UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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ý Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the period ended February 28, 2003
Commission file number: 33-83868
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AMERICAN CRYSTAL SUGAR COMPANY |
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(Exact name of registrant as specified in its charter) |
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Minnesota |
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84-0004720 |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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101 North Third Street |
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(Address of principal executive offices) |
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Telephone Number (218) 236-4400 |
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(Registrant’s telephone number, including area code) |
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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.
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YES ý |
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NO o |
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
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Class of Common Stock |
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Outstanding
at |
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$10 Par Value |
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3,002 |
AMERICAN CRYSTAL SUGAR COMPANY
FORM 10-Q
INDEX
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION |
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Item 1. Consolidated Financial Statements
AMERICAN CRYSTAL SUGAR COMPANY
(Unaudited)
(Dollars in Thousands)
ASSETS
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February 28 |
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August 31, |
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2003 |
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2002 |
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Current Assets: |
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Cash and Cash Equivalents |
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$ |
25 |
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$ |
26 |
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$ |
22 |
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Accounts Receivable: |
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Trade |
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59,102 |
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57,620 |
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60,812 |
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Members |
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— |
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— |
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3,987 |
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Other |
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2,033 |
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954 |
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1,465 |
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Advances to Related Parties |
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6,845 |
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8,987 |
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11,336 |
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Inventories |
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376,487 |
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341,295 |
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115,656 |
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Prepaid Expenses |
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4,931 |
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5,301 |
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5,732 |
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Total Current Assets |
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449,423 |
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414,183 |
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199,010 |
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Property and Equipment: |
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Land |
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36,877 |
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32,935 |
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33,806 |
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Buildings |
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88,430 |
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85,325 |
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86,647 |
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Equipment |
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777,908 |
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755,832 |
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759,972 |
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Construction-in-Progress |
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7,163 |
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3,152 |
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5,154 |
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Less: Accumulated Depreciation |
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(573,096 |
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(535,846 |
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(546,960 |
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Net Property and Equipment |
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337,282 |
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341,398 |
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338,619 |
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Other Assets: |
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Investments in Marketing Cooperatives |
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2,674 |
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1,630 |
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2,064 |
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Investments in ProGold Limited Liability Company |
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42,062 |
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39,504 |
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41,007 |
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Investments in Crystech, LLC |
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1,314 |
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1,456 |
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1,403 |
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Notes Receivable - Crystech, LLC |
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13,905 |
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13,905 |
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13,905 |
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Other Assets |
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42,233 |
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23,221 |
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26,685 |
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Total Other Assets |
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102,188 |
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79,716 |
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85,064 |
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Total Assets |
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$ |
888,893 |
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$ |
835,297 |
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$ |
622,693 |
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The Accompanying Notes are an Integral Part of These Financial Statements.
* Derived from Audited Financial Statements.
1
AMERICAN CRYSTAL SUGAR COMPANY
Consolidated Balance Sheets
(Unaudited)
(Dollars in Thousands)
LIABILITIES AND MEMBERS’ INVESTMENTS
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February 28 |
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August 31, |
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2003 |
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2002 |
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Current Liabilities: |
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Short-Term Debt |
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$ |
143,230 |
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$ |
132,129 |
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$ |
7,000 |
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Current Maturities of Long-Term Debt |
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20,664 |
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19,070 |
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18,045 |
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Accounts Payable |
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20,903 |
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17,125 |
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18,163 |
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Advances Due to Related Parties |
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9,264 |
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5,768 |
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3,092 |
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Accrued Continuing Costs (see note 3) |
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63,714 |
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76,541 |
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— |
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Other Current Liabilities |
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17,343 |
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16,677 |
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15,182 |
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Amounts Due Growers |
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128,733 |
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110,946 |
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79,246 |
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Total Current Liabilities |
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403,851 |
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378,256 |
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140,728 |
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Long-Term Debt, Net of Current Maturities |
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192,714 |
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182,617 |
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182,371 |
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Other Liabilities |
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32,808 |
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30,435 |
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30,927 |
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Total Liabilities |
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629,373 |
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591,308 |
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354,026 |
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Members’ Investments: |
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Preferred Stock |
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38,275 |
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38,275 |
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38,275 |
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Common Stock |
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30 |
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31 |
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30 |
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Additional Paid-in Capital |
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147,960 |
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142,694 |
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143,069 |
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Unit Retains |
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108,149 |
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100,170 |
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124,101 |
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Equity Retention |
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2,723 |
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1,557 |
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2,733 |
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Accumulated Other Comprehensive Income/(Loss) |
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(1,317 |
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(436 |
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(1,317 |
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Retained Earnings/(Deficit) |
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(36,300 |
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(38,302 |
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(38,224 |
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Total Members’ Investments |
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259,520 |
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243,989 |
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268,667 |
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Total Liabilities and Members’ Investments |
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$ |
888,893 |
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$ |
835,297 |
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$ |
622,693 |
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The Accompanying Notes are an Integral Part of These Financial Statements.
* Derived from Audited Financial Statements.
2
AMERICAN CRYSTAL SUGAR COMPANY
Consolidated Statements of Operations
(Unaudited)
(Dollars in Thousands)
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For the Six Months Ended |
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For the Three Months Ended |
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2003 |
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2002 |
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2003 |
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2002 |
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Net Revenue |
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$ |
393,058 |
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$ |
346,464 |
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$ |
191,847 |
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$ |
173,809 |
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Cost of Product Sold |
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19,495 |
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(63,050 |
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(19,964 |
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(43,213 |
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Gross Proceeds |
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373,563 |
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409,514 |
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211,811 |
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217,022 |
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Selling, General & Administrative Expenses |
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79,976 |
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76,305 |
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40,185 |
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37,075 |
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Accrued Continuing Costs (see note 3) |
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63,714 |
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76,541 |
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37,873 |
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41,789 |
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Operating Proceeds |
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229,873 |
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256,668 |
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133,753 |
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138,158 |
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Other Income/(Expense) |
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Interest Income |
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790 |
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1,019 |
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360 |
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338 |
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Interest Expense |
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(7,584 |
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(8,085 |
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(4,102 |
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(4,833 |
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Other, Net |
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1,479 |
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888 |
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761 |
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559 |
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Other (Expense) |
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(5,315 |
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(6,178 |
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(2,981 |
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(3,936 |
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Proceeds before Income Taxes |
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224,558 |
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250,490 |
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130,772 |
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134,222 |
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Income Tax Expense |
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6 |
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(5 |
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6 |
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(5 |
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Net Proceeds Resulting from Member and Non-Member Business |
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$ |
224,564 |
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$ |
250,485 |
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$ |
130,778 |
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$ |
134,217 |
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Distribution of Net Proceeds: |
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Credited/(Charged) to Members’ Investments: |
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Non-Member Business Income/(Loss) |
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$ |
1,924 |
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$ |
(811 |
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$ |
1,125 |
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$ |
(363 |
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Unit Retains Declared to Members |
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— |
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— |
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— |
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— |
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Equity Retention Declared to Members |
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— |
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— |
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— |
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— |
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Net Credit(Charge) to Members’ Investments |
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1,924 |
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(811 |
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1,125 |
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(363 |
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Payments to/due Members for Sugarbeets, Net of Unit Retains Declared |
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222,640 |
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240,626 |
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129,653 |
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123,910 |
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Payment to/due Members for PIK Certificates, Net of Equity Retention Declared |
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— |
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10,670 |
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— |
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10,670 |
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Total |
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$ |
224,564 |
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$ |
250,485 |
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$ |
130,778 |
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$ |
134,217 |
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The Accompanying Notes are an Integral Part of These Financial Statements.
3
American Crystal Sugar Company
Consolidated Statements of Cash Flows
(Unaudited)
(Dollars in Thousands)
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For the Six Months Ended |
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2003 |
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2002 |
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Cash Provided By (Used In) Operations: |
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Net Proceeds Resulting from Member and Non-Member Business |
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$ |
224,564 |
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$ |
250,485 |
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Payments To/Due Members for Sugarbeets, Net of Unit Retains Declared |
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(222,640 |
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(240,626 |
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Payments To/Due Members for PIK Certificats, Net of Equity Retention Declared |
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— |
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(10,670 |
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Add (Deduct) Non-Cash Items: |
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Depreciation and Amortization |
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28,996 |
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27,178 |
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(Income) from Equity Method Investees |
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(1,149 |
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(910 |
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Loss on the Disposition of Property and Equipment |
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159 |
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229 |
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Deferred Gain Recognition |
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(99 |
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(99 |
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Changes in Assets and Liabilities: |
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Receivables |
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5,236 |
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13,611 |
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Inventories |
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(259,993 |
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(237,026 |
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Prepaid Expenses |
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801 |
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(2,543 |
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Long-Term Prepaid Pension Expense |
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1,617 |
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190 |
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Advances To/Due to Related Parties |
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10,663 |
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8,137 |
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Accounts Payable |
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2,741 |
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(2,650 |
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Accrued Continuing Costs |
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63,714 |
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76,541 |
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Other Liabilities |
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3,312 |
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1,885 |
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Amounts Due Growers |
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49,487 |
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28,180 |
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Net Cash (Used In) Operations |
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(92,591 |
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(88,088 |
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Cash Provided By (Used In) Investing Activities: |
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Purchases of Property and Equipment |
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(10,593 |
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(5,370 |
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Proceeds from the Sale of Property and Equipment |
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91 |
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119 |
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Equity Refund/CoBank, ACB |
|
682 |
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— |
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Investments in Marketing Cooperatives |
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(463 |
) |
— |
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Acquisition from Imperial Sugar Company |
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(35,184 |
) |
— |
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Changes in Other Assets |
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(60 |
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(1,043 |
) |
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Net Cash (Used In) Investing Activities |
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(45,527 |
) |
(6,294 |
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Cash Provided By (Used In) Financing Activities: |
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Proceeds (Payments) on Short-Term Debt, Net |
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136,230 |
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118,166 |
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Proceeds from Long-Term Debt |
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31,000 |
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— |
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Long-Term Debt Repayment |
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(18,038 |
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(18,800 |
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Issuance of Stock |
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4,891 |
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5,453 |
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Payment of Unit Retains & Equity Retention |
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(15,962 |
) |
(16,313 |
) |
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Net Cash Provided by Financing Activities |
|
138,121 |
|
88,506 |
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Increase (Decrease) In Cash and Cash Equivalents |
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3 |
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(5,876 |
) |
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Cash and Cash Equivalents, Beginning of Year |
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22 |
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5,902 |
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Cash and Cash Equivalents, End of Period |
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$ |
25 |
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$ |
26 |
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The Accompanying Notes are an Integral Part of These Financial Statements.
4
Note 1: Basis of Presentation
The unaudited consolidated financial statements contained herein have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they do not include all the information and footnotes required by generally accepted accounting principles. However, in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included.
The unaudited consolidated financial statements are comprised of American Crystal Sugar Company and its wholly-owned subsidiary, Sidney Sugars Incorporated (SSI), which was formed on September 17, 2002. On October 7, 2002, SSI acquired certain assets of Holly Sugar Corporation, a wholly-owned subsidiary of Imperial Sugar Company (Imperial). All material inter-company transactions have been eliminated.
The operating results for the six month period ended February 28, 2003 are not necessarily indicative of the results that may be expected for the year ended August 31, 2003.
The amount paid to shareholders for sugarbeets (member beet payment) depends on the future selling prices of sugar and agri-products as well as processing and other costs to be incurred during the remainder of the fiscal year associated with the 2002 Red River Valley sugarbeet crop (RRV crop). The amount paid to non-member growers for sugarbeets (non-member beet payment) depends on the future selling prices of sugar and the related selling expenses associated with the 2002 Sidney sugarbeet crop (Sidney crop). For the purposes of this report, the amount of the beet payments, future revenues and costs have been estimated. Therefore, adjustments with respect to these estimates may be necessary in the future, as additional information becomes available.
These financial statements should be read in conjunction with the financial statements and notes included in the Company’s annual report for the year ended August 31, 2002.
Certain reclassifications have been made to the February 28, 2002 financial statements to conform with the February 28, 2003 presentation.
Note 2: Inventories
The major components of inventories are as follows (In Thousands):
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2/28/03 |
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02/28/02 |
|
8/31/02 |
|
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|
Refined Sugar, Pulp, Molasses, Other Agri-Products and Sugar Beet Seed |
|
$ |
258,079 |
|
$ |
273,955 |
|
$ |
97,693 |
|
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Unprocessed Sugarbeets |
|
101,047 |
|
49,329 |
|
— |
|
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|
Maintenance Parts & Supplies |
|
17,361 |
|
18,011 |
|
17,963 |
|
|||
|
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|
|
|
|
|
|
|
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Total Inventories |
|
$ |
376,487 |
|
$ |
341,295 |
|
$ |
115,656 |
|
Sugar, pulp, molasses and other agri-products inventories are valued at estimated net realizable value. Unprocessed sugarbeets are valued at the estimated gross beet payment. Maintenance parts & supplies and beet seed inventories are valued at the lower of average cost or market.
Note 3: Accrued Continuing Costs
For interim reporting, the Net Proceeds from Member Business is based on (i) the forecasted member gross beet payment and the percentage of the tons of RRV crop processed to the total estimated
5
tons of the RRV crop to process for a given crop year and (ii) on the forecasted gross PIK payment and the percentage of the hundredweight of sugar received to the total hundredweight of sugar to be received. The Net Proceeds from the operations of SSI is based on the forecasted net income for the fiscal year and the percentage of the tons of Sidney crop processed to the total estimated tons of the Sidney crop to be processed for a given fiscal year.
Accrued continuing costs represent the difference between the Net Proceeds as determined above and actual member business crop year and SSI fiscal year revenues realized and expenses incurred through the end of the reporting period. Accrued continuing costs are reflected in the Financial Statements as a cost on the Statements of Operations and as a current liability on the Balance Sheets.
Note 4: Members’ Investments
|
|
|
Par Value |
|
Shares |
|
Shares
Issued |
|
|
|
Preferred Stock: |
|
|
|
|
|
|
|
|
|
April 7, 2003 |
|
$ |
76.77 |
|
600,000 |
|
498,570 |
|
|
February 28, 2003 |
|
$ |
76.77 |
|
600,000 |
|
498,570 |
|
|
August 31, 2002 |
|
$ |
76.77 |
|
600,000 |
|
498,570 |
|
|
February 28, 2002 |
|
$ |
76.77 |
|
600,000 |
|
498,570 |
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock: |
|
|
|
|
|
|
|
|
|
April 7, 2003 |
|
$ |
10.00 |
|
4,000 |
|
3,002 |
|
|
February 28, 2003 |
|
$ |
10.00 |
|
4,000 |
|
3,008 |
|
|
August 31, 2002 |
|
$ |
10.00 |
|
4,000 |
|
3,035 |
|
|
February 28, 2002 |
|
$ |
10.00 |
|
4,000 |
|
3,115 |
|
Note 5: Interest Paid
Interest paid, net of amounts capitalized, was $7.7 million and $8.2 million for the six months ended February 28, 2003 and 2002, respectively.
The Company has a seasonal line of credit with a consortium of lenders led by CoBank, ACB of $265 million and a line of credit with Wells Fargo Bank for $3 million, of which there is currently no debt outstanding. The Company’s commercial paper program provides short-term borrowings of up to $150 million of which approximately $143.2 million is currently outstanding. Any borrowings under the commercial paper program will act to reduce the available credit under the CoBank, ACB seasonal line of credit by a commensurate amount. The acquisition from Imperial was financed utilizing available short-term debt.
As of February 28, 2003, the Company had outstanding commercial paper of $143.2 million at an average interest rate of 2.02% and maturity dates between March 3, 2003 and June 9, 2003. The Company had no outstanding short-term debt with CoBank, ACB as of February 28, 2003.
As of February 28, 2002, the Company had outstanding commercial paper of $117.1 million at an average interest rate of 2.56% and maturity dates between March 1, 2002 and May 31, 2002. The Company also had $15.0 million of outstanding short-term debt with CoBank, ACB at an average interest rate of 2.61% and maturity date of March 27, 2002.
6
Note 7: Sidney Sugars Incorporated
On October 7, 2002, the Company, through SSI, acquired three sugarbeet processing facilities and the related marketing allocations associated with such facilities from Imperial for a purchase price of approximately $35.2 million.
The facility located in Hereford, Texas was idle at the time of the acquisition and will remain idle for the foreseeable future. The facility located in Torrington, Wyoming has been leased, on a long-term basis, to Western Sugar Cooperative, who will continue to operate the facility to process sugarbeets delivered by growers supplying the facility prior to the acquisition and from its own growers. The lease payments due under the long-term lease are nominal.
SSI will operate the facility located at Sidney, Montana. The campaign for the 2002 Sidney crop commenced on September 25, 2002 and was completed on February 28, 2003. A total of 863,000 tons of sugarbeets were harvested, with a total production of approximately 2.5 million hundredweight of sugar produced from the 2002 Sidney crop. Approximately 127,000 tons of beets from the 2002 Sidney crop had been harvested prior to October 7, 2002. This portion of the crop and the resulting sugar produced from those beets remained the property of Imperial.
As part of the entire transaction with Imperial, the Company acquired the rights to marketing allocations equal to an estimated 4.8% of the total allocation for the domestic sugarbeet segment. A portion of these marketing allocations will be used to market the sugar produced at the Sidney, Montana facility. Any excess allocations will be available to the Company. The sugar produced by SSI will be marketed through United Sugars Corporation while the agri-products produced will be marketed through Midwest Agri-Commodities.
Note 8: Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has recently issued Interpretation No. 46 regarding the Consolidation of Variable Interest Entities. This interpretation becomes effective for American Crystal in the first quarter of fiscal 2004. Management is reviewing the interpretation and has not determined the effect, if any, that the adoption of this interpretation will have on the Company’s financial statements.
Item 2. Management’s Discussion and Analysis of Results of Operations and Financial Condition for the Six Months and Three Months Ended February 28, 2003 and 2002
This report contains forward-looking statements that involve risks and uncertainties. Such forward-looking statements include, among others, those statements including the words “expect”, “anticipate”, “believe”, “may” and similar expressions. The Company’s actual results could differ materially from those indicated. Important factors that could cause or contribute to such differences include, without limitation, market factors, weather and general economic conditions, farm and trade policy, available quantity and quality of sugarbeets. For a more complete discussion of “Important Factors”, please refer to the Company’s 2002 Form 10-K.
Revenue for the six months ended February 28, 2003, was $393.1 million, an increase of $46.6 million as compared to the same period last year. Revenue from total sugar sales increased 12.2 percent reflecting a 6.3 percent increase in the hundredweight sold and a 5.5 percent increase in the average selling price per hundredweight. Revenue from pulp sales increased 23.2 percent due to a 10.3 percent increase in the volume of pulp sold and an 11.7 percent increase in the average selling price per ton. Revenue from molasses sales increased 45.9 percent due to a 53.9 percent increase in the volume of molasses sold partially offset by a 5.2 percent decrease in the average selling price per ton. Revenue from the sales of Concentrated Separated By-Product (CSB), a by-product of the molasses desugarization process, increased 8.2 percent due to a 10.9 percent increase in the average selling price per ton partially offset by a 2.4 percent decrease in the volume of CSB sold.
7
Cost of product sold, for the six months ended February 28, 2003, exclusive of payments for member sugarbeets, increased $82.5 million as compared to the same period last year. The cost associated with the cost of non-member sugar beets (Sidney Crop) was $31.4 million for the six months ended February 28, 2003. Direct processing costs for sugar and pulp increased 10.2 percent. This was due to harvesting 17.8 percent more sugarbeets and processing 12.5 percent more sugarbeets related to the Sidney crop, partially offset by processing 10.7 percent fewer RRV crop sugarbeets this year due to delaying the commencement of the RRV crop processing campaign. Higher natural gas prices also added to this increase. Fixed and committed expenses increased 7.6 percent reflecting higher purchased power costs, insurance costs, and costs related to SSI. The change in product inventories impacted the cost of product sold unfavorably by $26.4 million primarily due to lower sugar inventory levels. The cost associated with sugar purchased to meet customer needs was up $14.1 million due to delaying the commencement of the 2002 RRV crop campaign. The 2002 RRV crop campaign start-up was delayed because of adverse planting and growing conditions which slowed the maturity of the crop.
Selling, general and administrative expenses for the six months ended February 28, 2003 increased $3.7 million from 2002. Selling expenses increased $3.6 million primarily due to the increase in the volume of products sold along with increased freight costs. General and Administrative expenses increased $ .1 million due to general cost increases.
During the six months ended February 28, 2003, 68.8 percent of the 2002 RRV crop was processed resulting in the recognition of net proceeds from member business of $222.6 million. This represented 68.8 percent of the $323.7 million projected member gross beet payment for the 2002 RRV crop. The actual net proceeds from member business, for the six months ended February 28, 2003, were $276.2 million. During the six months ended February 28, 2003, 100.0 percent of the 2002 Sidney crop was processed resulting in the recognition of net proceeds from SSI of $2.6 million. This represented 100.0 percent of the $2.6 million projected SSI net income for fiscal 2003. The actual net proceeds from SSI, for the six months ended February 28, 2003, was $12.8 million. The difference between the actual net proceeds from member business and SSI and the amounts recognized for the six months ended February 28, 2003, resulted in the recognition of $63.7 million of accrued continuing costs. In comparison, during the six months ended February 28, 2002, 83.2 percent of the 2001 RRV crop was processed resulting in the recognition of net proceeds from member business of $240.6 million. This represented 83.2 percent of the $289.2 million projected member gross beet payment for the 2001 RRV crop. In addition, $10.7 million, representing 50 percent of the $21.3 million projected gross PIK payment, had also been recognized as net proceeds from member business. The actual net proceeds from member business, for the six months ended February 28, 2002, were $327.8 million. The difference between the actual net proceeds from member business and the amounts recognized for the six months ended February 28, 2002, resulted in the recognition of $76.5 million of accrued continuing costs.
Interest income for the six months ended February 28, 2003 decreased slightly compared to the same period last year primarily due to a lower average balance of investments.
Interest expense decreased from last year primarily due to lower average borrowing levels for short-term and long-term debt and lower average borrowing rates on short-term debt.
Non-member activities resulted in income of $1.9 million for the six months ended February 28, 2003 compared to a loss of $ ..8 million for the same period last year. The non-member income in fiscal 2003 is primarily the result of activities related to SSI. The non-member loss in fiscal 2002 was primarily the result of activities related to the investment in ProGold Limited Liability Company.
Revenue for the three months ended February 28, 2003, was $191.8 million, an increase of $18.0 million as compared to the same period last year. Revenue from total sugar sales increased 6.4 percent reflecting a 3.7 percent increase in the hundredweight sold and a 2.7 percent increase in the average selling price per hundredweight. Revenue from pulp sales increased 54.3 percent due to a 33.6 percent increase in the volume of pulp sold and a 15.5 percent increase in the average selling price per ton.
8
Revenue from molasses sales increased 56.2 percent due to a 76.9 percent increase in the volume of molasses sold partially offset by an 11.7 percent decrease in the average selling price per ton. Revenue from the sales of Concentrated Separated By-Product (CSB), a by-product of the molasses desugarization process, increased 20.5 percent due to a 15.4 percent increase in the volume of CSB sold and a 4.4 percent increase in average selling price per ton.
Cost of product sold, for the three months ended February 28, 2003, exclusive of payments for member sugarbeets, increased $23.2 million as compared to the same period last year. The cost associated with the cost of non-member sugar beets (Sidney Crop) was $18.2 million for the three months ended February 28, 2003. Direct processing costs for sugar and pulp increased 21.9 percent. This was due to processing 16.1 percent more sugarbeets along with higher natural gas prices and beet transportation costs. Fixed and committed expenses increased 10.6 percent reflecting higher purchased power costs, insurance costs and costs related to SSI. The change in product inventories impacted the cost of product sold favorably by $8.8 million primarily due to the increased net realizable value for sugar partially offset by lower sugar inventory levels. The cost associated with sugar purchased to meet customer needs was up $ .6 million due to minimal purchased sugar activity last year.
Selling, general and administrative expenses for the three months ended February 28, 2003 increased $3.1 million from 2002. Selling expenses increased $4.0 million primarily due to the increase in the volume of products sold and higher freight and warehousing costs. General and Administrative expenses decreased $ .9 million due to general cost decreases.
During the three months ended February 28, 2003, 40.1 percent of the 2002 RRV crop was processed resulting in the recognition of net proceeds from member business of $129.7 million. This represented 40.1 percent of the $323.7 million projected member gross beet payment for the 2002 RRV crop. The actual net proceeds from member business, for the three months ended February 28, 2003, were $160.8 million. During the three months ended February 28, 2003, 58.5 percent of the 2002 Sidney crop was processed resulting in the recognition of net proceeds from SSI of $1.5 million. This represented 58.5 percent of the $2.6 million projected SSI net income for fiscal 2002. The actual net proceeds from SSI, for the three months ended February 28, 2003, were $8.2 million. The difference between the actual net proceeds from member business and SSI and the amounts recognized for the three months ended February 28, 2003, resulted in the recognition of $37.9 million of accrued continuing costs. In comparison, during the three months ended February 28, 2002, 42.8 percent of the 2001 RRV crop was processed resulting in the recognition of net proceeds from member business of $123.9 million. This represented 42.8 percent of the $289.2 million projected member gross beet payment for the 2001 RRV crop. In addition, $10.7 million, representing 50 percent of the $21.3 million projected gross PIK payment, had also been recognized as net proceeds from member business. The actual net proceeds from member business, for the three months ended February 28, 2002, were $176.4 million. The difference between the actual net proceeds from member business and the amounts recognized for the three months ended February 28, 2002, resulted in the recognition of $41.8 million of accrued continuing costs.
Interest income for the three months ended February 28, 2003 increased marginally compared to the same period last year primarily due to a higher average balance of investments.
Interest expense decreased slightly for the three months ended February 28, 2003 as compared to the same period last year primarily due to lower average borrowing levels for long-term debt and lower average interest rates for short-term debt.
Non-member activities resulted in income of $1.1 million for the three months ended February 28, 2003 compared to a loss of $ .4 million for the same period last year. This non-member income in fiscal 2003 is primarily the result of activities related to SSI. The non-member loss in fiscal 2002 was primarily the result of activities related to the investment in ProGold Limited Liability Company.
Liquidity and Capital Resources
Under the Company’s Bylaws and Member Grower Contracts, payments for member delivered sugarbeets, the principal raw material used in producing the sugar and agri-products it sells, are
9
subordinated to all member business expenses. In addition, the beet payments made to member growers and non-member growers are paid in three payments over the course of a year, and the member payments are made net of any anticipated unit retain for the crop. These procedures have the effect of providing the Company with an additional source of short-term financing. This member financing arrangement may result in an additional source of liquidity and reduced need for outside financing in comparison to a similar business operated on a non-cooperative basis.
Because sugar is sold throughout the year (while sugarbeets are processed primarily in the fall, winter and spring) 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 a consortium of lenders lead by CoBank, ACB. The Company has a long-term debt commitment with CoBank, ACB of $132.4 million, of which $95.3 million is currently outstanding. In addition, the Company has long-term debt outstanding of $50 million from a private placement of Senior Notes that occurred in September of 1998; $19.8 million from a private placement of Senior Notes that occurred in January of 2003; $43.5 million from nine separate issuances of Pollution Control and Industrial Development Revenue Bonds and a term loan with Bank of North Dakota of $4.8 million. The Company also has a seasonal line of credit with a consortium of lenders led by CoBank, ACB of $265 million, of which there is no current balance outstanding, and a line of credit with Wells Fargo Bank for $3 million. The Company’s commercial paper program provides short-term borrowings of up to $150 million of which approximately $143.2 million is currently outstanding. Any borrowings under the commercial paper program will act to reduce the available credit under the CoBank, ACB seasonal line of credit by a commensurate amount.
The changes that occurred in the Company’s financial statements from August 31, 2002 to February 28, 2003 were primarily due to normal business seasonality and the acquisition activities related to SSI. The first six months of the Company’s fiscal year includes the completion of the sugarbeet harvest, start of the processing campaign, and the initial payments to growers for delivered sugarbeets. The cash used in operations of $92.6 million and investing activities of $45.5 million was funded primarily through the cash provided by financing activities. The net cash provided by financing activities was primarily comprised of the net proceeds from short-term debt of $136.2 million, proceeds from long-term debt of $31.0 million, and proceeds from the installment sale of stock of $4.9 million partially offset by the payment of unit retains of $16.0 million and long-term debt repayment of $18.0 million.
Working capital has decreased $12.7 million from $58.3 million at the beginning of the year to $45.6 million as of February 28, 2003 primarily due to additional short-term debt, increases in payables and an increase in amounts due growers partially offset by increased inventories. Working capital as of February 28, 2003 was $45.6 million, an increase of $9.7 million when compared to $35.9 million of working capital as of February 28, 2002.
Capital expenditures for the six months ended February 28, 2003 were $45.8 million, which included $35.2 related to the acquisition activities of SSI. Capital expenditures for the same period in 2002 were $5.4 million. The Company had outstanding commitments totaling $5.2 million as of February 28, 2003 for equipment and construction contracts related to various capital projects.
The Company anticipates that the funds necessary for working capital requirements and future capital expenditures will be derived from operations, short-term borrowings, depreciation, unit retains and long-term borrowings.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss to future earnings, to fair values or to future cash flows that may result from changes in the price of a financial instrument. The value of a financial instrument may change as a result of changes in the interest rates, exchange rates, commodity prices, equity prices and other market changes. Market risk is attributed to all market-risk sensitive financial instruments, including long term debt.
10
The Company does not believe that there is any material market risk exposure with respect to interest rates, exchange rates, commodity prices, equity prices and other market changes that would require disclosure under this item.
Item 4. Controls and Procedures
The Company’s chief executive officer and chief financial officer have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 240.13a-14(c) and 15d-14(c) promulgated under the Securities Exchange Act of 1934) as of February 28, 2003. Based on that review and evaluation, which included inquiries made to certain other employees of the Company, the chief executive officer and chief financial officer have concluded that the Company’s current disclosure controls and procedures, as designed and implemented, are reasonably adequate to ensure that they are provided with material information relating to the Company required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934.
There have been no significant changes in the Company’s internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. There were no significant deficiencies or material weaknesses identified, and therefore no corrective actions were taken.
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. The Company is currently involved in certain legal proceedings, which have arisen in the ordinary course of the Company’s business. The Company is also aware of certain other potential claims, which could result in the commencement of legal proceedings. The Company carries insurance, which provides protection against certain types of claims. With respect to current litigation and potential claims of which the Company is aware, the Company’s management believes that (i) the Company has insurance protection to cover all or a portion of any judgments which may be rendered against the Company with respect to certain claims or actions and (ii) any judgments which may be entered against the Company and which may exceed such insurance coverage or which may arise in actions involving potential liabilities not covered by insurance policies are not likely to have a material adverse effect upon the Company, or its assets or operations.
Item 2. Changes in Securities and Use of Proceeds.
None
Item 3. Default Upon Senior Securities
None
None
Item 5. Other Information.
None.
11
(a) Exhibits
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Item No. |
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Method of Filing |
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3.1 |
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Restated Articles of Incorporation of American Crystal Sugar Company |
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Incorporated by reference to Exhibit 3(i) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
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3.2 |
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Restated By-laws of American Crystal Sugar Company |
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Incorporated by reference to Exhibit 3(ii) from the Company’s Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. |
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4.1 |
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Restated Articles of Incorporation of American Crystal Sugar Company |
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See Exhibit 3.1 |
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4.2 |
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Restated By-laws of American Crystal Sugar Company |
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See Exhibit 3.2 |
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10.1 |
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Trademark License Agreement between Registrant and United Sugars Corporation, dated November 1, 1993 |
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Incorporated by reference to Exhibit 10(l) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
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10.2 |
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Amended and Restated Loan Agreement between Registrant and US Bank, formerly First Bank National Association, dated November 22, 1993 |
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Incorporated by reference to Exhibit 10(q) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
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10.3 |
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Form of Operating Agreement between Registrant and ProGold Limited Liability Company |
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Incorporated by reference to Exhibit 10(u) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
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10.4 |
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Form of Member Control Agreement between Registrant and ProGold Limited Liability Company |
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Incorporated by reference to Exhibit 10(v) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
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10.5 |
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Administrative Services Agreement between Registrant and ProGold Limited Liability Company |
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Incorporated by reference to Exhibit 10(w) from the Company’s Registration Statement on Form S-1 (File No. 33-83868), declared effective November 23, 1994. |
12
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+10.6 |
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Coal Supply Agreement between Registrant and Spring Creek Coal Company, dated August 25, 1995 |
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Incorporated by reference to Exhibit 10(y) from the Company’s Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. |
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+10.7 |
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Coal Transportation Agreement between Registrant and Northern Coal Transportation Company, dated August 25, 1995 |
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Incorporated by reference to Exhibit 10(z) from the Company’s Registration Statement on Form S-1 (File No. 333-11693), declared effective November 13, 1996. |
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+10.8 |
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Trademark License Agreement between Registrant and The Pillsbury Company, dated as of April 9, 1997 |
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Incorporated by reference to Exhibit 10(dd) from the Company’s Registration Statement on Form S-1 (File No. 333-32251), declared effective October 24, 1997. |
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10.9 |
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Pledge Agreement between Registrant and First Union Trust Company, NA |
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Incorporated by reference to Exhibit 10(ee) from the Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
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10.10 |
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Indemnity Agreement between Registrant, Newcourt Capital USA Inc., Crystech, LLC and Crystech Senior Lender Trust |
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Incorporated by reference to Exhibit 10(ff) from the Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
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10.11 |
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Tolling Services Agreement between Crystech, LLC and Registrant |
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Incorporated by reference to Exhibit 10(gg) from the Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
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10.12 |
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Operations and Maintenance Agreement between Crystech, LLC and Registrant |
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Incorporated by reference to Exhibit 10(hh) from the Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
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++10.13 |
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Limited Liability Company Agreement of Crystech, LLC |
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Incorporated by reference to Exhibit 10(ii) from the Company’s Annual Report on Form 10-K for the year ended August 31, 1998. |
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10.14 |
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Master Agreement between the Registrant and Bakery, Confectionery, Tobacco Workers & Grain Millers AFL-CIO, CLC |
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Incorporated by reference to Exhibit 10.22 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 |
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10.15 |
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Registrant’s Senior Note Purchase Agreement |
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Incorporated by reference to Exhibit 10.24 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 |
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10.16 |
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Registrant’s Senior Note Intercreditor and Collateral Agency Agreement |
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Incorporated by reference to Exhibit 10.25 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 |
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10.17 |
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Registrant’s Senior Note Restated Mortgage and Security Agreement |
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Incorporated by reference to Exhibit 10.26 from the Company’s Annual Report on Form 10-K for the year ended August 31, 1999 |
13
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10.18 |
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Employment Agreement between the Registrant and James J. Horvath |
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Incorporated by reference to Exhibit 10.28 from the Company’s Annual Report on Form 10-K form the year ended August 31, 1999 |
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10.19 |
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Stipulation Agreement between Registrant and State of Minnesota Pollution Control Agency, dated April 4, 2000 |
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Incorporated by reference to Exhibit 10.28 from the Company’s Form 10-Q for the quarter ended May 31, 2000 |
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10.20 |
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Board of Directors Deferred Compensation Plan, dated June 30, 1994 |
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Incorporated by reference to Exhibit 10.29 from the Company’s Annual Report on Form 10K for the year ended August 31, 2000 |
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10.21 |
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Long Term Incentive Plan, dated June 23, 1999 |
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Incorporated by reference to Exhibit 10.31 from the Company’s Annual Report on Form 10K for the year ended August 31, 2000 |
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10.22 |
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Addendum to Master Agreement between the Registrant and Bakery, Confectionery, Tobacco Workers & Grain Millers AFL-CIO, CLC dated July 10, 2001 |
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Incorporated by reference to Exhibit 10.30 from the Company’s Annual Report on Form 10K for the year ended August 31, 2001 |
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10.23 |
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Uniform Member Sugar Marketing Agreement between the Registrant and United Sugars Corporation dated September 1, 2001. |
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Incorporated by reference to Exhibit 10.27 from the Company’s Form 10-Q for the quarter ended November 30, 2001 |
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10.24 |
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Uniform Member Marketing Agreement between the Registrant and Midwest Agri-Commodities Company dated September 1, 2001. |
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Incorporated by reference to Exhibit 10.28 from the Company’s Form 10-Q for the quarter ended November 30, 2001 |
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10.25 |
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Term and Seasonal Loan Agreements between the Registrant and CoBank, ACB dated March 27, 2002 |
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Incorporated by reference to Exhibit 10.27 from the Company’s Form 10-Q for the quarter ended May 31, 2002 |
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10.26 |
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Retirement Plan A Restatement |
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Incorporated by reference to Exhibit 10.28 from the Company’s Annual Report on Form 10K for the year ended August 31, 2002 |
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10.27 |
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Retirement Plan B Restatement |
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Incorporated by reference to Exhibit 10.29 from the Company’s Annual Report on Form 10K for the year ended August 31, 2002 |
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10.28 |
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Amendments to Term and Seasonal Loan Agreements between the Registrant and CoBank, ACB dated November 6, 2002 |
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Incorporated by reference to Exhibit 10.30 from the Company’s Form 10-Q for the quarter ended November 30, 2002 |
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10.29 |
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Registrant’s Senior Note Purchase Agreement dated January 15, 2003 |
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Filed herewith electronically |
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10.30 |
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Growers’ Contract (5-year Agreement) for the crop years 2003 through 2007 |
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Filed herewith electronically |
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10.31 |
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Growers’ Contract (Annual Contract) for crop year 2003. |
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Filed herewith electronically |
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21.1 |
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List of Subsidiaries of the Registrant |
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Incorporated by reference to Exhibit 21.1 from the Company’s Annual Report on Form 10K for the year ended August 31, 2002 |
14
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99.1 |
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Section 1350 Certification of the Chief Executive Officer |
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Accompanying herewith electronically |
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99.2 |
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Section 1350 Certification of the Chief Financial Officer |
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Accompanying herewith electronically |
+ Portions of the Exhibit have been granted confidential treatment by the Commission. The omitted portions have been filed separately with the Commission.
++ Portions of the Exhibit have been deleted from the publicly filed document and have been filed separately with the Commission pursuant to a request for confidential treatment.
(b) Reports on Form 8-K
The Company filed the following Current Reports on Form 8-K during this quarter.
(i) Current Report on Form 8-K, dated January 14, 2003, under item 9 stating that the Company had filed its quarterly report on form 10-Q for the period ended November 30, 2002 and in connection with the filing, certifications by the James J. Horvath, President and Chief Executive Officer, and Joseph J. Talley, Chief Financial Officer had also been submitted.
(ii) Current Report on Form 8-K, dated January 27, 2003, under item 9, the Company stated that it had announced to its shareholders on January 27, 2002, that the Board of Directors had modified the planting policy for the 2003 crop to be equal to stock acres with a permitted under-plant of up to two percent.
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.
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AMERICAN CRYSTAL SUGAR COMPANY |
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(Registrant) |
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Date: |
April 14, 2003 |
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/s/ Brian Ingulsrud |
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Brian Ingulsrud |
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Corporate Controller, |
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Chief Accounting Officer |
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Duly Authorized Officer |
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I, James J. Horvath, President and Chief Executive Officer of American Crystal Sugar Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Crystal Sugar Company (the registrant);
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 officer 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 we 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 officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a) all significant deficiencies in the design or operation of the 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.
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not 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.
April 14, 2003
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/s/ James J. Horvath |
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James J. Horvath |
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President and Chief Executive Officer |
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CERTIFICATIONS
I, Joseph J. Talley, Vice President-Finance and Chief Financial Officer of American Crystal Sugar Company, certify that:
1. I have reviewed this quarterly report on Form 10-Q of American Crystal Sugar Company (the registrant);
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 officer 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 we 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 officer and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
a) all significant deficiencies in the design or operation of the 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.
6. The registrant’s other certifying officer and I have indicated in this quarterly report whether or not 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.
April 14, 2003
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/s/ Joseph J. Talley |
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Joseph J. Talley |
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Vice President-Finance and Chief Financial Officer |
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