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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------
FORM 10-Q
-----------------
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED NOVEMBER 30, 2002.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO .
COMMISSION FILE NUMBER 333-17865
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CENEX HARVEST STATES COOPERATIVES
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0251095
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5500 CENEX DRIVE, (651) 451-5151
INVER GROVE HEIGHTS, MN 55077 (Registrant's telephone number
(Address of principal executive offices including area code)
and zip code)
-----------------
Include by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES_X_ NO ___
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
(Number of shares outstanding at
(Class) November 30, 2002)
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NONE NONE
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INDEX
PAGE
NO.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of November 30, 2002 (unaudited),
August 31, 2002 and November 30, 2001 (unaudited) ....................... 2
Consolidated Statements of Operations for the three months ended
November 30, 2002 and 2001 (unaudited) .................................. 3
Consolidated Statements of Cash Flows for the three months ended
November 30, 2002 and 2001 (unaudited) .................................. 4
Notes to Consolidated Financial Statements (unaudited) .................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk ...... 14
Item 4. Controls and Procedures ......................................... 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders ............. 15
Item 6. Exhibits and Reports on Form 8-K ................................ 15
SIGNATURE PAGE ........................................................... 16
SECTION 302 CERTIFICATIONS ............................................... 17
i
PART I. FINANCIAL INFORMATION
SAFE HARBOR STATEMENT UNDER THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
This Quarterly Report on Form 10-Q may contain forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements involve risks and uncertainties that may cause the
Company's actual results to differ materially from the results discussed in the
forward-looking statements. These factors include those set forth in Exhibit
99.1, under the caption "Cautionary Statement" to this Quarterly Report on Form
10-Q for the quarterly period ended November 30, 2002.
1
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
ITEM 1. FINANCIAL STATEMENTS
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2002 2002 2001
-------------- ------------ -------------
(DOLLARS IN THOUSANDS) (UNAUDITED) (UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents .................................. $ 138,823 $ 108,192 $ 106,453
Receivables ................................................ 824,899 741,578 642,542
Inventories ................................................ 929,995 759,663 547,949
Other current assets ....................................... 202,828 140,944 93,390
---------- ---------- ----------
Total current assets ...................................... 2,096,545 1,750,377 1,390,334
INVESTMENTS ................................................. 489,289 496,607 461,448
PROPERTY, PLANT AND EQUIPMENT ............................... 1,068,786 1,057,421 1,026,075
OTHER ASSETS ................................................ 181,068 177,322 214,574
---------- ---------- ----------
Total assets .............................................. $3,835,688 $3,481,727 $3,092,431
========== ========== ==========
LIABILITIES AND EQUITIES
CURRENT LIABILITIES:
Notes payable .............................................. $ 246,061 $ 332,514 $ 110,815
Current portion of long-term debt .......................... 89,026 89,032 15,669
Customer credit balances ................................... 91,792 26,461 62,590
Customer advance payments .................................. 222,137 169,123 102,847
Checks and drafts outstanding .............................. 70,150 84,251 60,063
Accounts payable ........................................... 642,537 517,667 464,480
Accrued expenses ........................................... 231,003 225,704 139,788
Patronage dividends and equity retirements payable ......... 72,088 56,510 91,024
---------- ---------- ----------
Total current liabilities ................................. 1,664,794 1,501,262 1,047,276
LONG-TERM DEBT .............................................. 654,196 483,092 568,588
OTHER LIABILITIES ........................................... 116,144 118,280 105,372
MINORITY INTERESTS IN SUBSIDIARIES .......................... 94,877 89,455 88,369
COMMITMENTS AND CONTINGENCIES
EQUITIES .................................................... 1,305,677 1,289,638 1,282,826
---------- ---------- ----------
Total liabilities and equities ............................ $3,835,688 $3,481,727 $3,092,431
========== ========== ==========
The accompanying notes are an integral part of the
consolidated financial statements (unaudited).
2
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
-----------------------------
2002 2001
(DOLLARS IN THOUSANDS) ------------- -------------
REVENUES:
Net sales .................................... $2,626,628 $1,871,952
Patronage dividends .......................... 166 721
Other revenues ............................... 35,089 32,076
---------- ----------
2,661,883 1,904,749
Cost of goods sold ............................ 2,562,794 1,804,364
Marketing, general and administrative ......... 43,148 42,898
---------- ----------
OPERATING EARNINGS ............................ 55,941 57,487
Interest ...................................... 12,813 10,815
Equity income from investments ................ (8,165) (3,942)
Minority interests ............................ 5,431 3,036
---------- ----------
INCOME BEFORE INCOME TAXES .................... 45,862 47,578
INCOME TAXES .................................. 5,506 6,223
---------- ----------
NET INCOME .................................... $ 40,356 $ 41,355
========== ==========
The accompanying notes are an integral part of the
consolidated financial statements (unaudited).
3
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
---------------------------
2002 2001
(DOLLARS IN THOUSANDS) ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ......................................................... $ 40,356 $ 41,355
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization .................................... 25,866 24,699
Noncash net income from equity investments ....................... (8,165) (3,942)
Minority interests ............................................... 5,431 3,036
Adjustment of inventories to market value ........................ -- 14,885
Noncash portion of patronage dividends received .................. (184) (766)
Loss (gain) on sale of property, plant and equipment ............. 463 (2,348)
Other, net ....................................................... 446 (60)
Changes in operating assets and liabilities:
Receivables ..................................................... (72,422) 46,053
Inventories ..................................................... (170,332) (52,391)
Other current assets and other assets ........................... (66,814) (25,890)
Customer credit balances ........................................ 65,331 24,104
Customer advance payments ....................................... 53,014 (6,288)
Accounts payable and accrued expenses ........................... 131,211 (44,259)
Other liabilities ............................................... (2,136) 5,466
---------- ---------
Net cash provided by operating activities ..................... 2,065 23,654
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property, plant and equipment ....................... (40,613) (21,808)
Proceeds from disposition of property, plant and equipment ......... 4,748 6,116
Investments ........................................................ (1,384) (6,125)
Equity investments redeemed ........................................ 15,313 14,092
Investments redeemed ............................................... 1,713 1,328
Changes in notes receivable ........................................ (11,241) (2,163)
Acquisition of intangibles ......................................... (379) (27,469)
Distribution to minority owners .................................... (463) (3,985)
Other investing activities, net .................................... 444 1,090
---------- ---------
Net cash used in investing activities ......................... (31,862) (38,924)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in notes payable ........................................... (86,453) 13,620
Long-term debt borrowings .......................................... 175,000 30,000
Principal payments on long-term debt ............................... (3,902) (5,780)
Payments on derivative instruments ................................. (7,574) --
Changes in checks and drafts outstanding ........................... (14,101) (27,745)
Proceeds from sale of preferred stock, net of expenses ............. 64 --
Preferred stock dividends paid ..................................... (184) --
Retirements of equities ............................................ (2,422) (1,830)
---------- ---------
Net cash provided by financing activities ..................... 60,428 8,265
---------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS ................................................... 30,631 (7,005)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD .......................................................... 108,192 113,458
---------- ---------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD .......................................................... $ 138,823 $ 106,453
========== =========
The accompanying notes are an integral part of the
consolidated financial statements (unaudited).
4
CENEX HARVEST STATES COOPERATIVES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(DOLLARS IN THOUSANDS)
NOTE 1. ACCOUNTING POLICIES
The unaudited consolidated balance sheets as of November 30, 2002 and 2001,
and the statements of operations and cash flows for the three months ended
November 30, 2002 and 2001 reflect, in the opinion of management of Cenex
Harvest States Cooperatives (the Company), all normal recurring adjustments
necessary for a fair presentation of the financial position and results of
operations and cash flows for the interim periods presented. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full fiscal year because of, among other things, the seasonal
nature of the Company's businesses. The consolidated balance sheet data as of
August 31, 2002 has been derived from audited consolidated financial statements
but does not include all disclosures required by accounting principles generally
accepted in the United States of America.
The consolidated financial statements include the accounts of the Company
and all of its wholly-owned and majority-owned subsidiaries and limited
liability companies. The effects of all significant intercompany accounts and
transactions have been eliminated.
These statements should be read in conjunction with the consolidated
financial statements and notes thereto for the year ended August 31, 2002,
included in the Company's Annual Report on Form 10-K filed with the Securities
and Exchange Commission on November 25, 2002.
GOODWILL AND OTHER INTANGIBLE ASSETS
The Company has $27.5 million of goodwill as of November 30, 2002, and
during the three months then ended, the Company disposed of $0.4 million due to
sales of related assets in the Energy segment.
Intangible assets subject to amortization primarily include trademarks,
tradenames, customer lists and non-compete agreements, and are amortized on a
straight-line basis over the number of years that approximate their respective
useful lives (ranging from 2 to 15 years). The gross carrying amount of these
intangible assets is $43.1 million with total accumulated amortization of $8.5
million as of November 30, 2002. Intangible assets of $0.4 million were acquired
during the three months ended November 30, 2002. Total amortization expense for
intangible assets during the three-month period ended November 30, 2002 was
approximately $1.2 million. The estimated amortization expense related to
intangible assets subject to amortization for the next five years will
approximate $4.0 million annually.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is in the process of finalizing its analysis of
adopting this standard. The Company's Energy segment operates oil refineries and
related pipelines for which the Company would be subject to Asset Retirement
Obligations (ARO) if such assets were to be dismantled. The Company, however,
expects to operate its refineries and related pipelines indefinitely. Since the
time period to dismantle these assets is indeterminate, a corresponding ARO is
not currently estimable and therefore has not been recorded. The Company
continues to assess whether any other ARO's exist related to its remaining
operations, however, based on available information to date, no other ARO's have
been identified. As such, the Company believes that the effects of adopting this
standard do not have a material effect on the Company.
5
NOTE 2. RECEIVABLES
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2002 2002 2001
-------------- ------------ -------------
Trade ......................................... $797,559 $717,888 $636,935
Other ......................................... 53,992 49,846 31,308
-------- -------- --------
851,551 767,734 668,243
Less allowances for doubtful accounts ......... 26,652 26,156 25,701
-------- -------- --------
$824,899 $741,578 $642,542
======== ======== ========
NOTE 3. INVENTORIES
NOVEMBER 30, AUGUST 31, NOVEMBER 30,
2002 2002 2001
-------------- ------------ -------------
Grain and oilseed ................... $556,962 $393,095 $262,630
Energy .............................. 217,155 229,981 182,296
Feed and farm supplies .............. 102,553 91,138 79,380
Processed grain and oilseed ......... 44,904 36,264 19,770
Other ............................... 8,421 9,185 3,873
-------- -------- --------
$929,995 $759,663 $547,949
======== ======== ========
NOTE 4. INVESTMENTS
The following provides summarized unaudited financial information for the
Company's unconsolidated significant subsidiaries Ventura Foods, LLC and
Agriliance, LLC, of which the Company has a 50% and 25% equity ownership,
respectively, for the three-month periods as indicated below.
VENTURA FOODS, LLC
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
-------------------------
2002 2001
----------- -----------
Net sales ............ $287,025 $258,400
Gross profit ......... 49,728 41,101
Net income ........... 20,791 15,244
AGRILIANCE, LLC
FOR THE THREE MONTHS ENDED
NOVEMBER 30,
-------------------------
2002 2001
----------- -----------
Net sales ............ $ 592,730 $ 677,047
Gross profit ......... 48,522 45,904
Net income ........... (20,110) (21,152)
NOTE 5. DEBT
In October 2002, the Company entered into a private placement with several
insurance companies for long-term debt in the amount of $175.0 million which was
layered into two series. The first series of $115.0 million has an interest rate
of 4.96% and will be repaid in equal semi-annual installments of approximately
$8.8 million during the years 2007 through 2013. The second series of $60.0
million has an interest rate of 5.60% and will be repaid in equal semi-annual
installments of approximately $4.6 million during fiscal years 2012 through
2018.
NOTE 6 EQUITIES
As of November 30, 2002 the Company had $9.5 million (9,454,874 shares) of
8% Preferred Stock outstanding, and expenses related to the issuance of the
shares were $3.5 million. Sales of the preferred shares have been suspended, as
the Company is in the process of registering a new offering as noted below.
6
The Board of Directors authorized the sale and issuance of up to 2,875,000
shares of 8% Cumulative Redeemable Preferred Stock at a price of $25.00 per
share. The Company filed a registration statement on Form S-2 on December 17,
2002 with the Securities and Exchange Commission registering the preferred
shares, however, the registration statement is not yet effective.
NOTE 7. COMPREHENSIVE INCOME
For the three months ended November 30, 2002 and 2001, total comprehensive
income amounted to $34.6 million and $42.4 million, respectively. Accumulated
other comprehensive loss on November 30, 2002, August 31, 2002 and November 30,
2001 was $57.7 million, $51.9 million and $0.9 million, respectively.
NOTE 8. NON-CASH FINANCING ACTIVITIES
During the three months ended November 30, 2002 and 2001 the Company
accrued patronage dividends and equity retirements payable of $18.0 million and
$20.7 million, respectively.
NOTE 9. SEGMENT REPORTING
Segments, which are based on products and services, include Agronomy,
Energy, Country Operations, Grain Marketing and Processed Grains and Foods.
Reconciling Amounts represent the elimination of intracompany sales between
segments. Due to cost allocations and intersegment activity, management does not
represent that these segments, if operated independently, would report the
income before income taxes and other financial information as presented.
7
Segment information for the three months ended
November 30, 2002 and 2001 is as follows:
COUNTRY
AGRONOMY ENERGY OPERATIONS
------------ -------------- ----------------
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2002
Net sales ............................ $ 911,589 $ 489,066
Patronage dividends .................. 13 51
Other revenues ....................... 2,736 24,537
---------- ----------
914,338 513,654
Cost of goods sold ................... 860,329 486,113
Marketing, general and
administrative ...................... $ 1,140 14,185 12,603
Interest ............................. (298) 4,010 5,388
Equity loss (income) from
investments ......................... 4,018 (320) (215)
Minority interests ................... 5,135 296
---------- ----------
(Loss) income before
income taxes ........................ $ (4,860) $ 30,999 $ 9,469
======== ========== ==========
Goodwill assets ...................... $ 3,667 $ 262
========== ==========
Capital expenditures ................. $ 17,959 $ 10,322
========== ==========
Depreciation and amortization ........ $ 312 $ 14,538 $ 5,421
======== ========== ==========
Total identifiable assets at
November 30, 2002 ................... $232,942 $1,311,583 $1,035,287
======== ========== ==========
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2001
Net sales ............................ $ 554,242 $ 374,666
Patronage dividends .................. 423 61
Other revenues ....................... 2,619 20,489
---------- ----------
557,284 395,216
Cost of goods sold ................... 497,975 374,217
Marketing, general and
administrative ...................... $ 1,167 15,000 12,452
Interest ............................. (427) 4,082 3,143
Equity loss (income) from
investments ......................... 3,302 1,376 (6)
Minority interests ................... 2,895 141
-------- ---------- ----------
(Loss) income before
income taxes ........................ $ (4,042) $ 35,956 $ 5,269
======== ========== ==========
Goodwill assets ...................... $ 5,127 $ 326
========== ==========
Capital expenditures ................. $ 9,680 $ 5,748
========== ==========
Depreciation and amortization ........ $ 312 $ 13,860 $ 5,373
======== ========== ==========
Total identifiable assets at
November 30, 2001 ................... $226,437 $1,144,175 $ 713,175
======== ========== ==========
PROCESSED
GRAIN GRAINS AND RECONCILING
MARKETING FOODS OTHER AMOUNTS TOTAL
------------- ------------ ------------ -------------- -------------
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2002
Net sales ............................ $1,387,278 $ 113,833 $ (275,138) $2,626,628
Patronage dividends .................. 78 $ 24 166
Other revenues ....................... 6,604 909 303 35,089
---------- --------- -------- ---------- ----------
1,393,960 114,742 327 (275,138) 2,661,883
Cost of goods sold ................... 1,385,171 106,319 (275,138) 2,562,794
Marketing, general and
administrative ...................... 6,071 8,088 1,061 43,148
Interest ............................. 1,858 2,346 (491) 12,813
Equity loss (income) from
investments ......................... (814) (10,834) (8,165)
Minority interests ................... 5,431
---------- --------- -------- ---------- ----------
(Loss) income before
income taxes ........................ $ 1,674 $ 8,823 $ (243) $ -- $ 45,862
========== ========= ======== ========== ==========
Goodwill assets ...................... $ 23,605 $ 27,534
========= ==========
Capital expenditures ................. $ 517 $ 11,156 $ 659 $ 40,613
========== ========= ======== ==========
Depreciation and amortization ........ $ 1,605 $ 3,135 $ 855 $ 25,866
========== ========= ======== ==========
Total identifiable assets at
November 30, 2002 ................... $ 594,278 $ 457,480 $204,118 $3,835,688
========== ========= ======== ==========
FOR THE THREE MONTHS ENDED
NOVEMBER 30, 2001
Net sales ............................ $ 981,897 $ 163,049 $ (201,902) $1,871,952
Patronage dividends .................. 179 $ 58 721
Other revenues ....................... 8,452 25 491 32,076
---------- --------- -------- ---------- ----------
990,528 163,074 549 (201,902) 1,904,749
Cost of goods sold ................... 981,997 152,077 (201,902) 1,804,364
Marketing, general and
administrative ...................... 5,477 7,579 1,223 42,898
Interest ............................. 1,629 2,596 (208) 10,815
Equity loss (income) from
investments ......................... (989) (7,625) (3,942)
Minority interests ................... 3,036
---------- --------- -------- ---------- ----------
(Loss) income before
income taxes ........................ $ 2,414 $ 8,447 $ (466) $ -- $ 47,578
========== ========= ======== ========== ==========
Goodwill assets ...................... $ 23,605 $ 29,058
========= ==========
Capital expenditures ................. $ 1,015 $ 5,179 $ 186 $ 21,808
========== ========= ======== ==========
Depreciation and amortization ........ $ 1,344 $ 3,021 $ 789 $ 24,699
========== ========= ======== ==========
Total identifiable assets at
November 30, 2001 ................... $ 359,103 $ 434,522 $215,019 $3,092,431
========== ========= ======== ==========
NOTE 10. COMMITMENTS AND CONTINGENCIES
The Company expects to incur capital expenditures related to the
Environmental Protection Agency low sulfur fuel regulations required by 2006.
These expenditures are expected to be approximately $387.0 million in total for
the Company's Laurel, Montana and NCRA's McPherson, Kansas refineries over the
next three years, of which $9.5 million has been spent so far at NCRA. It is
expected that approximately 80% of the costs will be incurred at NCRA. The
Company expects to fund the refinery expenditures with a combination of cash,
future earnings and additional borrowings.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Cenex Harvest States Cooperatives (CHS Cooperatives, CHS or the Company) is
one of the nation's leading integrated agricultural companies. As a cooperative,
the Company is owned by farmers, ranchers and their local cooperatives from the
Great Lakes to the Pacific Northwest and from the Canadian border to Texas. CHS
Cooperatives buys commodities from, and provides products and services to
members and other customers. The Company provides a wide variety of products and
services, from initial agricultural inputs such as fuels, farm supplies and crop
nutrients, to agricultural outputs that include grains and oilseeds, grain and
oilseed processing, and food products.
The Company has five distinct business segments: Agronomy, Energy, Country
Operations, Grain Marketing and Processed Grains and Foods. Summary data for
each of these segments for the three months ended November 30, 2002 and 2001 is
shown in Note 9.
Many of the Company's businesses are highly seasonal. As a result,
operating income will vary throughout the year, but overall revenues remain
fairly constant, partly because the Company does not consolidate revenues in the
Agronomy segment. Overall, the Company's income is generally lowest during the
second fiscal quarter and highest during the third fiscal quarter. Certain
business segments are subject to varying seasonal fluctuations. For example,
Agronomy and Country Operations segments experience higher volumes and income
during the spring planting season and in the fall, which corresponds to harvest.
The Grain Marketing segment, as well, is somewhat subject to fluctuations in
revenue and earnings based on producer harvests, world grain prices and demand.
The Company's Energy segment generally experiences higher revenues and
profitability in certain operating areas, such as refined products, in the
summer when gasoline and diesel usage is highest. Other energy products, such as
propane, typically experience higher revenues and profitability during the
winter heating and crop drying seasons.
While the Company's sales and operating earnings are derived from
businesses and operations which are wholly-owned and majority-owned, a portion
of business operations are conducted through companies in which the Company
holds ownership interests of 50% or less and does not control the operations.
The Company accounts for these investments primarily using the equity method of
accounting, wherein CHS Cooperatives records as equity income from investments
its proportionate share of income or loss reported by the entity, without
consolidating the revenues and expenses of the entity in the Company's
consolidated statements of operations. These investments principally include the
Company's 25% ownership in Agriliance, LLC (Agriliance), the 50% ownership in
TEMCO, LLC, the 50% ownership in United Harvest, LLC, the 24% ownership in
Horizon Milling, LLC (Horizon) and the 50% ownership in Ventura Foods, LLC
(Ventura).
RESULTS OF OPERATIONS
COMPARISON OF THE THREE MONTHS ENDED NOVEMBER 30, 2002 AND 2001
NET INCOME. Consolidated net income for the three months ended November 30,
2002 was $40.4 million compared to $41.4 million for the three months ended
November 30, 2001, which represents a $1.0 million (2%) decrease. Although net
income slightly decreased in total, the net income from the various business
segments had changed. Reduced income in the Energy segment was partially offset
by increased income in the Country Operations segment compared to the three
months ended November 30, 2001.
NET SALES. Consolidated net sales of $2.6 billion for the three months
ended November 30, 2002 increased $754.7 million (40%) compared to the three
months ended November 30, 2001.
Energy net sales of $887.6 million increased $347.3 million (64%) during
the three months ended November 30, 2002 compared to the three months ended
November 30, 2001. Sales for the three months ended November 30, 2002 and 2001
were $911.6 million and $554.2 million, respectively. The Company eliminated all
intracompany sales from the Energy segment to the Country Operations segment of
$24.0 million and $13.9 million for the three months ended November 30, 2002 and
2001, respectively. The increase was primarily a result of increased refined
fuels volumes of 66% and an average sales price
9
increase of $0.08 per gallon compared to the three months ended November 30,
2001. In addition, propane sales volumes increased 75%, which was partially
offset by an average sales price decrease of $0.03 per gallon compared to the
three months ended November 30, 2001. Refined fuels and propane volume increases
were primarily a result of the acquisition of the wholesale energy business of
Farmland Industries, Inc. (Farmland), as well as all interest in Country Energy,
LLC a joint venture formerly with Farmland at a purchase price of $39.2 million.
In addition, there was increased demand for propane due to a strong crop drying
season.
Country Operations farm supply sales of $154.5 million increased by $22.2
million (17%) during the three months ended November 30, 2002 compared to the
three months ended November 30, 2001. The increase is primarily due to increased
volumes from an acquisition and volume and price increases for feed and agronomy
products.
Company-wide grain and oilseed net sales of $1.5 billion increased $434.4
million (42%) during the three months ended November 30, 2002 compared to the
three months ended November 30, 2001. Sales for the three months ended November
30, 2002 were $1,387.2 million and $334.5 million from Grain Marketing and
Country Operations segments, respectively. Sales for the three months ended
November 30, 2001 were $981.9 million and $242.3 million from Grain Marketing
and Country Operations segments, respectively. The Company eliminated all
intracompany sales from the Country Operations segment to the Grain Marketing
segment, of $251.1 million and $188.0 million, for the three months ended
November 30, 2002 and 2001, respectively. The net increase in sales was
primarily due to an increase of $1.98 (64%) per bushel in the average sales
price of all grain and oilseed marketed by the Company, which was partially
offset by a decrease in grain volume of 13% compared to the three months ended
November 30, 2001.
Processed Grains and Foods net sales of $113.8 million decreased $49.2
million (30%) during the three months ended November 30, 2002 compared to the
three months ended November 30, 2001. The net decrease in sales is primarily due
to the formation of Horizon, a wheat flour milling and processing joint venture
that was formed in January 2002. After that date, the Company has accounted for
operating results of Horizon under the equity method of accounting. The Company
has a 24% interest in Horizon, and Cargill, Incorporated (Cargill) has a 76%
interest. The Company is leasing its five mills and related equipment to Horizon
under an operating lease.
PATRONAGE DIVIDENDS. Patronage dividends received of $0.2 million decreased
$0.6 million (77%) during the three months ended November 30, 2002 compared to
the three months ended November 30, 2001.
OTHER REVENUES. Other revenues of $35.1 million increased $3.0 million (9%)
during the three months ended November 30, 2002 compared to the three months
ended November 30, 2001. The most significant changes were due to increased
service revenues within the Country Operations segment compared to the three
months ended November 30, 2001.
COST OF GOODS SOLD. Cost of goods sold of $2.6 billion increased $758.4
million (42%) during the three months ended November 30, 2002, compared to the
three months ended November 30, 2001. The cost of all grains and oilseed
procured by the Company through its Grain Marketing and Country Operations
segments increased $424.2 million (43%) compared to the three months ended
November 30, 2001 primarily due to a $1.95 (64%) average cost per bushel
increase, which was partially offset by a 13% decrease in volume. The Energy
segment cost of goods sold increased by $362.4 million (73%) during the three
months ended November 30, 2002 compared to the three months ended November 30,
2001. The volumes of refined fuels increased by 66%, primarily the result of
acquisitions, and the average cost increased by $0.11 per gallon compared to the
three months ended November 30, 2001. Propane volumes increased by 75%, which
was partially offset by an average cost decrease of $0.03 per gallon compared to
the three months ended November 30, 2001. These volume increases were primarily
the result of acquisitions and increased propane demand due to a strong crop
drying season. Country Operations segment farm supply cost of goods sold
increased by $16.8 million (15%) during the three months ended November 30, 2002
compared to the three months ended November 30, 2001 primarily due to an
acquisition and volume and cost increases on feed and agronomy products. These
increases were partially offset by decreased cost of goods sold in the Processed
Grains and Foods segment of
10
$45.8 million (30%) compared to the three months ended November 30, 2001,
primarily due to the formation of Horizon, as previously discussed.
MARKETING, GENERAL AND ADMINISTRATIVE. Marketing, general and
administrative expenses of $43.1 million for the three months ended November 30,
2002 increased by $0.3 million (1%) compared to the three months ended November
30, 2001. Although marketing, general and administrative expenses were
essentially unchanged in total, expenses attributable to the Company's various
business segments changed. Marketing, general and administrative in the Energy
segment increased due to the wholesale energy acquisition and Processed Grains
and Foods segment decreased due to the formation of Horizon as previously
discussed.
INTEREST. Interest expense of $12.8 million for the three months ended
November 30, 2002 increased by $2.0 million (18%) compared to the three months
ended November 30, 2001. The average level of short-term borrowings increased
$249.0 million to finance working capital needs, primarily due to increases in
inventories in the Grain Marketing, Country Operations and Energy segments,
related to higher grain prices and the purchase of Farmland's wholesale energy
business, discussed previously. The average short-term interest rate decreased
0.7% during the three months ended November 30, 2002 compared to the three
months ended November 30, 2001. Long-term debt borrowings increased due to an
additional $175.0 million of private placement debt which was issued in October
2002.
EQUITY INCOME FROM INVESTMENTS. Equity income from investments of $8.2
million for the three months ended November 30, 2002 increased by $4.2 million
(107%) compared to the three months ended November 30, 2001. The increase was
primarily attributable to increased earnings from Ventura, a Processed Grains
and Foods segment investment. In addition, the Energy segment recorded losses
from the Country Energy investment in the prior fiscal year.
MINORITY INTERESTS. Minority interests of $5.4 million for the three months
ended November 30, 2002 increased by $2.4 million (79%) compared to the three
months ended November 30, 2001. The change in minority interests was primarily a
result of more profitable operations within the Company's majority-owned
subsidiaries during the three months ended November 30, 2002 compared to the
three months ended November 30, 2001. Substantially all minority interests
relate to National Cooperative Refinery Association (NCRA), an approximately
74.5% owned subsidiary.
INCOME TAXES. Income tax expense of $5.5 million for the three months ended
November 30, 2002 decreased $0.7 million (12%) compared to the three months
ended November 30, 2001, resulting in effective tax rates of a 12.0% and 13.1%,
respectively. The federal and state statutory rate applied to nonpatronage
business activity was 38.9% for the three months ended November 30, 2002 and
2001. The income taxes and effective tax rate vary each period based upon
profitability and nonpatronage business activity during each of the comparable
periods.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS FROM OPERATIONS
Operating activities of the Company provided net cash of $2.1 million
during the three months ended November 30, 2002. Net income of $40.4 million and
net non-cash expenses of $23.8 million were partially offset by increased
working capital requirements of $62.1 million. The increase in working capital
requirements is primarily due to higher commodity prices and increased grain
inventory balances.
Operating activities of the Company provided net cash of $23.7 million
during the three months ended November 30, 2001. Net income of $41.4 million and
net non-cash expenses of $35.5 million were partially offset by increased
working capital requirements of $53.2 million.
CASH FLOWS FROM INVESTING ACTIVITIES
For the three months ended November 30, 2002 and 2001, the net cash flows
used in the Company's investing activities totaled $31.9 million and $38.9
million, respectively.
The acquisition of property, plant and equipment comprised the primary use
of cash totaling $40.6 million and $21.8 million for the three months ended
November 30, 2002 and 2001, respectively. For the year ended August 31, 2003 the
Company expects to spend approximately $216.8 million for the
11
acquisition of property, plant and equipment, which includes $57.0 million of
expenditures for the construction of an oilseed processing facility in Fairmont,
Minnesota. Total expenditures related to the construction of the facility are
projected to be approximately $90.0 million, of which $32.2 million was used for
construction through November 30, 2002. Capital expenditures primarily related
to the Environmental Protection Agency low sulfur fuel regulations required by
2006, are expected to be approximately $387.0 million in total for the Company's
Laurel, Montana and NCRA's McPherson, Kansas refineries over the next three
years, of which $9.5 million has been spent so far at NCRA. It is expected that
approximately 80% of the costs will be incurred at NCRA. The Company expects to
fund the refinery expenditures with a combination of cash, future earnings and
additional borrowings.
Investments made during the three months ended November 30, 2002 and 2001
totaled $1.4 million and $6.1 million, respectively.
Acquisitions of intangibles were $0.4 million and $27.5 million for the
three months ended November 30, 2002 and 2001, respectively. During the three
months ended November 30, 2001, the acquisitions of intangibles were primarily
related to the purchase of Farmland's interest in its wholesale energy business,
as previously discussed, and represents trademarks, tradenames and non-compete
agreements.
During the three months ended November 30, 2002 the changes in notes
receivable resulted in a decrease in cash flows of $11.2 million primarily from
related party notes receivables at NCRA from its minority owners, Growmark, Inc.
and MFA Oil Company. During the three months ended November 30, 2001 the changes
in notes receivable resulted in a decrease of $2.2 million.
Distributions to minority owners for the three months ended November 30,
2002 and 2001 were $0.5 million and $4.0 million, respectively, and were
primarily related to NCRA.
Partially offsetting cash outlays in investing activities were proceeds
from the disposition of property, plant and equipment of $4.7 million and $6.1
million for the three months ended November 30, 2002 and 2001, respectively.
Also partially offsetting cash usages were distributions received from joint
ventures and investments totaling $17.0 million and $15.4 million for the three
months ended November 30, 2002 and 2001, respectively.
CASH FLOWS FROM FINANCING ACTIVITIES
The Company finances its working capital needs through short-term lines of
credit with a syndication of banks. In May 2002, the Company renewed its 364-day
credit facility of $550.0 million committed. In addition to these lines of
credit, the Company has a 364-day credit facility dedicated to NCRA, with a
syndication of banks in the amount of $30.0 million committed. On November 30,
2002, August 31, 2002 and November 30, 2001, the Company had total short-term
indebtedness outstanding on these various facilities and other short-term notes
payable totaling $246.1 million, $332.5 million and $110.8 million,
respectively. The increase in 2002 is primarily due to increases in inventories
in the Grain Marketing, Country Operations and Energy segments, related to
higher grain prices and the purchase of Farmland's wholesale energy business,
discussed previously. In October 2002, $175.0 million received from private
placement proceeds was used to pay down the Company's 364-day credit facility.
In June 1998, the Company established a five-year revolving credit facility
with a syndication of banks, with $200.0 million committed. The Company had
outstanding balances on this facility of $75.0 million on November 30, 2002,
August 31, 2002 and November 30, 2001, respectively.
The Company has financed its long-term capital needs, primarily for the
acquisition of property, plant and equipment, with long-term agreements through
the banks for cooperatives. In June 1998, the Company established a long-term
credit agreement through the cooperative banks. This facility committed $200.0
million of long-term borrowing capacity to the Company, with repayments through
fiscal year 2009. The amount outstanding on this credit facility was $142.7
million, $144.3 million and $149.2 million on November 30, 2002, August 31, 2002
and November 30, 2001, respectively. Repayments of $1.6 million were made on
this facility during each of the three months ended November 30, 2002 and 2001.
Also in June 1998, the Company issued a private placement with several
insurance companies for long-term debt in the amount of $225.0 million.
Repayments will be made in equal annual installments of $37.5 million each in
the years 2008 through 2013.
12
In January 2001, the Company entered into a note purchase and private shelf
agreement with Prudential Insurance Company. The long-term note in the amount of
$25.0 million will be repaid in equal annual installments of approximately $3.6
million, in the years 2005 through 2011. A subsequent note for $55.0 million was
issued in March 2001, related to the private shelf facility. The $55.0 million
note will be repaid in equal annual installments of approximately $7.9 million,
in the years 2005 through 2011.
In October 2002, the Company entered into a private placement with several
insurance companies for long-term debt in the amount of $175.0 million which was
layered into two series. The first series of $115.0 million has an interest rate
of 4.96% and will be repaid in equal semi-annual installments of approximately
$8.8 million during the years 2007 through 2013. The second series of $60.0
million has an interest rate of 5.60% and will be repaid in equal semi-annual
installments of approximately $4.6 million during fiscal years 2012 through
2018.
The Company, through NCRA, had revolving term loans outstanding of $17.3
million, $18.0 million and $20.3 million for the periods ended November 30,
2002, August 31, 2002 and November 30, 2001, respectively. Repayments of $0.8
million were made during each of the three months ended November 30, 2002 and
2001.
On November 30, 2002, the Company had total long-term debt outstanding of
$743.2 million, of which $251.4 million was bank financing, $480.0 million was
private placement proceeds and $11.8 million was industrial development revenue
bonds and other notes and contracts payable. The aggregate amount of long-term
debt payable presented in Management's Discussion and Analysis in the Company's
Annual Report on Form 10-K for the year ended August 31, 2002 has not materially
changed during the three months ended November 30, 2002 other than for the
$175.0 million of private placement debt discussed previously, of which
repayments will not start until 2007. The Company is in compliance with all debt
covenants and restrictions as of November 30, 2002.
During the three months ended November 30, 2002 and 2001, the Company
borrowed on a long-term basis $175.0 million and $30.0 million, respectively,
and during the same periods repaid long-term debt of $3.9 million and $5.8
million, respectively.
In accordance with the bylaws and by action of the Board of Directors,
annual net earnings from patronage sources are distributed to consenting patrons
following the close of each fiscal year. Effective September 1, 2000, patronage
refunds are calculated based on earnings for financial statement purposes rather
than based on amounts reportable for federal income tax purposes as had been the
Company's practice prior to this date. This change was authorized through a
bylaw amendment at the Company's annual meeting on December 1, 2000. The
patronage earnings from the fiscal year ended August 31, 2002 are expected to be
distributed during the second quarter of fiscal year 2003. The cash portion of
this distribution, deemed by the Board of Directors to be 30%, is expected to be
approximately $26.2 million and is classified as a current liability on the
November 30, 2002 and August 31, 2002 consolidated balance sheets.
The current equity redemption policy, as authorized by the Board of
Directors, allows for the redemption of capital equity certificates held by
inactive direct members and patrons and active direct members and patrons at age
72 or death that were of age 61 or older on June 1, 1998. For active direct
members and patrons who were of age 60 or younger on June 1, 1998, and member
cooperatives, equities older than 10 years will be redeemed annually based on a
prorata formula where the numerator is dollars available for such purpose as
determined by the Board of Directors, and the denominator is the sum of the
patronage certificates older than 10 years held by such eligible members and
patrons. Total redemptions related to the year ended August 31, 2002, to be
distributed in fiscal year 2003, are expected to be approximately $30.3 million,
of which $2.4 million was redeemed during the three months ended November 30,
2002. During the three months ended November 30, 2001 the Company redeemed $1.8
million of equity.
As of November 30, 2002 the Company had $9.5 million (9,454,874 shares) of
8% Preferred Stock outstanding, and expenses related to the issuance of the
shares were $3.5 million. Sales of the preferred shares have been suspended, as
the Company is in the process of registering a new offering as noted below.
13
The Board of Directors authorized the sale and issuance of up to 2,875,000
shares of 8% Cumulative Redeemable Preferred Stock at a price of $25.00 per
share. The Company filed a registration statement on Form S-2 on December 17,
2002 with the Securities and Exchange Commission registering the preferred
shares, however, the registration statement is not yet effective.
OFF BALANCE SHEET FINANCING ARRANGEMENTS
LEASE COMMITMENTS:
The Company's lease commitments presented in Management's Discussion and
Analysis in the Company's Annual Report on Form 10-K for the year ended August
31, 2002 have not materially changed during the three months ended November 30,
2002.
GUARANTEES:
The Company is a guarantor for lines of credit for related companies
totaling up to $86.2 million, of which $39.0 million was outstanding as of
November 30, 2002. The Company's bank covenants allow maximum guarantees of
$100.0 million. All outstanding loans with respective creditors are current as
of November 30, 2002.
DEBT:
There is no material off balance sheet debt.
CRITICAL ACCOUNTING POLICIES
The Company's Critical Accounting Policies are presented in the Company's
Annual Report on Form 10-K for the year ended August 31, 2002.
EFFECT OF INFLATION AND FOREIGN CURRENCY TRANSACTIONS
The Company believes that inflation and foreign currency fluctuations have
not had a significant effect on its operations.
RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board (FASB) issued SFAS No. 143,
"Accounting for Asset Retirement Obligations" which addresses financial
accounting and reporting for obligations associated with the retirement of
tangible long-lived assets and the associated asset retirement costs. SFAS No.
143 is effective for financial statements issued for fiscal years beginning
after June 15, 2002. The Company is in the process of finalizing its analysis of
adopting this standard. The Company's Energy segment operates oil refineries and
related pipelines for which the Company would be subject to Asset Retirement
Obligations (ARO) if such assets were to be dismantled. The Company, however,
expects to operate its refineries and related pipelines indefinitely. Since the
time period to dismantle these assets is indeterminate, a corresponding ARO is
not currently estimable and therefore has not been recorded. The Company
continues to assess whether any other ARO's exist related to its remaining
operations, however, based on available information to date, no other ARO's have
been identified. As such, the Company believes that the effects of adopting this
standard do not have a material effect on the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
For the period ended November 30, 2002 the Company did not experience any
adverse changes in market risk exposures that materially affect the quantitative
and qualitative disclosures presented in the Company's Annual Report on Form
10-K for the year ended August 31, 2002.
ITEM 4. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer have
concluded, based on their evaluation within 90 days of the filing date of this
report, that the Company's disclosure controls and procedures are adequately
designed to ensure that information required to be disclosed by the Company
14
in the reports that it files or submits under the Securities and Exchange Act of
1934, as amended, is recorded, processed, summarized and reported, within the
time periods specified in applicable rules and forms. There have not been any
significant changes in the Company's internal controls or in other factors that
could significantly affect those controls, subsequent to the date of such
evaluation, including any corrective actions taken with regard to significant
deficiencies and material weaknesses.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the Company's Annual Meeting held on December 5-6, 2002, the following
directors were re-elected to the Board of Directors: Bruce Anderson, Curt
Eischens, Robert Grabarski, Jerry Hasnedl, Glen Keppy and Richard Owen. The
following director was newly elected to the Board of Directors, replacing Steven
Burnet: David Bielenberg. The following directors' terms of office continued
after the meeting: Robert Bass, Dennis Carlson, Robert Elliott, James Kile,
Randy Knecht, Leonard Larsen, Duane Stenzel, Michael Toelle, Merlin Van
Walleghen and Elroy Webster.
At the same Annual Meeting, Members adopted a resolution amending Articles
II and III of the Company's Bylaws to eliminate producer-members from the vote
calculation and to instead base the vote calculation on sales and equity,
beginning with votes occurring in 2003. A copy of the amended Bylaws is attached
as Exhibit 3.2.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
EXHIBIT DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of the Company, as amended
3.2 Bylaws of the Company, as amended
99.1 Cautionary Statement
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.3 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
None.
15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CENEX HARVEST STATES COOPERATIVES
---------------------------------
(Registrant)
DATE SIGNATURE
---- ---------
January 9, 2003 /s/ JOHN SCHMITZ
-------------------------- -------------------------------------
(Date) John Schmitz
Executive Vice President and
Chief Financial Officer
16
SECTION 302 CERTIFICATION
I, John D. Johnson, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cenex Harvest States
Cooperatives;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: January 9, 2003
/s/ JOHN D. JOHNSON
-------------------------------------
John D. Johnson
President and Chief Executive Officer
17
SECTION 302 CERTIFICATION
I, John Schmitz, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Cenex Harvest States
Cooperatives;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report.
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:
a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date
of this quarterly report (the "Evaluation Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
b. any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.
Date: January 9, 2003
/s/ JOHN SCHMITZ
-------------------------------------
John Schmitz
Executive Vice President and
Chief Financial Officer
18