Attached files
file | filename |
---|---|
EX-31.3 - CERTIFICATION OF CAO PURSUANT TO SECTION 302 - MINN DAK FARMERS COOPERATIVE | minndak113342_ex31-3.htm |
EX-32.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 906 - MINN DAK FARMERS COOPERATIVE | minndak113342_ex32-1.htm |
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - MINN DAK FARMERS COOPERATIVE | minndak113342_ex31-1.htm |
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - MINN DAK FARMERS COOPERATIVE | minndak113342_ex31-2.htm |
EX-32.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 906 - MINN DAK FARMERS COOPERATIVE | minndak113342_ex32-2.htm |
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, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 AND
15(d) OF THE
SECURITES EXCHANGE ACT OF 1934
Commission file: No. 33-94644
MINN-DAK FARMERS COOPERATIVE
(Exact named of
Registrant as specified in its charter)
|
|
|
North Dakota |
|
23-7222188 |
(State or other jurisdiction of |
|
(I.R.S. Employer |
Incorporation or organization) |
|
Identification No.) |
|
|
|
7525 Red River Road |
|
|
Wahpeton, North Dakota |
|
58075 |
(Address of principal |
|
(Zip Code) |
executive offices) |
|
|
(701) 642-8411
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days.
|
|
YES x |
NO o |
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.
|
|
YES o |
NO o |
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer x Smaller Reporting Co o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
|
|
YES o |
NO x |
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
|
|
|
Class of Common Stock |
|
Outstanding at |
$250 Par Value |
|
476 |
Minn-Dak Farmers Cooperative (The Company or the Registrant) 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 Company 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 Company has not registered any of its securities under Section 12(g) of the Exchange Act. The Company 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 Company, 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 Company. The provisions, which do not apply to the Companys 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.
This report contains forward-looking statements and information based upon assumptions by the Companys management, including assumptions about risks and uncertainties faced by the Company. Any statements regarding future market prices, anticipated costs, agricultural results, operating results and other statements that are not historical facts contained in this annual report are considered forward-looking statements. The words expect, project, estimate, believe, anticipate, plan, intend, could, may, predict, and similar expressions are also intended to be identified as forward-looking terminology. 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.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
ASSETS
(In Thousands)
|
|
|
|
|
|
|
|
|
|
May 31, 2011 |
|
Aug 31, 2010 |
|
||
ASSETS |
|
(Unaudited) |
|
(Audited) |
|
||
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
Cash |
|
$ |
277 |
|
$ |
129 |
|
|
|
|
|
|
|
|
|
Current bond trust |
|
|
4,845 |
|
|
4,731 |
|
|
|
|
|
|
|
|
|
Receivables |
|
|
|
|
|
|
|
Trade accounts |
|
|
18,684 |
|
|
12,731 |
|
Growers |
|
|
16,998 |
|
|
13,763 |
|
Receivable from affiliates |
|
|
9,642 |
|
|
|
|
Other receivables |
|
|
3 |
|
|
3 |
|
Total Receivables |
|
|
45,327 |
|
|
26,496 |
|
|
|
|
|
|
|
|
|
Inventories |
|
|
|
|
|
|
|
Refined sugar, in-process sugar, pulp and molasses to be sold on a pooled basis |
|
|
100,732 |
|
|
29,770 |
|
Non-member refined sugar |
|
|
9,446 |
|
|
1,717 |
|
Sugarbeet inventory |
|
|
|
|
|
3,121 |
|
Yeast |
|
|
217 |
|
|
237 |
|
Beet chemicals |
|
|
4,063 |
|
|
|
|
Materials and supplies |
|
|
13,966 |
|
|
13,403 |
|
Total Inventories |
|
|
128,424 |
|
|
48,249 |
|
|
|
|
|
|
|
|
|
Deferred charges |
|
|
1,138 |
|
|
|
|
Prepaid expenses |
|
|
2,510 |
|
|
2,039 |
|
Prepaid beet seed |
|
|
|
|
|
8 |
|
Other current assets |
|
|
870 |
|
|
|
|
Current deferred income tax asset |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Current Assets |
|
|
183,402 |
|
|
81,653 |
|
|
|
|
|
|
|
|
|
PROPERTY, PLANT AND EQUIPMENT |
|
|
|
|
|
|
|
Land and land improvements |
|
|
28,164 |
|
|
28,164 |
|
Buildings |
|
|
37,883 |
|
|
37,883 |
|
Factory/Agricultural equipment |
|
|
153,199 |
|
|
152,493 |
|
Other equipment |
|
|
5,294 |
|
|
5,301 |
|
Capitalized leases |
|
|
3,353 |
|
|
3,353 |
|
Construction in progress |
|
|
16,694 |
|
|
5,214 |
|
Total Property, Plant and Equipment |
|
|
244,587 |
|
|
232,408 |
|
Less accumulated depreciation |
|
|
(142,121 |
) |
|
(135,638 |
) |
Net Property, Plant and Equipment |
|
|
102,466 |
|
|
96,769 |
|
|
|
|
|
|
|
|
|
OTHER ASSETS |
|
|
|
|
|
|
|
Investment in other cooperatives, unconsolidated marketing subsidiaries and other corporations |
|
|
11,342 |
|
|
11,116 |
|
Bond trust and financing costs |
|
|
4,899 |
|
|
2,493 |
|
Other long-term assets |
|
|
3,110 |
|
|
5,035 |
|
Total Other Assets |
|
|
19,351 |
|
|
18,643 |
|
|
|
|
|
|
|
|
|
TOTAL ASSETS |
|
$ |
305,219 |
|
$ |
197,065 |
|
See Notes to Consolidated Financial Statements.
3
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND MEMBERS INVESTMENT
(In Thousands)
|
|
|
|
|
|
|
|
|
|
May 31, 2011 |
|
Aug 31, 2010 |
|
||
LIABILITIES AND MEMBERS INVESTMENT |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
Short-term notes payable |
|
$ |
61,276 |
|
$ |
27,558 |
|
|
|
|
|
|
|
|
|
Current portion of long-term debt, capital leases and bonds payable |
|
|
3,007 |
|
|
2,977 |
|
Accounts payable: |
|
|
|
|
|
|
|
Trade |
|
|
27,710 |
|
|
10,144 |
|
Checks outstanding |
|
|
859 |
|
|
1,008 |
|
Deferred liabilities |
|
|
|
|
|
8,825 |
|
Growers |
|
|
37,735 |
|
|
13,874 |
|
Total Accounts Payable |
|
|
66,304 |
|
|
33,851 |
|
|
|
|
|
|
|
|
|
Income tax |
|
|
1 |
|
|
195 |
|
|
|
|
|
|
|
|
|
Payable to affiliates |
|
|
|
|
|
283 |
|
|
|
|
|
|
|
|
|
Accrued liabilities |
|
|
5,902 |
|
|
3,101 |
|
|
|
|
|
|
|
|
|
Total Current Liabilities |
|
|
136,490 |
|
|
67,965 |
|
LONG-TERM DEBT, CAPITAL LEASES, AND BONDS PAYABLE, NET OF CURRENT PORTION |
|
|
43,861 |
|
|
37,930 |
|
|
|
|
|
|
|
|
|
LONG-TERM DEFERRED INCOME TAX LIABILITY |
|
|
199 |
|
|
266 |
|
|
|
|
|
|
|
|
|
LONG-TERM PENSION LIABILITY |
|
|
21,064 |
|
|
19,630 |
|
|
|
|
|
|
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
|
|
|
|||||||
Total Liabilities |
|
|
201,614 |
|
|
125,791 |
|
MEMBERS INVESTMENT |
|
|
|
|
|
|
|
Preferred stock: |
|
|
|
|
|
|
|
Class A - 100,000 shares authorized, $105 par value; 72,200 shares issued and outstanding |
|
|
7,581 |
|
|
7,581 |
|
Class B - 100,000 shares authorized, $75 par value; 72,200 shares issued and outstanding |
|
|
5,415 |
|
|
5,415 |
|
Class C - 100,000 shares authorized, $76 par value; 72,200 shares issued and outstanding |
|
|
5,487 |
|
|
5,487 |
|
Total Preferred stock |
|
|
18,483 |
|
|
18,483 |
|
Common stock, 600 shares authorized, $250 par value; issued and outstanding, 476 shares at May 31, 2011 and 477 shares at August 31, 2010 |
|
|
119 |
|
|
119 |
|
Paid in capital in excess of par value |
|
|
32,094 |
|
|
32,094 |
|
Unit retention capital |
|
|
3,104 |
|
|
|
|
Nonqualified allocated patronage |
|
|
57,881 |
|
|
28,299 |
|
Accumulated other comprehensive loss |
|
|
(19,262 |
) |
|
(18,837 |
) |
Retained earnings |
|
|
11,186 |
|
|
11,116 |
|
Total Members Investment |
|
|
103,605 |
|
|
71,274 |
|
|
|||||||
TOTAL LIABILITIES AND MEMBERS INVESTMENT |
|
$ |
305,219 |
|
$ |
197,065 |
|
See Notes to Consolidated Financial Statements.
4
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-Months Ended |
|
Nine-Months Ended |
|
||||||||
|
|
May 31, |
|
May 31, |
|
May 31, |
|
May 31, |
|
||||
REVENUE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales of sugar, co-products and yeast, net of discounts |
|
$ |
84,021 |
|
$ |
54,926 |
|
$ |
241,388 |
|
$ |
167,394 |
|
Changes in finished goods inventory and in-process sugar at NRV |
|
|
8,390 |
|
|
8,989 |
|
|
78,253 |
|
|
34,911 |
|
Total Revenue |
|
|
92,411 |
|
|
63,915 |
|
|
319,641 |
|
|
202,305 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Production costs of sugar, in-process sugar, co-products and yeast sold |
|
|
20,092 |
|
|
17,198 |
|
|
73,472 |
|
|
59,632 |
|
Sales and distribution costs |
|
|
12,272 |
|
|
8,670 |
|
|
40,595 |
|
|
30,576 |
|
General and administrative |
|
|
1,948 |
|
|
1,618 |
|
|
6,040 |
|
|
5,033 |
|
Interest |
|
|
645 |
|
|
485 |
|
|
1,985 |
|
|
1,500 |
|
(Gain) on disposition of property and equipment |
|
|
|
|
|
|
|
|
(1 |
) |
|
(122 |
) |
Total Expenses |
|
|
34,957 |
|
|
27,971 |
|
|
122,091 |
|
|
96,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOLLING & OTHER REVENUE |
|
|
873 |
|
|
536 |
|
|
1,064 |
|
|
7,624 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE INCOME TAXES |
|
|
58,327 |
|
|
36,480 |
|
|
198,614 |
|
|
113,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INCOME TAX BENEFIT (EXPENSE) |
|
|
22 |
|
|
(484 |
) |
|
61 |
|
|
(612 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS |
|
$ |
58,349 |
|
$ |
35,996 |
|
$ |
198,675 |
|
$ |
112,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DISTRIBUTION OF NET PROCEEDS |
|
|
|
|
|
|
|
|
|
|
|
|
|
Credited to members investment |
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from non-member business |
|
$ |
27 |
|
$ |
1,266 |
|
$ |
70 |
|
$ |
1,510 |
|
Patronage income |
|
|
9,795 |
|
|
4,938 |
|
|
29,606 |
|
|
21,485 |
|
Net income credited to members investment |
|
|
9,821 |
|
|
6,204 |
|
|
29,676 |
|
|
22,995 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocated costs of sugarbeets paid or payable to growers for production to date |
|
$ |
48,528 |
|
$ |
29,792 |
|
$ |
168,999 |
|
$ |
89,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS |
|
$ |
58,349 |
|
$ |
35,996 |
|
$ |
198,675 |
|
$ |
112,698 |
|
See Notes to Consolidated Financial Statements.
5
MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
Nine-Months Ended |
|
||||
|
|
May 31, |
|
May 31, |
|
||
OPERATING ACTIVITIES |
|
|
|
|
|
|
|
Net income credited to members investment |
|
$ |
29,676 |
|
$ |
22,995 |
|
Add (deduct) noncash items: |
|
|
|
|
|
|
|
Depreciation |
|
|
6,505 |
|
|
6,617 |
|
Amortization |
|
|
389 |
|
|
290 |
|
(Gain) on property and equipment disposals |
|
|
(1 |
) |
|
(122 |
) |
Loss allocated from unconsolidated marketing subsidiaries |
|
|
(4 |
) |
|
1 |
|
Noncash portion of patronage capital credits |
|
|
(584 |
) |
|
(735 |
) |
Deferred income taxes |
|
|
(77 |
) |
|
(40 |
) |
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
Accounts receivable and advances |
|
|
(18,830 |
) |
|
(1,613 |
) |
Inventory and prepaid expenses |
|
|
(81,507 |
) |
|
(33,639 |
) |
Deferred charges and other assets |
|
|
651 |
|
|
1,088 |
|
Accounts payable, accrued liabilities and other liabilities |
|
|
43,018 |
|
|
10,394 |
|
Net cash (used in)/provided by operating activities |
|
|
(20,764 |
) |
|
5,236 |
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES |
|
|
|
|
|
|
|
Proceeds from disposition of property, plant and equipment |
|
|
1 |
|
|
123 |
|
Change in other assets |
|
|
|
|
|
(4,400 |
) |
Tax exempt bond draw |
|
|
6,782 |
|
|
|
|
Capital expenditures |
|
|
(12,204 |
) |
|
(2,797 |
) |
Net proceeds from patronage refunds and equity revolvements |
|
|
|
|
|
1,135 |
|
Patronage received from other coops |
|
|
412 |
|
|
|
|
Net cash (used in)/provided by investing activities |
|
|
(5,009 |
) |
|
(5,939 |
) |
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES |
|
|
|
|
|
|
|
Net proceeds from issuance of short-term debt |
|
|
33,718 |
|
|
9,045 |
|
Checks outstanding |
|
|
(149 |
) |
|
102 |
|
Payment of long-term debt and capital leases |
|
|
(2,854 |
) |
|
(4,082 |
) |
Payment of financing fees |
|
|
(750 |
) |
|
(743 |
) |
Equity payment to estate |
|
|
(24 |
) |
|
|
|
Payment of allocated patronage |
|
|
(4,020 |
) |
|
(3,626 |
) |
Net cash (used in)/provided by financing activities |
|
|
25,921 |
|
|
696 |
|
|
|
|
|
|
|
|
|
NET INCREASE/(DECREASE) IN CASH |
|
|
148 |
|
|
(7 |
) |
|
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR |
|
|
129 |
|
|
94 |
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD |
|
$ |
277 |
|
$ |
87 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
|
|
|
|
|
Cash payments for (Receipts from) |
|
|
|
|
|
|
|
Interest |
|
$ |
1,477 |
|
$ |
1,352 |
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds |
|
$ |
361 |
|
$ |
68 |
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unit retain deductions from grower payable |
|
$ |
3,104 |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds for bond issuance transferred to restricted investment |
|
$ |
8,815 |
|
|
7,000 |
|
|
|||||||
Equipment purchased by issuance of capital lease |
|
$ |
|
|
$ |
392 |
|
See Notes to Consolidated Financial Statements.
6
MINN-DAK FARMERS COOPERATIVE
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED
MAY 31, 2011 and 2010
(Unaudited)
|
|
1. |
The consolidated financial statements of the Company and that of its wholly owned subsidiary companies Minn-Dak Yeast Company (Minn-Dak Yeast) and Link Acquisition Company LLC (Link) for the three-month and nine-month periods ended May 31, 2011 and 2010 are unaudited and reflect all adjustments consisting of normal recurring adjustments which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, contained in the Companys Annual Report on Form 10-K for the fiscal year ended August 31, 2010. The results of operations for the three-month and nine-month periods ended May 31, 2011 are not necessarily indicative of the results for the entire fiscal year ending August 31, 2011. |
|
|
2. |
Inventories of refined sugar, in-process sugar, pulp and molasses to be sold on a pooled basis are valued at net realizable value, while third-party purchased refined sugar to be sold on a pooled basis is valued at the lower of cost or market. Third-party refined sugar costs include product, delivery, poll adjustment, and refining fee costs. Inventory of yeast is valued at the lower of average cost or market. Materials and supplies are valued at most recent purchase price that approximates cost. During the periods when sugarbeets are purchased from shareholder/growers and/or non-members, but not yet converted into refined sugar or in-process sugar, that sugarbeet inventory is valued at grower and/or non-members payment cost. In valuing inventories at Net Realizable Value (NRV), the Company, in effect sells the remaining inventory to the subsequent periods sugar and co-product pool. Pooled product inventories will normally increase to a peak valuation at the end of the processing campaign and decrease to a low point of valuation at or near fiscal year end. |
|
|
3. |
In September 2010, and effective as of August 31, 2010, the Company declared a revolvement of the remaining 66 percent of the allocated patronage for the 2003-crop totaling $2.9 million and 31 percent of the allocated patronage for the 2004-crop totaling $1.1 million. These amounts were accrued as of August 31, 2010 and paid to the shareholders on September 17, 2010. |
|
|
4. |
In November 2010, the Company allocated to shareholders $4.0 million of patronage from the 2009-crop in the form of non-qualified allocated patronage credits. |
|
|
5. |
The Companys Board of Directors authorized a $3.1 million per unit retain deduction from the 2010-crop, and as of May 31, 2011, this has been deducted and allocated to shareholders equity accounts. |
|
|
6. |
Short term credit utilized as of May 31, 2011 consisted of $61.3 million; $32.1 million has been borrowed from CoBank (the Bank) and $29.2 million from the USDA Commodity Credit Corporation CCC. That leaves the Company with a remaining short-term credit capacity totaling $23.0 million. The increase in seasonal debt from August 31, 2010 to May 31, 2011 is due to normal seasonal operations for a 3.1 million ton crop. |
|
|
|
|
|
|
|
|
|
|
|
Source |
|
Capacity |
|
Utilized |
|
Unused Capacity |
|
|||
|
|
(In Millions) |
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|||
Co-Bank |
|
$ |
45.0 |
|
$ |
32.1 |
|
$ |
12.9 |
|
CCC |
|
$ |
39.3 |
|
$ |
29.2 |
|
$ |
10.1 |
|
Total |
|
$ |
84.3 |
|
$ |
61.3 |
|
$ |
23.0 |
|
|
|
7. |
On November 15, 2010 the Company renewed the Revolving Credit Supplement with the Bank through December 31, 2011. The Revolving Credit Supplement was renewed at $85.0 million for the time period from November 15, 2010 to May 31, 2011; then it is reduced to $45.0 million through December 31, 2011. |
7
|
|
|
|
|
|
8. |
On December 7, 2009, the Company applied for and received approval from Richland County to re-finance its tax-exempt long-term bonds. All variable rate bonds outstanding as of January 15, 2010 were called and new variable rate bonds (currently at 0.22 percent interest rate) were issued with a single maturity date of February 1, 2023 with no associated gains or losses. In addition, $7.0 million in new tax-exempt bonds, which are also exempt from alternative minimum taxes, were approved by Richland County to finance future capital expenditures. These variable rate bonds (currently at 0.13 percent interest rate) were issued on February 18, 2010 with a single maturity date of February 1, 2025. The letters of credit from the Bank associated with these bonds were also renewed as of the date of the issuance of the bonds. The new tax-exempt bonds are held as a restricted investment in a bond trust until qualified expenditures related to the bonds have been expended by the Company. |
||||
|
|
|
|
|
|
9. |
On November 30, 2010, the Company applied for and received approval from Richland County to sell $8.8 million of new tax-exempt bonds, which are also exempt from alternative minimum taxes, to finance future capital expenditures. These variable rate bonds (currently at 0.13 percent interest rate) were issued on November 30, 2010 with a single maturity date of November 1, 2025. The letters of credit from the Bank associated with all of the bonds were also renewed as of the date of the issuance of the November 30, 2010 bonds, with the letters of credit increasing $9.1 million, representing the $8.8 million in principal plus interest. These newly issued tax-exempt bonds are held as a restricted investment in a bond trust until qualified expenditures related to the bonds have been expended by the Company. |
||||
|
|
|
|
|
|
10. |
Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance. |
||||
|
|
|
|
|
|
|
The fair value hierarchy requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Three levels of inputs may be used to measure fair value: |
||||
|
|
|
|
|
|
|
|
Level 1: Quoted prices in active markets for identical assets or liabilities |
|||
|
|
Level 2: Includes the following inputs: |
|||
|
|
|
|
|
Quoted prices in active markets for similar assets or liabilities |
|
|
|
|
|
Quoted prices for identical or similar assets or liabilities in markets that are not active |
|
|
|
|
|
Or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
|
|
Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of assets or liabilities. |
|||
|
|
|
|
|
|
|
|
Long-Term Debt, Inclusive of Current Maturities - Based upon discounted cash flows and current borrowing rates with similar maturities, the book value of the long-term debt as of May 31, 2011, was approximately $18.8 million of Bank debt in comparison to the fair value of $18.8 million. Also included in the Companys long-term debt is $28.1 million in tax-exempt bonds, in comparison to the fair value of $28.1 million. |
|||
|
|
|
|
|
|
|
|
Proceeds for Bond Issuance Transferred to Restricted Investment included in the Companys current and long-term Restricted Investments was $4.1 million in comparison to the fair value of $4.1 million. Current and long-term Restricted Investments are invested in short-term government backed securities. |
|||
|
|
|
|
|
|
|
|
Investments in CoBank, Dakota Valley Electric, and Investments in Marketing Cooperatives - The Company believes it is not practical to estimate the fair value of these investments without incurring excessive costs because there is no established market for these securities and equity interests, and it is inappropriate to estimate future cash flows which are largely dependent on future earnings of these organizations. |
|||
|
|
|
|
|
|
|
|
Foreign Currency Forward Contracts there were no open foreign currency forward contracts as of May 31, 2011. |
8
|
|
|
|
|
Interest Rate Contracts Based on the zero coupon method in which the term, notional amount, and repricing date of the interest rate swap match the term, repricing date, and principal amount of the interest-bearing liability on which the hedging interest payments are due, the fair value of the interest rate contracts as of May 31, 2011 was a liability of $0.5 million. Inputs used to measure the fair value of the interest rate swap contracts are quoted prices in active markets for similar assets or liabilities and therefore are contained within level 2 of the fair value hierarchy. See the tables below. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
|
|
|
|
Fair Value of Liabilities as of May 31, 2011 |
|
||||||||||||
|
|||||||||||||||||||
Fiscal Year |
|
Notional Amt |
|
Ave Interest Rate |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
2011 |
|
$ |
10.0 Million |
|
0.440% |
|
$ |
|
|
$ |
<0.1 |
|
$ |
|
|
$ |
<0.1 |
|
|
2012 |
|
$ |
30.0 Million |
|
0.853% |
|
$ |
|
|
$ |
0.1 |
|
$ |
|
|
$ |
0.1 |
|
|
2013 |
|
$ |
25.0 Million |
|
1.870% |
|
$ |
|
|
$ |
0.2 |
|
$ |
|
|
$ |
0.2 |
|
|
2014 |
|
$ |
15.0 Million |
|
2.879% |
|
$ |
|
|
$ |
0.1 |
|
$ |
|
|
$ |
0.1 |
|
|
2015 |
|
$ |
5.0 Million |
|
2.943% |
|
$ |
|
|
$ |
<0.1 |
|
$ |
|
|
$ |
<0.1 |
|
|
|
|
|
|
|
|
|
|
$ |
|
|
$ |
0.5 |
|
$ |
|
|
$ |
0.5 |
|
|
|
11. |
FASB ASC 815 (formerly SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities) requires the Company to recognize all derivatives, as defined, on the balance sheet at fair value. |
|
|
|
The Company, as a result of its operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates which may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the Company may enter into derivative contracts. |
|
|
|
The Company manages its foreign currency related risks primarily through the use of foreign currency forward contracts. At May 31, 2011 and at August 31, 2010, the Company had no foreign currency derivative instruments. |
|
|
|
The Company is exposed to interest risk primarily through its borrowing activities. The Company uses variable rate interest on substantially all of its debt obligations. To manage the interest rate risk on its debt, the Company uses interest rate swaps for the underlying interest rate of similar maturity debt instruments. These interest rate swaps are matched with future fiscal year periods. The Company has designated these interest rate swap contracts as a cash flow hedge. |
|
|
|
The Company does not consider its interest rate swaps Level 1 inputs because they are not exchange traded. The Company considers its interest rate swaps to be Level 2 inputs because they are observable in the marketplace. |
|
|
|
The Company reviews the hedging activity for effectiveness on a quarterly basis. The Company did not hold any hedging activity to review prior to the 2nd quarter of the current fiscal year. No ineffectiveness was recognized in earnings during the three-month and nine-month periods ended May 31, 2011. |
|
|
|
The current period loss as a result of reclassifying prior Interest Rate Liabilities to Interest Rate Expense was <$0.1 and <$0.1 million for the three-month and nine-month periods ended May 31, 2011 respectively. There was no activity for the three-month and nine-month periods ended May 31, 2010 respectively. |
|
|
|
The Company has swap agreements in place by individual Fiscal Year with different interest rates for each Fiscal Year. |
9
Interest Rate Swaps in effect May 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Rate Swaps |
|
|
|
|
|
|
|
|
|
||||
Fiscal Year |
|
Notional Amount |
|
Average Interest Rate |
|
Mark to Market |
|
Mark to Market |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2011 |
|
$ |
10.0 Million |
|
|
0.440% |
|
$ |
<0.1 Million |
|
$ |
0.0 Million |
|
2012 |
|
$ |
30.3 Million |
|
|
0.853% |
|
$ |
<0.1 Million |
|
$ |
0.1 Million |
|
2013 |
|
$ |
25.0 Million |
|
|
1.870% |
|
$ |
0.0 Million |
|
$ |
0.2 Million |
|
2014 |
|
$ |
15.0 Million |
|
|
2.879% |
|
$ |
0.0 Million |
|
$ |
0.1 Million |
|
2015 |
|
$ |
5.0 Million |
|
|
2.943% |
|
$ |
0.0 Million |
|
$ |
0.1 Million |
|
|
|
|
|
|
|
|
|
$ |
0.1 Million |
|
$ |
0.4 Million |
|
Interest Rate Swaps in effect August 31, 2010:
Interest Rate Swaps - None
|
|
12. |
The Companys shareholder/growers harvested 3,108,004 tons of sugarbeets from the 2010-crop, which created a revised (in June 2011) estimated payment liability of $170.9 million, or a payment estimate of $55.00 per average ton. |
|
|
13. |
The sugar beet industry and the Company have been or are currently involved in various litigations concerning the approval of Roundup Ready® sugarbeets for planting in 2011 and forward. The legal proceedings to date have resulted in the finding that, for the 2011-crop, it was legal for the Companys shareholder/growers to plant Roundup Ready® sugarbeet seed. However, the Company believes that there will continue to be legal challenges to the USDAs partial deregulation of the Roundup Ready® sugarbeet seed. The ability of shareholder/growers to plant Roundup Ready® sugarbeets in subsequent years will be based upon actions by the USDA, which may be subject to further challenge by certain groups who oppose the partial deregulation. |
|
|
|
Environmental law restrictions on the use of Roundup Ready® sugarbeet seeds or other restriction relating to sugarbeet seeds or herbicides could have a significant, negative financial impact on the Company and its shareholder/growers. |
|
|
|
The Company has incurred $4.1 million in costs related to the raising of conventional seed for the 2012-crop year. These costs are reflected as inventory and the method of allocating these costs back to the 2012-crop patrons has not been determined. |
|
|
14. |
The following schedule provides the components of Net Periodic Benefit Cost for the Nine-Months Ended, May 31, 2011 and 2010. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In 000s) |
|
Pension Plan |
|
Other Than Pension Plan |
|
||||||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
||||
Service Cost |
|
$ |
960 |
|
$ |
753 |
|
$ |
|
|
$ |
|
|
Interest Cost |
|
|
1,493 |
|
|
1,383 |
|
|
|
|
|
|
|
Expected return on plan assets |
|
|
(1,249 |
) |
|
(1,119 |
) |
|
|
|
|
|
|
Amortization of prior service cost |
|
|
24 |
|
|
24 |
|
|
|
|
|
|
|
Amortization of transition cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of net (gain) loss |
|
|
814 |
|
|
457 |
|
|
|
|
|
|
|
Net periodic benefit cost |
|
$ |
2,042 |
|
$ |
1,498 |
|
$ |
|
|
$ |
|
|
Through the nine-months ended May 31, 2011, the Company has made $0.9 million of contributions as compared to $0.8 million through the nine-months ended May 31, 2010. The Company anticipates contributing $0.9 million in additional funds to its pension plan in Fiscal Year 2011, for a total of $1.8 million. Contributions in Fiscal Year 2010 totaled $1.5 million.
10
|
|
15. |
Recently Issued Accounting Pronouncements: |
|
|
|
In December, 2010, the FASB issued authoritative guidance to improve goodwill impairment testing. Under this guidance, goodwill and other intangible assets testing is a two-step test. When a goodwill impairment test is performed (either on an annual or interim basis), an entity must assess whether the carrying amount of a reporting unit exceeds its fair value (Step 1). If it does, an entity must perform an additional test to determine whether goodwill has been impaired and to calculate the amount of that impairment (Step 2). This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2010. Early adoption is not permitted. This Update will be implemented for the quarter ending November 2011. The Company does not expect that this authoritative guidance on impairment testing will have a material effect on the Companys financial statements. |
|
|
|
In May, 2011, The FASB issued ASU 2011-4 - amendments to achieve common Fair Value Measurement and Disclosure requirements in U.S GAAP and IFRSs. This amendment is to ensure that fair value has the same meaning in U.S. GAAP and IFRSs and that their respective fair value measurement and disclosure requirements are the same. This guidance is effective for the third quarter of 2012. The Company does not expect that this authoritative guidance will have any material effect on the Companys financial statements. |
|
|
|
In June, 2011, The FASB issued ASU 2011-5. This objective of this amendment is to improve the comparability, consistence, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This guidance is effective in the first quarter of 2013. The Company does not expect that this authoritative guidance will have any material effect on the Companys financial statements. |
|
|
16. |
Change in Accounting Standards: |
|
|
|
In June and December 2009, the FASB issued authoritative guidance to improve financial reporting by enterprises involved with variable interest entities and to provide more relevant and reliable information to users of financial statements. This guidance became effective for the Company in Fiscal Year 2011. The Company does not consider the adoption of this guidance to have a material effect on its financial statements. |
|
|
|
In July 2010, the FASB issued authoritative guidance regarding disclosures about credit quality of financing receivables and the allowance for credit losses. This guidance is effective for the quarter ending February, 28, 2010. However, in January 2011, the FASB issued guidance regarding deferral of the effective date of disclosures about troubled debt restructurings in Update No. 2010-20. The deferral of the disclosures was effective upon issuance. The deferred portions of Update No. 2010-20 is anticipated to be effective for interim and annual reporting periods after June 15, 2011 |
|
|
17. |
Subsequent Events: |
|
|
|
The Company has considered subsequent events through the date the financial statements were issued. |
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Discussion should be read in conjunction with information contained in the Consolidated Financial Statements and Notes thereto and in the Companys Annual Report on Form 10-K for fiscal year ended August 31, 2010.
OVERVIEW
The following discussion and analysis relates to the financial condition and results of operations of Minn-Dak Farmers Cooperative (the Company or the Registrant) for the three-month and nine-month periods ended May 31, 2011 (the third quarter of the Companys 2011 fiscal year). The Companys fiscal year runs from September 1 to August 31.
11
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 risks, including those set forth in the Companys reports filed with the Securities and Exchange Commission, including Item 1A of Part I of the Companys Annual Report on Form 10-K for the year ended August 31, 2010. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those indicated. These forward-looking statements are made as of the date of this report and the Company assumes no obligation to update such forward-looking statements, or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.
Critical Accounting Policies and Estimates
The only material changes to the Companys critical accounting policies and estimates since the filing of its Annual Report on form 10-K for the year ended August 31, 2010 has been the Derivative and Hedging Activities.
The Companys critical accounting policies and estimate changes include the following:
Derivative and Hedging Activities
FASB ASC 815 (formerly SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities) requires the Company to recognize all derivatives, as defined, on the balance sheet at fair value.
The Company, as a result of its operating and financing activities, is exposed to changes in foreign currency exchange rates and interest rates which may adversely affect its results of operations and financial position. In seeking to minimize the risks and/or costs associated with such activities, the Company may enter into derivative contracts.
The Company manages its foreign currency related risks primarily through the use of foreign currency forward contracts. At May 31, 2011 and at August 31, 2010, the Company had no foreign currency derivative instruments.
The Company is exposed to interest risk primarily through its borrowing activities. The Company uses variable rate interest on substantially all of its debt obligations. To manage the interest rate risk on its debt, the Company uses interest rate swaps for the underlying interest rate of similar maturity debt instruments. These interest rate swaps are matched with future fiscal year periods. The Company has designated these interest rate swap contracts as a cash flow hedge.
The Company does not consider its interest rate swaps Level 1 inputs because they are not exchange traded. The Company considers its interest rate swaps to be Level 2 inputs because they are observable in the marketplace.
The Company reviews the hedging activity for effectiveness on a quarterly basis. The Company did not hold any hedging activity to review prior to the 2nd quarter of the current fiscal year. No ineffectiveness was recognized in earnings during the three-month and nine-month periods ended May 31, 2011.
The current period loss as a result of reclassifying prior Interest Rate Liabilities to Interest Rate Expense was <$0.1 and <$0.1 million for the three-month and nine-month periods ended May 31, 2011 respectively. There was no activity for the three-month and nine-month periods ended May 31, 2010 respectively.
ESTIMATED FISCAL YEAR 2011/ CROP YEAR 2010 INFORMATION
This discussion contains a summary of the Companys current estimates of the financial results to be obtained from the Companys processing of the 2010 sugarbeet crop. Given the nature of the estimates required in connection with the payments to shareholder/growers for their sugarbeets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2010 sugarbeet crop, the net selling price for the sugar and co-products produced by the Company and the Companys operating costs. These forward-looking statements are based largely upon the Companys 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 Companys products, the quantity of sugar produced from the sugarbeet crop, changes in plant production efficiencies and sugarbeet storage conditions are beyond the Companys control. The actual results experienced by the Company could differ materially from the forward-looking statements contained herein.
12
The Companys shareholder/growers harvested 3.1 million tons of sugarbeets from the 2010-crop, approximately 42 percent more than the most recent 5-year average. Sugar content of the 2010-crop was 1 percent above the average of the five most recent years. Due to the higher harvested tons and sugar content, the Companys initial production of sugar from the 2010-crop sugarbeets was expected to be 23 percent more than the average of the five most recent years of sugar production. Unfavorable storage temperatures in October, combined with excessively high storage heights of non-ventilated piles resulted in the disposal of an estimated 0.2 million tons of beets. The need to dispose of an estimated 0.2 million tons of beets resulted in approximately $3.0 million in beet disposal costs during the companys 2nd quarter. The Board of Directors has authorized capital expenditures to add a sufficient quantity of forced air ventilation and extended pile grounds to significantly reduce the risk of having to discard beets in future years under the same size crop and weather circumstances.
The Companys initial sugarbeet payment estimate totaled $56.86 per ton or $0.19369042 per harvested /bonus extractible pound of sugar. As a result of the loss of sugarbeets in storage (as discussed above) and deterioration of the remaining sugar beets, the payment estimate was revised to $53.57 per ton or $0.182508248 per harvested/bonus extractible pound of sugar during the Companys second quarter, the payment estimate was again revised after the completion of the Companys 2010-crop campaign to $55.00 per ton or $0.18736914 per harvested/bonus extractible pound of sugar; with the final sugarbeet payment determined in October of 2011. This revised projected payment is 16 percent more than the final 2009-crop payment per ton and 2 percent more per pound of extractible sugar. The higher projected 2010-crop payment per ton results from more total tons of beets processed, higher sugar content in the sugarbeets, decreased operating and fixed costs per ton as well as improved sugar prices; offset to some degree by more beet discards, versus the prior year. The price per pound of extractible sugar was diluted by 6.5 percent due to bonus sugar for the 2010-crop vs. 2.3 percent for the 2009-crop. Bonus sugar is an incentive payment to shareholder/growers to deliver sugarbeets prior to main harvest. Harvest for the 2010-crop began on August 18, 2010 vs. the 2009-crop beginning on September 8, 2009.
As of the date of this report, the Company has taken into consideration key indicators of actual results vs. projections used for the revised sugarbeet payment estimate. Consideration has been given to beet inventory storage conditions, projected net selling prices, factory operation costs, and sugar, pulp and molasses production. No change in the revised estimated beet payment, as announced in the 8-K filed June 28, 2011, has resulted from this review. It is the Companys policy to update its estimate of yearly crop payments only when a material change is sufficiently certain and the amount of such change is reasonably calculable.
On June 1, 2011, Minn-Dak Farmers Cooperative employees represented by the American Federation of Grain Millers AFL-CIO Local 405 ratified the labor agreement reached by the company and union officials. The negotiated agreement extends through May 31, 2013.
RESULTS OF OPERATIONS
Comparison of the three-months ended May 31, 2011 and 2010
In the Consolidated Statements of Operations, Distribution of Net Proceeds, allocated costs of sugarbeets paid or payable to shareholder/growers for production to date totaled $48.5 million, an increase of $18.7 million or 62.9 percent from the prior year period. As of May 31, 2011, Management has revised the estimated Fiscal 2011 payment to shareholder/growers for sugarbeets to $170.9 million, which is $75.9 million or 79.8 percent more than the prior year.
The increase in payments to shareholder/growers is based upon (i) an average delivered sugar content of 16.8 percent, an 8.7 percent increase from the 2009-crop, (ii) a total shareholder/grower sugarbeet crop to process of 3.1 million tons less an estimated 0.2 million tons discarded and (iii) the Companys increased projected selling price for its sugar, pulp and yeast; offset to some degree by lower molasses prices when compared to the previous year.
Revenues for the three-month period ended May 31, 2011 were comprised of Sugar 87 percent, Pulp 6 percent, Molasses 4 percent and Yeast 3 percent.
13
Consolidated revenue for the three-month period ended May 31, 2011 from the sales of Sugar, Pulp, Molasses and Yeast, increased $29.1 million or 53.0 percent from the three-month period ended May 31, 2010. The table below reflects the percentage changes in product revenues, prices and volumes for the three-month period ended May 31, 2011.
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product |
|
Revenue |
|
Change |
|
Revenue |
|
Selling Price |
|
Volume |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sugar |
|
|
$ |
72.6 |
|
|
|
$ |
28.7 |
|
|
65.2 |
% |
|
20.5 |
% |
|
44.7 |
% |
|
Pulp |
|
|
$ |
5.3 |
|
|
|
$ |
0.8 |
|
|
18.1 |
% |
|
1.2 |
% |
|
16.9 |
% |
|
Molasses |
|
|
$ |
3.4 |
|
|
|
$ |
0.9 |
|
|
35.9 |
% |
|
-9.0 |
% |
|
44.9 |
% |
|
Yeast |
|
|
$ |
2.7 |
|
|
|
$ |
(1.3 |
) |
|
-31.7 |
% |
|
-3.4 |
% |
|
-28.3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
84.0 |
|
|
|
$ |
29.1 |
|
|
|
|
|
|
|
|
|
|
|
The increase in volume of sugar sold is attributable a larger 2010-crop, delivered by shareholder/growers coupled with a very high demand from customers. The net increase in volume of co-products sold is attributable to a larger 2010-crop causing an earlier start to manufacturing on a pool wide basis. Overall returns per ton for Pulp are projected to be higher and the overall returns per ton for Molasses are projected to be lower for the Fiscal Year ended August 31, 2011. Returns for Pulp and Molasses throughout the fiscal year will be impacted by prior period carry-over sales, inventory levels, product mix and timing of sales. Yeast sales volume decreased due to existing customers decreased demand for yeast, the loss of one high-volume customer and above normal demand from a large customer in the 2010 period.
The value of finished product inventories for the three-month period ended May 31, 2011 increased $8.4 million, $0.6 million less than the three-month period ended May 31, 2010. The change in Sugar and Juice inventories accounted for substantially all of the change vs. 2010.
Expenses for the three-month period ended May 31, 2011 increased $7.0 million. $2.9 million increased due to production costs, $3.6 million increased due to Sales and Distribution Costs associated with the larger crop and $0.5 million increased due to General, Administrative, and Interest costs.
Comparison of the nine-months ended May 31, 2011 and 2010.
In the Consolidated Statements of Operations, Distribution of Net Proceeds, allocated costs of sugarbeets paid or payable to shareholder/growers for production to date totaled $169.0 million, an increase of $79.3 million or 88.4 percent from the prior year period. As of May 31, 2011, Management has revised the estimated Fiscal 2011 payment to shareholder/growers for sugarbeets to $170.9 million, which is $75.9 million or 79.8 percent more than the prior year.
The increase in payments to shareholder/growers is based upon (i) an average delivered sugar content of 16.8 percent, an 8.7 percent increase from the 2009-crop, (ii) a total shareholder/grower sugarbeet crop to process of 3.1 million tons less an estimated 0.2 million tons discarded and (iii) the Companys increased projected selling price for its sugar, pulp and yeast; offset to some degree by lower molasses prices when compared to the previous year.
Revenues for the nine-month period ended May 31, 2011 were comprised of Sugar 85 percent, Pulp 7 percent, Molasses 5 percent and Yeast 3 percent.
Consolidated revenue for the nine-month period ended May 31, 2011, resulting from the sale of Sugar, Pulp, Molasses and Yeast increased $74.0 million or 44.2 percent from the nine-month period ended May 31, 2010. The table below reflects the percentage changes in product revenues, prices and volumes for the nine-month period ended May 31, 2011.
14
|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
Product |
|
Revenue |
|
Change |
|
Revenue |
|
Selling Price |
|
Volume |
|
|||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Sugar |
|
|
$ |
204.8 |
|
|
|
$ |
71.3 |
|
|
53.4 |
% |
|
17.3 |
% |
|
36.1 |
% |
|
Pulp |
|
|
$ |
15.7 |
|
|
|
$ |
2.5 |
|
|
19.0 |
% |
|
-18.9 |
% |
|
37.9 |
% |
|
Molasses |
|
|
$ |
11.7 |
|
|
|
$ |
2.7 |
|
|
30.0 |
% |
|
-9.8 |
% |
|
39.8 |
% |
|
Yeast |
|
|
$ |
9.3 |
|
|
|
$ |
(2.5 |
) |
|
-21.3 |
% |
|
-0.5 |
% |
|
-20.8 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
$ |
241.5 |
|
|
|
$ |
74.0 |
|
|
|
|
|
|
|
|
|
|
|
The increase in volume of sugar sold is attributable a larger 2010 crop, delivered by shareholder/growers coupled with a very high demand from customers. The increase in volume of co-products sold is attributable to a larger 2010-crop causing an earlier start to manufacturing on a pool wide basis. Overall returns per ton for Pulp are projected to be higher and the overall returns per ton for Molasses are projected to be lower for the Fiscal Year ended August 31, 2011. Returns for Pulp and Molasses throughout the fiscal year will be impacted by prior period carry-over sales, inventory levels, product mix and timing of sales. Yeast sales volume decreased due to existing customers decreased demand for yeast, the loss of one high-volume customer and above normal demand from a large customer in the 2010 period. Selling prices for all products increased or decreased due to general market conditions.
The value of finished product inventories for the nine-month period ended May 31, 2011 increased $78.3 million, $43.3 million more than the increase for the nine-month period ended May 31, 2010. A significant portion of the increase is a reflection of the tolling the Company did for another processor during the three-months ended February 28, 2010, and which did not take place in current year. In addition, the start of campaign on August 20, 2010 allowed the Company to be manufacturing at full capacity on September 1, 2010 the first day of the nine-month period ended May 31, 2011. The change in Sugar and Juice inventories accounted for almost all of the change in inventory vs. 2010.
Tolling and Other Income decreased by $6.6 million due to the Company not having a tolling agreement in place. The Company determined that it did not have excess capacity in the current year to process sugarbeets for other processors.
Expenses for the nine-month period ended May 31, 2011 increased $25.5 million; $13.8 million increased due to the production costs for a campaign that has incurred twenty four more operating days in 2011 vs. 2010. The production costs include $3.0 million in beet disposal costs; higher grower delivery and trucking costs, higher trucking re-haul costs, higher energy costs, and higher maintenance costs. Other than beet disposal costs, production costs were related to the larger crop and higher levels of operations. $10.0 million increased due to Sales and Distribution Costs associated with the larger crop and $1.6 million increased due to General, Administrative, and Interest costs. Interest cost increases are due primarily to higher levels of seasonal borrowing due to the larger crop. Administrative cost increases are due primarily to the recording of bonuses and related costs vs. the prior year when no similar costs were recorded due to the lower crop size.
LIQUIDITY AND CAPITAL RESOURCES
Because the Company operates as a cooperative, payment for shareholder/grower-delivered sugarbeets, the principal raw material used in producing the sugar and co-products it sells, are subordinated to all shareholder/grower business expenses. In addition, actual cash payments to shareholder/growers are spread over a period of approximately one year following delivery of sugarbeet crops to the Company and are net of per unit retains and patronage allocated to them, both of which remain available to meet the Companys capital requirements. This shareholder 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 short and long-term financing has been primarily provided by CoBank (the Bank). The Company also has the ability to borrow money on a short-term basis from the USDA Commodity Credit Corporation CCC using the Companys sugar inventory as collateral.
15
May 31, 2011 Seasonal Debt Information
|
|
|
|
|
|
|
|
|
|
|
Source |
|
Capacity |
|
Utilized |
|
Unused Capacity |
|
|||
|
|
|
(In Millions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Co-Bank |
|
$ |
45.0 |
|
$ |
32.1 |
|
$ |
12.9 |
|
CCC |
|
$ |
39.3 |
|
$ |
29.2 |
|
$ |
10.1 |
|
Total |
|
$ |
84.3 |
|
$ |
61.3 |
|
$ |
23.0 |
|
During the nine-month period ended May 31, 2011 the Company was reimbursed from the bond trust for qualified capital expenditures in the amount of $6.8 million in accordance with the sale of $7.0 million in tax exempt bonds during fiscal 2010. In addition, the Company is eligible to have an additional $4.8 million reimbursed from the bond trust as of May 31, 2011 as an additional source of available cash.
On November 30, 2010, the Company sold $8.8 million of new tax exempt bonds resulting from the Federal Governments economic stimulus legislation. The proceeds of these bonds are required to be placed in a trust account until the Company makes qualifying capital investments that allow for the use of the proceeds of these bonds. The Company intends to use all of the proceeds from the bond issuance on qualifying capital expenditures within the time period required in the bond indenture. The Company intends to make the qualifying expenditures by August 31, 2012.
The loan agreements between the Bank and the Company obligate the Company to maintain, In accordance with GAAP, the following financial covenants:
|
|
|
Maintain a current ratio of no less than 1.10 for the first quarter of a fiscal year and 1.15 for all other quarter and fiscal year ends; |
|
Maintain a long-term debt and capitalized leases to equity ratio of not greater than .8:1; |
|
Maintain available cash flow to current long-term debt ratio as defined in the agreement of not less than 1.25:1, as measured at fiscal year-end. |
As of May 31, 2011 the Company was in compliance with its loan agreement covenants with the Bank.
Net Cash used in operations totaled $20.8 million for the nine-month period ended May 31, 2011, compared to $5.2 million provided for the previous period. This decrease of $25.9 million in net cash used vs. the period ended May 31, 2010 was primarily due to the differences in the sugarbeet projected payments recorded liability, actual payments to shareholder/growers, and the associated additional inventory needs for processing materials from the record 2010-crop. Beet disposal costs were $3.0 million. Also, $4.0 million was used to fund crop chemical needs for the 2012 crop, should conventional sugarbeet seed be determined to be the planting requirement for shareholder/growers.
The net cash used in investing activities totaled $5.0 million for the nine-month period ended May 31, 2011, compared to $5.9 million used the period ended May 31, 2010. The conversion of $6.8 million in restricted bond assets to cash during the current period was offset by an increase of $9.4 million in capital expenditures vs. the period ended May 31, 2010.
The net cash provided by financing activities totaled $25.9 million for the nine-month period ended May 31, 2011 compared to $0.7 million for the period ended May 31, 2010. This increase of $25.2 million was primarily due to a $24.7 million increase in short term debt obligations required for the payment of sugarbeets from the record 2010-crop. All other factors totaled $0.5 million.
The Company retained $3.1 million as a non-cash item from the 2010-crop initial beet payment in the form of non-qualified per unit retains.
16
The Company anticipates that the funds necessary for working capital requirements and future capital expenditures will be derived from operations, short-term borrowings, depreciation, patronage and long-term borrowings.
Working capital increased $33.2 million for the for the nine-month period ended May 31, 2011. The Company funds its capital expenditure and debt retirement needs primarily from operating activities. The Company anticipates using the majority of the remaining $9.0 million in economic stimulus bonds as a source of funding for the fiscal 2011 capital expenditures.
Cash increased $0.1 million for the for the nine-month period ended May 31, 2011.
Capital expenditures for fiscal year 2011 have been approved at $22.3 million. The capital expenditures are for equipment to improve efficiency, improved beet storage, improved rail facilities and safety and replacement activities. Failure by the Company to make capital expenditures over a period of years could result in the Company being less competitive due to its failure to reduce costs, increase operating efficiencies or increase revenues.
The Bonds are secured by a letter of Credit from the Bank. The letter of credit is ultimately secured by the plant and property of the Companys facility at Wahpeton, ND.
The Company is not aware of any known trends, demands, commitments, events or uncertainties that will likely result in the Companys liquidity increasing or decreasing materially.
Other than those items described above, the Company is not aware of any known material trends, either favorable or unfavorable, that would cause the mix of equity to debt or the cost of debt to materially change.
OTHER
Estimated Fiscal Year 2012 Information
The Companys Board of Directors increased the
planting level for the 2011-crop vs. the 2010-crop level on May 9, 2011 due
primarily to a late planting start that resulted from wet field conditions. As
of the date of this report, 120,910 acres or a planting tolerance of 1.67 had
been planted, with no additional planted acres anticipated.
Nearly 100 percent of the 2011-crop utilized Roundup-Ready® sugarbeet seed. As of the date of this report, the crop, as planted, had the potential for normal harvest results.
Environmental
The Company is subject to extensive federal and state
environmental laws and regulations with respect to water and air quality, solid
waste disposal and odor control. The Company conducts an ongoing compliance
program designed to meet these environmental laws and regulations. The Company
believes that it is in substantial compliance with applicable environmental
laws and regulations. From time to time, however, the Company may be involved
in investigations or determinations regarding matters that may arise in the
ordinary course of business. The Company works closely with all affected
government agencies to resolve environmental issues that have arisen and
believes such issues will be resolved without any material adverse effect on
the Company.
The Companys sugar manufacturing process is energy intensive and generates carbon dioxide and other Greenhouse Gases (GHGs). Several bills have been passed or introduced in the United States Senate and House of Representatives that would regulate GHGs and carbon dioxide emissions to reduce the impact of global climate change. The Company believes it is likely that industries generating GHGs, including the Company, will at some future date be subject to either federal or state regulation relating to climate change policies. These policies, if adopted, will increase the Companys energy and other operating costs. Depending on how these policies address imports, the domestic sugar market may have a competitive disadvantage compared with imported sugar. These policies could have a significant negative impact on the Companys beet payment to shareholder/growers if the Company is not able to pass the increased costs on to the Companys customers.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Companys Quantitative and Qualitative Disclosures About Market Risk since the filing of the Companys 10-K for the Fiscal Year ended August 31, 2010.
17
ITEM 4T. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and
Procedures
As required by Rule 13a-15(b) under the Exchange Act, the Company conducted an
evaluation, under the supervision and with the participation of the Companys
management, including its Chief Executive Officer and Chief Financial Officer
(together the Certifying Officers), of the effectiveness of the design and
operation of the Companys disclosure controls and procedures as of May 31,
2011, the end of the period covered by this report. Based upon that evaluation,
the Certifying Officers concluded that the Companys disclosure controls and
procedures were effective.
Inherent Limitations on Effectiveness of
Controls
Management is responsible for establishing and maintaining adequate internal
control over financial reporting to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with U.S. generally accepted accounting
principles. Internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of assets; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with U.S. generally accepted accounting principles, and that
receipts and expenditures are being made only in accordance with authorizations
of the management and the Board; and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of Company assets that could have a material effect on the
financial statements.
Management personnel, including the Certifying Officers, recognize that the Companys internal control over financial reporting cannot prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control systems objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial
Reporting
There have been no material changes to the Companys internal control over
financial reporting since the filing of the Companys Form 10-Q for the period
ended February 28, 2011 that has materially affected, or is reasonably likely
to materially affect, its internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
In March 2005, the U.S. Department of Agriculture (the USDA) made a determination that Roundup Ready® sugarbeets should be deregulated. On January 23, 2008, a coalition group including the Center for Food Safety, the Sierra Club and two organic seed groups filed a lawsuit challenging the USDAs determination. On September 21, 2009, the U.S. District Court for the Northern District of California (the District Court) ruled that the USDA violated the National Environmental Policy Act by failing to prepare an Environmental Impact Statement (EIS) before deregulating Roundup Ready® sugarbeets. The District Court also ordered the USDA to complete an EIS. The USDA has said that it expects to complete the EIS by May of 2012.
On February 4, 2011the USDA issued an Environmental Assessment (EA) to address an administrative action on its part to partially deregulate the use of Roundup Ready® sugarbeet seed for sugarbeet crops in the U.S. Plaintiffs tried to stop seed and root plantings for the 2011 crop by asking the Ninth District Court for a Temporary Restraining Order and Temporary Injunction. That was denied. The final result of all of the legal proceedings to date means that as of this filing it is legal for the Companys shareholder/growers to plant Roundup Ready® sugarbeet seed in 2011. However, the Company believes that the Plaintiffs will continue to challenge by legal means the USDAs partial deregulation of the Roundup Ready® sugarbeet seed going forward. The ability of shareholder/growers to plant Roundup Ready® sugarbeets in subsequent years will be based upon actions by the USDA, which may be subject to further challenge in the future by the Plaintiffs or other groups also.
18
On February 4, 2011 the Company, along with the rest of the sugarbeet industry, filed suit in U.S. district court in the District of Columbia against the USDA, the Center for Food Safety and the Sierra Club challenging some of the more onerous requirements set forth in the conditions for partial deregulation of the Roundup Ready® sugarbeet seed and requesting that the judge render a declaratory judgment that the partial deregulation complies with the National Environmental Protection Act (NEPA) and the Plant Protection Act (PPA).
According to the USDA, Roundup Ready® varieties accounted for about 95 percent of the planted acres in the 2009/10 crop year. The Companys Board of Directors authorized the planting of Roundup Ready® sugarbeets beginning with the 2008 crop. Of the sugarbeet crop processed by the Company in 2010, the Company estimates that nearly 100 percent was grown with Roundup Ready® seed. Nearly 100 percent of the sugarbeet crop planted in 2011 is planted with Roundup Ready® seed. Environmental law restrictions on the use of Roundup Ready® sugarbeet seeds or other restriction relating to sugarbeet seeds or herbicides could have a significant, negative financial impact on the Company and its shareholder/growers.
In May 2011, the Company, along with others in the sugar industry (collectively the Plaintiffs), filed a lawsuit in U.S. District Court, Central District of California against the Corn Refiners Association and its member companies (collectively the Defendants) and asked the Court to: (1) enjoin the Defendants from continuing to make false and/or misleading representations of fact about high fructose corn syrup (HFCS); (2) award Plaintiffs damages for the harms they have suffered and continue to suffer as a result of the Defendants false and/or misleading advertising, promotion and/or marketing of HFCS, including a corrective advertising award and (3) award Plaintiffs their costs and expenses of the lawsuit. The outcome of this lawsuit is unknown at this time and the Company does not know what financial impact, if any, that this lawsuit will have on the Company and its shareholder/growers.
Item
1A. Risk Factors.
There have been no material changes from risk factors as
previously disclosed in the Companys Form 10-K. For a detailed discussion of
certain risk factors that could affect the Companys operations, financial
condition or results for future periods, see Item 1 A, Risk factors in the
Companys 2010 Annual Report on Form 10-K.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds.
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
a) Exhibits
|
|
|
Item #31.1 Section 302 Certification of the President and Chief Executive Officer |
|
Item #31.2 Section 302 Certification of the Executive Vice President and Chief Financial Officer |
|
Item #31.3 Section 302 Certification of the Controller and Chief Accounting Officer |
|
Item #32.1 Section 906 Certification of the President and Chief Executive Officer |
|
Item #32.2 Section 906 Certification of the Executive Vice President and Chief Financial Officer |
19
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
MINN-DAK FARMERS COOPERATIVE |
|
|
|
(Registrant) |
|
|
|
|
Date: |
JULY 11, 2011 |
|
/s/ DAVID H. ROCHE |
|
|
|
David H. Roche |
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
Date: |
JULY 11, 2011 |
|
/s/ STEVEN M. CASPERS |
|
|
|
Steven M. Caspers |
|
|
|
Executive Vice President and Chief Financial Officer |
20