,898
============ ============ ============
</TABLE>
NOTE 9 - ENVIRONMENTAL MATTERS
Minn-Dak is subject to extensive federal and state environmental laws and
regulations with respect to water and air quality, solid waste disposal and odor
and noise control. Minn-Dak conducts an ongoing and expanding control program
designed to meet these environmental laws and regulations. While Minn-Dak will
continue to have ongoing environmental compliance issues, currently there are no
pending regulatory enforcement actions and Minn-Dak believes that it is in
substantial compliance with applicable environmental laws and regulations.
Minn-Dak cannot predict whether future changes in environmental laws or
regulations might increase the cost of operating its facilities and conducting
its business. Any such changes could have financial consequences for Minn-Dak
and its members.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Minn-Dak is subject to various lawsuits and claims which arise in the ordinary
course of its business. While the results of such litigation and claims cannot
be predicted with certainty, management believes the disposition of all such
proceedings, individually or in aggregate, should not have a material adverse
effect on the company's financial position, results of operations or cash flows.
Minn-Dak participates in a multi-employer, self-funded employee medical
insurance plan with Minn-Dak Yeast Company. The terms of the plan call for the
reimbursements to the plan administrator for all claims paid, up to a maximum
amount of $30,000 per employee per year and an aggregate maximum of
approximately $1,400,000 per year.
31
<PAGE>
NOTE 11 - INVESTMENT IN MARKETING COOPERATIVES
Minn-Dak has formed common marketing agency agreements with United Sugars
Corporation (United Sugars) and Midwest Agri-Commodities (Midwest) to be the
exclusive marketing agents for all products produced by them and other member
processors.
Minn-Dak's ownership requirement in United Sugars is calculated periodically and
is based on the average volume of sugar produced during the five previous fiscal
years. The investment is accounted for on the equity method and the amount of
sales and related costs recognized by each member processor is allocated based
on their pro-rata share of production for the year. Minn-Dak provided United
Sugars with cash advances on an ongoing basis for operating and marketing
expenses incurred. During the years ended August 31, 2000, 1999 and 1998,
Minn-Dak had advanced $21,501,838, $19,645,387 and $20,263,037, respectively.
Minn-Dak had outstanding advances due from (to) United Sugars of $249,117,
$117,870 and $1,970,529, for the years ended August 31, 2000, 1999 and 1998,
respectively.
In December, 1997, United States Sugar Corporation (USSC) became an equity
member of United Sugars. United Sugars will market all of the sugar refined by
USSC under the same terms as other members. USSC began shipping sugar in
September, 1998. They are expected to have annual capacity of approximately 10
million hundredweight.
Minn-Dak has a one-third ownership interest in Midwest. The amount of the
investment is accounted for using the equity method. All beet pulp pellets and a
portion of the beet molasses produced are sold by Midwest as an agent for
Minn-Dak. The amount of sales and related costs to be recognized by each owner
is allocated based on their pro-rata share of production for the year. The
owners provide Midwest with cash advances on an ongoing basis for operating and
marketing expenses incurred by Midwest. Minn-Dak advanced Midwest $1,611,326,
$1,543,175, and $1,545,691, respectively, during the years ended August 31,
2000, 1999 and 1998. Minn-Dak had outstanding advances due from (to) Midwest of
$(450,359), $(492,459), and $927,189, as of August 31, 2000, 1999 and 1998,
respectively. The owners are guarantors of the short-term line of credit Midwest
has with the CoBank.
NOTE 12 - OPERATING LEASES
The cooperative is a party to various operating leases for vehicles and
equipment. Future minimum payments for the years ending August 31 under these
obligations are approximately as follows:
Years ending August 31,
-----------------------------
2001 $ 1,105,000
2002 1,036,000
2003 892,000
2004 622,000
2005 179,000
Thereafter 512,000
Operating lease and contract expenses for the years ended August 31, 2000, 1999
and 1998, totaled approximately $1,206,000, $1,417,000 and $1,386,000,
respectively.
32
<PAGE>
NOTE 13 - STOCK TRANSFER RESTRICTION
The cooperative has entered into an agreement with Minn-Dak Yeast's minority
shareholder, whereby neither party shall sell, option or transfer its interest
in Minn-Dak Yeast to any person, firm or corporation (third party) without first
offering, in writing, the other party the right to acquire such interest on the
same terms. If the offer is not accepted by the offeree within 30 days, the
offeror may sell, option or transfer its interest to the third party within 120
days after expiration of the 30-day period.
NOTE 14 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of a financial instrument is generally defined as the amount at
which the instrument could be exchanged in a current transaction between willing
parties, other than in a forced liquidation sale. Quoted market prices are
generally not available for the company's financial instruments. Accordingly,
fair values are based on judgments regarding anticipated cash flows, future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments and other factors. Changes in the assumptions
could significantly affect the estimates.
The following methods and assumptions were used by the company to estimate fair
value of the financial instruments, and the estimated fair values of the
company's financial instruments as of August 31, 2000, 1999 and 1998, are as
follows:
INVESTMENTS - The investment in CoBank, Dakota Valley Electric Cooperative,
Inc. and all other cooperatives are stated at cost, plus the cooperative's
share of allocated patronage and capital credits. The investment in United
Sugars Corporation, Midwest Agri-Commodities and ProGold Limited Liability
Company are accounted for using the equity method, wherein the investment is
recorded at the amount of the underlying equity in the net assets of the
investments and adjusted to recognize the cooperative's share of the
undistributed earnings or losses. Minn-Dak Farmers Cooperative believes it
is not practicable to estimate the fair value without incurring excessive
costs because there is no established market for this stock and it is
inappropriate to estimate future cash flows which are largely dependent on
future patronage earnings of the investment.
LONG-TERM DEBT - The fair value of obligations under long-term debt are
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered for debt of similar maturities.
OBLIGATIONS UNDER CAPITAL LEASE - The fair value of obligations under
capital lease, was based on present value models using current financing
rates available to the cooperative. At August 31, 2000, the carrying value
of obligations under capital leases was $11,270,000 and the estimated fair
value was $9,200,000. At August 31, 1999 and 1998, the carrying value of
obligations under capital leases was $12,000,000 and the estimated fair
value was $9,800,000.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None
33
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
IDENTIFICATION OF DIRECTORS
The table below lists the current directors of Minn-Dak Farmers
Cooperative. The Board of Directors consists of one director from each district.
Directors must be common shareholders or representatives of common shareholders
belonging to the district they represent and are elected by the members of that
district. In the case of a common shareholder who is other than a natural
person, a duly appointed or elected representative of such common shareholder
may serve as a director. The directors have been elected to serve three-year
terms expiring in December of the years indicated in the table below. One
director is elected each year from three selected districts. Brief biographies
for each of the directors and directors-elected are included after the table.
<TABLE>
<CAPTION>
Term Expires
Name and Address Age District Director Since in December
---------------- --- -------- -------------- -----------
<S> <C> <C> <C> <C>
Douglas Etten
RR #2, Box 65
Foxhome, MN 56543 49 District #8 - Lyngaas 1997 2000(1)
Michael Hasbargen
RR #2, Box 71 District #4 - Factory
Breckenridge, MN 56520 55 East 1993 2002
John Hought
RR #2, Box 9
Foxhome, MN 56543 59 District #6 - Yaggie 1985 2000(2)
Victor Krabbenhoft
RR #2, Box 45
Glyndon, MN 56547 51 District #9 - Peet 1989 2001
Jack Lacey
RR #1, Box 66
Wendell, MN 56590 58 District #5 - Hawes 1993 2002
Russell Mauch
16305 Hwy 13 District #2 - Factory
Barney, ND 58008 45 West 1998 2001
Jerry Meyer
1433 15th Street North
Wahpeton, ND 58075 62 District #1 - Tyler 1994 2000(3)
Edward Moen
17060 County Road 8
Colfax, ND 58018 74 District #3 - Gorder 1989 2001
Paul Summer
RR #2, Box 84
Herman, MN 56248 58 District #7 - Lehman 1993 2002
</TABLE>
34
<PAGE>
1) Mr. Etten's term as a director of the Company from District #8-Lyngaas
expires on December 5, 2000.
2) Mr. Hought's term as a director of the Company from District #6-Yaggie
expires on December 5, 2000.
3) Mr. Meyer's term as director of the Company from District #1-Tyler expires
on December 5, 2000.
DOUGLAS ETTEN has been a director since 1997. Mr. Etten has been
farming near Foxhome, MN since graduating from Concordia College in Business and
Math in 1974. Etten also serves on the board of directors for Midwest
Agri-Commodities Company.
MICHAEL HASBARGEN has been a director since 1992 and is currently
serving as board vice chairman. Mr. Hasbargen has been farming near
Breckenridge, MN since graduating from NDSU in Ag Economics in 1967. Mr.
Hasbargen also serves on the board of directors of United Sugars Corporation and
it one of Minn-Dak's representatives to the American Sugarbeet Growers
Association in Washington, DC. Mr. Hasbargen is the brother-in-law of Mr. Steven
Caspers, Interim President and Chief Executive Officer.
JOHN HOUGHT has been a director since 1985. Mr. Hought has been farming
near Foxhome, MN since 1959. He also serves on the board of directors for
Minn-Dak Yeast Company.
VICTOR KRABBENHOFT has been a director since 1989, currently serves as
board chairman, and is a former vice chairman. Mr. Krabbenhoft has been farming
near Glyndon, MN since 1971. He also serves on the board of directors for
Midwest Agri-Commodities Company, United Sugars Corporation, and Minn-Dak Yeast
Company; and is one of Minn-Dak's representatives to the American Sugarbeet
Growers Association in Washington, DC.
JACK LACEY has been a director since 1993. Mr. Lacey has been farming
with his wife, Sharon, near Wendell, MN since 1963. He serves as one of
Minn-Dak's representatives to the American Sugarbeet Growers Association in
Washington, DC.
RUSSELL MAUCH has been a director since 1998. Mr. Mauch graduated from
North Dakota State University in 1977 with a B.S. in agriculture. From 1979 to
1981 Mr. Mauch was a commercial and ag loan officer for First Bank Corporation
in Valley City, ND. Mr. Mauch has been farming near Barney, ND since 1981. Mr.
Mauch also serves on the board of directors for Minn-Dak Yeast Company.
JERRY MEYER has been a director since 1994. Mr. Meyer has been farming
near Fairmount, ND since 1958. He also services on the board of directors for
Minn-Dak Yeast Company.
ED MOEN has been a director since 1989 and is currently serving as
board treasurer. Mr. Moen has been farming near Galchutt, ND since 1945.
PAUL SUMMER has been a director since 1993 and is currently serving as
board secretary. Mr. Summer has been farming near Herman, MN since 1963. He also
serves on the board of directors for Midwest Agri-Commodities Company.
The Board of Directors meets monthly. The Company provides its
directors with minimal compensation, consisting of (i) a payment of $225.00 per
meeting for regular and special board meetings, (ii) the greater (a) $112.50 for
any day in which directors partake in activities on the Company's behalf that
take less than five hours or (b) $225.00 for any day in which directors partake
in activities on the Company's behalf that take five hours or more. The Chairman
of the Board of Directors also receives a flat $200.00 per month to compensate
for the extra duties associated with that position.
EXECUTIVE OFFICERS
The table below lists the principal officers of the Company, none of
whom owns any common or preferred shares. The president and chief executive
officer, executive vice president and chief financial officer, vice president
agriculture, vice president engineering, and vice president operations are
elected annually by the Board of Directors to serve on the board. Brief
biographies for each of the officers are included after the table.
35
<PAGE>
Mr. Larry Steward retired effective September 30, 2000 and as a result,
the Board of Directors has appointed Mr. Steven M Caspers to the position of
Interim President and Chief Executive Officer. Mr. Caspers has appointed Mr.
Allen E Larson as Interim Chief Financial Officer. A search for a permanent
President and Chief Executive Officer is underway with a target date of April,
2001 for the permanent President and Chief Executive Officer to assume the
office.
Name Age Position
---- --- --------
Larry D. Steward 61 President and Chief Executive Officer - Retired
Steven M. Caspers 50 President and Chief Executive Officer - Interim
Allen E. Larson 45 Chief Financial Officer - Interim
Thomas D. Knudsen 46 Vice President, Agriculture
John E. Groneman 64 Vice President, Engineering
Richard K. Richter 60 Vice President, Operations
Jerald W. Pierson 61 Director of Human Resources
Jeffrey L. Carlson 45 Director of Technical Services
John S. Nyquist 44 Purchasing Manager
Patricia J. Keough-Wilson 60 Director of Communications
Kevin R. Shannon 45 Safety Director
LARRY D. STEWARD joined the Company in December 1990 as president and
chief executive officer. Mr. Steward serves on the boards of United Sugars
Corporation, and Midwest Agri-Commodities. He is chairman of the board of
Minn-Dak Yeast Company, Inc. Mr. Steward is a trustee of United States Beet
Sugar Association and a director on the board of the National Council of Farmer
Cooperatives based in Washington, DC. Prior to joining the Company, Mr. Steward
was midwest sales manager for Harborlite Corporation. From 1963 to 1988 Mr.
Steward was employed by Great Western Sugar Company, Denver, Colorado and from
1984 to 1988 he served as its vice president. Mr. Steward holds a degree in
chemistry and math from the University of Nebraska, Kearney, Nebraska. He
retired effective September 30, 2000.
STEVEN M. CASPERS is a graduate of the University of North Dakota with
a Bachelor of Science in business administration and a major in accounting. He
has been employed with the Company since May 5, 1974. Mr. Caspers is president
of Minn-Dak Yeast Company and serves on the boards of directors of Midwest
Agri-Commodities, United Sugars Corporation and ProGold, LLC. He also is active
in national industry related boards and committees. Mr. Caspers was named
interim President and Chief Executive Officer October 1, 2000. Mr. Caspers is
the brother-in-law of Mr. Michael Hasbargen, Director and Vice Chairman.
ALLEN E. LARSON is a graduate of Moorhead State University with a
Bachelor of Science in Business administration and a major in accounting. He has
been employed with the Company since October 26, 1981. Mr. Larson was appointed
to the position of Interim Chief Financial Officer October 1, 2000. Prior to
this interim appointment, Mr. Larson was serving the Company as Controller.
JOHN E. GRONEMAN is a graduate of Colorado State University with a
Bachelor of Science in engineering. He began his experience in the sugar
industry in 1960; this includes five years as a factory manager. Mr. Groneman
began employment with the Company on March 1, 1974.
THOMAS D. KNUDSEN is a graduate of North Dakota State University with a
Bachelor of Science in horticulture and has attended the Beet Sugar Institute at
Fort Collins, Colorado. He began employment with the Company on May 24, 1977.
36
<PAGE>
RICHARD R. RICHTER has completed both the beet and sugar end coursework
of the Beet Sugar Institute of Fort Collins, Colorado. He began his sugar
industry experience in 1958 with employment with the Company beginning in August
of 1976.
JERALD W. PIERSON is a graduate of Black Hills State University with
human resources experience beginning in 1968. He is active in numerous local
civic and fraternal organizations including North Dakota Workers Compensation
and the North Dakota Job Service Employer Committee. He began his employment
with the Company on March 15, 1982.
JEFFREY L. CARLSON is a graduate of the University of Minnesota-Morris
with a Bachelor of Arts in chemistry and the University of North Dakota with a
Ph.D. in physical chemistry. He began his career as a research chemist and an
assistant professor in 1986. Mr. Carlson began his employment with the Company
on June 4, 1990.
JOHN S. NYQUIST attended the North Dakota State College of Science,
majoring in accounting and computer programs. Mr. Nyquist began his purchasing
and inventory control experience in 1975 in the Company storeroom. Mr. Nyquist
is active in local civic and fraternal organizations and the National
Association of Purchasing Managers. Mr. Nyquist began employment with the
Company on September 15, 1975.
PATRICIA J. KEOUGH-WILSON is a graduate of Moorhead State University
with a Bachelor of Science in mass communications and Master of Arts in liberal
arts. Mrs. Keough-Wilson is active in local civic organizations and began her
publication-communications experience in 1973. Mrs. Keough-Wilson began
full-time employment with the Company on December 26, 1989.
KEVIN R. SHANNON attended Taylor Institute and Vanguard Vo-Tech,
majoring in instrumentation. He is active in local civic organizations. Mr.
Shannon began his technical and supervisory career in 1974. His employment with
the Company began on June 1, 1983. Prior to becoming the safety director in
September of 1992, Mr. Shannon was the Company's tare lab supervisor.
ITEM 11. EXECUTIVE COMPENSATION
The following table summarizes the amount of compensation paid for
services rendered to the Company during the fiscal year ended August 31, 2000
and the two prior fiscal years to those persons serving as the Company's Chief
Executive Officer and to the other most highly compensated executive officers of
the Company whose cash compensation exceeded $100,000 per annum.
37
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Other Annual All Other Total
Principal Position Year Salary Bonus Compensation Compensation Compensation
------------------ ---- ------ ----- ------------ ------------ ------------
(1) (2)
<S> <C> <C> <C> <C> <C> <C>
Larry Steward 2000 $219,665 $ 86,100 $ 25,281 $ 37,101 $368,147
President & CEO 1999 $211,178 $ 69,798 $ 20,304 $ 30,944 $332,224
(Retired) 1998 $199,385 $ 58,012 $ 19,709 $ 29,046 $306,152
Steven Caspers 2000 $129,147 $ 30,000 $ 13,165 $172,312
Interim President 1999 $125,221 $ 0 $ 14,679 $139,900
& CEO 1998 $120,854 $ 30,000 $ 16,936 $167,790
Thomas Knudsen 2000 $94,624 $ 14,500 $ 11,380 $120,504
VP Agriculture 1999 $91,813 $ 0 $ 6,405 $98,218
1998 $88,779 $ 14,500 $ 15,670 $118,949
Richard Richter 2000 $94,457 $ 14,500 $ 5,196 $114,153
VP Operations 1999 $91,663 $ 0 $ 4,796 $96,459
1998 $88,579 $ 14,500 $ 4,648 $107,727
John Groneman 2000 $89,546 $ 13,500 $ 3,972 $107,018
VP Engineering 1999 $86,950 $ 0 $ 4,329 $91,279
1998 $84,068 $ 13,500 $ 5,454 $103,022
</TABLE>
------------------------
1) In addition to the salary and bonus described above, Mr. Steward, Mr.
Caspers, Mr. Knudsen, Mr. Richter, and Mr. Groneman are provided with "Other
Annual Compensation," which includes the value of the excess life insurance
cost, individual LTD plan, sold vacation, and Company match of the 401(k) plan.
In fiscal 1996, the company adopted a new policy whereby Supervisory,
Professional and Management employees are required on or before their
anniversary date in 1999, to attain and maintain their vacation and floating
holiday hour combined balance at two hundred and forty (240) hours or less.
While not encouraged, the cash optioning of vacation and floating holiday
accrued hours is allowable. Employees with account balances in excess of 240
hours may elect to cash option up to fifty percent (50%) of the number of hours
exceeding 240. Employees at or below the 240 hour limit may elect to cash option
fifty percent (50%) of their combined vacation and floating holiday annually
accrued hours.
Management employees are eligible for performance bonuses, which are
partially based upon on the performance of the Company and partially on
achievement of certain management performance objectives. The President and CEO
determine those performance objectives for officers and significant other
management employees of the Company and by the Board of Directors for the
President and CEO. If minimum Company performance is not achieved in any given
year (that performance based upon returns to the Company's shareholders),
performance bonuses are not paid to employees.
The Company has entered into an employment agreement with Mr. Steward,
which establishes his salary and benefits as an employee of the Company. The
agreement may terminate on sixty days written notice by either party for any
reason. Mr. Steward has been employed by the Company for ten years and,
therefore, would be affected by the table limits on the qualified benefits table
below.
As of September 30, 2000, the Company has entered into an employment
agreement with Mr. Caspers, which establishes his salary and benefits while he
temporarily fills the position of President and Chief Executive Officer. The
agreement continues until April 30, 2001 unless it is continued by written
extension. The contract may also be cancelled with 60 days notice by either
party. At the time of the
38
<PAGE>
termination of the agreement, Mr. Caspers shall assume his previous duties as
Executive Vice President and Chief Financial Officer with the same pay and
benefits as he had prior to September 30, 2000.
On a periodic basis, the Company undertakes a compensation review study
to determine that its employees' compensation is commensurate with
responsibilities of the various Company positions, and that the compensation is
equitable between jobs within the Company and externally competitive with other
comparable jobs and responsibilities within the Company's geographic region. A
national compensation consultant called Hay Management consultants performs the
compensation review study. This study is made of all management employees,
including the president, and non-union employees. As of August 31, 1995 all
employees' wages had been adjusted to levels consistent with the Hay Management
Consultants findings and recommendations. In June of 1997 the company made a
range shift and from time to time individual employees have had a restudy based
upon changes in their areas of responsibilities.
2) Beginning in fiscal year 1997, supplemental executive retirement plan
obligations are being recorded onto the Company's books on behalf of Mr.
Steward. The amount obligated for fiscal year 2000 was $37,101. See the section
below on Retirement Plans for further details on the supplemental executive
retirement plan.
RETIREMENT PLANS
Management employees are also eligible to participate in the Company's
defined benefit retirement plan as well as its 401(k) retirement savings plan,
each of which are described below.
The Company has established a noncontributory, defined benefit
retirement plan, which is available to all eligible employees of the Company.
The benefits of the plan are funded by periodic contributions by the Company to
a retirement trust that invests the contributions and earnings from such
contributions to pay benefits to employees. The plan provides for the payment of
a monthly retirement benefit determined under a formula based on years of
service and each employee's compensation level. See "Executive
Compensation--Qualified Benefits Table." Benefits are paid to the employees upon
reaching early (age 55 or older) or normal (age 65) retirement age. The plan
also provides for the payment of certain disability and death benefits.
The Company maintains a Section 401(k) retirement savings plan that
permits employees to elect to set aside, on a pre-tax basis, a portion of their
gross compensation in trust to pay future retirement benefits. Effective on
April 1, 1995, the Company began providing a matching contribution of 25% of
each employee's first 4% of compensation that is set aside under the plan. The
match increased over time until it reached 75% of the first 4% in the year 1999.
The amounts set aside by each employee and the Company vests immediately and are
paid to each employee upon the happening of certain events, all as more fully
described in the master plan document. Federal law limited employee pre-tax
income contributions to $10,000 for each participating employee in calendar year
1999 and $10,500 in 2000. Benefits under the 401(k) plan begin to be paid to the
employee: (i) upon the attainment of normal retirement age (65), or if the
employee chooses, any time after attaining early retirement date (age 55); (ii)
the date the employee terminates employment with the Company; or (iii) a
pre-retirement distribution equal to the value of the employees 401(k) account,
provided the employee has attained age 59 1/2 and provided a written consent of
the spouse (if married).
Effective September 1, 1996 certain executive employees of the Company
became eligible to participate in a "Supplemental Executive Retirement Plan."
The Company's Board of Directors adopted that plan on January 21, 1997. Subject
to the discretion of the Board of Directors, the plan provides for the Company
to credit to the account of each executive eligible to participate in the
Supplemental Plan amounts equal to the difference between the benefits actually
payable to the executive under the provisions of the defined benefit retirement
plan and the amounts which would have been payable under the defined benefit
retirement plan if certain provisions of the Internal Revenue Code did not
prohibit the payment of such benefits.
39
<PAGE>
QUALIFIED BENEFITS TABLE
The following table reflects the estimated annual benefits payable to a
fully-vested executive officer of the Cooperative under the defined benefit
retirement plan upon retirement at age 65, after 15, 20, 25, 30, and 35 years of
annual service at the compensation levels set forth hereon:
--------------------------------------------------------------------------------
Years of Service
--------------------------------------------------------------------------------
Pension
Compensation 15 20 25 30 35
--------------- ------------ ------------ ------------ ------------ ------------
$ 125,000 $27,368 $36,490 $45,613 $54,735 $63,858
--------------- ------------ ------------ ------------ ------------ ------------
$ 150,000 $33,368 $44,490 $55,613 $66,735 $77,858
--------------- ------------ ------------ ------------ ------------ ------------
$ 175,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 200,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 225,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 250,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 275,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 300,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 325,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 350,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
$ 375,000 $35,768 $47,690 $59,613 $71,535 $83,458
--------------- ------------ ------------ ------------ ------------ ------------
The two executive officers named in the Summary Compensation Table have
years of service under the plan as follows: Mr. Steward has served for 10 years;
Mr. Caspers has served for 26 years.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table presents certain information with respect to the
ownership of shares of preferred stock as of November 1, 2000, by each director.
Each shareholder has direct ownership with respect to the share shown as
beneficially owned, except as otherwise indicated in a footnote. To the
Company's knowledge, as of November 1, 2000, no person owned beneficially more
than 5% of the Company's outstanding shares and none of the principal officers
listed above owned any such shares.
Name Position with Company No. of Shares % of Shares
---- --------------------- ------------- -----------
Douglas Etten Director 450 less than 1%
Michael Hasbargen Director 375 less than 1%
John Hought Director 270 less than 1%
Victor Krabbenhoft Director 245 less than 1%
Jack Lacey (1) Director 250 less than 1%
Russell Mauch (2) Director 254 less than 1%
Jerry Meyer Director 460 less than 1%
Ed Moen Director 180 less than 1%
Paul Summer (3) Director 222 less than 1%
All Directors 2706 3.75%
40
<PAGE>
(1) Mr. Lacey's shares are held and grown under the name of Jack Lacey
Company.
(2) Mr. Mauch's shares are grown under the name of RCM Limited Partnership.
(3) Mr. Summer's shares are grown under the name of P V Unlimited Corp.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Each of the Company's directors is also a sugarbeet grower or a
shareholder member or representative of a shareholder member. By virtue of their
status as such members of the Company, each director or the member he represents
sells sugarbeets to the Company and receives payments for those sugarbeets. Such
payments for sugarbeets often exceed $60,000. However, such payments are
received by the directors, or the entities they represent, on exactly the same
basis as payments are received by other members of the Company for the delivery
of their sugarbeets. Except for the sugarbeet sales described in the preceding
sentences, none of the directors or executive officers of the Company have
engaged in any other transactions with the Company involving amounts in excess
of $60,000.
PART IV.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
ITEM 14(a) FINANCIAL STATEMENT SCHEDULES
None
ITEM 14(b) REPORTS ON FORM 8-K
The Company was not required to and did not file any reports on Form
8-K during the three months ended August 31, 2000.
41
<PAGE>
ITEM 14(c) EXHIBITS
Index
-----
** 3(i) Articles of Amendment to the Articles of Incorporation of Minn-Dak
Farmers Cooperative * 3(ii) Articles of Incorporation of Minn-Dak
Farmers Cooperative
*** 3(iii) Amended Bylaws of Minn-Dak Farmers Cooperative
**10(a) Growers' Agreement (three-year Agreement) (example of agreement
which each Shareholder is required to sign)
****10(b) Uniform Member Marketing Agreement by and between United Sugars
Corporation and Minn-Dak Farmers Cooperative
*10(d) Capitalization Agreement by and among Southern Minnesota Beet Sugar
Cooperative, Minn-Dak Farmers Cooperative, American Crystal Sugar
Company, and United Sugars Corporation
*10(e) Memorandum of Understanding and Uniform Member Agreement by and
between Midwest Agri-Commodities Company and Minn-Dak Farmers
Cooperative
*10(f) Molasses Purchase Contract by and between Minn-Dak Farmers
Cooperative and Universal Foods Corporation (Confidential Treatment
for certain sections)
*10(g) Yeast Purchase Contract by and between Universal Foods Corporation
and Minn-Dak Yeast Company, Inc. (Confidential Treatment for certain
sections)
*10(i) Operating Agreement of ProGold Limited Liability Company
*10(j) ProGold Limited Liability Company Member Control Agreement
*10(k) Agreement for Electrical Service
**10(l) Agreements for Coal Supply, Transportation, and Oiling Service
(Confidential Treatment Requested as to certain provisions)
*10(m) Minn-Dak Farmers Cooperative Pension Plan
*10(n) Larry D. Steward Employment Agreement
*10(o) Management Consulting Agreement between Minn-Dak Yeast Company and
Universal Foods Corporation, (Confidential Treatment for certain
sections)
***10(p) Amendment to Minn-Dak Farmers Cooperative Pension Plan
12 Statement re Computation of Ratio of Net Proceeds to Fixed Charges
*21 Subsidiaries of the Registrant
23 Consent of Independent Auditors
27 Financial Data Schedule
---------------------------
* Incorporated by reference from the Company's Registration Statement on Form
S-1 (File No. 33-94644), declared effective September 11, 1995.
** Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1996 as filed on November 21, 1996.
*** Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1997 as filed on November 25, 1997.
****Incorporated by reference from the Company's Annual Report on Form 10-K for
the fiscal year ended August 31, 1998 as filed on November 24, 1998.
42
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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
BY /S/ Steven M. Caspers
--------------------------------------
STEVEN M. CASPERS, INTERIM PRESIDENT
AND CHIEF EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DUTIES INDICATED.
SIGNATURE TITLE REPORT DATE
--------- ----- -----------
/s/ Steven M. Caspers Interim President and 11-29-00
-------------------------- Chief Executive Officer ------------------
Steven M. Caspers
/s/ Allen E. Larson Interim Chief Financial Officer 11-29-00
-------------------------- ------------------
Allen E. Larson
/s/ Victor Krabbenhoft Director 11-29-00
-------------------------- ------------------
Victor Krabbenhoft
/s/ Douglas Etten Director 11-29-00
-------------------------- ------------------
Douglas Etten
/s/ Edward Moen, Jr. Director 11-29-00
-------------------------- ------------------
Edward Moen, Jr.
/s/ Mike Hasbargen Director 11-29-00
-------------------------- ------------------
Mike Hasbargen
/s/ John Hought Director 11-29-00
-------------------------- ------------------
John Hought
/s/ Jack Lacey Director 11-29-00
-------------------------- ------------------
Jack Lacey
/s/ Russell Mauch Director 11-29-00
-------------------------- ------------------
Russell Mauch
/s/ Jerry Meyer Director 11-29-00
-------------------------- ------------------
Jerry Meyer
/s/ Paul Summer Director 11-29-00
-------------------------- ------------------
Paul Summer
43
