Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549

FORM 10-Q

[X]     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended:   May 31, 2004

OR

[   ]     TRANSITION REPORT PURSUANT TO SECTION 13 AND 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

Commission file: No. 33-94644

MINN-DAK FARMERS COOPERATIVE
(Exact named of registrant as specified in its charter)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.

YES   ____X____                          NO   __________

Indicate by checkmark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

YES   _________                          NO   ____X____

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

        Minn-Dak Farmers Cooperative has previously registered securities for offer and sale pursuant to the Securities Act of 1933, as amended (the “Securities Act”). As a result of that previous registration under the Securities Act, under Sections 15(d) and 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Cooperative is obligated to file quarterly reports on form 10-Q, annual reports on Form 10-K and supplemental reports on Form 8-K. However, the Cooperative has not registered any of its securities under Section 12(g) of the Exchange Act. The Cooperative is exempt from any obligation to register its securities under the Exchange Act due to the provisions of Section 12(g)(2)(E), which exempts from Exchange Act registration any security of an issuer, such as the Cooperative, which is a “cooperative association” as defined in the Agricultural Marketing Act of 1929. As a result, those provisions of the Exchange Act, which are applicable only to securities registered under Section 12 of that act, do not apply to shares issued by the Cooperative. The provisions, which do not apply to the Cooperative’s shares, include the regulation of proxies under Section 14 of the Exchange Act and the reporting and other obligations of directors, officers and principal stockholders under Section 16 of the Exchange Act.

MINN-DAK FARMERS COOPERATIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
(In Thousands)

See Notes to Consolidated Financial Statements.

PART I.   FINANCIAL INFORMATION
ITEM 1.   CONSOLIDATED FINANCIAL STATEMENTS

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)

See Notes to Consolidated Financial Statements.

MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)

See Notes to Consolidated Financial Statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS

OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION

FOR THE THREE MONTHS ENDED AND NINE MONTHS ENDED MAY 31, 2004 AND MAY 31 , 2003

The following discussion and analysis relates to the financial condition and results of operations of Minn-Dak Farmers Cooperative (“the Company”) for the three months ended May 31, 2004 (the third quarter of the Company’s 2003-2004 fiscal year) and May 31, 2003 (the third quarter of the Company’s 2002-2003 fiscal year). The Company’s fiscal year runs from September 1 to August 31.

Any statements regarding future market prices, anticipated costs, agricultural results, operating results and other statements that are not historical facts contained in this Quarterly Report on Form 10-Q are forward-looking statements. The words “expect”, “project”, “estimate”, “believe”, “anticipate”, “plan”, “intend”, “could”, “may”, “predict” and similar expressions are also intended to identify forward-looking statements. Such statements involve risks, uncertainties and assumptions, including, without limitation, market factors, the effect of weather and economic conditions, farm and trade policy, the available supply of sugar, available quantity and quality of sugarbeets and other factors detailed elsewhere in this and other Company filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated.

RESULTS FROM OPERATIONS

Comparison of the three months ended May 31, 2004 and May 31, 2003

The 2002 Farm Program that the Company operates under contains allotment / allocation provisions that may restrict the marketing of sugar produced by domestic processors. These Farm Program provisions also allow processors that have more sugar than allocations to sell that sugar without allocation to another processor that has more allocations than domestic sugar produced, and to then repurchase a similar amount of sugar with allocations for the marketing to customers. The Company engaged in $6.0 million of these sales and repurchases during the three months ended May 31, 2004. Because of the nature of how the dollars associated with these sales and repurchase activities have been recorded for financial statement purposes, these transactions have been excluded from current and comparative analysis to the prior periods. This accounting methodology is consistent with guidance given by SEC interpretations for sale/repurchase transactions. Also, costs associated with these transactions having an economic benefit for a future crop year are recorded as an asset to be amortized in the year of economic benefit.

Revenue, from the sale of sugar, co-products, yeast and finished goods inventory valuation changes, for the three months ended May 31, 2004 increased $4.6 million from the 2003 period, an increase of 9%. Revenue from the sale of finished goods increased $4.1 million and Change in Inventories increased $.5 million.

The 400,000 cwt of additional equivalent sugar held in standard liquor juice at the end of the second quarter was processed into sugar in its final form resulting in an additional $3.1 million of revenue in the third quarter ended 5-31-04. Had this inventory storage management technique not been used, the revenue for the three months ended 5-31-04 would have been $1.5 million greater than the period ended 5-31-03 vs. the $4.6 million actual revenue differential shown in the results.

Revenue from the sales of sugar increased $2.0 million, or 4.2%, reflecting an 8.6% increase in volume and a 4.3% decrease in the price for sugar.

Revenue from dried pulp and molasses sales increased $2.1 million or 72.4%, reflecting a 69.7% increase in sales volume and a ..7% decrease in the average gross selling price. The increase in sales volume was the result of a combination of additional production in the third quarter and a stronger demand for product from the marketplace.

Revenue from local sales of beet tailings and pressed pulp increased $.3 million resulting from a new marketing program for these products, which were either given away or sold for a nominal fee in prior years.

Revenues from yeast sales decreased $.2 million or 11.4% reflecting an 8.2% decrease in sales volume and a 3.2% decrease in sales the price of yeast.

The other contributing factor to the change in revenues results from the increase in finished goods inventories. The increase in the value of finished goods inventories for the three months ended May 31, 2004 amounted to $.2 million or $.5 million more than the increase in the value of finished goods inventories for May 31, 2003

In the consolidated Statement of Operations, Expenses section, production costs of sugar, co-products and yeast totaled $11.2 million, $.5 million or 3.9% less than the prior year. The decrease is mainly attributable to normal operations and expense accrual timings when comparing the three-month period ending May 31, 2003. Marketing costs totaled $6.7 million, $1.2 million or 22.1% more than the prior year period. The marketing costs increased due to the increased volume of dried pulp and molasses sales.

In the section Distribution of Net Proceeds, payments to members for sugarbeets, net of unit retention capital totaled $27.8 million, $3.9 million or 16.5% more than the prior year. The increase in the Distribution of Net Proceeds was largely related to the additional standard liquor juice carried over from the second quarter. For fiscal year 2004 the Company is projecting a payment to growers for sugarbeets totaling $97.4 million, which is $3.6 million or 3.5% less than the prior fiscal year. The decrease in payments to members is due to the Company’s increase in production being more than offset by a greater decrease in the price it is receiving for that production.

Comparison of the nine months ended May 31, 2004 and May 31, 2003

The 2002 Farm Program that the Company operates under contains allotment / allocation provisions that may restrict the marketing of sugar produced by domestic processors. These Farm Program provisions also allow processors that have more sugar than allocations to sell that sugar without allocation to another processor that has more allocations than domestic sugar produced, and to then repurchase a similar amount of sugar with allocations for the marketing to customers. The Company engaged in $11.3 million of these sales and repurchases during the nine months ended May 31, 2004. Because of the nature of how the dollars associated with these sales and repurchase activities have been recorded for financial statement purposes, these transactions have been excluded from current and comparative analysis to the prior periods. This accounting methodology is consistent with guidance given by SEC interpretations for sale/repurchase transactions. Also, costs associated with these transactions having an economic benefit for a future crop year are recorded as an asset to be amortized in the year of the economic benefit.

Revenue, from the sale of sugar, co-products, yeast and finished goods inventory valuation changes, for the nine months ended May 31, 2004 increased $3.3 million from the 2003 period, an increase of 1.8%. Revenue from the sale of finished goods increased $8.4 million, while the change in the value of finished goods inventory decreased $5.1 million.

Revenue from the sales of sugar increased $5.4 million or 4.3%, reflecting a 6.3% increase in volume and a 2.0% decrease in the price for sugar.

Revenue from dried pulp and molasses sales increased $2.1 million or 16.7%, reflecting a 17.9% increase in sales volume and a 1.2% decrease in the average gross selling price. The increase in sales volume was the result of a combination of additional production through the third quarter and a stronger demand for product from the marketplace.

Revenue from local sales of beet tailings and pressed pulp increased $.9 million resulting from a new marketing program for these products, which were either given away or sold for a nominal fee in prior years.

Revenues from yeast sales from the Company’s subsidiary yeast production facility, Minn-Dak Yeast Company (“MDYC”) increased $0.2 million or 3.2%, reflecting a 7.0% increase in sales volume and 3.8% decrease in the average selling price. This increase in volume was anticipated by Sensient Sales and Service, the Company’s sales agent and minority equity partner in MDYC, in their FY 2004 marketing plan and results from added volume from existing customers.

The other contributing factor to the change in revenues results from the increase or decrease in finished goods inventories. The increase in the value of finished goods inventories for the nine months ended May 31, 2004 amounted to $34.8 million or $5.1 million less than the increase in the value of finished goods inventories for May 31, 2003.

In the consolidated statements of operations, Expenses section, Production costs of sugar, by-products and yeast sold increased $1.2 million or 2.9%. The increase is mainly attributable to normal operations and expense accrual timings

when comparing the nine-month period ending May 31, 2003. Marketing costs totaled $21.4 million, $.7 million or 3.0% less than the prior year period.

In the section Distribution of Net Proceeds, payments to members for sugarbeets (net of unit retention capital and unprocessed sugarbeet inventory) increased $1.5 million or 1.7% from the prior period. For fiscal year 2004 the Company is projecting a payment to growers for sugarbeets totaling $97.4 million, which is $3.6 million or 3.5% less than the prior fiscal year. The decrease in payments to members is due to the Company’s increase in production being more than offset by a greater decrease in the price it is receiving for that production.

ESTIMATED FISCAL YEAR 2004 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, 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 and the sale of finished products. 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 2003 sugar beet crop. Given the nature of the estimates required in connection with the payments to members for their sugarbeets, this discussion includes forward-looking statements. These forward-looking statements are based largely upon the Company’s expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties. Some of those estimates, such as the selling price for the Company’s products and the quantity of sugar produced from the sugar beet crop are beyond the Company’s control. The actual results experienced by the Company may differ materially from the forward-looking statements contained herein.

The Company’s members harvested 2.3 million tons of sugarbeets from the 2003 crop, the second largest crop ever delivered to the Company. Sugar content of the 2003 crop at harvest was 7% above the average of the five most recent years. Because of the record size and quality of the crop delivered, the Company’s production of sugar from the 2003 crop sugarbeets to set a new record for sugar produced.

Based upon marketing information developed by United Sugars Corporation, the Company currently estimates the average net selling price of the Company’s sugar will be less than that of the prior year because of the volume available for sale (domestic production & foreign imports) relative to the estimated domestic consumption.

The 2002 farm program contains marketing allocation provisions that each year could potentially restrict the company’s ability to market all the sugar it produces. However, for FY 2004 the Company obtained the allocations necessary for the marketing of the entire 2003 crop.

The Company’s initial beet payment estimate totaled $40.83 per ton or $.126063 per harvested/bonus pound of sugar, with the final beet payment determined in October of 2004. On June 22, after a regularly scheduled board meeting, the board of directors announced following the review and approval of the updated 2003-crop business plan, the beet payment estimate for the 2003 crop will be increased to $43.00 per ton or $.132763 per harvested/bonus pound of sugar. This increase was primarily due to improved revenues over the original 2003-crop business plan resulting from an overall increase in both prices and volume.

ESTIMATED FISCAL YEAR 2005 INFORMATION

The Board of Directors announced that the 2004 crop planted acreage would be reduced 7.6% to an estimated 104,600 acres. This reduction was directly related to the Company’s estimate of available allocations to market the 2004 crop as permitted by the 2002 Farm Program. Sugar sales for non-human consumption uses and for export consumption do not require marketing allocations. This FY 2005 marketing plan assumes no major changes to the provisions of the sugar section of the 2002 Farm Program, and an average size sugarbeet crop.

Planting of the 2004 crop was essentially completed in the month of April. Cold, windy and dry conditions persisted from early April until late May. Those factors contributed to a replant of 10,700 (10%) of the crop. Some much needed, and in some cases, excessive moisture occurred the final ten days of May. June saw continued cool temperatures that have limited crop growth. As of mid June the crop is estimated to be two weeks behind the past two years in crop development. Insect and diseases have had minimal impact up to this point.

OTHER INFORMATION

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-14. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective in timely alerting them to material information required to be included in the Company’s periodic SEC filings relating to the Company (including its consolidated subsidiary).

There were no significant changes in the Company’s internal controls or in other factors that could significantly affect these internal controls subsequent to the date of our most recent evaluation.

LIQUIDITY AND CAPITAL RESOURCES

Because the Company operates as a cooperative, payment for member-delivered sugarbeets, the principal raw material used in producing the sugar and agri-products it sells, are subordinated to all member business expenses. In addition, actual cash payments to members are spread over a period of approximately one year following delivery of sugarbeet crops to the Company and are net of unit retains and patronage allocated to them, all three of which remain available to meet the Company’s capital requirements. This member financing arrangement may result in an additional source of liquidity and reduced outside financing requirements in comparison to a similar business operated on a non-cooperative basis. However, because sugar is sold throughout the year (while sugarbeets are processed primarily between September and April) and because substantial amounts of equipment are required for its operations, the Company has utilized substantial outside financing on both a seasonal and long-term basis to fund such operations. The financing has been provided by Co-Bank (the “Bank”). The Company has a short-term line of credit with the Bank for calendar years 2004 and 2005 of $45.0 million, of which $1.0 million is currently available for a letter of credit. The seasonal line of credit was scheduled for renewal in May 2004 but at the request of the “Bank”, the existing loan was extended for 30 days and the renewal took place in June 2004.

The loan agreements between the Bank and the Company obligate the company to maintain the following financial covenants, and in accordance with GAAP:

• Maintain working capital of not less than $9.0 million as of August 31, 2004.
• Maintain a long-term debt and capitalized leases to equity ratio of not greater than .8:1.
• Maintain available cash to current long-term debt ratio as defined in the agreement of not less than 1.25:1.

As of May 31, 2004 the Company was in compliance with its loan agreement covenants with the Bank.

Working Capital as of May 31, 2004 totals $37.6 million compared to $17.8 million at August 31, 2003, an increase of $19.8 million for the period. Increased working capital is a result of normal financing, operational and capital expenditure activities of the Company. The June 22 beet payment increase announcement will reduce working capital by $4.9 million.

The Company anticipates a working capital position of approximately $14.6 million at its August 31, 2004 fiscal year end.

The primary factor for the changes in the Company’s financial condition for the nine months ended May 31, 2004 was due to the seasonal needs of the 2003/2004 sugarbeet-processing season. The cash used to provide for operations of $16.1 million and for investing activities of $3.2 million was funded through cash flow financing activities, and a reduction in cash. The net cash provided through financing activities of $18.0 million was primarily provided through proceeds from the issuance of short-term debt of $22.9 million; offset by payment of long term debt of $4.5 million.

Capital expenditures for the nine months ended May 31, 2004 totaled $3.0 million.

The steam dryer for pulp capital expenditure that was completed in August 2003, and which utilized $9.3 million of tax-exempt bonds as a financing tool, achieved the guaranteed production capacity during the nine months ended May 31, 2004.

PART II.   OTHER INFORMATION

Item 1.   Legal Proceedings
None

Item 2.   Changes in Securities
None

Item 3.   Defaults upon Senior Securities
None

Item 4.   Submission of Matters to a Vote of Security Holders
None

Item 5.   Other Information
None

Item 6.   Exhibits and Reports on Form 8-K

SIGNATURES

Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.