Attached files

file filename
EX-32 - CERTIFICATION OF CEO/CFO PURSUANT TO SECTION 906 - MINN DAK FARMERS COOPERATIVEminndak105883_ex32.htm
EX-12 - STATEMENT RE COMPUTATION OF RATIO OF NET PROCEEDS TO FIXED CHARGES - MINN DAK FARMERS COOPERATIVEminndak105883_ex12.htm
EX-31.3 - CERTIFICATION OF CAO PURSUANT TO SECTION 302 - MINN DAK FARMERS COOPERATIVEminndak105883_ex31-3.htm
EX-31.1 - CERTIFICATION OF CEO PURSUANT TO SECTION 302 - MINN DAK FARMERS COOPERATIVEminndak105883_ex31-1.htm
EX-31.2 - CERTIFICATION OF CFO PURSUANT TO SECTION 302 - MINN DAK FARMERS COOPERATIVEminndak105883_ex31-2.htm
EX-10.L - COAL PURCHASE AND SALE AGREEMENT - MINN DAK FARMERS COOPERATIVEminndak105883_ex10-l.htm
EX-10.S - RICHLAND COUNTY DEV. REVENUE REFUNDING BOND AGREEMENT - MINN DAK FARMERS COOPERATIVEminndak105883_ex10-s.htm
EX-10.T - COBANK REVOLVING CREDIT SUPPLEMENT DATED NOV. 15, 2010 - MINN DAK FARMERS COOPERATIVEminndak105883_ex10-t.htm
EX-10.A - GROWERS' AGREEMENT - MINN DAK FARMERS COOPERATIVEminndak105883_ex10-a.htm


 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 


FORM 10-K


 

x Annual Report Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

For the fiscal year ended

AUGUST 31, 2010

Or

o Transition Report Pursuant to Section 13 or 15(d) of

The Securities Exchange Act of 1934

 

Commission File

No. 33-94644

 


 

MINN-DAK FARMERS COOPERATIVE

(Exact name of Registrant as specified in its charter)


 

 

North Dakota

23-7222188

(State of incorporation)

(I.R.S. Employer Identification Number)

 

 

7525 Red River Road

 

Wahpeton, North Dakota 58075

(701) 642-8411

(Address of principal executive offices)

(Registrant’s telephone number)

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

NONE



          Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act
o YES x NO

          Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.
o YES x NO

          Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES o NO

          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. o YES o NO

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

          Indicate by check mark if 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. (Check one):

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




          Minn-Dak Farmers Cooperative is a cooperative. Its voting and non-voting common equity can only be held by its members. No public market for voting and non-voting common equity of Minn-Dak Farmers Cooperative is established and it is unlikely, in the foreseeable future that a public market for its voting and non-voting common equity will develop.

          As of November 24, 2010, 477 shares of the Company’s Common Stock and 72,200 “units” of the Registrant’s Preferred Stock, each consisting of 1 share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C Preferred Stock, were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

          None

PART I

 

 

ITEM 1.

BUSINESS

PUBLIC COMPANY REPORTING

          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 Company’s shares, include the regulation of proxies under Section 14 of the Exchange Act and the reporting and other obligations of directors, officers and principal stockholders under Section 16 of the Exchange Act.

WARNING REGARDING FORWARD-LOOKING STATEMENTS

          This report contains forward-looking statements and information based upon assumptions by the Company’s 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.

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GENERAL

          The Company is a North Dakota agricultural cooperative that was formed in 1972 and currently has 477 members. Membership in the Company is limited to sugarbeet growers located in those areas of North Dakota and Minnesota within an approximate fifty (50) mile radius of the Company’s offices and sugarbeet processing facilities in Wahpeton, North Dakota. The Company’s facilities allow the members to process their sugarbeets into sugar and other products. The products are pooled and then marketed through the services of marketing agents under contract with the Company. The sugar-marketing agent, United Sugars Corporation, is a cooperative association owned by its members, the Company, American Crystal Sugar Company and United States Sugar Corporation. The Company’s sugarbeet molasses and sugarbeet pulp are also marketed through a marketing agent, Midwest Agri-Commodities Company. Midwest Agri-Commodities Company is a cooperative association owned by its members, the Company, American Crystal Sugar Company, Southern Minnesota Beet Sugar Cooperative and Michigan Sugar Company. The Company owns a 100 percent interest in Minn-Dak Yeast Company, Inc. (“Minn-Dak Yeast”), which has facilities located adjacent to the Company’s sugar production facilities, and which produces fresh baker’s yeast.

          The Company’s corporate headquarters are located at 7525 Red River Road, Wahpeton, North Dakota 58075, telephone number (701) 642-8411. Its fiscal year ends August 31. The Company’s website is www.mdf.coop. The Company files annual, quarterly and periodic reports with the United States Securities and Exchange Commission (SEC). The SEC maintains an Internet site at http:/www.sec.gov that contains reports and other information filed electronically about the Company.

PRODUCTS AND PRODUCTION

           The Company is engaged primarily in the production and marketing of sugar from sugarbeets. The Company also produces and markets certain co-products, sugarbeet molasses and sugarbeet pulp pellets. The Company’s subsidiary Minn-Dak Yeast uses a portion of the Company’s sugarbeet molasses as the growth medium in the production of fresh baker’s yeast. Minn-Dak Yeast provided revenues totaling approximately 7 percent of the Company’s total revenues for the fiscal year ended August 31, 2010.

          The Company processes sugarbeets grown by its members at its sugarbeet processing facility located in Wahpeton, North Dakota. The processing period generally occurs from September to April or May of the following year, depending on the size of the crop. The 2010-crop was anticipated to be the largest crop on record and as a result, harvest was started on August 18, 2010 and factory processing began on August 20, 2010.

          Because the Company’s harvest period is much shorter than its processing period, sugarbeet long-term storage is very important to maximize the earnings from each crop year. Each harvest is unique and critical judgments are made by the agricultural staff regarding each crop. Judgments are impacted by the weather conditions at the time of harvest. If the weather is too warm or too cold when the sugarbeets are harvested they will not store well.

          The Company uses what it considers to be the best industry practices to preserve and extend the quality of sugarbeets it has in storage. The methods utilized by the Company include, but are not limited to: minimizing pile height, leveling the tops of piles, infrared scanning, timely hauling, splitting piles, passive ventilation, active ventilation, covering active ventilation piles with plastic, storage sheds, and insulating sugarbeets in storage sheds. Each method is evaluated for its anticipated economic impact for each crop year.

          The period during which the Company’s processing facility is in operation to process sugarbeets into sugar and co-products is referred to as the “campaign.” The campaign typically begins in September of each year and continues until the available supply of sugarbeets has been depleted. Once the sugarbeets arrive at the processing facility, the basic steps in producing sugar from them include: washing; slicing into thin strips called “cossettes”; extracting the sugar from the cossettes in a diffuser; purifying the resulting “raw juice” and boiling it, first in an evaporator to thicken it and then in vacuum pans to crystallize the sugar; separating the sugar crystals in a centrifuge; drying the sugar; and storing sugar in bulk form for bulk and bag shipping.

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          The Company’s sugarbeet co-products include sugarbeet molasses, sugarbeet pulp pellets and sugarbeet pressed pulp. After the extraction of raw juice from the cossettes, the remaining sugarbeet pulp is dried, processed into pellets and sold as animal feed or not dried and sold as wet animal feed to the local market. Sugarbeet molasses is the process materials left after all economical means have been taken to extract the sugar from the process. The sugarbeet molasses is sold primarily to yeast and pharmaceutical manufacturers and for use in animal feeds.

RECENT CROPS

          The Company’s members 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 Company’s production of sugar from the 2010-crop sugarbeets is expected to be 31 percent more than the average of the five most recent years of sugar production.

          The Company’s initial sugarbeet payment estimate totals $56.86 per ton or $0.19369042 per harvested /bonus extractible pound of sugar, with the final sugarbeet payment determined in October of 2011. This projected payment is 20 percent more than the final 2009-crop payment per ton and 5 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 and improved sugar prices versus the prior year. The price per pound of extractible sugar was diluted by 6.5% due to bonus sugar for the 2010-crop vs. 2.3% for the 2009-crop. Bonus sugar is an incentive to growers to deliver sugarbeets prior to main harvest. Harvest for the 2010-crop began on August 18, 2010 vs. September 8, 2009 for the 2009-crop.

          For a discussion of the calendar 2009, 2008 and 2007 crops and results of operations for fiscal years 2010, 2009 and 2008, see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

GROWERS’ AGREEMENTS

          The Company purchases virtually all of its sugarbeets from members under contract with the Company. All members have automatically renewing contracts with the Company covering each growing season (the “Growers’ Agreements”). At the end of each year, the Growers Agreement automatically extends for an additional year, so that such agreements always have a remaining term of one year, unless the Company, prior to the automatic renewal, has given notice of termination. In that situation, the agreement will not renew, but will continue in effect for the then remaining year under the agreement. Each Unit of Preferred Stock currently entitles a member to grow the maximum number of acres per share authorized by the Board of Directors for each farming year. The Company’s Board of Directors has the discretion to adjust the acreage that may be planted for each Unit of Preferred Stock held by the members. For the 2010-crop year the Company’s Board of Directors authorized its members to plant up to 1.60 acres per unit but no less than 1.40 acres per unit. For the 2011-crop year, the Company’s Board of Directors has authorized members a planting level of up to 1.60 acres but no less than 1.40 acres per unit; however, this authorization is subject to change by the board before the planting of the 2011-crop. The level authorized acres for planting are due to a desire to more fully utilize the Company’s plant capacity and the anticipated sugar marketing allocations that will be available for the 2011-crop production. (For a discussion of the current farm bill sugar allocations, see Management’s Discussion on Government Programs and Regulations.)

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          Under the terms of the Growers Agreement, each member receives payment for his or her sugarbeets based on a price per pound of extractable and bonus sugar. The price per pound of extractable and bonus sugar is determined by dividing the total grower distribution of net proceeds (less the amount credited to members investment from member patronage and credited to retained earnings from non-member patronage) by the total of members’ pounds of extractable and bonus sugar. Extractable pounds of sugar are calculated by the processing of sugarbeet samples taken from members’ sugarbeets during harvest. Bonus sugar is a formula driven program premium for delivery of sugarbeets during the period prior to main harvest. Each member’s grower payment is obtained by multiplying that member’s total pounds of extractable and bonus sugar times the price per pound of extractable and bonus sugar as determined above.

          Under the Growers Agreement, each member receives an initial installment of the payment for his or her sugarbeets on or about November 15, soon after delivery of his or her crop to the Company. That initial installment is subject to adjustment by the Company’s Board of Directors and Management, but will not exceed 65 percent of the estimated price per pound of extractable and bonus sugar. A second installment is paid in early February; that installment, in combination with the first installment, will not exceed 70 percent of the estimated price per pound of extractable and bonus sugar. A third installment is paid in early April, with the aggregate of all installments paid to that date not to exceed 80 percent of the estimated price per pound of extractable and bonus sugar. A fourth installment payment is paid in early July, with the total of installment payments to that date not to exceed 95 percent of the estimated price per pound of extractable and bonus sugar. The final payment is determined after the end of the Company’s fiscal year, ending on August 31, and is an amount necessary to bring the total of all payments to the price to be paid per pound of extractable and bonus sugar to all growers during the applicable fiscal year. In addition, the Company’s annual patronage net income, if any, which is equal to the Company’s sales less all expenditures and member sugarbeet payments, is distributed to the members on the basis of the pounds of extractable sugar obtained from each of the members’ sugarbeets; such amounts are distributed in either cash payments or allocated in the form of patronage credits to the member’s patronage account on the books of the Company.

COMPANY DISTRICTS

          The Company’s by-laws provide that the Company’s members are to be divided into districts for the purposes of voting and the election of members of the Board of Directors. Those districts do not have specific geographic boundaries but, instead, contain a loosely defined area representing the area served by a particular piling station to which members deliver their sugarbeets for storage until the sugarbeets are to be processed. When a member joins the Company, he or she is assigned to a particular district based upon criteria including: (i) the physical location of the shareholder’s sugarbeet growing acres relative to a piling site; (ii) if the previous criteria do not clearly indicate the district to which the shareholder should be assigned, then the physical location of the shareholder’s base of farming operations relative to a piling site (some members deliver sugarbeets to more than one piling site due to the locations of their various fields, even though they are assigned to membership in only one district); and (iii) if the first two criteria do not provide a clear indication of the district to which the shareholder should be assigned, then the shareholder is given the option of being assigned to the district which would best serve the needs of that shareholder.

          Given that shareholders are assigned to districts based upon ease of delivery of harvested sugarbeets and because shareholders own different numbers of Units of Preferred Stock, each district includes a different number of acres of sugarbeet production and, therefore, a different quantity of sugarbeets delivered to the Company. However, none of the districts provides the Company with a materially disproportionate quantity of the sugarbeets produced by the Company’s members. While the allocation of members to the various districts has a significant impact on the election of directors, the Company does not believe that the districts represent a significant factor in the day-to-day business operations of the Company.

RESEARCH AND DEVELOPMENT

          The Company conducts a modest amount of research and development activity, but does participate in some sugar industry research and development activities. Any research findings are then shared by the entire sugar industry. Participatory research and development is accomplished through such organizations as the Beet Sugar Development Foundation and North Dakota/Minnesota Research and Education Board. The Company participates in the organizations listed above through the efforts of its representatives to the boards of directors of those entities. The Company’s representatives, either a member of the Company’s Board of Directors or a Management employee of the Company, allow the Company to participate in and help direct agricultural and factory operations research and development activities carried out by the listed organizations. Those organizations also have established various committees on which the Company has placed certain of its employees. That practice is designed to provide the company with direct access to any research and development information available from the applicable committees. None of the Company’s employees or directors devotes a significant portion of their time and energies to the activities described in this section.

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          During the fiscal year ended on August 31, 2010, the Company contributed approximately $0.1 million to the North Dakota/Minnesota Research and Education Board to fund that entity’s research and development activities and the Company spent $0.3 million for research aimed at process improvements.

          The Company also has established a sugarbeet seed committee, whose membership includes shareholders, directors and Company employees, which reviews the performance of new and existing sugarbeet seed varieties. The committee then advises the Board of Directors with regard to those sugarbeet seed varieties that should be approved by the Board of Directors for use by the Company’s shareholders.

ENVIRONMENTAL MATTERS

          The Company is subject to a broad range of evolving environmental laws and regulations. These laws and regulations include the Food Quality Protection Act of 1996, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Federal Insecticide, Fungicide and Rodenticide Act and the Comprehensive Environmental Response, Compensation and Liability Act. Other than what is provided herein, the Company is not aware of any areas of non-compliance.

          The Company has $0.6 million of environmental capital improvements budgeted for the fiscal year ending August 31, 2011, slightly less than was expended for the fiscal year ending August 31, 2010.

          Compliance with these laws and related regulations is an ongoing process that, at the current levels of spending, is not expected to have a material effect on the Company’s capital expenditures, earnings or competitive position. Environmental concerns are, however, inherent in most major agricultural operations, including those conducted by the Company, and there can be no assurance that the cost of compliance with environmental laws and regulations will not be material. Moreover, it is possible that future developments, such as increasingly strict environmental laws and enforcement policies there under, and further restrictions on the use of agricultural chemicals, could result in increased compliance costs.

          On March 10, 2009, the United States Environmental Protection Agency (“EPA”) proposed regulations mandating reporting of greenhouse gas emissions from “all sectors of the economy.” The proposed regulation would apply to downstream facilities with greenhouse gas emissions equal to or greater than 25,000 tons per year and to upstream suppliers of fossil fuels and industrial greenhouse gases as well as to manufacturers of vehicles and engines. Those subject to the regulations would be required to submit annual reports of emissions of carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), sulfur hexafluoride (SF6), hydro fluorocarbons (HFCs), per fluorocarbons (PFCs), and other fluorinated gasses. The Company is monitoring this and similar proposed regulation changes and their potential impact to the Company.

          In March 2005, the U.S. Department of Agriculture (the “USDA”) made a determination that the 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 USDA’s 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.

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          On January 19, 2010, the coalition group filed a motion seeking a preliminary injunction to halt the planting and processing of Roundup Ready sugarbeets for both the seed and root crops until the EIS is completed. On March 16, 2010, the District Court denied the plaintiffs’ request for the preliminary injunction. On August 13, 2010, the District Court issued an order allowing harvesting and processing of Roundup Ready sugarbeets planted before August 13, 2010. In that order, the District Court also vacated the USDA’s decision to deregulate Roundup Ready sugarbeets. As a result, the planting of Roundup Ready® sugarbeet seed after August 13, 2010 is prohibited until further action is taken by the USDA, in accordance with applicable environmental laws, to allow planting of Roundup Ready sugarbeet seed.

          In September 2010, the USDA, under existing regulatory authority, issued permits to commercial sugarbeet seed companies to plant root crop seed, or stecklings, for the purpose of possible commercial seed availability for the 2012 crop and beyond. That move was immediately challenged in court by the Center for Food Safety along with other groups. An evidentiary hearing took place November 2-4, 2010 to hear arguments by the plaintiffs and the defendant (USDA) regarding the U.S. District Court’s finding that the sugarbeet seed stecklings “likely” should not have been planted. Following the evidentiary hearing the District Court will decide what will become of the stecklings.

          On November 2, 2010 the USDA announced that it has prepared a draft environmental assessment (EA) to address a request from interested chemical and seed companies to partially deregulate or provide for some similar administrative action to allow the continued use of Roundup Ready® sugarbeet seed for sugarbeet crops in the US. The proposed EA evaluates three options, including the USDA’s preferred alternative, which would authorize production of Roundup Ready® sugarbeets under strict USDA permit conditions for the 2011 and future sugarbeet crops. The draft EA is available for public comment for 30 days following the announcement, with the USDA intending to analyze all comments received by December 6, 2010, and then deciding whether to grant the supplemental request for partial deregulation.

          According to the USDA, Roundup Ready varieties accounted for about 95% of the planted acres in the 2009/10 crop year. The Company’s 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 100% was grown with Roundup Ready seed.

          Given these actions by the District Court and the uncertain timing or course of USDA action, the Company’s shareholders may not be able to plant Roundup Ready sugarbeets in 2011. The ability of shareholders 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 coalition group that filed suit in January 2008 or other groups. 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 shareholders.

MARKET AND COMPETITION

          Current U.S. Government statistics estimated total United States (“U.S.”) sugar deliveries for domestic food and beverage consumption at 200.0 million cwt refined for its fiscal year beginning October 1, 2009 and ending September 30, 2010 (fiscal year 2010). For the same period ending in 2009 (fiscal year 2009), total deliveries were 194.7 million cwt refined. Comparing the two years shows demand increased by 2.7 percent for U.S. sugar sellers. The U.S. Government estimates that fiscal year 2011 deliveries will total 201.4 million cwt refined, less than a 1 percent increase versus fiscal year 2010.

          Given the size of the domestic market, the Company’s sugar production and sales represent less than 2 percent of the total domestic market for refined sugar in fiscal year 2010. United Sugars Corporation, which sells the Company’s production through a sugar marketing pool, represented approximately 25 percent share of the fiscal year 2010 U.S. sugar market.

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          The U.S. refined sugar market is a mature market and has grown over the past ten years at a rate of slightly less than 1 percent per year. Its growth is affected by the substitution of high fructose corn syrups, artificial and other non-sucrose sweeteners for sugar in beverages and certain food products and imported sugar-containing products. The substitution of non-sugar sweeteners for sugar not only reduced demand for sugar in the United States, but has also resulted in a high degree of sugar industry contraction. Also, sugar companies have been consolidating or closing as a result of marketplace conditions. Since 1996, 13 of the 35 sugarbeet refineries owned by sugar companies have closed. Similar results in that time period can be shown for cane sugar companies, cane raw mills and cane refineries. Today there are seven sugar sellers, with approximately 90 percent of U.S. sugar market share concentrated in the top five sellers, most of which are integrated sugarbeet and sugarcane suppliers. The Company’s main competitors in the domestic market are Imperial Sugar Company, American Sugar Refining Company, Amalgamated Sugar Company and Cargill. Competition in the U.S. sugar industry, because sugar is a fungible commodity, is primarily based upon price, customer service and reliability as a supplier.

GOVERNMENT PROGRAMS AND REGULATION

          Domestic sugar prices are supported under a program administered by the United States Department of Agriculture (“USDA”). Under the current program, which was initiated in 1981 and extended under the Food Security Act of 1985, the Food, Agriculture, Conservation and Trade Act of 1990, the Federal Agriculture Improvement and Reform Act of 1996, the Farm Security and Rural Investment Act of 2002 and now the Food, Conservation, and Energy Act of 2008 (the “Farm Bill”), the price of sugar is required to be maintained above the price at which producers could forfeit sugar to repay non-recourse loans obtained through the Commodity Credit Corporation (“CCC”). The USDA maintains sugar prices without cost to the U.S. Treasury by regulating the quantity of sugar imports. The U.S. currently imports approximately 25 percent of its total domestic needs.

Food, Conservation, and Energy Act of 2008

          The Farm Bill was enacted in June 2008. It contains several provisions related to the domestic sugar industry, with the ultimate goal of such provisions to achieve balance and stability in the U.S. sugar market while minimizing the cost to the Federal government. The Farm Bill applies to the 2008 through 2012-crop years. Generally, the Farm Bill restricts imports of foreign sugar, maintains a non-recourse loan program, and establishes a system of marketing allocations for sugarbeet and sugarcane producers in an attempt to balance the supply and demand for sugar in the U.S. domestic sugar market.

          Under the Farm Bill, sugar processors can borrow funds on a non-recourse basis from the CCC, with repayment of such funds secured by sugar. When the price of sugar drops below the forfeiture price, the processors can forfeit the sugar securing the loans to the CCC in lieu of repayment. Processors may also obtain CCC loans for “in-process” sugar or syrups at 80 percent of the loan rate.

          The USDA has historically maintained sugar prices above the forfeiture price level, without cost to the U.S. Treasury, by regulating the supply of sugar in the U.S. market through the regulation of the quantity of sugar imports and the establishment of an overall allotment quantity for the domestic sugar producers. Under the Tariff Rate Quota (“TRQ”) implemented October 1, 1990, sugar-producing countries are allowed to export a fixed quantity of sugar into the United States duty-free or subject to minimal duties. The amount of the TRQ established by USDA for fiscal year 2011 is 1,231,497 short tons raw value (“STRV”), or the minimum access commitment level under World Trade Organization (“WTO”). In addition, the USDA also set the fiscal year 2011 refined TRQ at 109,251 STRV. Together the initial raw and refined TRQ was set at 80 percent of fiscal year 2011 estimated TRQ entries. In addition, sugar is imported under free trade agreements with other countries, including the North American Free Trade Agreement (“NAFTA”), which includes trade with Canada and Mexico. Mexico is projected by the USDA to export 1,025,000 STRV of sugar to the U.S. in FY 2011. In total, imports from other countries are expected to total 2,058,000 STRV for FY 2011by USDA.

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          The Farm Bill incorporates gradual loan rate increases for raw and refined sugar. For raw sugar, the loan rate will increase three-quarters of a cent per pound, raw value, phased-in in quarter-cent increments over crop years 2009-2011. Raw cane load rates will remain at 18.00 cents/lb in 2008 then rise gradually to 18.75 cents by 2011, and they will remain at 18.75 cents/lb for the 2012 crop year. Refined beet sugar loan rates are set at 23.45 cents/lb for the 2009 crop and thereafter are set at a rate equal to 128.5 percent of the loan rate per pound for raw cane sugar for each of the 2010 through 2012 crop years.

          In order to reduce the risk of sugar forfeitures to the CCC and to provide balance in the marketplace, the Farm Bill establishes annual flexible marketing allotments for both cane and sugarbeet sugar processors. The Farm Bill requires the USDA to set the overall allotment quantity (OAQ) for the U.S. domestic sugar market for each crop year at no less than 85 percent of the estimated quantity of sugar for domestic consumption. Once the USDA has determined the OAQ for a crop year, it then determines each allotment for sugarbeet and sugarcane sugar by multiplying the OAQ by 54.35 percent for beet and 45.65 percent for cane. An individual processor’s allocation of the allotment for a crop year is determined by formula set forth in the Farm Bill. Each domestic processor of sugar, which includes the Company, is provided an allocation whenever allotments are in effect, based upon that formula. Sugarbeet processor allocations are based on each sugar processor’s sugar production history, while sugar cane processor allocations are based on past marketings, ability to market and past processings. The USDA annually establishes individual processor’s allocations.

          Under the Farm Bill, a processor may market sugar in excess of its allocation if such sales (i) enable another processor to meet its allocation, (ii) facilitate the export of sugar or (iii) are made for nonhuman consumption. Or, any sugar in excess of a processor’s allocation may be held until such time that allotments are lifted or additional allocations become available. The USDA can assess a penalty equal to three times the U.S. market value of any quantity of sugar marketed in excess of a processor’s allocation. The Farm Bill and its related regulations do not allow marketing allocations to be traded among processors. The Farm Bill does, however, provide for the transfer of allocations associated with a particular processing facility in the event ownership of the facility is transferred.

          The marketing allotments and allocations set forth under the Farm Bill affect the sugar processed from the 2008 crop through the 2012 crop. On an annual basis, the marketing allotments, and the corresponding allocation to the Company, will determine the amount of sugar the Company can sell into the domestic market. The Company’s allocation may reduce the amount of sugar the Company can market for a given year, thus reducing the number of acres of sugarbeets required for processing. The Company anticipates that it may have to increase or reduce its authorized planted acres each year to more closely match its anticipated allocation of sugar sales. The Company also manages its allocation needs by selling non-allocation sugar to other sugar producers and for non-human consumption needs, which are not counted against allocation sales.

North American Free Trade Agreement

          The North American Free Trade Agreement (“NAFTA”) governs sweetener trade between the U.S. and Mexico. Under the terms of the NAFTA text the agreement established a common market between the United States and Mexico in sugar in 2008. Effective January 1, 2008, under NAFTA, there are no duties or quantitative restraints between the two countries on all sugar and HFCS trade. Sugar from Mexico may enter and be sold in the U.S. in any quantity without the added cost of tariffs.

          The U.S. Government forecasts that Mexico will export 807,000 short tons raw value to the U.S. in 2009-2010, which would represent approximately 7.3 percent of domestic sugar consumption for food and other; and 1,025,000 short tons raw value in 2010-2011, representing approximately 9.3 percent of domestic sugar consumption for food and other. Key variables that ultimately will determine the amount of imports from Mexico include: (1) Mexican production; (2) Mexican high fructose corn syrup use; (3) Mexican third-country imports and possible substitution; (4) Mexican government policy decisions, such as a proposed ethanol program and others that could mitigate or increase exports to the U.S.; (5) domestic U.S. production of beet and cane sugar; and (6) possible U.S. and Mexico government agreement on a rational sugar trade policy, other than what currently exists in the NAFTA. Excessive imports of Mexican sugar could cause material harm to the U.S. sugar market; however, the Company is unable to determine what the level of imports would need to be in order to trigger material harm.

9


          The Company believes the NAFTA may present a potential serious public policy challenge to itself and the domestic sugar industry. Should there be low world raw sugar prices it would be economically viable for Mexican sugar to enter the United States in any year, if the Mexican interests so choose. Since January 1, 2008 there has not been a sugar market disruption due to NAFTA in the U.S. for a variety of reasons; mostly those reasons have to do with the market conditions that currently exist in the U.S. and Mexico, including supply / demand reasons. It is possible that the NAFTA could, in the future, have a material adverse effect on the Company through a reduction in acreage that can be planted by the Company’s shareholders, and/or a reduction in sugar selling prices, and a corresponding reduction in the sugarbeet payment to the shareholders and to the Company earnings. The magnitude of the impact cannot be determined at this time.

World Trade Organization

          Under the General Agreement on Tariffs and Trade Act of 1990 (“GATT”), tariff rate quotas were implemented for certain sugar producing countries that provided for a fixed quantity of sugar imports duty-free or subject to minimal duties. Further, imports of sugar under the tariff rate quota are based upon the difference between domestic sugar consumption and domestic sugar production, with one exception. Under the terms of the GATT the minimum imports of sugar are established at 1,257,000 short tons, raw value. Therefore, even if the difference between domestic sugar consumption and production are less than 1,257,000 short tons, raw value, GATT will require that 1,257,000 short tons be imported into the U.S. from the quota holding foreign countries.

          Unlimited additional quantities may be imported upon payment of a tariff of 15.36 cents per pound of refined sugar prior to shipment. In recent months the price spread between imported and domestic sugar prices has narrowed, resulting in greater high-tier sugar imports. Through July of 2010 fiscal year 2010 high-tier sugar imports totaled 115,700 STRV compared to just 2,204 STRV in the prior year.

          The World Trade Organization (WTO) met in November, 2001 in Doha, Qatar where members launched new multilateral trade negotiations aimed at improving market access, reducing and eventually phasing out all forms of export subsidies and substantial reductions in trade-distorting domestic support. Any agreements reached during the Doha Round could present a threat to the domestic sugar industry because sugar is one of the most highly protected sectors within world agricultural trade and is thus a target for reform.

          The 147 members of the WTO reached an agreement July 31, 2004, on a framework for the final phase of the Doha Development Agenda of global trade talks. The original deadline to complete talks by January 1, 2005, has been postponed a number of times. Talks have stalled repeatedly and currently there appears to be little chance of WTO countries completing the Doha in the short term. The effect of any final WTO agreement on United States farm programs and the sugar program in particular and the Company will depend largely on the details of the agreement, which have not yet been fully negotiated.

Dominican Republic - Central American Free Trade Agreement

          The Dominican Republic - Central American Free Trade Agreement (DR-CAFTA) was signed into law in 2005 and was substantially implemented starting on January 1, 2006. As a result, the Company has seen an increase in the amount of sugar that will be imported into the United States as a result of this agreement. The impact of this trade agreement on the Company will continue to be assessed by taking into consideration this and all of the other agreements that require certain amounts of raw or refined sugar to be imported to the U.S., and the resultant amount of sugar that becomes available for sale in the domestic sugar marketplace. It is possible that the trade agreement could have a material adverse effect on the Company through a reduction in acreage that can be planted by the Company’s shareholders, and/or a reduction in sugar selling prices, and a corresponding reduction in the sugarbeet payment to the shareholders and the Company earnings. The magnitude of the impact cannot be determined at this time.

10


Regional and Bilateral Free Trade Agreements

          The United States government is pursuing additional international trade agreements. It is seeking to negotiate new free trade agreements with a number of countries and regions that are major producers of sugar. The Company believes these agreements, if they reach fruition, could negatively impact the Company’s profitability.

          The primary negotiated or currently being negotiated free trade agreements with countries and regions that are major producers of sugar include, to the Company’s knowledge, the Columbia Free Trade Agreement; the Thailand Free Trade Agreement; the Panama Free Trade Agreement; the Free Trade Area of the Americas; the South African Customs Union Free Trade Agreement, and others. The Columbia Free Trade Agreement and the Panama Free Trade Agreement have been completed, signed, but as yet not been ratified by the U.S. Congress. The Company is uncertain when these two trade agreements will be brought before Congress for a vote. The Company believes these agreements, should they reach fruition, could negatively impact the Company’s profitability. Many of the countries included in these agreements are major sugar producers and exporters. If increases in guaranteed access or reductions in sugar tariffs are included in these agreements, excess sugar from these regions could enter the U.S. market and put pressure on domestic sugar.

          The U.S. sugar industry and the Company recognize the potential negative impact that would result if these agreements were entered into by the United States.

          The impact of the various trade agreements on the Company cannot be assessed at this time due to the uncertainty concerning the terms of the agreements and whether they will ultimately be implemented. It is possible, however, that the passage of various trade agreements could have a material adverse effect on the Company through a reduction in acreage that can be planted by the Company’s shareholders, and/or a reduction in sugar selling prices, and a corresponding reduction in the sugarbeet payment to the shareholders and to the Company earnings. The magnitude of the impact cannot be determined at this time.

          The Farm Bill provides price support provisions for sugar. However, if the price support program including the Tariff Rate Quota system described above were eliminated in its entirety, or if the effectiveness that the United States’ price support program provides from foreign competitors were materially reduced, the Company could be materially and adversely affected. In such a situation if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse affects could impact the Company’s continued viability and the desirability of grower sugarbeets for delivery to the Company.

EMPLOYEES

          As of October 29, 2010, the Company had 313 full time employees, of whom 277 were hourly and 36 were salaried. It also employs approximately 411 additional hourly seasonal workers during the sugarbeet harvest and processing campaign. The Company has a collective bargaining agreement with the Bakery, Confectionery, Tobacco Workers and Grain Millers International Union (AFL-CIO, CLC) for its factory group. The contract became effective June 1, 2005 and continues through May 31, 2011. Office, clerical, Management, truck drivers and harvest employees are not unionized. Full time employees are provided with health, dental and vision insurance, a defined benefit or defined contribution retirement plan, a 401(k) retirement savings plan, a long term disability plan, sick leave plan, term life insurance, vacation plan and holiday pay. Seasonal workers are also provided some of these same employee benefits. The Company considers its employee relations to be excellent.

ABOUT THE COOPERATIVE

          The Company is typically referred to as a “Closed Cooperative”. In a “Closed Cooperative”, members must purchase equity (represented by classes of preferred shares) in a cooperative to acquire the rights to participate in the cooperative’s business, and membership must be approved by the Cooperative’s Board of Directors. The Company requires shareholders to own a Unit of Preferred Stock, which currently entitles a member to grow and deliver a maximum number of acres of sugarbeets per unit as authorized by the Board of Directors for each farming year. See Part II Item 5 for a more detailed explanation.

11


 

 

ITEM 1A.

RISK FACTORS

          If any of the following risks actually occur, the Company’s results of operations, cash flows and the trading price of its common stock could be negatively impacted. Although the Company believes that it has identified and discussed below the key, significant risk factors affecting its business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect its performance or financial condition.

Regional and Bilateral Trade Agreements

          In the event that the United States government enters into bilateral trade agreements with sugar producing countries, the amount of sugar in the domestic sugar market could be impacted. A change in the supply of sugar could put pressure on the price of sugar, which would impact the Company’s profitability.

Government Programs and Regulations; Legislation

          The nature and scope of future legislation and regulation affecting the sugar market cannot be predicted and there can be no assurance that price supports and market protections will continue in their present forms. If the price support programs were eliminated in their entirety, or if certain protections the United States government provides from foreign competitors were materially reduced, the Company could be materially and adversely affected. In such a situation, if the Company were not able to adopt strategies that would allow it to compete effectively in a greatly changed domestic market for sugar, the adverse effects could negatively impact the desirability of growing sugarbeets for delivery to the Company, the Company’s financial results, and the Company’s continued viability.

          Legislation that would significantly increase energy costs, health care costs, or other employee benefit costs could have severe adverse impacts on the financial returns of the Company.

Unregulated Foreign Competition

          Under the current terms of the NAFTA and other government regulations, imports of sugar from Mexico may enter the U.S. market. These imports could oversupply the U.S. market and negatively affect the price of sugar. The Company, along with the domestic sugar industry, closely monitors the level of imported sugar coming from Mexico and is consulting with the U.S. government to encourage improved data reporting and continued consultation with the Mexican government relating to sugar trade.

The Farm Bill

          The impact of the Farm Bill on the operations of the Company cannot be completely predicted. The long-term ramifications of the marketing allotment and allocation program depend on the Company’s base allocation received on an annual basis and its ability to obtain access, if necessary, to additional allocations at a reasonable price.

Operating Expenses and Sugar Prices

          The Company has an ongoing strategy of maximizing profitability by controlling operating expenses and maximizing production of sugar. This strategy is necessary because the price of sugar has historically remained within a fairly narrow government program controlled price range. The strategy includes ongoing activities that include constant review of costs and a capital expenditure program that emphasizes efficiencies through cost reduction or production increases. The Company cannot be assured that its continued efforts in this area will result in its continued or increased profitability.

12


          The Company consumes large quantities of energy in its operations. The Company annually consumes coal, electricity, metallurgical coke, diesel fuel, and natural gas; therefore significant changes in energy prices would have a significant effect on the operating costs of the Company. The Company also consumes operating supplies whose costs are impacted by the price of energy, and therefore the price to the Company. The Company has a strategy to purchase its energy needs and operating supplies as cheaply as possible through long-term contracts, volume purchases and competitive bidding.

Inability to compete in the sweetener market, could affect operating results.

          Sugar is a fungible commodity with competition for sales volume based primarily upon price, customer service and reliability. The sweetener market, in addition to sugar, includes corn-based sweeteners, such as regular and high fructose corn syrups, and non-nutritive, high-intensity sweeteners such as aspartame. Differences in functional properties and prices have tended to define the use of these various sweeteners. Although the various sweeteners are not interchangeable in all applications, the substitution of other sweeteners for sugar has occurred in certain products, such as soft drinks. The Company cannot predict the availability, development or potential use of these and other alternative sweeteners and their possible impact on it or its members. The Company believes that it possesses the ability to compete successfully with other producers of sugar in the United States. In spite of that, substitute products could reduce the demand for sugar which could lower the price of sugar, resulting in reduced profitability in the future.

          The Company’s Board of Directors authorized the planting of Roundup Ready® sugarbeets beginning with the 2008 crop. Sugar and co-products produced from Roundup Ready® sugarbeets have received regulatory approval in most of the countries in which the Company has direct or indirect sales of our products. While the sale of sugar and co-products from Roundup Ready® sugarbeet seed has been approved in most markets, marketing risks still exist. United Sugars Corporation and Midwest Agri-Commodities, its sugar and co-product marketing agents, respectively, feel they can successfully sell and distribute products from Roundup Ready® sugarbeets with minimal affect on the Company’s revenue. However, customers’ views on the use of products from biotechnology derived crops such as Roundup Ready® sugarbeets may change over time which could negatively impact the Company’s profitability.

Beet Seed Availability

          On January 24, 2008, the Center for Food Safety along with other groups filed a lawsuit against the USDA indicating that, a full environmental impact study (EIS) should have been completed before it made the decision to deregulate Roundup Ready® sugarbeets. On September 21, 2009 the U.S. District Court (Court) ruled against the USDA finding that the USDA violated federal law by not preparing an Environmental Impact Statement before deregulating Roundup Ready® sugarbeets. The Court has determined that the USDA now needs to prepare a full Environmental Impact Statement. 

          A District Court hearing on interim remedies for the September 21, 2009 decision was held on August 13, 2010, and following the hearing issued a ruling confirming the ability of the shareholders to harvest the 2010 root crop even though it was produced primarily from Roundup Ready® sugarbeet seed. In addition, the District Court immediately vacated the original decision by USDA to deregulate the use of Roundup Ready® sugarbeet seed. As a result, the planting of Roundup Ready® sugarbeet seed after August 13, 2010 is prohibited until further action is taken by USDA, in accordance with applicable law, to allow planting of Roundup Ready® sugarbeet seed. 

          In September 2010 USDA, under existing regulatory authority, issued permits to commercial sugarbeet seed companies to plant root crop seed, or stecklings, for the purpose of possible commercial seed availability for the 2012 crop and beyond. That move was immediately challenged in court by the Center for Food Safety along with other groups. An evidentiary hearing took place November 2-4, 2010 to hear arguments by the plaintiffs and defendant (USDA) regarding the U.S. District Court’s finding that the sugarbeet seed stecklings “likely” should not have been planted. Following the evidentiary hearing The Court will decide what will become of the stecklings.

13


          On November 2, 2010 the USDA announced that it has prepared a draft environmental assessment (EA) to address a request from interested chemical and seed companies to partially deregulate or provide for some similar administrative action to allow the continued use of Roundup Ready® sugarbeet seed for sugarbeet crops in the US. The proposed EA evaluates three options, including the USDA’s preferred alternative, which would authorize production of Roundup Ready® sugarbeets under strict USDA permit conditions for the 2011 and future sugarbeet crops. The draft EA is available for public comment for 30 days following the announcement, with the USDA intending to analyze all comments received by December 6, 2010, and then deciding whether to grant the supplemental request for partial deregulation. A lawyer for the Center for Food Safety has been quoted recently as saying that as soon as the USDA issues any new approvals for genetically modified sugar beet planting in 2011 her group will challenge it in court.

          Given the recent Court rulings, and the uncertain timing of USDA action, if any, and continued litigation attempts by certain groups that oppose the growing of sugarbeets using Roundup Ready® sugarbeet seed, it is possible that the Company’s shareholders may not be able to plant Roundup Ready® sugarbeets in 2011. The ability of shareholders to plant Roundup Ready® sugarbeets in subsequent years will be determined as a final matter based on the outcome of the EIS and further decision by USDA. The USDA is currently developing the EIS, which it says is expected to be completed by the end of May 2012.

          If the Court restricts planting in 2011 of Roundup Ready® sugarbeet seed, conventional varieties would need to be utilized, which could have a negative impact on the sugarbeet producers’ crop yields. Chemical manufacturers have significantly reduced planned production of conventional herbicides due to the rapid increase in planting of Roundup Ready® sugarbeets. Weed control for conventional varieties could be difficult if there is an inadequate supply of conventional herbicides. Therefore, the risk of Roundup Ready® sugarbeet restrictions could have a significant, negative financial impact to the Company and to its members.

Weather and Other Factors

          The sugarbeet, as with most other crops, is affected by weather conditions during the growing and harvesting seasons. Additionally, weather conditions during the processing season affect the Company’s ability to store sugarbeets held for processing. Growing and storage conditions different from the Company’s expectations may change the quantity and quality of sugarbeets available for processing and therefore may affect the quantity of sugar produced by the Company. A significant reduction in the quantity or quality of sugarbeets harvested resulting from adverse weather conditions, disease (such as rhizomania) or other factors could result in increased per unit processing costs and decreased production, with adverse financial consequences to the Company and its members.

Increased profitability of alternative crops could adversely affect the desirability of growing sugarbeets.

          The prices growers receive from crops other than sugarbeets could impact their decisions as to which crop to plant and how much to plant. Higher prices and increased profitability for alternative crops could negatively impact the desirability of growing sugarbeets for delivery to the Company for processing, its financial results and its continued viability.

 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

          None.

14


 

 

ITEM 2.

PROPERTIES

          The Company operates a single sugarbeet processing factory at Wahpeton, North Dakota that is located in the Red River Valley area of Minnesota-North Dakota. The Company owns the factory, receiving sites, and the land on which they are located. The Corporate office is located at the factory site at Wahpeton, ND.

          The properties are adequate to process normal and above normal crop sizes, and for the last three years have averaged a slice rate of 9,183 tons per day. The 2010-crop is the largest tonnage in the history of the Company, amounting to approximately 3,108,000 tons of sugarbeets. If the Company encounters normal weather patterns, which will in turn provide normal long-term sugarbeet storage conditions and if the beets harvested are of good quality, healthy and low in tare, then it does not anticipate having material difficulties in processing crops equal in size to the 2010-crop. Achievement of the levels of slice and sugar production in the factory is due mostly to the quality of the crop and the Company’s effort to maximize the potential production from a crop.

          Minn-Dak Yeast Company (MDYC), of which the Company is a 100 percent owner, operates a single factory yeast manufacturing business at Wahpeton, North Dakota. MDYC owns the factory and the land on which it is located. During fiscal 2010, fresh yeast was produced and sold into the domestic yeast marketplace.

          All properties are held subject to a mortgage by the Company’s primary lender.

 

 

ITEM 3.

LEGAL PROCEEDINGS

          From time to time and in the ordinary course of its business, the Company is named as a defendant in legal proceedings related to various issues, including worker’s compensation claims, tort claims and contractual disputes. Other than as provided herein, the Company is not currently involved in legal proceedings that have arisen in the ordinary course of its business, and the Company is also unaware of certain other potential claims that could result in the commencement of legal proceedings. The Company carries insurance that provides protection against certain types of claims.

          The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an ongoing and expanding control program designed to meet these environmental laws and regulations. As disclosed under “ENVIRONMENTAL MATTERS” above, there currently are no pending regulatory enforcement actions and the Company believes that it is in substantial compliance with applicable environmental laws and regulations.

 

 

ITEM 4.

[REMOVED AND RESERVED]

PART II

 

 

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

SHAREHOLDER STOCK VALUE

          The Company is typically referred to as a “closed cooperative.” In a “closed cooperative”, members must purchase equity (represented by classes of preferred shares) in a cooperative to acquire the rights to participate in the cooperative’s business, and membership must be approved by the Company’s Board of Directors.

15


          The Company’s equity consists of common stock and preferred stock. The Company’s preferred stock consists of Class A preferred stock, Class B preferred stock and Class C preferred stock, with one share of each class of preferred stock constituting a “unit” of preferred stock.

          There is no established public market for the Company’s common equity and it is unlikely that a public market for the Company’s equity will develop in the foreseeable future. Transfer of shares, if any, is subject to significant restriction, including the approval of the Company’s Board of Directors and the requirement that preferred stock must be transferred together.

          Holders of the Company’s common stock are entitled to share in the Company’s profits and losses based upon sugar delivered, to receive distributions of the Company’s net cash flow when declared by the Board of Directors, to participate in the distribution of the Company’s assets if it dissolves or liquidates, and, to vote on matters submitted to a vote of the Company’s members. Under state law and the Company’s Bylaws, each member of the Company is entitled to one vote, regardless of the number of shares the member holds. Holders of the Company’s common stock are committed under Uniform Delivery and Marketing Agreements to grow and deliver a minimum and maximum number of acres of sugarbeets per unit of preferred stock as authorized by the Board of Directors for each farming year. The Company’s common stock and preferred stock may be held only by farmer-producers who are eligible for membership in the Company and may only be transferred with the consent of the Board of Directors of the Company.

          The Company has never declared a dividend. The Company distributes its patronage based upon net margins in the form of qualified or non-qualified allocated patronage using the sugar delivered for the crop year as the distribution factor.

          As of November 24, 2010, 477 shares of the Company’s Common Stock and 72,200 “units” of the Company’s Preferred Stock, each consisting of 1 share of Class A Preferred Stock, 1 share of Class B Preferred Stock and 1 share of Class C Preferred Stock, were outstanding.

          The Company has not made any repurchases of its securities in the fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.

16



 

 

ITEM 6.

SELECTED FINANCIAL DATA

The following table summarizes selected financial data for each of the last five fiscal years. The selected financial data of the Company should be read in conjunction with the financial statements and related notes included elsewhere in this report.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended August 31,

 

FINANCIAL DATA

 

2010

 

2009

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

214,312

 

$

225,034

 

$

243,573

 

$

278,571

 

$

176,967

 

Distribution of net proceeds (1)

 

 

100,233

 

 

96,053

 

 

110,863

 

 

148,415

 

 

76,096

 

Total assets

 

 

197,065

 

 

179,884

 

 

177,063

 

 

177,666

 

 

163,129

 

Long-term debt, including current maturities

 

 

40,907

 

 

38,545

 

 

31,872

 

 

36,931

 

 

42,008

 

Members’ investment (2)

 

 

71,274

 

 

76,143

 

 

84,016

 

 

83,373

 

 

83,951

 

Property and equipment additions, net of retirements

 

 

8,283

 

 

9,246

 

 

8,560

 

 

4,947

 

 

4,426

 

Working capital

 

 

13,688

 

 

13,387

 

 

10,163

 

 

13,265

 

 

14,025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RATIOS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Ratio of long-term debt to equity (3)

 

 

.53

 

 

.44

 

 

.32

 

 

.39

 

 

.45

 

Ratio of net proceeds to fixed charges (4)

 

 

51.82

 

 

48.64

 

 

35.36

 

 

35.56

 

 

22.50

 

Current ratio

 

 

1.20

 

 

1.24

 

 

1.17

 

 

1.23

 

 

1.36

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PRODUCTION DATA (5)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Acres harvested (members)

 

 

97,247

 

 

75,097

 

 

107,649

 

 

116,646

 

 

102,121

 

Tons of sugarbeets purchased (members)

 

 

2,010,071

 

 

1,863,920

 

 

2,208,622

 

 

3,019,475

 

 

1,810,269

 

Tons purchased per acre harvested

 

 

20.66

 

 

24.82

 

 

20.52

 

 

25.89

 

 

17.73

 

Payment to members per ton of sugarbeets delivered, plus allocated patronage and unit retains (6)

 

$

49.29

 

$

51.35

 

$

48.96

 

$

49.06

 

$

41.89

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sugar (cwts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced (from member, tolled and purchased sugarbeets)

 

 

5,218,993

 

 

5,427,888

 

 

6,914,346

 

 

7,822,687

 

 

4,848,804

 

Sold (includes purchased sugar)

 

 

5,032,891

 

 

5,834,662

 

 

7,060,619

 

 

7,301,360

 

 

4,844,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beet pulp pellets (tons):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

 

112,048

 

 

102,073

 

 

107,600

 

 

147,888

 

 

101,328

 

Sold

 

 

115,529

 

 

90,715

 

 

106,006

 

 

151,791

 

 

105,138

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beet molasses (tons):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

 

95,572

 

 

87,647

 

 

99,349

 

 

130,878

 

 

79,599

 

Sold

 

 

70,739

 

 

61,240

 

 

87,803

 

 

88,652

 

 

47,007

 

Used for Yeast Subsidiary Production

 

 

28,494

 

 

23,531

 

 

25,307

 

 

31,513

 

 

21,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Yeast (pounds, in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Produced

 

 

38,774

 

 

35,975

 

 

37,436

 

 

39,248

 

 

34,787

 

Sold

 

 

38,805

 

 

36,071

 

 

37,436

 

 

39,152

 

 

34,670

 

17


(1)     Net Proceeds are the Company’s gross revenues, less the costs and expenses of producing, purchasing and marketing sugar, sugar co-products, and yeast, but before payments to members for sugarbeets. (For a more complete description of the calculation of Net Proceeds, see “Description of Business-Growers’ Agreements”.)

(2)     Members’ investment includes preferred and common stock, unit retention capital, allocated patronage and retained earnings.

(3)     Calculated by dividing the Company’s long-term debt, exclusive of the current maturities of such debt, by equity.

(4)     Computed by dividing (i) the sum of Net Proceeds plus fixed charges, plus amortization of capitalized interest by (ii) the sum of interest expense and interest capitalized. The Company does lease certain items, such as some office equipment. Due to the proportionately small amounts involved, an interest factor on lease payments has not been included in the total of the Company’s fixed charges or the calculation of this ratio. See Exhibit 12.

(5)     Information for a fiscal year relates to the crop planted and harvested in the preceding calendar year (e.g., information for the fiscal year ended August 31, 2010, relates to the 2009 crop).

(6)     Reflects the total amount paid in cash and allocated to individual grower equity accounts for each ton of sugarbeets delivered.

 

 

ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Company’s financial statements and notes included elsewhere in this Report. This discussion contains forward-looking statements that involve risks and uncertainties. The Company’s actual future results may differ materially from those anticipated in the forward-looking statements contained in this section; such differences could arise as a result of a variety of factors including, but not limited to, the market and regulatory factors described elsewhere in this Report.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

          Preparation of the Company’s consolidated financial statements requires estimates and judgments to be made that affect the amounts of assets, liabilities, revenues and expenses reported. Such decisions include the selection of the appropriate accounting principles to be applied and the assumptions on which to base accounting estimates. Management continually evaluates these estimates based on historical experience and other assumptions it believes to be reasonable under the circumstances.

          The difficulty in applying these policies arises from the assumptions, estimates and judgments that have to be made currently about matters that are inherently uncertain, such as future economic conditions, operating results and valuations as well as management intentions. As the difficulty of the assumptions, estimates and judgments increases, the level of precision decreases, meaning that actual results could be different from those currently estimated.

          Estimates are considered to be critical if they meet both of the following criteria: (1) the estimate requires assumptions about material matters that are uncertain at the time the accounting estimates are made, and (2) other materially different estimates could have been reasonably made or material changes in the estimates are reasonably likely to occur from period to period. The Company’s critical accounting estimates include the following:

18


Subsidiaries

          Subsidiaries that are controlled by the Company are consolidated in the Company’s financial statements. The Company has created and capitalized a wholly owned subsidiary called Link Acquisition Company LLC on December 18, 2008, which was formed to advance possible strategic business activities by the Company.

Inventory Valuation

          Inventories of refined sugar, sugar thick juice and 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. 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 growers, but not yet converted into granulated sugar or sugar thick juice, that inventory is valued at grower payment cost. In valuing inventories at net realizable value, the Company, in effect sells the remaining inventory to the subsequent periods sugar and co-product pool. The Company derives its estimates from sales contracts, recent sales and evaluations of market conditions and trends. Changes in market conditions may cause estimates to differ from actual results.

Property and Equipment, Property and Equipment Held for Lease, and Depreciation

          Property and equipment, and property and equipment held for lease are depreciated for financial reporting purposes principally using straight-line methods with estimated useful lives ranging from 3 to 40 years. Economic circumstances or other factors may cause management’s estimates of expected useful lives to differ from actual.

          The Company reviews its property and equipment, and property and equipment held for lease for impairment whenever events indicate that the carrying amount of the asset may not be recoverable. An impairment loss is recorded when the sum of the future cash flows is less than the carrying amount of the asset. An impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value. There were no impairment losses incurred during the fiscal years covered by this report. However, considerable management judgment is necessary to estimate future cash flows, which may differ from actual results.

Defined Benefit Pension Plan

          The Company maintains and administers a non-contributory defined benefit pension plan. The annual cost of this plan can be significantly affected by changes in assumptions and differences between expected and actual experience. The Company utilizes actuarial methods required by FASB ASC 715, “Employers’ Accounting for Pensions,” to account for its defined benefit pension plan. The actuarial methods require numerous assumptions to calculate the net periodic pension benefit expense and the related projected benefit obligations for our defined benefit pension plan. Three of the most significant assumptions are the discount rates, expected long-term rate of return on plan assets and rate of total compensation increase. In making these assumptions, the Company is required to consider current market conditions, including changes in interest assumptions.

Income Taxes

          The Company is a nonexempt cooperative as described under Section 1381(a)(2) of the Internal Revenue Code of 1986. Accordingly, net margins from business done with member patrons, which are allocated and distributed as prescribed in Section 1382 of the Code, will be taxable to the members and not to the Company. To the extent that net margins are not allocated and paid as stated above or arise from non-patronage business, the Company shall have taxable income subject to corporate income tax rates.

          Determining the consolidated provision for income tax expense, income tax liabilities and deferred tax assets and liabilities involves judgment. The Company calculates income taxes in each of the tax jurisdictions in which it operates. This involves estimating current tax liability in each jurisdiction as well as making judgments regarding the valuation of deferred tax assets. Tax liabilities can involve complex issues and may require an extended period to resolve.

19


          On September 1, 2007 The Company adopted the provisions of FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109”. FASB ASC 740-10 prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. FASB ASC 740-10 requires that the company determine whether the benefits of tax positions are more likely than not of being sustained upon audit based upon the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is more likely than not of being sustained in our financial statements. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit in its financial statements.

          The Company has no outstanding uncertain income tax positions as of November 24, 2010.

Fair Value Measurements

          Investments - The investments in CoBank, Dakota Valley Electric Cooperative, Inc. and all other cooperatives are stated at cost, plus the cooperative’s share of allocated patronage and capital credits. The investments in United Sugars Corporation and Midwest Agri-Commodities are accounted for using the equity method, wherein the investments are recorded at the amount of the underlying equity in the net assets of the investments and adjusted to recognize the cooperative’s share of the undistributed earnings or losses. The Company believes it is not practicable to estimate the fair value without incurring excessive costs because there is no established market for this stock and it is inappropriate to estimate future cash flows, which are largely dependent on future patronage earnings of the investment.

          Long-term debt and bonds payable - The fair value of obligations under long-term debt and bonds payable are estimated based on the quoted market prices for similar issues or on the current rates offered for debt of similar maturities. The carrying amount on the financial statements approximates fair market value.

          Pension assets – The fair value of pension assets involve all Level 1 inputs.

Accumulated Other Comprehensive Income (Loss)

          The Company accounts for Other Comprehensive Income(Loss) using activities from the Company as well as its pro-rata share of activity from its marketing subsidiaries.

Deferred Costs and Product Values

          The Company defers the economic costs and benefits to the following fiscal year if they are associated with the crop accounted for in that fiscal year. This matching principle is consistently applied from year to year.

LIQUIDITY AND CAPITAL RESOURCES

          Because the Company operates as a cooperative, payment for member-delivered sugarbeets, the principal raw material used in producing the sugar and co-products it sells, are subordinated to all member business expenses. In addition, actual cash payments to members are spread over a period of approximately one year following delivery of sugarbeet crops to the Company and are net of unit retains and patronage allocated to them, both of which remain available to meet the Company’s capital requirements. This member financing arrangement may result in an additional source of liquidity and reduced outside financing requirements in comparison to a similar business operated on a non-cooperative basis. However, because sugar is sold throughout the year (while sugarbeets are processed primarily between September and April) and because substantial amounts of equipment are required for its operations, the Company has utilized substantial outside financing on both a seasonal and long-term basis to fund such operations. The short and long-term financing has been primarily provided by CoBank (the “Bank”). As of August 31, 2010, the Company had a seasonal line of credit totaling $45.0 million through December 31, 2010, of which $17.4 million was available as of August 31, 2010. The Company also has available the USDA Sugar Loan Provisions contained in the 2008 Farm Bill to provide an additional source of seasonal financing for the current and future crops. On November 15, 2010, the Company and its Bank agreed to a new seasonal line of credit totaling $85.0 million through May 31, 2011, then reduced to $45.0 million through December 31, 2011. The significant increase in the seasonal line of credit was directly related to the increased anticipated grower payments for the 2010-crop.

20



          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 of August 31, 2010 the Company was in compliance with its loan agreement covenants with the Bank.

          Net Cash provided by operations totaled $8.2 million for the year ended August 31, 2010, compared to $12.3 million for the previous year. This decrease of $4.1 million was primarily due to the following changes:

 

 

 

 

 

Income allocated to member investment

 

$

1.1

 million

Accumulated other comprehensive loss

 

 

1.9

 

Depreciation and Amortization

 

 

0.8

 

Non-cash portion of capital credits

 

 

1.0

 

Inventory and Prepaid Expenses

 

 

(6.4

)

Deferred charges

 

 

(3.0

)

All other factors

 

 

0.5

 

 

 

 

 

 

Total

 

$

4.1

 

          The net cash used in investing activities totaled $7.7 million for the year ended August 31, 2010, compared to $7.2 million for the previous year. The increase of $0.5 million was primarily due to a $1.1 million increase in capital adjustments to unconsolidated marketing cooperatives, caused by FASB ASC 220 activities, offset by $0.8 million in reduced capital expenditures and $0.2 million from other factors.

          The net cash used in financing activities totaled $0.5 million for the year ended August 31, 2010 compared to $5.2 million for the previous year. This decrease of $4.7 million was primarily due to a $14.0 million increase in short term debt obligations offset by a $10.0 million difference in additional long-term debt, all other factors totaling $0.7 million.

          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. On November 15, 2010, the Company obtained a new seasonal line of credit necessary for the large 2010 crop.

          Working capital increased $0.3 million for fiscal year 2010. The Company funds its capital expenditure and debt retirement needs primarily from operating activities. As of August 31, 2010 the Company had approximately 6 years of long-term debt remaining with the Bank and it has two tax exempt bond issues with single payment requirements, one for $12.4 million due February 1, 2023 and one for $7.0 million due February 1, 2025.

          Capital expenditures for the years ended August 31, 2010, 2009 and 2008 totaled $8.0 million, $8.8 million, and $8.0 million respectively. The Company’s purchase of equipment by issuance of capital lease debt for the years ended August 31, 2010, 2009, and 2008 totaled $0.4 million $2.4 million and $0.7 million respectively.

21


          Capital expenditures for fiscal year 2011 have been approved at $19.2 million. The Company has secured the right, but not the obligation to obtain $8.8 million of additional tax exempt bonds to finance additional capital expenditures. The capital expenditures are for normal efficiency, improved beet storage, improved rail facilities, safety and replacement activities. Failure by the Company to make capital expenditures over a period of years would 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 Company’s facility at Wahpeton, ND.

Payments Due by Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual Obligations (in millions)

 

 

Total

 

Less Than
1
Year

 

1 – 3 Years

 

4 –5 Years

 

After 5
Years

 

Long-Term Debt

 

$

19.1

 

$

2.5

 

$

10.0

 

$

6.6

 

$

0.0

 

Bonds Payable

 

 

19.2

 

 

0.0

 

 

0.0

 

 

0.0

 

 

19.2

 

Capital Leases

 

 

2.6

 

 

0.5

 

 

1.4

 

 

0.7

 

 

0.0

 

Unconditional Purchase Obligations

 

 

4.8

 

 

1.6

 

 

3.2

 

 

0.0

 

 

0.0

 

Other Long-Term Obligations - Pension

 

 

19.6

 

 

1.8

 

 

5.4

 

 

3.6

 

 

8.8

 

Total Long Term Obligations

 

$

65.3

 

$

6.4

 

$

20.0

 

$

10.9

 

$

28.0

 

Interest on Long Term Debt & Bond

 

 

10.9

 

 

1.1

 

 

2.8

 

 

1.6

 

 

5.4

 

Operating Leases

 

 

0.2

 

 

0.1

 

 

0.1

 

 

0.0

 

 

0.0

 

Total Contractual Obligations

 

$

76.4

 

$

7.6

 

$

22.9

 

$

12.5

 

$

33.4

 

          The Company is not aware of any known trends, demands, commitments, events or uncertainties that will likely result in the Company’s 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.

RESULTS OF OPERATIONS

Comparison of the years ended August 31, 2010 and 2009

          Net payments to members for sugarbeets delivered by the shareholder/growers, increased by $3.1 million or 3 percent in fiscal year 2010 and totaled $95.1 million. As of August 31, 2010, the Board of Directors authorized the payment of prior years’ member patronage and per unit retains (including equity payments to estates of deceased shareholders) totaling $4.0 million to shareholders compared to $3.7 million in the previous year. The payment of $4.0 million will leave approximately 4.7 years of prior years’ patronage and per unit retains withheld, the same as the prior year.

          Revenues for the year ended August 31, 2010 were comprised of Sugar 81 percent, Pulp 7 percent, Yeast 7 percent and Molasses 5 percent.

22


          Consolidated revenue for the year ended August 31, 2010, decreased $10.7 million or 4.8 percent from 2009. Revenue from total sugar sales decreased $7.3 million or 4.0 percent reflecting a 13.9 percent decrease in cwt. sold, and a 9.9 percent increase in the average net selling price per cwt. Revenue from pulp decreased $2.1 million or 10.6 percent reflecting a 36.5 percent decrease in the average net selling price per ton and a 25.9 percent increase in tons sold. Revenue from molasses sales increased $2.2 million or 21.8 percent reflecting a 6.3 percent increase in the average net selling price per ton and a 15.5 percent increase in tons sold. The decrease in volume of sugar sold is attributable a slightly larger 2009 crop, offset by fewer outside purchased sugarbeets and the addition of tolling of sugarbeets (rather than purchase) for another processor, when compared to the 2008 crop of sugarbeets delivered by shareholder/growers. The increase in volume of co-products sold is attributable to a slightly larger 2009 crop and the addition of tolling of sugarbeets for another processor (co-products were included in the pricing structure of the transaction), offset some by fewer outside purchased sugarbeets.

          Revenues from yeast sales increased $1.6 million or 11.4 percent reflecting an increase in volume of 7.6 percent, and an increase in the average net selling price of 3.8 percent. Sales volume increased due to existing customers’ increased demand for yeast. Selling prices increased due to general market conditions.

          The value of finished product inventories in fiscal year 2010 decreased $6.5 million from fiscal year 2009, $5.1 million more than the prior year decrease, mostly the result of a decrease in the volume of ending sugar inventory. Sugar inventory was lower due to a high demand of available sugar in the domestic marketplace.

          Expenses decreased $10.5 million; $10.2 million due to a decrease in the cost of purchased sugarbeets, $2.9 million due to reduced Sales and Distribution Costs, offset by $2.5 million in increased costs of operations. Higher than normal harvest tare (mostly dirt) was a significant contributor to the higher costs of operations. Overall consolidated expenses, exclusive of grower payments for sugarbeets and cost of non-member purchased sugarbeets, decreased $0.3 million or less than one percent. Minn-Dak Farmers Cooperative (MDFC) expenses decreased $0.4 million, while Minn-Dak Yeast Company (MDYC) expenses, after eliminations, increased $0.1 million.

          The production cost per cwt. of sugar produced increased 8 percent versus the prior year due to a combination of a 4 percent decrease in sugar produced with less than a 1 percent decrease in total costs.

          Sales and Distribution costs decreased $2.9 million or 7 percent. Decreases are mainly the result of the reduction in the production and sale of finished goods from purchased and tolled sugarbeets. General and Administrative expenses increased less than $0.1 million or less than 1 percent. Interest expense decreased less than $0.1 million or 2 percent, reflecting a decreased rate of interest and a lower level of term bank debt; offset some by higher levels of seasonal debt and tax exempt bond debt financing.

          Other business income before income taxes increased $5.3 million in fiscal year 2010 due primarily to revenue generated for tolling another sugar processor’s sugarbeets. Income taxes in fiscal year 2010 were a direct result of the tolling business activity.

Comparison of the years ended August 31, 2009 and 2008

          Net payments to members for sugarbeets delivered by the shareholder/growers, decreased by $11.0 million or 11 percent in fiscal year 2009 and totaled $92.0 million. As of August 31, 2009, the Board of Directors authorized the payment of prior years’ member patronage and per unit retains (including equity payments to estates of deceased shareholders) totaling $3.7 million to shareholders compared to $4.4 million in the previous year. The payment of $3.7 million will leave approximately 4.7 years of prior years’ patronage and per unit retains withheld versus the prior year of 4.5 years withheld.

          Revenues for the year ended August 31, 2009 were comprised of Sugar 79 percent, Pulp 10 percent, Yeast 6 percent and Molasses 5 percent.

          Consolidated revenue for the year ended August 31, 2009, decreased $18.5 million or 7.6 percent from 2008. Revenue from total sugar sales decreased $23.0 million or 11.1 percent reflecting a 17.6 percent decrease in cwt. sold, and a 6.5 percent increase in the average net selling price per cwt. Revenue from pulp increased $2.5 million or 14.5 percent reflecting a 38.1 percent increase in the average net selling price per ton and a 23.6 percent decrease in tons. Revenue from molasses sales decreased $1.6 million or 13.9 percent reflecting a 16.3 percent increase in the average net selling price per ton and a 30.2 percent decrease in tons sold. The decrease in volume of sugar and co-products sold from the 2008-crop is attributable to the smaller crop size, including purchased beets from a neighboring sugarbeet cooperative, and quality when compared to the 2007 crop of beets delivered by shareholder/growers.

23


          Revenues from yeast sales increased 4.0 percent reflecting a decrease in volume of 3.6 percent, and an increase in the average net selling price of 7.6 percent. Selling prices increased due to a reflection of higher costs in the industry, which was passed on to the customers.

          The value of finished product inventories in fiscal year 2009 decreased $1.4 million from fiscal year 2008, mostly the result of a decrease in the volume of ending sugar inventory. Sugar inventory was lower due to a high demand of available sugar in the domestic marketplace.

          Of the $5.4 million decrease in the MDFC expenses, the cost of operations increased $1.2 million, or 2 percent due to a smaller volume of sugarbeets processed in a higher cost environment vs. the 2007-crop.

          Expenses, exclusive of grower payments for sugarbeets and cost of non-member purchased beets, decreased $5.4 million or 2 percent. Minn-Dak Farmers Cooperative (MDFC) expenses decreased $5.5 million, while Minn-Dak Yeast Company expenses, after eliminations, increased $0.1 million.

          The production cost per cwt. of sugar produced increased 30 percent versus the prior year due to a combination of a 22 percent decrease in sugar produced with only a corresponding 4 percent decrease in total costs.

          Sales and Distribution costs decreased $5.4 million or 11 percent. Decreases are mainly the result of the reduction in the production and sale of finished goods from the smaller sugarbeet crop. General and Administrative expenses decreased $0.2 million or 3 percent. Employee costs were the primary reasons for the decrease. Interest expense decreased $1.2 million or 37 percent, reflecting a lower level of seasonal debt and a decreased rate of interest, offset some by a higher level of term debt.

          Other business income before income taxes increased $1.1 million in fiscal year 2009 due primarily to a combination of the settlement of a lawsuit and the gain on sale of equipment. Income taxes decreased by $1.7 million in fiscal year 2009 vs. fiscal year 2008. Income taxes in fiscal year 2008 were a direct result of the purchase of non-member sugarbeets from a neighboring sugarbeet processor.

Comparison of the years ended August 31, 2008 and 2007

          Net payments to members for sugarbeets delivered by the shareholder/growers, decreased by $37.6 million or 27 percent in fiscal year 2008 and totaled $103.0 million. As of August 31, 2008, the board of directors authorized payment to shareholders for prior years’ member patronage and per unit retains (including equity payments to estates of deceased shareholders) totaling $4.4 million compared to $6.0 million in the previous year. The payment of $4.4 million will leave approximately 4.5 years of prior years’ patronage and per unit retains still outstanding – the same as the prior year.

          Revenues for the year ended August 31, 2008 were comprised of Sugar 83 percent, Pulp 7 percent, Yeast 6 percent and Molasses 4 percent.

          Consolidated revenue for the year ended August 31, 2008, decreased 12.6 percent or $35.0 million from 2007. Revenue from total sugar sales decreased $16.0 million or 7.2 percent, reflecting a 2.8 percent decrease in cwt. sold and a 4.4 percent decrease in the average net selling price per cwt. Revenue from co-products decreased 7.8 percent, reflecting a decrease of 19.4 percent in volume and an 11.6 percent increase in the average selling price per ton. The decrease in volume of sugar and co-products sold from the 2007-crop is attributable to the smaller crop size, including the non-member purchased beets; with reduced production of sugar being offset slightly by higher quality sugarbeets processed.

24


          Revenues from yeast sales increased 2 percent reflecting a decrease in volume of 4.4 percent, and an increase in the average net selling price of 6.4 percent. Increased selling prices were necessary to help defray a portion of substantial increases in operating materials and shipping costs experienced in the production and sale of yeast.

          The value of finished product inventories in fiscal year 2008 decreased $4.4 million from fiscal year 2007, mostly the result of a decrease in the volume of ending sugar inventory. Sugar inventory was lower due to the timing of contract off-take from customers.

          All expenses, exclusive of grower payments for sugarbeets and cost of non-member purchased beets, decreased $4.9 million or 4 percent. Minn-Dak Farmers Cooperative (MDFC) expenses decreased $5.4 million, while Minn-Dak Yeast Company expenses, after eliminations, increased $0.5 million.

          The cost per cwt. of sugar produced increased 9 percent versus the prior year due to factory maintenance costs being higher than normal in the areas of solid waste disposal and the lime kiln, and fixed costs on a per unit basis exceeding that of the prior year due to the record crop processed in fiscal year 2007.

          Of the $5.4 million decrease in the MDFC expenses, the cost of operations decreased $2.5 million, or 4 percent due to the smaller volume of sugarbeets processed versus the record 2006-crop, including the record length of the 2006-crop processing period.

          Sales and Distribution costs decreased $1.8 million or 4 percent. Decreases are mainly the result of the reduction in the production and sale of finished goods from the smaller sugarbeet crop and reduced cost of sugar marketing allocations. Sugar marketing allocation costs decreased $3.4 million, or 54 percent due to the smaller amount of allocation needed for the marketing of the 2007 crop versus the record volume 2006 crop. General and Administrative expenses increased $0.2 million or 2 percent. Employee costs and professional fees were the primary reasons for the increase. Interest expense decreased $1.1 million reflecting a lower average level of seasonal and term debt and a decreased rate of interest.

          Other business income before income taxes increased $0.1 million due primarily to a combination of prior period activities, offset by higher losses on the disposal of equipment. Income taxes increased $1.5 million due mainly to increased non-member income.

Estimated Fiscal Year 2011 Information

          This discussion contains a summary of the Company’s current estimates of the financial results to be obtained from the Company’s processing of the 2010 sugarbeet crop. Given the nature of the estimates required in connection with the payments to members for their sugarbeets, this discussion includes forward-looking statements regarding the quantity of sugar to be produced from the 2010 sugarbeet crop, the net selling price for the sugar and co-products produced by the Company and the Company’s operating costs. These forward-looking statements are based largely upon the Company’s expectations and estimates of future events; as a result, they are subject to a variety of risks and uncertainties. Some of those estimates, such as the selling price for the Company’s products, the quantity of sugar produced from the sugarbeet crop, changes in plant production efficiencies and sugarbeet storage conditions are beyond the Company’s control. The actual results experienced by the Company could differ materially from the forward-looking statements contained herein.

          The Company’s members 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 Company’s production of sugar from the 2010-crop sugarbeets is expected to be 31 percent more than the average of the five most recent years of sugar production.

25


          The Company’s initial sugarbeet payment estimate totals $56.86 per ton or $0.19369042 per harvested /bonus extractible pound of sugar, with the final sugarbeet payment determined in October of 2011. This projected payment is 20 percent more than the final 2009-crop payment per ton and 5 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 and improved sugar prices versus the prior year. The price per pound of extractible sugar was diluted by 6.5% due to bonus sugar for the 2010-crop vs. 2.3% for the 2009-crop. Bonus sugar is an incentive to growers to deliver sugarbeets prior to main harvest. Harvest for the 2010-crop began on August 18, 2010 vs. September 8, 2009 for the 2009-crop.

          For a discussion of the calendar 2009, 2008 and 2007 crops and results of operations for fiscal years 2010, 2009 and 2008, see “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.”

 

 

ITEM 7A.

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.

          The Company does not believe that it is subject to 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 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

          The consolidated financial statements of the Company for the fiscal years ended August 31, 2010, 2009 and 2008 have been audited by Eide Bailly LLP, independent registered public accounting firm. Such consolidated financial statements have been included herein in reliance upon the report of Eide Bailly LLP. The consolidated financial statements of the Company are included in Appendix A to this annual report.

 

 

ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

          There have been no changes in or disagreements with accountants on accounting and financial disclosure.

 

 

ITEM 9A.

CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company’s Chief Executive Officer, David H. Roche, and the Company’s Chief Financial Officer, Steven M. Caspers, have evaluated the Company’s disclosure controls and procedures as of August 31, 2010. Based upon such evaluation, they have concluded that these disclosure controls and procedures are effective. The Company’s Chief Executive Officer and Chief Financial Officer used the definition of “disclosure controls and procedures” as set forth in Rule 15d-15(e) under the Exchange Act in making their conclusion as to the effectiveness of such controls and procedures.

Management’s Annual Report on Internal Control over Financial Reporting.

 

 

 

 

(a)

Management’s Annual Report on Internal Control over Financial Reporting. The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting; as such term is defined in Rules 13a-15(f) and 15d – 15(f) of the Exchange Act. The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

26



 

 

 

 

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

 

 

 

 

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that its receipts and expenditures are being made only in accordance with authorizations of Management and the Company’s directors; and

 

 

 

 

Provide reasonable assurance regarding prevention and timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on its financial statements.


 

 

 

 

 

Internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems that are deemed to be effective provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

 

 

 

 

Under the supervision and with the participation of its Management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, the Company’s management concluded that its internal control over financial reporting is effective as of August 31, 2010.

 

 

 

 

(b)

Attestation. Management’s report is not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only Management’s report in this annual report.

Changes in Internal Control over Financial Reporting.

          There was no change in the Company’s internal control over financial reporting during the fiscal quarter ended August 31, 2010 that has materially affected, or is reasonably likely to materially affect, its internal control over financial reporting.

 

 

ITEM 9B.

OTHER INFORMATION

          None

27


PART III

 

 

ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE

GOVERNANCE

BOARD OF DIRECTORS

          The table below lists the current directors of Minn-Dak Farmers Cooperative. The board of directors consists of one director from each district. Directors must be common shareholders or representatives of common shareholders belonging to the district they represent and are elected by the members of that district. In the case of a common shareholder who is other than a natural person, a duly appointed or elected representative of such common shareholder may serve as a director. The directors have been elected to serve three-year terms expiring in December of the years indicated in the table below. One director is elected each year from three selected districts. Brief biographies for each of the directors are included after the table. Each person’s experience, qualifications, attributes or skills to serve as a director are evaluated by the Nominating Committee for each district. The Nominating Committee members are selected by the shareholders of each district. Minn-Dak provides each Nominating Committee with written guidelines relating to the legal requirements relating to service on the Board, but does not evaluate or otherwise consider the experience, qualifications, attributes or skills of any nominee and does not otherwise have a role in the Nominating Committees’ processes for selecting nominees.

 

 

 

 

 

 

 

 

 

Name

 

Age

 

District

 

Director Since

 

Term Expires
in December

Dale Blume

 

60

 

District #7 – Lehman

 

2005

 

2011

 

 

 

 

 

 

 

 

 

Dennis Butenhoff

 

64

 

District #9 – Peet

 

2004

 

2010 (1)

 

 

 

 

 

 

 

 

 

Brent Davison

 

59

 

District #5 – Hawes

 

2003

 

2011

 

 

 

 

 

 

 

 

 

Douglas Etten

 

59

 

District #8 – Lyngaas

 

1997

 

2012

 

 

 

 

 

 

 

 

 

Patrick Freese

 

51

 

District #4 – Factory East

 

2008

 

2011

 

 

 

 

 

 

 

 

 

Dennis Klosterman

 

50

 

District #3 – Gorder

 

2004

 

2010 (2)

 

 

 

 

 

 

 

 

 

Kevin Kutzer

 

57

 

District #1 – Tyler

 

2009

 

2012

 

 

 

 

 

 

 

 

 

Russell Mauch

 

55

 

District #2 – Factory West

 

1998

 

2010 (3)

 

 

 

 

 

 

 

 

 

Chuck Steiner

 

60

 

District #6 – Yaggie

 

2000

 

2012

28



 

 

1)

Mr. Butenhoff’s term as a director of the Company from District #9-Peet expires on December 7, 2010.

2)

Mr. Klosterman’s term as a director of the Company from District #3-Gorder expires on December 7, 2010.

3)

Mr. Mauch’s term as a director of the Company from District #2-Factory West expires on December 7, 2010.

          Dale Blume has been a director since 2005 and also serves on the board of directors for Minn-Dak Yeast Company. He graduated from the NDSU with a degree in Ag Economics in 1973. He began farming in 1971 and continues to be actively farming today. Mr. Blume is one of Minn-Dak Farmers Cooperative’s original stockholders. Mr. Blume is a member of the Delaware Township Board, and is a director at the First State Bank in Kensington, MN. He is also the co-chairman of the administrative council and on the financial committee of the United Methodist Church in Herman. He also serves on the board of directors of Minn-Dak Yeast Company.

          Dennis Butenhoff has been a director since 2004 and serves on the board of directors of Minn-Dak Yeast Company and Midwest Agri-Commodities. Mr. Butenhoff graduated from Barnesville High School, Barnesville, MN in 1965. Prior to serving his country in the military, Mr. Butenhoff attended North Dakota State University for 4 years, focusing on ag economics. He has been farming in the Baker/Barnesville area since 1967. Mr. Butenhoff has served Trinity Lutheran Church as a Sunday school teacher and church elder.

          Brent Davison has been a director since 2003 and currently serves as the board vice chairman. Mr. Davison earned his B.S. degree in Education at Concordia University, Moorhead, MN, graduating in 1972. Mr. Davison taught school in Warren, MN from 1972 until coming home to farm near Tintah, Minnesota area in 1974. He is currently serving on the Tintah Township Board and is a former volunteer fireman and first responder. Mr. Davison is also one of Minn-Dak’s representatives to the American Sugarbeet Growers Association in Washington, DC and serves on the board of directors for United Sugars Corporation.

          Douglas Etten has been a director since 1997 and currently serves as the board chairman. Mr. Etten has been farming near Foxhome, MN since graduating from Concordia College in Business and Math in 1974. He is also one of Minn-Dak’s representatives to the American Sugarbeet Growers Association in Washington, DC. He also serves on the board of directors of Minn-Dak Yeast Company, United Sugars Corporation, and Midwest Agri-Commodities Company.

          Patrick Freese graduated Breckenridge High School in 1977 and North Dakota College of Science in 1979. From 1979 to 1985 Mr. Freese worked as a sales coordinator for Chief Industries in Grand Island, NE. Mr. Freese has been farming near Kent, MN since 1985. Mr. Freese has, and continues to, serve his community and church in several areas. He was a member and chairman of the Minn-Dak Farmers Cooperative Political Action Committee. Mr. Freese is a member of various farm and commodity organizations.

          Dennis Klosterman has been a director since 2004. Mr. Klosterman graduated from Wahpeton High School in Wahpeton, ND in 1978. He began farming with his father and brother in the Mooreton, ND area in 1979 while attending North Dakota State College of Science and North Dakota State University. Mr. Klosterman has, and continues to, serve his community and church in several areas. He was a member and chairman of the Minn-Dak Farmers Cooperative Political Action Committee. Mr. Klosterman is a member of various farm and commodity organizations. He also serves on the board of directors for Minn-Dak Yeast Company.

29


          Kevin Kutzer grew up in a family farming operation and continues that tradition in a family joint venture operation with brother Kyle and son Corey raising wheat, soybeans, sugarbeets, and corn in the Fairmount, ND. Mr. Kutzer received an Associate Degree in Pre Engineering at the North Dakota State College of Science in Wahpeton, ND and a B.S. in Mechanized Agriculture at North Dakota State University in Fargo, ND. Mr. Kutzer has served on the boards of the Lamars Co-op Elevator and AgCountry Farm Credit Services. He has served on the St. Anthony’s Church Council and Cemetery Board.

          Russell Mauch has been a director since 1998 and currently serves as board treasurer. Mr. Mauch graduated from North Dakota State University in 1977 with a BS in agriculture. From 1979 to 1981 Mr. Mauch was a commercial and agriculture loan officer for First Bank Corporation in Valley City, ND. Mr. Mauch has been farming near Barney, ND since 1981. Mr. Mauch also serves on the board of directors for United Sugars Corporation and as one of Minn-Dak’s representatives to the American Sugarbeet Growers Association in Washington, DC.

          Charles Steiner has been a director since 2000 and currently serves as the board secretary. Mr. Steiner has been farming near Foxhome, MN since 1969. Mr. Steiner graduated from the Northwest School of Agriculture, University of Minnesota at Crookston, MN. Mr. Steiner serves as the ex-officio member on the board of directors for United Sugars Company.

          The Board of Directors meets monthly. The Company provides its directors with minimal compensation, consisting of (i) a payment of $290 per meeting for regular and special board meetings, (ii) the greater (a) $145 for any day in which directors partake in activities on the Company’s behalf that take less than five hours or (b) $290 for any day in which directors partake in activities on the Company’s behalf that take five hours or more. The Chairman of the Board of Directors also receives a flat $500 per month to compensate for the extra duties associated with that position. The Board of Directors has adjusted compensation effective October 1, 2010. Effective on that date the board will receive reimbursement in the amount of $290/day for any amount of time spent on board business, effectively doing away with a half day per diem. In addition the board added a conference call compensation rate in the amount of $145 and increased the Chairman’s monthly stipend to $750/month. Effective Jan. 1, 2011, the director’s monthly per diem rate will be increase to $300/day and $150 for conference calls. Effective Jan. 1, 2012 and each year thereafter, the directors monthly per diem will increase by $25 and the conference call rate will continue to be paid at half of the daily per diem amount.

Information about Committees of the Board of Directors

The Board of Directors has established a Compensation Committee, an Audit Committee and a Nominating Committee. The composition and function of these committees are set forth below

Compensation Committee. The Compensation Committee operates under a written charter and discharges the Board’s responsibilities relating to the fair and competitive compensation for the Chief Executive Officer, including reviewing and approving goals and objectives relating to the compensation of the Chief Executive Officer and the performance of the Chief Executive Officer. Based on its review, the Compensation Committee makes recommendations to the Board of Directors regarding the elements of the Chief Executive Officer’s compensation and the Compensation Committee, along with the Board of Directors, approves the compensation and other benefits of the Chief Executive Officer. A copy of the current charter of the Compensation Committee is available by following the link to “Corporate Governance” on the Company’s website at www.mdf.coop During 2010, the members of the Compensation Committee are Messrs. Charles Steiner (Chair), Dale Blume, Dennis Klosterman, Brent Davison and Dennis Butenhoff.

Nominating Committee. Shareholders from each district select two shareholders to serve as a Nominating Committee for that district. The Nominating Committee for each district is responsible for facilitating nominations for the position of director by shareholders of that district and evaluating whether shareholder proposed nominees are qualified candidates. Each Nominating Committee operates under a series of written guidelines relating to the legal requirements for the Company’s directors, qualifications of nominees, and process for soliciting shareholder nominees. During 2010, the members of the Nominating Committee were Messrs. Bradley Nelson (Chair), Blaine Benedict, Andy Mauch, Luke Mauch, Jeff Erbes and Jeff Olson. In fiscal 2010, there have not been any material changes to the procedures by which shareholders may recommend nominees to the Company’s Board of Directors.

30


Audit Committee. The Audit Committee assists the Board in fulfilling its responsibility relating to corporate accounting and reporting practices of the Company, the quality and integrity of financial reports, the financial reporting processes, the system of internal controls; the qualifications, independence and performance of the independent auditors; and compliance by the Company with certain legal and regulatory requirements. The Audit Committee has the authority to retain, compensate, oversee and terminate the independent auditors. The Audit Committee reviews the Company annual audited financial statements, quarterly financial statements and filings with the Securities and Exchange Commission. The Audit Committee also pre-approves all audit and non-audit services performed by the independent auditor. The Audit Committee operates under a written charter that is available by following the link to “Corporate Governance” on the Company’s website at www.mdf.coop. During 2010, the Audit Committee consisted of Messrs. Russ Mauch (Chair), Dale Blume, Dennis Butenhoff, Dennis Klosterman and Kevin Kutzer.

          The Board of Directors has reviewed the education, experience and other qualifications of each of the members of its Audit Committee. After review, the Board of Directors has determined that none of the members of the Audit Committee meet the Securities and Exchange Commission definition of an “audit committee financial expert.” However, the Company believes that, taken as a whole, the members of the Audit Committee have sufficient education, experience and qualifications to carry out their duties.

Executive Officers

          The table below lists the executive officers (Messrs. Roche, Caspers, Knudsen, Haugen and Larson) and other senior management employees of the Company, none of whom owns any common or preferred shares. Brief biographies for each of the officers are included after the table.

 

 

 

 

 

 

 

Name

 

 

Age

 

Position

 

David H. Roche

 

63

 

President and Chief Executive Officer

 

 

 

 

 

Steven M. Caspers

 

60

 

Executive Vice President and Chief Financial Officer

 

 

 

 

 

Thomas D. Knudsen

 

56

 

Vice President Agriculture

 

 

 

 

 

Parker Thilmony

 

40

 

Director of Operations

 

 

 

 

 

John Haugen

 

58

 

Vice President Engineering

 

 

 

 

 

Allen Larson

 

55

 

Controller and Chief Accounting Officer

 

 

 

 

 

Greg Schmalz

 

59

 

Director Human Resources

          David H. Roche is Minn-Dak Farmers Cooperative’s third president and CEO. He joined the Wahpeton, ND based sugar cooperative on March 1, 2001. He serves on the boards of United Sugars Corporation and Midwest Agri-Commodities. Mr. Roche is chairman of the board for Minn-Dak Yeast Company. In addition, he is a trustee of the United States Beet Sugar Association, and a member of the board of directors of The Sugar Association, Washington, D.C. Mr. Roche began his sugar industry career as a controller for Michigan Sugar Company in 1976. He progressed through the ranks until he was named president in 1994. In 1996 he became president of Savannah Foods Industrial and was appointed senior vice president of Savannah Foods & Industries. Imperial Sugar Company acquired controlling interest in Savannah in 1998. He was named as a managing director and senior vice president. Mr. Roche holds an MBA in Accounting from Michigan State University and became a Certified Public Accountant in 1974.

          Steven M. Caspers is a graduate of the University of North Dakota with a Bachelor of Science in Business Administration and a major in Accounting. He has been employed with the Company since May 5, 1974. Mr. Caspers is president of Minn-Dak Yeast Company. He is active in national industry related boards and committees.

31


          Thomas D. Knudsen is a graduate of North Dakota State University with a Bachelor of Science in horticulture and has attended the Beet Sugar Institute at Fort Collins, Colorado. He began employment with the Company on May 24, 1977.

          Parker Thilmony is a graduate of the University of North Dakota, with a BS in Mechanical Engineering. He started his career with the Company on February 5th, 1995 as an Assistant Engineer. Mr. Thilmony was promoted to the position of Director of Operations on May 12th, 2010. Prior to this promotion he held the position of Senior Engineer.

          John R. Haugen was promoted to the position of Director of Engineering on November 2, 2001 and to Vice President Engineering on August 1, 2002. He started his career with Minn-Dak Farmers Cooperative in 1976 as an Assistant Engineer and prior to this promotion held the position of Senior Engineer. Mr. Haugen is a graduate of the University of North Dakota and holds a BS in Mechanical Engineering.

          Allen E. Larson is a graduate of Moorhead State University with a Bachelor of Science in Business Administration and a major in Accounting. He has been employed with the Company since October 26, 1981.

          Greg J. Schmalz is a graduate of the University of North Dakota, Grand Forks, with a Bachelor of Arts Degree in Sociology and a Masters Degree in Guidance and Counseling. Mr. Schmalz is a member of the Society of Human Resources Management and the Agassiz Valley Human Resources Association. He began his career in human resources in 1979. He has been employed with the Company since August 30, 2004.

Code of Ethics for Executive Officers

          The Company has adopted a code of ethics that applies to all directors, officers and employees, including its principal executive officer, principal financial officer and controller. This code of ethics is included in its Standards of Business Conduct which is publicly available by following the link to “Corporate Governance” at its website at www.mdf.coop.

          The Company intends to satisfy the disclosure requirements of the Securities and Exchange Commission regarding certain amendments to, or waivers from, provisions of its code of ethics that apply to the Company’s principal executive officer, principal financial officer and principal accounting officer or controller by posting such information on the Company’s website at www.mdf.coop.

 

 

ITEM 11.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

          The following discussion and analysis describes the Company’s compensation objectives and policies as applied to the following executive officers who are referred to in this Annual Report on Form 10-K as the Named Executive Officers:

 

 

 

 

David H. Roche, President and Chief Executive Officer;

 

Steven M. Caspers, Executive Vice President and Chief Financial Officer;

 

Tom Knudsen, Vice President Agriculture

 

Allen Larson, Controller; and

 

Jeffrey L. Carlson, Vice President Operations for a portion of fiscal year 2010 until May 12, 2010.

          This section is intended to provide a framework within which to understand the actual compensation awarded to or earned by the Named Executive Officers during the year ended August 31, 2010, as reported in the compensation tables and accompanying narrative sections appearing on pages 35 to 41 of this Annual Report on Form 10-K.

32


Role of the Compensation Committee in Determining Executive Compensation

          The primary responsibility of the Compensation Committee is to discharge the Board’s responsibilities relating to the fair and competitive compensation of the Company’s Chief Executive Officer. This responsibility includes reviewing and recommending to the Board the compensation and other terms of employment of the Chief Executive Officer, overseeing significant aspects of compensation and benefit programs in which the Chief Executive Officer participates, and approving performance-based goals and compensation. The Compensation Committee also annually reviews the Chief Executive Officer’s compensation and evaluates the Chief Executive Officer’s performance.

          Under its charter, the Committee has the authority to engage the services of outside advisors, experts and others to assist it in performing its duties. While the Compensation Committee has used the services of a compensation consultant in the past, it did not do so in determining fiscal year 2010 compensation for the Chief Executive Officer. The Compensation Committee may choose to use the services of a compensation consultant in the future.

Role of Management in Compensation Process

          The Compensation Committee does not oversee or design compensation programs for any of the Named Executive Officers other than the Chief Executive Officer. The Compensation Committee believes that it is the responsibility of the Chief Executive Officer, as the highest-ranking executive, to implement the business goals of the Company established by the Board of Directors and to manage the Company’s business against an annual budget established by the Board of Directors. In this regard, the Chief Executive Officer is responsible for determining a strategy for achieving these goals, including the allocation of personnel, time and financial resources consistent with the budget that is approved by the Board. The Compensation Committee believes it is the responsibility of the Chief Executive Officer to manage and compensate the other Named Executive Officers in a manner that provides sufficient incentives for these employees to meet the business goals of the Company and to control compensation and benefits expense for all employees, including the Named Executive Officers. In reviewing the performance of the Chief Executive Officer each year, the Compensation Committee takes into consideration the extent to which the Chief Executive Officer has successfully fulfilled these responsibilities and holds the Chief Executive Officer accountable for the performance of each executive officer reporting to him.

          In determining compensation for the Chief Executive Officer, the Compensation Committee solicits input from the Director of Human Resources and the Chief Financial Officer, primarily relating to the cost of the Company’s compensation programs and the financial performance of the Company. None of the Named Executive Officers, other than the Chief Executive Officer, has a role in establishing executive compensation. From time to time, some of the Named Executive Officers are invited to attend meetings of the Compensation Committee. However, no Named Executive Officer attends any executive session of the Compensation Committee or is present during deliberations or determination of that Named Executive Officer’s compensation.

          While the Chief Executive Officer does not seek approval from the Compensation Committee for the compensation of the other Named Executive Officers, the Chief Executive Officer does discuss their compensation with the Compensation Committee and with the Board of Directors from time to time to solicit input and advice.

Compensation Philosophy and Design of Compensation Programs

          The Compensation Committee’s philosophy is to provide competitive levels of compensation that are consistent with the Company’s annual and long-term performance goals. The Compensation Committee attempts to balance the financial interests of the Chief Executive Officer against the Company’s goal of maximizing its return to its shareholders. In determining the competitiveness of its programs, the Compensation Committee reviews the compensation offered by other local employers, as well as other sugar production cooperatives, such as American Crystal Sugar Company and Southern Minnesota Beet Sugar Cooperative. When determining compensation for the Chief Executive Officer, the Compensation Committee considers whether the form and amount of compensation is consistent with its philosophy.

33


          The Compensation Committee has set the Chief Executive Officer’s base salary at or below base salaries of similar positions in the region and in the Company’s industry. The Compensation Committee adjusts base salary comparables for the size of the Company’s operations, both in terms of tons of sugarbeets processed and the quantity of sugar produced. The Compensation Committee has set base salary lower than comparable salaries believing that variable cash compensation, tied to specific performance measures, should constitute a significant portion of the Chief Executive Officer’s overall cash compensation. For the Named Executive Officers other than the Chief Executive Officer, the Chief Executive Officer sets base salaries annually based, in part, on base salaries of similar positions as reported by surveys, data and other market information. The Chief Executive Officer also reviews the executive’s personal performance, the need for the salary to remain competitive with other organizations in the industry and the general budgetary guidelines established by the Chief Executive Officer. The Chief Executive Officer has typically set the base salaries of the other Named Executive Officers near the median reported for that position.

          The variable cash compensation for the Chief Executive Officer is provided through two bonus programs, one based on return per acre (referred to as the “Profit Sharing Bonus”) and one recommended by the Compensation Committee for Board of Directors approval based upon the results of an annual performance review (the “Performance Bonus”). The Compensation Committee intends the Profit Sharing Bonus to be fairly challenging and that average financial performance measured by return per acre will result in a relatively low level of Profit Sharing Bonus, while above average or exceptional financial performance would be required before a higher level Profit Sharing Bonus is earned by the Chief Executive Officer. Because financial return per acre is the measure that best quantifies the Company’s return to its shareholders, the Compensation Committee believes that this measure is appropriate to align the Chief Executive Officer’s interests with those of the shareholders. Additionally, in determining the Performance Bonus for Mr. Roche in 2010, the Compensation Committee also considered the aggregate return to shareholders and the financial performance of the Company and shareholders for the fiscal year 2010, which was significantly impacted by delays in harvest due to weather.

          Beginning with fiscal year 2009, the Profit Sharing Bonus criteria were adjusted to make this bonus more challenging with the goals of ensuring that bonuses will be paid only when shareholders/growers receive a meaningful return and providing greater incentives for superior performance. For example, the new formula for 2009, increased the minimum return per acre that must be achieved to result in any bonus, which the Compensation Committee designed to be a reflection of the increased expenses experienced by shareholder/growers since the Profit Sharing Bonus formula was adopted in 2001. As another example, the return per acre to growers that resulted in the maximum bonus to the Chief Executive Officer in prior years is significantly less under the new formula.

          For fiscal year 2010, the Compensation Committee continued this more challenging formula for determining the Profit Sharing Bonus, which was set out in the amended and restated employment agreement dated August 27, 2009. The Compensation Committee believes that the more challenging Profit Sharing Bonus formula continues to be consistent with the goals that prompted the adjustment of the formula for 2009. The Compensation Committee will review the Profit Sharing Bonus formula every two years to ensure it continues to provide appropriate incentives consistent with the Compensation Committee’s philosophy. See “Employment and Post-Employment Arrangements” for a description of Mr. Roche’s employment agreement as in effect for fiscal year 2010.

          In determining the total compensation for the other Named Executive Officers, the Chief Executive Officer ascribes to much the same philosophy as the Compensation Committee but the Chief Executive Officer also considers internal pay equity, external competitiveness and the contribution of each executive to the Company’s overall performance when determining base salary and eligibility for a discretionary performance-based bonus.

34


Elements of In-Service Compensation

          The Compensation Committee followed the guiding principles outlined above in the development and administration of the compensation of the Chief Executive Officer while employed by the Company. The elements of in-service compensation of the Chief Executive Officer consist of base salary, a Profit Sharing Bonus based on return to shareholders and a discretionary Performance Bonus based on the Chief Executive Officer’s individual performance.

          The Named Executive Officers, other than the Chief Executive Officer, receive compensation while employed with the Company consisting of a base salary and a discretionary performance bonus determined by the Chief Executive Officer based upon the Company’s overall performance and the individual performance of the Named Executive Officer.

          The Company does not believe that personal benefits or perquisites (i.e. “perks”) are appropriate as a significant element of compensation, in particular because perks are not conditioned upon performance and are not based upon contribution to the Company’s business. None of the Named Executive Officers received perks that were a significant compensation element in fiscal 2010.

Base Salaries

          Mr. Roche and the Company entered into an employment agreement in 2001 and since that time, the Company has annually reviewed Mr. Roche’s performance to determine whether to retain Mr. Roche’s services, to establish a salary for Mr. Roche and, if necessary, to revise other terms of Mr. Roche’s employment and compensation. The Compensation Committee set Mr. Roche’s base salary for fiscal year 2010 at the time the Company entered into the amended and restated employment agreement dated August 27, 2009 that had a term of September 1, 2009 to August 21, 2010. Mr. Roche’s annual base salary for 2010 was set at $352,300, an increase of 2.5% from the annual base salary of $343,700 for 2009. The Compensation Committee increased Mr. Roche’s base salary primarily to recognize an increase in the cost of living over the prior year.

          Mr. Roche determined salaries for the other Named Executive Officers in July 2009, with adjustments to annual base salaries effective at the beginning of fiscal year 2010. These salary adjustments were considered moderate and were reflective of the challenges facing the Company due to less than optimum volumes of sugarbeets to process. The following table sets forth the annual base salaries for 2010 and 2009 for each of the other Named Executive Officers, as well as the percentage increase in 2010 as compared to 2009:

 

 

 

 

 

 

 

Named Executive Officer

 

2010 Annual
Base Salary

 

2009 Annual
Base Salary

 

% Increase
2010 Over 2009

Steven M. Caspers

 

$182,100

 

$177,100

 

2.8%

Tom Knudsen

 

$133,600

 

$130,000

 

2.8%

Allen Larson

 

$130,800

 

$127,300

 

2.8%

Jeffrey L. Carlson

 

$149,000

 

$145,000

 

2.8%

Cash Bonus Programs

          The cash bonus element of total compensation is available to the Named Executive Officers through a discretionary individual performance bonus, which for the Chief Executive Officer is referred to as the “Performance Bonus.” The Chief Executive Officer is also eligible for the Profit Sharing Bonus, which is a cash bonus based upon the return per acre to growers in the fiscal year.

35


          In July 2010, the Compensation Committee and the Board of Directors conducted a performance review of Mr. Roche for fiscal 2010, in part to determine whether Mr. Roche would receive a Performance Bonus. Consistent with its process in prior years, this performance review solicited a rating from the Board of Directors of Mr. Roche’s performance in areas such as leadership, communication, budget and time management, as well as overall performance. This information was compiled anonymously and discussed among the Board members. The Board of Directors reviewed various aspects of Mr. Roche’s achievements and performance in 2010, prior year compensation information (including salary, Performance Bonus and Profit Sharing Bonus amounts) and estimated financial returns to the shareholders for fiscal year 2010 in determining whether to award a Performance Bonus and the amount of the Performance Bonus. In view of the variety of the factors and the amount of information considered as well as the complexity and subjectivity of these matters, the Compensation Committee did not find it practical to, and did not attempt to, make specific assessments of, quantify, rank or otherwise assign relative weights to the specific factors considered by the Board or by the Compensation Committee. While individual members of the Compensation Committee may have given different weight to different factors, the predominate factors considered by the Compensation Committee for fiscal year 2010 were the Company’s financial results despite the significant challenges of processing the sugarbeet crop and the positive evaluations of Mr. Roche’s performance by the Board. The Compensation Committee determined Mr. Roche’s Performance Bonus for fiscal year 2010 to be $70,000.

          Mr. Roche determined the discretionary performance bonus amounts to be paid to the other Named Executive Officers in August 2010. In establishing the performance bonus awards for the other Named Executive Officers, Mr. Roche considered their individual contribution toward achieving the Company goals in fiscal year 2010, and the level of return to shareholders measured through dollars paid per acre of sugarbeets grown. Consistent with past practice, he also received feedback from various members of the Compensation Committee and the Board of Directors on proposed bonus amounts. The Company and Mr. Roche continue to consider and attempt to develop a more formal program for executive officers (other than the Chief Executive Officer) for determining performance bonus awards. The following table shows the individual performance bonus earned by each of the Named Executive Officers for 2010 and also shows the performance bonus as a percentage of 2010 salary:

 

 

 

 

 

 

 

 

 

 

Named Executive Officer

 

2010 Performance Bonus

 

% of 2010 Annual
Base Salary

 

Steven M. Caspers

 

 

$

36,000

 

 

19.8

%

 

Tom Knudsen

 

 

$

12,500

 

 

9.4

%

 

Allen Larson

 

 

$

12,000

 

 

9.2

%

 

          In determining performance bonus amounts to the other Named Executive Officers, Mr. Roche considered the severe impact of weather conditions during the harvest period in both fiscal years 2010 and 2009, which reduced the volume of sugarbeets harvested and processed in those years. Accordingly, aggregate performance bonus levels for all employees in both fiscal years 2010 and 2009 were reduced significantly from prior years. Individual bonus levels are reflective of individual performance and contributions toward the achievement of company goals.

          Mr. Carlson, who ceased serving as the Company’s Vice President, Operations on May 12, 2010, was not eligible for a performance bonus as he was not employed at the end of the fiscal year.

          Mr. Roche is also eligible for the Profit Sharing Bonus. This consists of a cash bonus based upon the return per acre to growers, with a matrix determining the amount of Profit Sharing Bonus at various levels of return per acre. The matrix applicable to 2010 was approved as part of the amended and restated employment agreement entered into between the Company and the Chief Executive Officer on August 27, 2009 and it sets forth the Profit Sharing Bonus that would be earned by him at various levels of return per acre to the growers as follows:

 

 

 

Return Per Acre to Growers

 

Profit Sharing Bonus Amount

$825 - $900

 

$15,000

$901 - $975

 

$25,000

$976 - $1,050

 

$35,000

$1,051 - $1,125

 

$45,000

$1,126 - $1,200

 

$55,000

$1,201 and over

 

$65,000

36


          For the purposes of the Profit Sharing Bonus, return per acre is the amount received by the shareholders/growers as a grower payment for sugarbeets and does not include patronage, retains or trucking payments. However, no Profit Sharing Bonus will be paid if 30% or more of the crop, based on planted acres, is lost or unharvested. For 2010, the return per acre to growers was $849 per acre, resulting in a Profit Sharing Bonus to Mr. Roche of $15,000.

Elements of Post-Termination Compensation

          In 2001, the Company entered into an employment agreement with Mr. Roche relating to his service as the President and Chief Executive Officer. Since 2001, the term of the employment agreement has been renewed for successive fiscal years. For the fiscal year 2010 term of September 1, 2009 to August 31, 2010, Mr. Roche and the Company entered into an amended and restated employment agreement on August 27, 2009. Under this amended and restated employment agreement, Mr. Roche will be paid his then-current base salary for a period of twelve months in the event of termination of Mr. Roche’s employment without cause, upon receipt of a general release and compliance with provisions of the agreement relating to confidential information. Mr. Roche is not entitled to post-employment payments in the event of termination of Mr. Roche’s employment by Mr. Roche, by the Company for cause, or by reason of death or disability.

          If Mr. Roche’s employment were terminated without cause on August 31, 2010, he would receive $352,300 in post-termination benefits, payable over a twelve month period.

          Former Vice President Operations, Mr. Carlson’s employment with the Company ended on May 12, 2010. Following his separation from employment, the Company and Mr. Carlson entered into a separation agreement and release that became binding and enforceable May 25, 2010. Under that separation agreement and release, the Company paid Mr. Carlson $40,116 in separation payments in fiscal year 2010. The Company also continued insurance coverage for Mr. Carlson following termination of employment. Please see “Employment and Post-Employment Arrangements – Agreement with Jeffrey L. Carlson” of this Item 11 for a description of the separation agreement and release with Mr. Carlson.

          Other than with respect to Messrs. Roche and Carlson, the Company does not have employment agreements or arrangements with any of the other Named Executive Officers. Other than with respect to the post-termination benefits to Messrs. Roche and Carlson as described above, the Company does not provide for severance or any other post-termination benefits to the Named Executive Officers, except through plans in which executive officers participate generally. See “Executive Compensation – Employment and Post-Employment Arrangements” in this Annual Report on Form 10-K for a discussion of the terms of the employment agreement with Mr. Roche as in effect for fiscal year 2010.

Impact of Regulatory Requirements

          In determining the compensation policies, programs and actions to be taken by the Company with respect to executive compensation, the Compensation Committee considers the impact of accounting rules, securities rules and tax rules. The Compensation Committee also regularly reviews changes in these regulatory requirements to determine their applicability and impact on the Company.

Summary Compensation Table

          The following table shows information concerning compensation earned for services in all capacities during the last three fiscal years for: (i) David H. Roche, who served as the Company’s Chief Executive Officer in fiscal year 2010; (ii) Steven M. Caspers, who served as the Company’s Chief Financial Officer in fiscal year 2010; and (iii) the three other most highly compensated executive officers of the Company in fiscal year 2010 whose total compensation was at least $100,000, less the amount representing the change in pension value and nonqualified deferred compensation earnings (together referred to as the “Named Executive Officers”).

37



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name and Position

 

Year

 

Salary (1)

 

Bonus (2)

 

Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings (3)

 

All Other Compensation
(4)

 

Total

 

David H. Roche,

 

2010

 

$

352,102

 

$

85,000

 

$

210,002

 

$

27,025

 

$

674,129

 

President & CEO

 

2009

 

$

343,509

 

$

55,000

 

$

97,277

 

$

22,133

 

$

517,919

 

 

 

2008

 

$

333,483

 

$

81,000

 

$

54,772

 

$

21,887

 

$

491,142

 

Steven M. Caspers,

 

2010

 

$

182,388

 

$

36,000

 

$

251,919

 

$

33,270

 

$

503,577

 

Executive VP & CFO

 

2009

 

$

177,390

 

$

30,000

 

$

147,663

 

$

12,020

 

$

367,073

 

 

 

2008

 

$

171,470

 

$

45,000

 

$

72,623

 

$

9,156

 

$

298,249

 

Tom Knudsen,

 

2010

 

$

134,063

 

$

12,500

 

$

140,887

 

$

35,321

 

$

322,771

 

V.P. Agriculture

 

2009

 

$

130,474

 

$

10,000

 

$

54,092

 

$

8,745

 

$

203,311

 

 

 

2008

 

$

126,011

 

$

27,000

 

$

34,373

 

$

8,346

 

$

195,730

 

Allen Larson,

 

2010

 

$

130,991

 

$

12,000

 

$

96,580

 

$

18,581

 

$

258,152

 

Controller

 

2009

 

$

127,502

 

$

8,000

 

$

34,516

 

$

13,786

 

$

183,804

 

 

 

2008

 

$

123,265

 

$

0

 

$

29,676

 

$

14,487

 

$

167,428

 

Jeffrey L. Carlson,

 

2010

 

$

108,312

 

$

0

 

$

81,755

 

$

67,808

 

$

257,875

 

V.P. Operations (5)

 

2009

 

$

145,232

 

$

10,000

 

$

40,094

 

$

8,264

 

$

203,590

 

 

 

2008

 

$

133,740

 

$

27,000

 

$

24,477

 

$

7,957

 

$

193,174

 


 

 

 

 

(1)

A portion of the salary of each of Messrs. Roche and Caspers was deferred into the Company’s Nonqualified Deferred Compensation Plan. Amounts shown are not reduced to reflect the deferral elections of any of the Named Elective Officers.

 

(2)

This column reflects bonuses earned in the year indicated, including both a discretionary and profit sharing bonus, where applicable. See “Compensation Discussion and Analysis – Elements of In-Service Compensation – Cash Bonus Programs” for a description of bonuses that may be earned by the Named Executive Officers.

 

(3)

Amounts in this column reflect the aggregate increase in actuarial present value of the benefits under the pension plan as applicable. A portion of the change in pension benefits value is attributable to the additional year of service, any annual salary increase and bonus received. The 2010 change in Pension Value was also affected by a change in the discount rate of 6.19% in 2009 to 5.19% in 2010. An additional portion of the change is due to a change in the mortality values used for demographic assumptions. This table changed from the 1983 Group Annuity Mortality Table in 2009 to the RP-2000 Combined Mortality Table in 2010.

 

(4)

Amounts in this column include:


 

 

 

 

 

 

 

 

 

 

 

 

 

FY 2010

 

Name

 

Company
Contributions
to Defined
Contribution
Plans (a)

 

Insurance
Premiums (b)

 

Other (c)

 

David H. Roche

 

$

14,184

 

$

12,841

 

 

 

Steven M. Caspers

 

$

8,495

 

$

3,763

 

$

21,012

 

Tom Knudsen

 

$

5,763

 

$

1,781

 

$

27,777

 

Allen Larson

 

$

5,560

 

$

1,702

 

$

11,319

 

Jeffrey L. Carlson

 

$

4,732

 

$

1,473

 

$

61,603

 

38



 

 

 

 

 

 

 

 

 

 

 

 

 

FY 2009

 

Name

 

Company
Contributions
to Defined
Contribution
Plans (a)

 

Insurance
Premiums (b)

 

Other (c)

 

David H. Roche

 

$

9,477

 

$

12,656

 

 

 

Steven M. Caspers

 

$

8,896

 

$

3,124

 

 

 

Tom Knudsen

 

$

6,299

 

$

1,573

 

$

873

 

Allen Larson

 

$

5,100

 

$

1,342

 

$

7,344

 

Jeffrey L. Carlson

 

$

6,889

 

$

1,375

 

 

 


 

 

 

 

 

 

 

 

 

 

 

 

 

FY 2008

 

Name

 

Company
Contributions
to Defined
Contribution
Plans (a)

 

Insurance
Premiums (b)

 

Other (c)

 

David H. Roche

 

$

9,313

 

$

12,574

 

 

 

Steven M. Caspers

 

$

6,296

 

$

2,860

 

 

 

Tom Knudsen

 

$

6,480

 

$

1,130

 

$

736

 

Allen Larson

 

$

6,171

 

$

1,220

 

$

7,096

 

Jeffrey L. Carlson

 

$

6,790

 

$

1,167

 

 

 


 

 

 

 

(a)

Reflects the Company’s contribution to the 401(k) plan for each Named Executive Officer. For Mr. Roche, also includes $4,650 in Company’s contributions to the Deferred Compensation Plan for 2010.

 

(b)

Includes premiums paid by the Company for life insurance coverage in excess of $50,000 and supplemental long-term disability coverage.

 

(c)

Reflects amounts paid in cash to Named Executive Officers for vacation hours; except that (i) amounts for Mr. Carlson for 2010 reflect only severance paid and (ii) for Mr. Knudsen amounts for 2010 also include $800 for company vehicle use and amounts for 2009 and 2008 reflect only company vehicle use.

 

 

(5)

Mr. Carlson ceased serving as the Company’s Vice President Operations and as its employee effective May 12, 2010.

2010 Pension Benefits

          The table below sets forth information on the pension benefits for the Named Executive Officers under each of the following:

 

 

 

 

Minn-Dak Farmers Cooperative Pension Plan; and

 

 

 

 

Minn-Dak Farmers Cooperative Supplemental Executive Retirement Plan.

39


          Both the Pension Plan and the SERP are described in more detail in Item 11. Executive Compensation of this Annual Report on Form 10-K under the section entitled “Employment and Post-Employment Arrangements – Post-Employment Arrangements for Named Executive Officers.”

          No pension benefits were paid to any of the Named Executive Officers in fiscal year 2010. The Company does not have a policy permitting granting of additional years of pension service. Further information on these pension plans is included within this section of this Item of Form 10-K entitled “Compensation Discussion and Analysis.”

          The amounts reported in the table below equal the present value of the accumulated benefit at August 31, 2010, for the Named Executive Officers under each plan based upon the assumptions described in footnote 2.

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

 

Plan Name

 

 

Number of Years Credited Service (1)

 

Present Value of Accumulated Benefit (2)

 

David H. Roche

 

 

Pension Plan

 

 

10

 

 

$

340,528

 

 

 

 

 

SERP

 

 

10

 

 

$

325,695

 

 

Steven M. Caspers

 

 

Pension Plan

 

 

35

 

 

$

984,266

 

 

 

 

 

SERP

 

 

35

 

 

$

20,331

 

 

Tom Knudsen

 

 

Pension Plan

 

 

34

 

 

$

467,690

 

 

Allen Larson

 

 

Pension Plan

 

 

29

 

 

$

338,927

 

 

Jeffrey L. Carlson

 

 

Pension Plan

 

 

20

 

 

$

276,536

 

 


 

 

 

 

(1)

An employee earns a full year of credited service in the pension plan with 1,000 or more hours of service during the year.

 

(2)

The accumulated benefit is based on service and earnings (base salary and bonus, as described above) considered by the plans for the period through August 31, 2010. It includes the value of contributions made by the Named Executive Officers throughout their careers. For the Pension Plan and SERP, the present value has been calculated assuming the Named Executive Officers will remain in service until age 65, the age at which retirement may occur without any reduction in benefits, and that the benefit is payable under the available forms of annuity consistent with the assumptions as described in Note 13 to the financial statements contained elsewhere in this Annual Report on Form 10-K. As described in such note, the discount rate is 6.19% for fiscal year 2009. As described in such note, the discount rate is 5.19% for fiscal year 2010. The post-retirement mortality assumption is based on the RP-2000 Combined Mortality Table.

Nonqualified Deferred Compensation

          The table below provides information on the non-qualified deferred compensation of the Named Executive Officers in fiscal year 2010 under the Company’s Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”). Under the terms of the Deferred Compensation Plan, participants may elect to defer receipt of their compensation and the Deferred Compensation Plan provides a means for deferrals of compensation. All of the Named Executive Officer except Mr. Carlson participated in the Deferred Compensation Plan in fiscal year 2010.

          The Deferred Compensation Plan is described in more detail in Item 11. Executive Compensation of this Annual Report on Form 10-K under the section entitled “Employment and Post-Employment Arrangements – Post-Employment Arrangements for Named Executive Officers.”

40



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Name

 

Executive
Contributions
in Fiscal Year
2010 (1)

 

Company
Contribution
in Fiscal Year
2010

 

Aggregate
Earnings in
Fiscal Year
2010 (2)

 

Distribution
and
Withdrawals
in Fiscal Year
2010

 

Aggregate
Balance at
August 31,
2010

 

David H. Roche

 

 

$

52,500

 

 

 

$

4,650

 

 

 

$

16,498

 

 

 

 

$

286,014

 

 

Steven M. Caspers

 

 

 

 

 

 

 

 

 

 

$

5,401

 

 

 

 

$

45,076

 

 

Tom Knudsen

 

 

 

 

 

 

 

 

 

 

$

1,234

 

 

 

 

$

17,467

 

 

Allen Larson

 

 

 

 

 

 

 

 

 

 

$

951

 

 

 

 

$

9,831

 

 


 

 

 

 

(1)

The annual salary deferrals included in this column are reflected in the salary column of the Summary Compensation Table. The deferrals of the bonus awards reflected in this column are reported in the bonus column of the Summary Compensation Table.

 

(2)

Amounts in this column include gains and losses on deferred compensation invested through the Deferred Compensation Plan. None of the earnings or losses in this column are included in the Summary Compensation Table.

Employment and Post-Employment Arrangements

Agreement with David H. Roche

          On March 1, 2001, the Company entered into an employment agreement with David H. Roche to serve as its President and Chief Executive Officer with an initial term through August 31, 2002. This initial term has been renewed for 12 month periods running from September 1 to August 31 of the following year. The employment agreement was amended and restated on August 27, 2009 for the fiscal year 2010 term of September 1, 2009 to August 31, 2010. Below is a description of the amended and restated employment agreement in effect for fiscal year 2010.

          Under the employment agreement, Mr. Roche will receive an annual base salary of $352,300 per year and is eligible for an increase in this base salary based upon an annual performance review. Mr. Roche is also eligible for a profit sharing bonus based upon return per acre. See “Compensation Discussion and Analysis – Elements of In-Service Compensation – Cash Bonus Programs” for the matrix associated with the return per acre bonus. A review of the matrix associated with the return per acre bonus will be conducted every two years with the first review August 31, 2010. The Board of Directors also has the discretion to grant Mr. Roche a performance bonus regardless of whether the return per acre bonus is awarded. Mr. Roche is also eligible for health, dental and vision insurance on the same terms as other non-union employees, as well as other group benefits such as term life insurance, accidental death and dismemberment insurance, long-term disability insurance. Mr. Roche must also submit to an annual physical examination at the Company’s expense.

          If Mr. Roche retires as Chief Executive Officer on or after his 62nd birthday, the Company will provide him with medical insurance until he reaches age 65. Mr. Roche will also be included in the Company’s non-qualified deferred compensation plan, the pension plan, supplemental executive retirement plan and 401(k) plan.

          During any term of the employment agreement, the agreement may be terminated by either party upon written notice to the other at least ninety days prior to the end of the term, by the Company for “material breach” or “just cause” by Mr. Roche, upon Mr. Roche’s death, or his total and permanent disability. For the purposes of the employment agreement, “material breach” and “just cause” mean willful misconduct in following legitimate directions of the Board of Directors; breach of loyalty to the cooperative; conviction of a felony; habitual drunkenness; excessive absenteeism not related to illness, sick leave or vacations, but only after notice from the Board of Directors followed by a repetition of such excessive absenteeism; dishonesty; or continuous conflicts of interest after notice in writing from the Board of Directors.

41


          If the Company terminates Mr. Roche’s employment without cause, the Company will pay Mr. Roche’s then-current base salary for a period of 12 months, conditioned upon receipt of a general release and compliance with provisions of the renewal agreement relating to confidential information. This post-employment payment does not apply to termination of Mr. Roche’s employment by Mr. Roche, by the Company for cause, or by reason of death or disability. The employment agreement also contains provisions relating to the confidentiality of certain Company information.

          Under the employment agreement, Mr. Roche is entitled to 5 weeks of vacation, seven paid holidays and four days of floating holiday. The Company will also reimburse Mr. Roche for travel and other business expenses. Further, Mr. Roche will be provided with a laptop computer and cell phone for company business.

Agreement with Jeffrey L. Carlson

          The Company and Mr. Carlson, the Company’s former Vice President Operations, entered into a separation agreement and release that became binding and enforceable May 25, 2010 relating to Mr. Carlson’s separation from employment. The separation and release agreement provided that in exchange for a full release of all claims, the Company would pay Mr. Carlson a separation payment equal to six months base pay, in thirteen bi-weekly installments. The Company will also pay the employer’s portion of COBRA coverage until the earlier of six months following the separation date of May 12, 2010 or until Mr. Carlson becomes eligible for alternative coverage. The agreement also contains provisions relating to payout of accrued vacation and confidentiality of Company information. 

Post-Employment Arrangements for Named Executive Officers

          The Company’s employment agreement with Mr. Roche does not provide for severance (unless terminated without cause) or any other post-termination payments for 2010, except through plans in which the Named Executive Officers participate generally. The separation and release agreement with Mr. Carlson relates exclusively to post-employment payments and benefits and is described above.

          The Company also provides post-employment compensation for the Named Executive Officers, David H. Roche, Steven M. Caspers, Jeffrey L. Carlson, Tom Knudsen, and Allen Larson, through the following plans:

 

 

 

 

Defined benefit retirement plan (which is the Minn-Dak Farmers Cooperative Pension Plan);

 

Supplemental executive retirement plan;

 

Non-qualified deferred compensation plan; and

 

401(k) retirement savings plan.

          The Company has established the Minn-Dak Farmers Cooperative Pension Plan. The Pension Plan is a noncontributory, defined benefit retirement plan, which is available to all of its eligible employees. For 2010, there were approximately 320 eligible current employees participating in the Pension Plan, including the Named Executive Officers. The benefits of the Pension Plan are funded by periodic contributions by the Company to a retirement trust that invests the contributions and earnings from such contributions to pay benefits to employees. The Pension Plan provides for the payment of a monthly retirement benefit determined under a formula based on years of service and each employee’s compensation level. Benefits are paid to the employees upon reaching early (age 55 or older) or normal (age 65) retirement age. The plan also provides for the payment of certain disability and death benefits. See the table entitled “Pension Benefits” under this Item 11 of this Annual Report on Form 10-K for information on the benefits for 2010 to each of the Named Executive Officers under the Pension Plan.

42


          The Board of Directors adopted a Supplemental Executive Retirement Plan on January 21, 1997. Subject to the discretion of the Board of Directors, the Company credits to the account of each executive eligible to participate in the Supplemental Plan amounts equal to the difference between the benefits actually payable to the executive under the provisions of the defined benefit retirement plan and the amounts which would have been payable under the defined benefit retirement plan if certain provisions of the Internal Revenue Code did not prohibit the payment of such benefits. Of the Named Executive Officers, Messrs. Roche and Caspers were eligible to participate in the Supplemental Executive Retirement Plan in 2010. In fiscal 2010, only Mr. Roche was credited amounts to his account in the Supplemental Executive Retirement Plan, representing his defined benefit plan benefits in excess of the maximums established by the Internal Revenue Code. See the table entitled “Pension Benefits” under this Item 11 of this Annual Report on Form 10-K for information on the benefits for 2010 the Named Executive Officers under the Supplemental Executive Retirement Plan. Unlike the Company’s Pension Plan, the Supplementary Executive Retirement Plan is an unfunded, unsecured obligation of the Company and is not qualified for tax purposes.

          On August 1, 1978 the Company executed an adoption agreement establishing an unfunded Nonqualified Deferred Compensation Plan (the “Deferred Compensation Plan”) for a select group of management or highly compensated employees. Under the terms of the Deferred Compensation Plan, certain employees may elect to defer receipt of their compensation and the Deferred Compensation Plan provides a means for deferrals of compensation into various investment options. The participants may change their election among these options no more than one time per quarter. The income earned does not constitute an “above-market interest rate” as defined by the Securities and Exchange Commission.

          Under the Deferred Compensation Plan, participants may elect to defer any amount of their current salary and bonus as of the end of the prior year for the first payroll period beginning in the next year of the Deferred Compensation Plan. If the Company makes matching contributions under its 401(k) retirement savings plan, amounts in excess of the current 401(k) plan compensation limit may also be matched, but the matching contributions will be applied to the Deferred Compensation Plan. For fiscal year 2010, no Named Executive Officer deferred any amount of salary or and no Named Executive Officer other than Mr. Roche deferred any bonus under the Deferred Compensation Plan. For fiscal year 2010, Mr. Roche was eligible to receive a Company match on compensation in excess of the current 401(k) Plan limit and these excess matching contribution amounts were contributed to Mr. Roche’s account in the Deferred Compensation Plan. Income will be gained or lost on a daily basis as a result of the participants directed investment of his/her account. The participant is vested in those earnings immediately. Participants are eligible for payouts from the Deferred Compensation Plan at retirement, termination, death or disability. With respect to distributions, participants may only elect to receive payments in the form of cash over no more than ten annual installments. Participants have no right, either directly or indirectly, to anticipate, sell, assign or otherwise transfer any benefit accrued under the Deferred Compensation Plan. In addition, no participant has any interest in any Company assets set aside as a source of funds to satisfy its benefit obligations under the Deferred Compensation Plan, including the establishment of any trust. Participants have the status of general unsecured creditors of the Company and the Deferred Compensation Plan constitutes an unsecured promise by the Company to make benefit payments in the future. See the table entitled “Nonqualified Deferred Compensation” under this Item 11 in this Annual Report on Form 10-K for information on the benefits for 2010 for each of the Named Executive Officers under the Deferred Compensation Plan.

43


          The Company maintains a Section 401(k) retirement savings plan that permits employees, including the Named Executive Officers, to elect to set aside a portion of their gross compensation on a pre-tax basis in a trust to pay future retirement benefits. The Company provides a matching contribution of 100% of each employee’s first 4% of compensation that is set aside under the plan. The amounts set aside by each employee and the Company vests immediately. Benefits under the 401(k) plan begin to be paid to the employee: (i) upon the attainment of normal retirement at age 65, or if the employee chooses, any time after early retirement at or after age 55; (ii) the date the employee terminates employment with the Company; or (iii) a pre-retirement distribution equal to the value of the employees 401(k) account, provided the employee has attained age 59 1/2 and provided a written consent of the spouse (if married). Federal law limits employee pre-tax income contributions. For calendar year 2010, employee pre-tax income contributions were limited to $16,500 for each participating employee age 49 and under and $22,000 for each participating employee age 50 and older. See the table entitled “Summary Compensation Table” for information on the benefits for 2010 to each of the Named Executive Officers under the Company’s 401(k) plan.

          In fiscal year 2010, the Company also maintained a defined contribution pension plan for all newly-hired employees who are not part of a collective bargaining arrangement. None of the Named Executive Officers participate in this defined contribution pension plan.

44


DIRECTOR COMPENSATION

          Directors of the Company received the following amounts for Board and committee service in fiscal year 2010: $290 per regular Board meeting, special Board meeting and committee meeting. In addition, from time to time the Company requests that directors represent the Company’s interests at various industry meetings and conferences, meetings with government or regulators, meetings with shareholders and growers, and other meetings with stakeholders. For attendance at each meeting requested by the Company, each director receives $145 per day for service of less than five hours and $290 per day for service of more than five hours. The Chairman of the Board of Directors also receives an additional retainer of $500 per month to compensate for the extra duties associated with that position. Mr. Doug Etten served as the Chairman of the Board of Directors in fiscal year 2010.

          The following table shows for fiscal year 2010 the amounts earned by each of the Company’s directors. Other than cash retainer and meeting fees as described above, none of the Company’s directors earned any other cash or any other compensation in fiscal year 2010.

 

 

 

 

 

 

 

 

 

 

 

 

Name of Director

 

Fees Earned or
Paid in Cash (1)

 

Total

 

Dale Blume

 

 

$

12,040

 

 

 

$

12,040

 

 

Dennis Butenhoff

 

 

$

15,780

 

 

 

$

15,780

 

 

Brent Davison

 

 

$

12,950

 

 

 

$

12,950

 

 

Doug Etten

 

 

$

28,240

 

 

 

$

28,240

 

 

Patrick Freese

 

 

$

10,140

 

 

 

$

10,140

 

 

Dennis Klosterman

 

 

$

14,230

 

 

 

$

14,230

 

 

Russell Mauch

 

 

$

17,810

 

 

 

$

17,810

 

 

Charles Steiner

 

 

$

12,305

 

 

 

$

12,305

 

 

Kevin Kutzer (2)

 

 

$

6,050

 

 

 

$

6,050

 

 

Alton Theede (2)

 

 

$

1,680

 

 

 

$

1,680

 

 


 

 

 

 

(1)

Includes the amount of cash compensation earned or paid in fiscal year 2010 for Board and committee service, as well as for attendance at meetings requested by the Company.

 

(2)

Mr. Theede served on the Board until his term ended on December 9, 2009. Mr. Kutzer was elected as his replacement. Accordingly, amounts for Messrs. Theede and Kutzer reflect partial years of service.

45


REPORT OF THE COMPENSATION COMMITTEE

          The following report of the Compensation Committee shall not be deemed to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933, as amended, or the 1934 Securities Exchange Act, as amended, except to the extent that the Company specifically incorporates it by reference in such filing.

          The Compensation Committee has reviewed and discussed the section of this Annual Report on Form 10-K for the year ended August 31, 2010 entitled Compensation Discussion and Analysis (the “CD&A”) with Management. In reliance on this review and discussion, the Compensation Committee recommended to the Board of Directors that the CD&A be included in this Annual Report on Form 10-K for the year ended August 31, 2010 for filing with the Securities and Exchange Commission.

By the Compensation Committee of the Board of Directors

Charles Steiner (Chair)
Dale Blume
Dennis Klosterman
Brent Davison
Dennis Butenhoff

46



 

 

ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

          Under state law and the Company’s Bylaws, each member of the cooperative is entitled to one vote, regardless of the number of shares the member holds. The Common Stock of the Company is voting stock and each member of the Company holds one share of Common Stock. The Preferred Stock of the Company is non-voting stock. The Company’s stock can only be held by individuals who are sugarbeet growers. To the Company’s knowledge, as of November 24, 2010, no person owned beneficially more than 5 percent of the Company’s outstanding shares and none of the principal officers listed above owned any such shares. As members of the cooperative, each director owns one share of Common Stock and is entitled to one vote. As a group, the directors own 4.46 percent of the outstanding Preferred Stock.

 

 

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

          Each of the Company’s directors is also a sugarbeet grower or a shareholder member or representative of a shareholder member. By virtue of their status as such members of the Company, each director or the member he represents sells sugarbeets to the Company and receives payments for those sugarbeets; also, each director could potentially receive grower trucking payments. Such payments for sugarbeets and trucking payments, either separately or together, can often exceed $120,000. However, such payments that are received by the directors, or the entities they represent, are on the same basis as payments received by other members of the Company for the delivery and payment of their sugarbeets. Except for the sugarbeet sales and receipt of grower trucking payments described in the preceding sentences, since the beginning of fiscal year 2010, the Company has not entered into any transaction and there are no currently proposed transactions, in which the Company was or is to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest.

          The charter of the Audit Committee provides that the Audit Committee is responsible for reviewing and approving the terms and conditions of all of transactions the Company enters into in which an officer, director or 5 percent or greater shareholder or any affiliate of these persons has a direct or indirect material interest. The Standards of Business Conduct, which is applicable to all of the Company’s employees and directors, also prohibits the Company’s employees, including executive officers, and the Company’s directors from engaging in conflict of interest transactions. Requests for waivers by the Company’s executive officers and directors from the provisions of, or requests for consents by the Company’s executive officers and directors under, the Standards of Business Conduct must be made to the Audit Committee.

          In addition, the Company has a formal related person transaction approval policy, which sets forth the Company’s policies and procedures for the review, approval or ratification of any transaction required to be reported in its filings with the Securities and Exchange Commission. The Company’s policy applies to any financial transaction, arrangement or relationship or any series of similar transactions, arrangements or relationships in which the Company is a participant and in which a related person has a direct or indirect interest. Through the policy, the Audit Committee has also identified and pre-approved certain transactions with related persons, including:

 

 

 

 

employment of executive officers, director compensation to be reported in the Company’s Annual Report on Form 10-K,

 

payment of ordinary expenses and business reimbursements;

 

transactions with related companies in which the dollar amount does not exceed $60,000 or 2 percent of the other company’s total revenues;

 

charitable contributions in which the dollar amount does not exceed $25,000 or 2 percent of the charitable organization’s receipts;

 

payments made under our articles of incorporation, bylaws, insurance policies or other agreements relating to indemnification;

47



 

 

 

 

transactions in which our shareholders receive proportional benefits, specifically including payments to shareholders for sugarbeets of a similar quality and quantity and grower trucking payments to shareholders based upon generally applicable formulas; and

 

transactions that involve competitive bid, banking transactions and transactions where the terms of which are regulated by law or governmental authority.

The Audit Committee must approve any related person transaction subject to this policy before commencement of the related party transaction. If pre-approval is not feasible, the Audit Committee may ratify, amend or terminate the related person transaction. The Audit Committee will analyze the following factors, in addition to any other factors the Audit Committee deems appropriate, in determining whether to approve a related party transaction:

 

 

 

 

whether the terms are fair to the Company;

 

whether the terms of the related party transaction are no less favorable than terms generally available to an unaffiliated third-party under the same or similar circumstances;

 

whether the related party transaction is material to the Company;

 

the role the related party has played in arranging the transaction;

 

the structure of the related party transaction;

 

the interests of all related parties in the transaction;

 

the extent of the related party’s interest in the transaction; and

 

whether the transaction would require a waiver of the Standards of Business Conduct.

The Audit Committee may, in its sole discretion, approve or deny any related person transaction. Approval of a related person transaction may be conditioned upon the Company and the related person taking such precautionary actions, as the Audit Committees deems appropriate.

Independence of Directors and Committee Members

          The Board of Directors undertook a review of director independence in November 2010 as to all nine directors then serving. As part of that process, the Board reviewed all transactions and relationships between each director (or any member of his immediate family) and the Company, its executive officers and its auditors, and other matters bearing on the independence of directors. Although none of the Company’s securities are listed on any stock exchange, the Board of Directors is required to select and apply the independence standards of a stock exchange. For the purposes of determining the independence of the Company’s directors and committee members, the Board of Directors selected the NASDAQ Marketplace Rules. As a result of its review, directors Dale N. Blume, Dennis Butenhoff, Brent Davison, Douglas Etten, Patrick Freese, Dennis Klosterman, Russell Mauch, Charles Steiner and Kevin Kutzer meet the criteria for “independence” under the NASDAQ Marketplace Rules. All members of the Audit Committee meet the “independence” requirements of Section 10A-3.

          The Company has also established separate criteria for eligibility to serve as a member of the Company’s Compensation Committee and Audit Committee.

          The charter of the Compensation Committee requires that this committee consist of no fewer than three Board members and that no director shall be a member if the director currently is, or at any time during the past two fiscal years has been employed by the Company or in the judgment of the Executive Committee, has a relationship that would interfere with the exercise of independent judgment in carrying out responsibilities as a director or member of the Compensation Committee. Each member of our Compensation Committee meets these requirements.

48


          The charter of the Audit Committee requires that the Audit Committee be comprised of at least three members, all of who must be independent from Management and the Company. The members of the Audit Committee should also include directors with financial or accounting backgrounds if available. The Board of Directors has reviewed the education, experience and other qualifications of each of the members of its Audit Committee. After review, the Board of Directors has determined that none of the members of the Audit Committee meet the Securities and Exchange Commission definition of an “audit committee financial expert.” However, the Company believes that, taken as a whole, the members of Audit Committee have sufficient education, experience and qualifications to carry out their duties.

 

 

ITEM 14.

PRINCIPAL ACCOUNTING FEES AND SERVICES


 

 

 

 

1.

Audit Fees - paid to the Company’s principal accountant for the audit of annual financial statements and review of financial statements included in Forms 10-Q during the fiscal year ended August 31, 2010 totaled $94,140 (Including a $20,000 progress billing for the 2010 audit) and for the year ended August 31, 2009 $96,550 (including a $16,000 progress billing for the 2009 audit).

 

 

 

 

2.

Audit Related Fees - paid to the Company’s principal accountant for the audit of employee benefit plans during the fiscal year ended August 31, 2010 totaled $14,500 and for the year ended August 31, 2009 totaled $14,500.

 

 

 

 

3.

Tax Fees - paid to the Company’s principal accountant for professional services rendered for tax compliance, tax advice, and tax planning totaled $27,010 for the year ended August 31, 2010 and $20,700 for fiscal year ended August 31, 2009.

 

 

 

 

4.

All Other Fees – paid to the Company’s principal accountant for USDA agreed upon procedures during the fiscal year ended August 31, 2010 totaled $5,000 and for the year ended August 31, 2009 totaled $5,000.

 

 

 

 

5.

It is part of the audit committee’s duties to appoint, compensate, and oversee the engagement of, retention, or replacement of, the independent auditors who audit the financial statements of the Company and its subsidiaries. The audit committee approves all audit services to be performed by the independent auditor. The committee ensures that the independent auditor is not engaged to perform any non-audit services that are considered “prohibited activities” by the Sarbanes-Oxley law.

 

 

 

 

 

The audit committee approves 100 percent of the services described in items 1 thru 4 above.

 

 

 

 

6.

The percentage of hours expended on the principal accountant’s engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full-time, permanent employees is zero.

49


PART IV.

 

 

ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES


 

 

 

 

Documents filed as part of this report:

 

 

 

 

a.

Consolidated Financial Statements

 

 

-Report of Independent Registered Public Accounting Firm

 

 

-Consolidated Balance Sheets as of August 31, 2010, 2009 and 2008

 

 

-Consolidated Statements of Operations for the Years Ended August 31, 2010, 2009 and 2008

 

 

-Consolidated Statements of Changes in Members’ Investments for the years ended August 31, 2010, 2009 and 2008

 

 

-Consolidated Statements of Cashflows for the Years Ended August 31, 2010, 2009 and 2008

 

 

-Notes to the Consolidated Financial Statements

 

 

 

 

b.

Financial Statement Schedules – None

 

 

 

 

c.

The exhibits to this Annual Report on Form 10-K are listed in the Exhibit Index, Item 15c.

50



 

 

Item 15a.

Report of Independent Registered Public Accounting Firm

The Audit Committee
Minn-Dak Farmers Cooperative
Wahpeton, North Dakota

We have audited the accompanying consolidated balance sheets of Minn-Dak Farmers Cooperative (a North Dakota cooperative association) as of August 31, 2010, 2009, and 2008, and the related consolidated statements of operations, change in members’ investments and comprehensive income and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we do not express such an opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by Management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Minn-Dak Farmers Cooperative as of August 31, 2010, 2009, and 2008, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

/S/ Eide Bailly LLP

Fargo, North Dakota
November 24, 2010

51


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED BALANCE SHEETS
AUGUST 31, 2010, 2009, AND 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

 

 

 

 

Cash

 

$

128,611

 

$

93,949

 

$

159,175

 

 

 

 

 

 

 

 

 

 

 

 

Current bond trust

 

 

4,731,005

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Receivables

 

 

 

 

 

 

 

 

 

 

Trade accounts

 

 

12,730,660

 

 

14,299,830

 

 

16,376,068

 

Growers

 

 

13,763,089

 

 

10,196,312

 

 

7,313,090

 

Income tax

 

 

 

 

 

 

234,461

 

Other

 

 

2,551

 

 

2,551

 

 

2,551

 

 

 

 

26,496,300

 

 

24,498,693

 

 

23,926,170

 

 

 

 

 

 

 

 

 

 

 

 

Advances to affiliates - Midwest Agri-Commodities Co. and United Sugars Corporation

 

 

 

 

1,105,797

 

 

1,492,451

 

 

Inventories

 

 

 

 

 

 

 

 

 

 

Refined sugar, pulp, molasses and thick juice to be sold on a pooled basis

 

 

29,770,313

 

 

27,046,374

 

 

28,452,755

 

Sugarbeets

 

 

3,121,298

 

 

 

 

 

Nonmember refined sugar

 

 

1,717,395

 

 

1,451,972

 

 

1,357,893

 

Yeast

 

 

237,105

 

 

200,317

 

 

167,799

 

Materials and supplies

 

 

13,403,175

 

 

11,296,034

 

 

10,159,944

 

 

 

 

48,249,286

 

 

39,994,697

 

 

40,138,391

 

 

 

 

 

 

 

 

 

 

 

 

Deferred charges

 

 

 

 

1,324,353

 

 

1,436,316

 

 

 

 

 

 

 

 

 

 

 

 

Prepaid expenses and other assets

 

 

2,047,411

 

 

3,109,313

 

 

2,149,816

 

 

 

 

 

 

 

 

 

 

 

 

Current deferred income tax asset

 

 

 

 

25,600

 

 

145,000

 

 

 

 

 

 

 

 

 

 

 

 

Total current assets

 

 

76,792,997

 

 

70,058,453

 

 

69,288,144

 

 

 

 

 

 

 

 

 

 

 

 

PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

 

 

 

 

 

 

Land and land improvements

 

 

28,164,267

 

 

27,130,273

 

 

26,476,273

 

Buildings

 

 

37,882,719

 

 

37,757,659

 

 

37,592,109

 

Factory equipment

 

 

152,493,105

 

 

147,419,262

 

 

141,263,455

 

Other equipment

 

 

5,300,600

 

 

4,675,425

 

 

3,766,400

 

Capitalized leases

 

 

3,352,917

 

 

2,960,658

 

 

746,210

 

Construction in progress

 

 

5,213,973

 

 

4,690,526

 

 

4,500,912

 

 

 

 

232,407,581

 

 

224,633,803

 

 

214,345,359

 

Less accumulated depreciation and amortization

 

 

135,638,384

 

 

127,336,389

 

 

119,566,871

 

 

 

 

96,769,197

 

 

97,297,414

 

 

94,778,488

 

 

 

 

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

 

 

 

 

Investment in other cooperatives and unconsolidated marketing cooperatives

 

 

11,115,672

 

 

11,343,602

 

 

11,523,024

 

Bond trust and financing costs

 

 

2,492,735

 

 

98,302

 

 

126,663

 

Other

 

 

5,034,845

 

 

992,175

 

 

1,187,408

 

 

 

 

18,643,252

 

 

12,434,079

 

 

12,837,095

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

192,205,445

 

$

179,789,946

 

$

176,903,727

 

See Notes to Consolidated Financial Statements.

52



 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

LIABILITIES AND MEMBERS’ INVESTMENT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

Short-term notes payable

 

$

27,557,680

 

$

18,977,978

 

$

24,440,000

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt and capital leases

 

 

2,977,034

 

 

2,905,841

 

 

2,594,188

 

Current portion of bonds payable

 

 

 

 

2,120,000

 

 

2,010,000

 

 

 

 

2,977,034

 

 

5,025,841

 

 

4,604,188

 

Accounts payable

 

 

 

 

 

 

 

 

 

 

Trade

 

 

10,143,993

 

 

11,566,445

 

 

9,511,224

 

Checks Outstanding

 

 

1,007,863

 

 

545,766

 

 

 

Deferred liabilities

 

 

8,825,180

 

 

 

 

 

Growers

 

 

13,874,124

 

 

17,704,288

 

 

17,429,879

 

Income tax

 

 

194,745

 

 

 

 

 

 

 

 

34,045,905

 

 

29,816,499

 

 

26,941,103

 

Payable to affiliates - Midwest Agri-Commodities Co. and United Sugars Corporation

 

 

283,460

 

 

 

 

 

Accrued liabilities

 

 

3,100,968

 

 

2,945,383

 

 

3,299,010

 

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

 

67,965,047

 

 

56,765,701

 

 

59,284,301

 

 

LONG-TERM DEBT AND CAPITAL LEASES, NET OF CURRENT PORTION

 

 

18,690,023

 

 

22,148,959

 

 

13,778,143

 

 

BONDS PAYABLE

 

 

19,240,000

 

 

11,370,000

 

 

13,490,000

 

 

LONG-TERM DEFERRED INCOME TAX LIABILITY

 

 

265,800

 

 

354,400

 

 

443,000

 

 

LONG-TERM UNRECOGNIZED TAX BENEFITS LIABILITY

 

 

 

 

274,075

 

 

256,075

 

 

LONG-TERM PENSION LIABILITY

 

 

19,629,704

 

 

12,827,360

 

 

5,795,189

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total liabilities

 

 

125,790,574

 

 

103,740,495

 

 

93,046,708

 

 

 

 

 

 

 

 

 

 

 

 

MEMBERS’ INVESTMENT

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

 

 

 

 

 

 

Class A - 100,000 shares authorized, $105 par value;
72,200 shares issued and outstanding

 

 

7,581,000

 

 

7,581,000

 

 

7,581,000

 

Class B - 100,000 shares authorized $75 par value;
72,200 shares issued and outstanding

 

 

5,415,000

 

 

5,415,000

 

 

5,415,000

 

Class C - 100,000 shares authorized, $76 par value;
72,200 shares issued and outstanding

 

 

5,487,200

 

 

5,487,200

 

 

5,487,200

 

 

 

 

18,483,200

 

 

18,483,200

 

 

18,483,200

 

Common stock, 600 shares authorized, $250 par value;

 

 

 

 

 

 

 

 

 

 

477 shares issued and outstanding on 8-31-10,

 

 

119,250

 

 

118,500

 

 

120,750

 

474 shares outstanding on 8-31-09 and

 

 

 

 

 

 

 

 

 

 

483 shares outstanding on 8-31-08 and

 

 

 

 

 

 

 

 

 

 

Paid in capital in excess of par value

 

 

32,094,407

 

 

32,094,407

 

 

32,094,407

 

Nonqualified allocated patronage

 

 

28,298,571

 

 

28,298,718

 

 

28,298,508

 

Accumulated other comprehensive loss

 

 

(18,837,157

)

 

(12,811,235

)

 

(4,890,516

)

Retained earnings

 

 

11,116,217

 

 

9,959,810

 

 

9,909,845

 

 

 

 

71,274,488

 

 

76,143,400

 

 

84,016,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

197,065,062

 

$

179,883,895

 

$

177,062,902

 

53


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

REVENUE

 

 

 

 

 

 

 

 

 

 

From sales of sugar, sugar co-products, and yeast, net of discounts

 

$

214,311,789

 

$

225,034,020

 

$

243,573,467

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

Production costs of sugar, co-products, and yeast sold

 

 

72,008,374

 

 

79,586,897

 

 

73,592,738

 

Sales and distribution costs

 

 

40,451,329

 

 

43,308,982

 

 

48,667,319

 

General and administrative

 

 

7,079,301

 

 

7,065,675

 

 

7,275,736

 

Interest

 

 

1,974,363

 

 

2,017,946

 

 

3,230,496

 

 

 

 

121,513,367

 

 

131,979,500

 

 

132,766,289

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME

 

 

7,777,785

 

 

2,493,245

 

 

1,299,870

 

 

 

 

 

 

 

 

 

 

 

 

NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS BEFORE INCOME TAXES

 

 

100,576,207

 

 

95,547,765

 

 

112,107,049

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAXES EXPENSE (BENEFIT)

 

 

343,580

 

 

(505,145

)

 

1,243,679

 

 

 

 

 

 

 

 

 

 

 

 

NET PROCEEDS RESULTING FROM MEMBER AND NON-MEMBER BUSINESS

 

$

100,232,627

 

$

96,052,910

 

$

110,863,370

 

 

 

 

 

 

 

 

 

 

 

 

DISTRIBUTION OF NET PROCEEDS

 

 

 

 

 

 

 

 

 

 

Credited to members’ investment

 

 

 

 

 

 

 

 

 

 

Components of net income

 

 

 

 

 

 

 

 

 

 

Income from non-member business

 

$

1,156,407

 

$

334,861

 

$

2,721,265

 

Patronage income

 

 

4,020,142

 

 

3,727,840

 

 

5,117,244

 

 

 

 

 

 

 

 

 

 

 

 

Net income credited to member’s investment

 

 

5,176,549

 

 

4,062,701

 

 

7,838,509

 

 

 

 

 

 

 

 

 

 

 

 

Payments to members for sugarbeets, net of unit retention capital

 

 

95,056,078

 

 

91,990,209

 

 

103,024,861

 

 

 

 

 

 

 

 

 

 

 

 

NET PROCEEDS RESULTING FROM MEMBER AND NONMEMBER BUSINESS

 

$

100,232,627

 

$

96,052,910

 

$

110,863,370

 

See Notes to Consolidated Financial Statements.

54



 

MINN-DAK FARMERS COOPERATIVE

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS’ INVESTMENT

YEARS ENDED AUGUST 31, 2010, 2009, AND 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred
Stock

 

Common
Stock

 

Paid in Capital
In Excess of
Par Value

 

Non-Qualified
Allocated
Patronage

 

Accumulated
Other
Comprehensive
Income (Loss)

 

Retained
Earnings

 

Total

 

Comprehensive
Income/
(Loss)

 

BALANCE, AUGUST 31, 2007

 

$

18,483,200

 

$

121,000

 

$

32,094,407

 

$

27,598,667

 

$

(2,368,458

)

$

7,444,091

 

$

83,372,907

 

 

 

 

Stock - Sales - common (8 shares)

 

 

 

 

 

2,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

 

 

 

Repurchases - common (9 shares)

 

 

 

 

 

(2,250

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,250

)

 

 

 

Revolvement of unit retention capital

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolvement of prior years’ allocated patronage

 

 

 

 

 

 

 

 

 

 

 

(4,417,403

)

 

 

 

 

 

 

 

(4,417,403

)

 

 

 

Adoption of FIN 48

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(255,511

)

 

(255,511

)

 

 

 

Net income for the year ended August 31, 2008

 

 

 

 

 

 

 

 

 

 

 

5,117,244

 

 

 

 

 

2,721,265

 

 

7,838,509

 

$

7,838,509

 

Pension liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,522,058

)

 

 

 

 

(2,522,058

)

 

(2,522,058

)

Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

5,316,451

 

BALANCE, AUGUST 31, 2008

 

 

18,483,200

 

 

120,750

 

 

32,094,407

 

 

28,298,508

 

 

(4,890,516

)

 

9,909,845

 

 

84,016,194

 

 

 

 

Stock - Sales - common (6 shares)

 

 

 

 

 

1,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,500

 

 

 

 

Repurchases - common (15 shares)

 

 

 

 

 

(3,750

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,750

)

 

 

 

Revolvement of patronage-Estate

 

 

 

 

 

 

 

 

 

 

 

(101,701

)

 

 

 

 

 

 

 

(101,701

)

 

 

 

Revolvement of prior years’ allocated patronage

 

 

 

 

 

 

 

 

 

 

 

(3,625,929

)

 

 

 

 

 

 

 

(3,625,929

)

 

 

 

Effects of FAS 158 Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(284,896

)

 

(284,896

)

 

 

 

Net income for the year ended August 31, 2009

 

 

 

 

 

 

 

 

 

 

 

3,727,840

 

 

 

 

 

334,861

 

 

4,062,701

 

$

4,062,701

 

Pension liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(7,920,719

)

 

 

 

 

(7,920,719

)

 

(7,920,719

)

Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(3,858,018

)

BALANCE, AUGUST 31, 2009

 

 

18,483,200

 

 

118,500

 

 

32,094,407

 

 

28,298,718

 

 

(12,811,235

)

 

9,959,810

 

 

76,143,400

 

 

 

 

Stock - Sales - common (10 shares)

 

 

 

 

 

2,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,500

 

 

 

 

Repurchases - common (7 shares)

 

 

 

 

 

(1,750

)

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,750

)

 

 

 

Revolvement of patronage-Estate

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revolvement of prior years’ allocated patronage

 

 

 

 

 

 

 

 

 

 

 

(4,020,289

)

 

 

 

 

 

 

 

(4,020,289

)

 

 

 

Effects of FAS 158 Adjustments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income for the year ended August 31, 2010

 

 

 

 

 

 

 

 

 

 

 

4,020,142

 

 

 

 

 

1,156,407

 

 

5,176,549

 

$

5,176,549

 

Pension liability adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(6,025,922

)

 

 

 

 

(6,025,922

)

 

(6,025,922

)

Comprehensive Income (Loss)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

(849,374

)

BALANCE, AUGUST 31, 2010

 

$

18,483,200

 

$

119,250

 

$

32,094,407

 

$

28,298,571

 

$

(18,837,157

)

$

11,116,217

 

$

71,274,488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

55


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Income allocated to members’ investment

 

$

5,176,549

 

$

4,062,701

 

$

7,838,509

 

Accumulated other comprehensive loss

 

 

(6,025,922

)

 

(7,920,718

)

 

(2,522,058

)

Add (deduct) noncash items

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

8,808,312

 

 

8,440,002

 

 

8,115,079

 

Amortization

 

 

752,461

 

 

359,548

 

 

436,512

 

(Gain) Loss on disposal of equipment

 

 

(25,553

)

 

(108,602

)

 

112,747

 

(Gain)Loss allocated from unconsolidated marketing cooperatives

 

 

84,761

 

 

(115,543

)

 

43,419

 

Noncash portion of patronage capital credits

 

 

32,396

 

 

(974,925

)

 

(644,842

)

Deferred income taxes

 

 

(63,000

)

 

30,800

 

 

1,136,000

 

(Increase)/Decrease in cash surrender of retired executive life insurance

 

 

11,651

 

 

49,555

 

 

20,224

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

 

 

Accounts receivable and advances

 

 

(608,351

)

 

(420,329

)

 

(2,408,377

)

Inventory and prepaid expenses

 

 

(7,192,687

)

 

(815,803

)

 

1,299,903

 

Deferred charges and other

 

 

(2,873,808

)

 

114,473

 

 

629,083

 

Accounts payable, accrued liabilities, and other liabilities

 

 

10,158,503

 

 

9,665,509

 

 

(662,766

)

 

 

 

 

 

 

 

 

 

 

 

NET CASH FROM OPERATING ACTIVITIES

 

 

8,235,312

 

 

12,366,668

 

 

13,393,433

 

 

 

 

 

 

 

 

 

 

 

 

INVESTING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Proceeds from disposition of property, plant and equipment

 

 

125,666

 

 

332,455

 

 

11,170

 

Capital expenditures

 

 

(7,987,929

)

 

(8,817,485

)

 

(7,975,759

)

Capital adjustment of unconsolidated marketing cooperatives

 

 

(237,248

)

 

871,094

 

 

325,357

 

Proceeds from patronage refunds and equity revolvements

 

 

367,407

 

 

418,184

 

 

272,726

 

 

 

 

 

 

 

 

 

 

 

 

NET CASH USED FOR INVESTING ACTIVITIES

 

 

(7,732,104

)

 

(7,195,752

)

 

(7,366,506

)

 

 

 

 

 

 

 

 

 

 

 

FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

Sale (repurchase) of common stock, net

 

 

750

 

 

(2,250

)

 

(250

)

Net proceeds (repayments) of short-term debt

 

 

8,579,703

 

 

(5,462,022

)

 

5,440,000

 

Checks outstanding

 

 

462,098

 

 

545,766

 

 

 

Proceeds from long term debt

 

 

 

 

10,000,000

 

 

 

Payment of financing fees

 

 

(753,447

)

 

(207,405

)

 

(284,410

)

Payment of long-term debt/lease

 

 

(5,030,020

)

 

(5,692,828

)

 

(5,239,138

)

Payment of unit retains and allocated patronage

 

 

(3,727,630

)

 

(4,417,403

)

 

(6,038,860

)

 

 

 

 

 

 

 

 

 

 

 

NET CASH USED FOR FINANCING ACTIVITIES

 

 

(468,546

)

 

(5,236,142

)

 

(6,122,658

)

 

 

 

 

 

 

 

 

 

 

 

NET CHANGE IN CASH

 

 

34,662

 

 

(65,226

)

 

(95,731

)

 

 

 

 

 

 

 

 

 

 

 

CASH, BEGINNING OF YEAR

 

 

93,949

 

 

159,175

 

 

254,906

 

 

 

 

 

 

 

 

 

 

 

 

CASH, END OF YEAR

 

$

128,611

 

$

93,949

 

$

159,175

 

56


MINN-DAK FARMERS COOPERATIVE
CONSOLIDATED STATEMENTS OF CASHFLOWS
YEARS ENDED AUGUST 31, 2010, 2009, AND 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

Cash payments for Interest

 

$

1,861,232

 

$

2,067,437

 

$

3,438,931

 

Income tax net payments (refunds)

 

$

485,910

 

$

(790,406

)

$

1,930,729

 

 

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds for bond issuance transferred to restricted investment

 

$

7,000,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equipment purchased by issuance of capital lease

 

$

392,259

 

$

2,365,296

 

$

746,210

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements.

 

 

 

 

 

 

 

 

 

 

57


NOTE 1 - PRINCIPAL ACTIVITY AND SIGNIFICANT ACCOUNTING POLICIES

Minn-Dak Farmers Cooperative (the Company) is a North Dakota cooperative association owned by its member-growers for the purpose of processing sugarbeets and marketing sugar and co-products. Minn-Dak Yeast Company, Inc. (Minn-Dak Yeast) is a North Dakota corporation engaged primarily in the production and marketing of baker’s yeast. Link Acquisition Company LLC (Link) was formed to advance possible strategic business activities by the Company. Approximately 93% of net sales are related to sugarbeet operations and 7% are related to yeast operations.

The majority of the net proceeds from the Company are from member patronage business.

Principles of Consolidation

The financial statements include the accounts of the Company and its wholly owned subsidiaries, Minn-Dak Yeast and Link. Significant intercompany activity has been eliminated from the Balance Sheet, Statement of Operations, Statement of Members’ Investment and Statements of Cash Flows.

Cash and Cash Equivalents

Cash Equivalents are assets which are readily convertible into cash within three months. The Company does not consider Bond Trust assets as Cash Equivalents.

Receivable and Credit Policy

Trade receivables are uncollateralized customer obligations due under normal trade terms requiring payment within 15 to 90 days from the invoice date. Trade receivables are stated at the amount billed to the customer. Customer account balances with invoices dated over 90 days old are considered delinquent. Payments of trade receivables are allocated to the specific invoices identified on the customer’s remittance advice or, if unspecified, are applied to the earliest unpaid invoices. The carrying amount of trade receivables is reduced by a valuation allowance that reflects Management’s best estimate of the amounts that will not be collected. Management reviews all trade receivable balances that exceed 90 days from the invoice date and based on an assessment of current creditworthiness, estimates the portion, if any, of the balance that will not be collected. Additionally, Management estimates an allowance to apply to the aggregate trade receivables to create a general allowance covering those amounts. The allowance is based on an evaluation of the receivables account with particular attention paid to the largest customer balances and the risk profile of the entire portfolio.

Credit Risk

The Company via United Sugars and Midwest Agri-Commodities and Minn-Dak Yeast grant credit to food processors located throughout the United States. In addition, the Company grants credit to member-growers located in North Dakota and Minnesota, for sugarbeet seed, technology fees, and co-products.

Inventories

Inventories of refined sugar, thick juice, 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 the cost or market. Inventory of yeast is valued at the lower of average cost or market. Materials and supplies are valued at most recent purchase price that approximates weighted average cost. During the periods when sugarbeets are purchased from growers, but not yet converted into bin sugar or thick juice, that inventory is valued at grower payment cost. In valuing inventories at net realizable value, the Company, in effect sells the remaining inventory to the subsequent periods sugar and co-product pool.

58


Reclassifications

Certain accounts in the prior-year financial statements have been reclassified for comparative purposes to conform to the presentation in the current-year financial statements.

Prepaid Expense and Other Assets

Purchased sugar allocation and prepaid insurance costs related to subsequent fiscals year are recorded as assets and subsequently expensed to those years.

Deferred Costs and Product Values

All costs incurred prior to the beginning of the Company’s fiscal year that relate to agricultural development and labor procurement costs, receiving and processing the subsequent year’s sugarbeet crop are deferred. Similarly, the net realizable values of products produced prior to the beginning of the Company’s fiscal year that relate to the subsequent year’s sugarbeet crop are deferred. The net result of these deferred costs and grower sugar beet payables as of August 31, 2010 of $8,825,181 has been recorded in the Company’s balance sheet in “Deferred liabilities.” Deferred costs as of August 31, 2009 and August 31, 2008 of $1,324,343 and $1,436,316 respectively were recorded in the Company’s balance sheet as current assets under the heading “Deferred charges”. There were no deferred products produced prior to the fiscal years ending August 31, 2009 and August 31, 2008.

Property, Plant, Equipment and Depreciation

Property, plant and equipment are stated at cost. Additions, renewals and betterments are capitalized, whereas expenditures for maintenance and repairs are charged to expense. The cost and related accumulated depreciation of assets retired or sold are removed from the appropriate asset and depreciation accounts and the resulting gain or loss is reflected in income.

It is the policy of the Company to provide depreciation based on methods designed to amortize the cost of the properties over their estimated useful lives. Property, plant and equipment are depreciated for financial reporting purposes, principally using declining balance methods, with estimated useful lives ranging from 3 to 40 years. Statutory lives and methods are used for income tax reporting purposes. Capital lease equipment is depreciated in accordance with FASB ASC 840, Accounting for Leases.

Capitalized assets include indirect costs such as fringe benefits, interest and engineering when appropriate. The indirect costs capitalized for the years ended August 31, 2010, 2009 and 2008 were $257,391, $205,240, and $133,775, respectively. There was no construction-period interest capitalized for the years ended August 31, 2010, 2009 and 2008.

Goodwill and Other Intangible Assets

In accordance with Statement of Financial Accounting Standards FASB ASC 350 (Accounting Standards Codification), Intangibles – Goodwill and Other, the Company does not amortize goodwill. The Company has annually evaluated goodwill and other intangible assets for impairment and concluded that no impairment charge was necessary.

Costs associated with the acquisition of permanent allocation rights will be amortized over the remaining life of the farm program, currently estimated at four crop years.

59


Investments in Other Cooperatives and Unconsolidated Marketing Cooperatives

Equity Value Investments in Unconsolidated Marketing Cooperatives Investments - The investments in United Sugars Corporation and Midwest -Commodities Company are accounted for using the equity method, wherein the investment is recorded at the amount of the underlying equity in the net assets of the investments and adjusted to recognize the Company’s share of the undistributed earnings or losses. Transactions with these companies are considered to be related party transactions.

Investments in Other Cooperatives - The investments in stocks and capital credits of other cooperatives are stated at cost, plus the Company’s share of allocated patronage and capital credits.

Income Taxes

A consolidated federal income tax return is filed for the Company and its wholly owned subsidiaries. Deferred income taxes are provided for in the timing of certain temporary deductions/increases for financial and income tax reporting purposes.

Revenue Recognition

The Company generally recognizes revenue at the point of customer receipt of product.

Accounting Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires Management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Bond Origination Costs

Bond financing costs incurred in connection with the financing of the construction projects related to the processing facility have been capitalized. The Company is amortizing the bond financing costs over the terms of the financing obtained using a straight line method.

Amortization of bond financing cost for the years ended August 31, 2010, 2009, and 2008 totaled $21,650, $28,362 and $28,362, respectively.

Self-Funded Insurance

The Contract year for the Company’s employee health plan starts January 1 and ends December 31. In fiscal year 2008, the Company operated with a fully insured employee health plan through December 2007. In fiscal years ending August 31, 2009 and 2010, the Company operated with a self-funded employee health plan administered by Blue Cross Blue Shield of North Dakota (BCBS) for the entire fiscal year. In addition to administering claims, BCBS insures individual health claims in excess of $100,000 and aggregate annual claims in excess of 120% of expected claims for the plan year. The Company has exposure for claims incurred but not paid at the end of each reporting period. Historical information supplied by BCBS, based on employee enrollment and factors that are established at each contract renewal, is used to estimate it’s liability for these claims. This liability is estimated, actual claims experience may differ from Company estimates.

60


Uninsured Cash Balance

The Company maintains cash balances at various financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to certain limits. At times during the year, the Company’s balances exceeded these limits. The Company does not consider this a material risk.

Impairment and Disposal of Long-Lived Assets

The Company accounts for impairment or disposal of long-lived assets in accordance with the provisions of FASB ASC 144, Impairment or Disposal of Long-Lived Assets.

Shipping and Handling Costs

Shipping and handling costs are included in cost of product sold upon receipt of the Company’s product by its customers as well as the net realizable value calculations of the inventory through allocations from the Company’s marketing cooperatives.

Advertising

The Company’s advertising costs are expensed as incurred. Advertising expense for the years ended August 31, 2010, 2009 and 2008 totaled $19,875, $19,955 and $21,568, respectively.

Pension Liability

In accordance with FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans, the Company records the liability for its defined benefit retirement plan as the benefit obligation in the financial statements. The Company has determined that the future tax benefits associated with FASB ASC 715 are patronage sourced and, therefore, will flow directly to the shareholder/growers. As a result, no future tax benefit to the Company is recorded.

Fair Value

Fair value is defined under FASB ASC 820, Accounting for Fair Value Measurements as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs. FASB ASC 820 established a fair value hierarchy that prioritizes the assumptions, or “inputs,” used in applying valuation techniques. The three levels of inputs within fair value hierarchy include:

 

 

 

 

o

Level 1 inputs were quoted prices (unadjusted) in active markets for identical assets or liabilities.

 

 

 

 

o

Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that were not active, and inputs (other than quoted prices) that were observable for the asset or liability, either directly or indirectly.

 

 

 

 

o

Level 3 inputs are unobservable inputs for the asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Recently Issued Accounting Pronouncements

In January 2010, the FASB issued new standards in the ASC 820, Fair Value Measurements. These standards require new disclosures on the amount and reason for transfers in and out of Level 1 and 2 fair value measurements. The standards also require disclosure of activities, including purchases, sales, issuances, and settlements within the Level 3 fair value measurements. The standard also clarifies existing disclosure requirements on levels of disaggregation and disclosures about inputs and valuation techniques. The new disclosures regarding Level 1 and 2 fair value measurements and clarification of existing disclosures are effective for the Company beginning with its interim filing for February 2010. The disclosures about the roll forward of information in Level 3 are required for the Company with its interim filing in February 2011. This update will not have a material effect on the Company’s results of operations, financial position or cash flows.

61


Recently Adopted Accounting Pronouncements

In February 2010, the FASB amended its guidance on subsequent events to remove the requirement to disclose the date through which an entity has evaluated subsequent events, alleviating conflicts with current SEC guidance. This amendment was effective upon issuance.

In June 2009, the FASB issued Accounting Standards Update 2009-01 Generally Accepted Accounting Principles. The Company adopted this ASU on September 1, 2009. This standard did not have an impact on the Company’s results of operations or financial condition. However, throughout the notes to the financial statements references that were previously made to various former US GAAP pronouncements have been changed to coincide with the appropriate section of the ASC.

In September of 2006, the FASB issued FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans. This pronouncement was adopted by the Company with the notation that the Company would continue to measure its plan’s liabilities as of May 31. However, with full adoption of FASB ASC 715, the new measurement date for the plan’s liabilities is August 31. In 2009, this resulted in a one-time addition to liability and reduction of retained earnings of $284,896 for the August 31, 2009 financial statements.

Concentration and Sources of Labor

The Company’s total factory campaign and full time workforce consists of 457 employees, of which 61% are covered by a collective bargaining agreement. The agreement expires on May 31, 2011.

Risks and Uncertainties

Interest costs - The Company is at risk for interest rate changes in both seasonal and long-term debt. The Company has variable rates on a substantial majority of its seasonal and long-term debt. Interest rate risk is not expected to have a material impact on the Company’s annual return to its growers. During the first quarter of the Company’s fiscal year ending August 31, 2011, the Company adopted a policy to manage future risks associated with interest rate variability.

Accumulated Other Comprehensive Income (Loss)

FASB ASC 220, Reporting Comprehensive Income (Loss), establishes rules for reporting comprehensive income and loss and its components. Accumulated other comprehensive loss consists of the FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans adjustment and is presented in the Statement of Member’s Investment. See Note 12.

NOTE 2 - INTANGIBLE ASSETS

Intangible assets derived from the purchase of the non-controlling interest in Minn-Dak Yeast include $110,152 of Goodwill, which is not being amortized; $514,000 for Customer Relations and $62,000 for a Non-Compete Agreement, which are being amortized on a straight-line basis over 5 years. The amortization of these intangible assets for the years ended August 31, 2010, 2009 and 2008 was $143,127, $143,127 and $143,127, respectively. The cumulative amortization of these intangible assets as of August 31, 2010, 2009 and 2008 is $480,582, $337,455 and $194,327 respectively.

62


NOTE 3 - INVESTMENTS

The investment in stock of other cooperatives and unconsolidated marketing cooperatives consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Dakota Valley Electric Cooperative

 

$

6,166,685

 

$

5,978,829

 

$

5,632,704

 

CoBank

 

 

4,379,995

 

 

4,964,489

 

 

4,801,609

 

United Sugars Corporation

 

 

369,509

 

 

216,396

 

 

971,797

 

Midwest Agri-Commodities

 

 

10,091

 

 

10,717

 

 

10,867

 

Other

 

 

189,392

 

 

173,171

 

 

106,047

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

11,115,672

 

$

11,343,602

 

$

11,523,024

 


 

 

NOTE 4 -

SHORT-TERM DEBT, LONG-TERM DEBT, CAPITAL LEASE PAYABLE, AND BONDS PAYABLE

Short-Term Debt

Information regarding short-term debt for the years ended August 31, is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Seasonal loan with CoBank, due December 31, 2010, the interest rate was 2.76% as of August 31, 2010.

 

$

27,557,680

 

$

18,977,978

 

$

24,440,000

 

The Company had a $45,000,000 seasonal line of credit with CoBank, with $17,442,320 available on August 31, 2010. On November 15, 2010, the Company obtained a seasonal line of Credit renewal for $85,000,000 through May 31, 2011; with a step down to $45,000,000 from June 1, 2011 through December 31, 2011. The lines are secured with a first lien on substantially all property and equipment and current assets of the Company. The Company utilizes the USDA’s CCC Sugar Loan Program to provide an additional source of seasonal financing. Un-advanced funds remaining from the $85,000,000 and $45,000,000 seasonal debt lines are subject to a 0.375% commitment fee.

Maximum borrowings, average borrowing levels and average interest rates for short-term debt for the years ended August 31, are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Maximum borrowings

 

$

50,390,927

 

$

45,551,000

 

$

57,767,930

 

 

 

 

 

 

 

 

 

 

 

 

Average borrowing levels

 

$

31,524,428

 

$

28,410,018

 

$

36,003,083

 

 

 

 

 

 

 

 

 

 

 

 

Average interest rates

 

 

2.37

%

 

2.23

%

 

4.23

%

63


Long-Term Debt

Information regarding long-term debt at August 31 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

CoBank term loan, with fixed and variable rates, due in varying principal repayments through August 20, 2016 as of August 31, 2010, fixed interest rate currently at 5.60% and the variable interest rate was 1.66% as of August 31, 2010 with a first lien on substantially all property, equipment, and current assets of the Company located in Wahpeton, ND

 

$

19,134,260

 

$

22,461,958

 

$

15,789,655

 

 

 

 

 

 

 

 

 

 

 

 

Less current portion

 

 

(2,495,773

)

 

(2,495,773

)

 

(2,493,103

)

 

 

 

 

 

 

 

 

 

 

 

Long term portion

 

$

16,638,487

 

$

19,966,185

 

$

13,296,552

 

In addition, the Company may make special advance payments on its term loans with CoBank after its seasonal loans have been paid in full, with the understanding that the special advance payments will be re-advanced subject to the reinstatement provisions, prior to the granting of any new seasonal loans. Any such advance payments are subject to a commitment fee of 0.375% of the daily un-advanced commitment.

Interest expense for the years ended August 31, 2010, 2009 and 2008 totaled $1,974,363, $2,017,946 and $3,230,496, respectively.

Minimum principal amounts due on the Company’s long-term debt are as follows:

 

 

 

 

 

 

Years ending August 31,

 

 

 

 

 

 

 

 

 

 

2011

 

$

2,495,773

 

2012

 

 

3,327,697

 

2013

 

 

3,327,697

 

2014

 

 

3,327,697

 

2015

 

 

3,327,697

 

Thereafter

 

 

3,327,699

 

 

 

 

 

 

Total Principal amounts due

 

$

19,134,260

 

As of August 31, 2010, the Company was in compliance with all loan covenants with the Bank.

Capital Leases

The Company is the lessee of equipment under capital leases with varying expiration dates. The assets and liabilities under capital leases are recorded at the lower of the present value of the minimum lease payments or the fair value of the asset. For the years ended August 31, 2010, 2009 and 2008 the capitalized costs of the leased assets were $3,352,917, $2,960,658 and $821,950 respectively and accumulated amortization was $853,734, $365,403 and $468,472 respectively. This equipment is being depreciated in accordance with FASB ASC 840, Accounting for Leases. Depreciation of assets under these capital leases is included in depreciation expense.

64


Minimum future lease payments under capital leases are as follows:

 

 

 

 

 

 

Years ending August 31,

 

 

 

 

 

 

 

 

 

 

2011

 

$

600,729

 

2012

 

 

609,416

 

2013

 

 

960,621

 

2014

 

 

212,886

 

2015

 

 

463,711

 

 

 

 

 

 

Total minimum lease payments

 

$

2,847,363

 

 

 

 

 

 

Less: Amount representing interest

 

 

314,566

 

 

 

 

 

 

Present value of net minimum lease payment

 

$

2,532,797

 

 

 

 

 

 

Less: Current Portion

 

 

481,262

 

 

 

 

 

 

Long Term Portion

 

$

2,051,535

 

Bonds Payable

The Company financed capital expenditures related to the processing facility through the sale of Industrial Development Revenue Bonds, Series 2002, by Richland County North Dakota. 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 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 exempt from alternative minimum taxes, were approved by Richland County to finance future capital expenditures. These variable rate bonds 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 bond proceeds, initially $7.0 million, are held as a restricted investment in a bond trust until qualified expenditures related to the bonds have been expended by the Company. The Company guarantees the bonds. The Company has letter of credit arrangements expiring February 28, 2011 with a bank that provides security for obligations under the bonds payable totaling approximately $19,814,564 at August 31, 2010. There were no outstanding advances under these letter of credit arrangements as of August 31, 2010.

The Company also has the right, but not the obligation to sell an additional $8.8 million of tax-exempt bonds prior to December 31, 2010.

65


Information regarding tax exempt bonds payable at August 31 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

Richland County North Dakota Bonds, with variable rates, due in varying principal repayments through January 2011 Refinanced January 28, 2010.

 

$

 

$

2,570,000

 

$

3,755,000

 

 

 

 

 

 

 

 

 

 

 

 

Bonds with repayments through April 2019. Refinanced January 28, 2010.

 

 

 

 

10,920,000

 

 

11,745,000

 

 

 

 

 

 

 

 

 

 

 

 

Richland County North Dakota bonds, with variable interest rates due February 1, 2023, the effective interest rate was 3.10% as of August 31, 2010.

 

 

12,240,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Richland County North Dakota bonds with variable interest rate due February 1, 2025; the effective interest rate was 2.81% as of August 31, 2010.

 

 

7,000,000

 

 

 

 

 

 

 

$

19,240,000

 

$

13,490,000

 

$

15,500,000

 

 

 

 

 

 

 

 

 

 

 

 

Less Current Portion

 

 

 

 

(2,120,000

)

 

(2,010,000

)

Long Term Portion

 

$

19,240,000

 

$

11,370,000

 

$

13,490,000

 

Minimum future principal payments required on the obligations under bonds payable are as follows:

 

 

 

 

 

 

Years ending August 31,

 

 

 

 

 

 

2011

 

 

$

 

2012

 

 

 

 

2013

 

 

 

 

2014

 

 

 

 

2015

 

 

 

 

Thereafter

 

 

 

19,240,000

 

 

 

 

 

$

19,240,000

 


 

 

 

 

 

Funds Held In Trust as of August 31, 2010

 

$

7,000,000

 

Funds Eligible for Draw-Current as of August 31, 2010

 

 

4,731,005

 

Funds Eligible for Draw-Long Term as of August 31, 2010

 

$

2,268,995

 

66


NOTE 5 - MEMBERS’ INVESTMENT AND GROWER PAYMENTS

The ownership of non-dividend bearing common stock is restricted to a “member-producer,” as defined in the by-laws of the Company. Each member-producer shall own only one share of common stock and is entitled to one vote at any meeting of the members. Each member-producer is also required to purchase units of preferred stock and is entitled to grow the maximum acres per unit of preferred stock as is authorized by the Board of Directors each farming year. The Company’s Board of Directors authorized the members to plant for the fiscal years 2010, 2009 and 2008, respectively 1.60, 1.60 and 1.50 acres per unit of preferred stock. A unit consists of one share each of Class A, Class B and Class C preferred stock. The preferred shares are non-voting and non-dividend bearing. The Company’s Board of Directors must approve all transfers and sales of stock.

The Company’s net income, determined in accordance with generally accepted accounting principles consistently applied, shall be distributed annually on the basis of delivered pounds of sugar, in cash or in the form of credits to each member-producer’s patronage credit account as established on the books of the Company. In the event of a loss in any one-year, the Company shall act in such a manner as to first recoup the loss from those patrons who were patrons in the year in which the loss occurred.

Under the terms of the Company sugarbeet growing contracts with each of its member-producers, the Company is obligated to pay the member-producers for sugarbeets delivered at a price per pound of extractable and bonus sugar. However, if, in the opinion of the Company’s Board of Directors, the working capital position of the Company is insufficient, the Company shall withhold and/or retain from the price to be paid per pound of extractable sugar such amounts as are deemed by the Board of Directors to be necessary for operations, the deductions to be made at such time and in a manner as the Board of Directors shall decide. The amount so withheld and or retained shall be evidenced in the records of the Company by allocated patronage and/or per unit retains in favor of the member-producers. The Board of Directors has the power to determine whether such allocated patronage and/or per unit retains shall be “qualified” or “nonqualified” for income tax purposes.

The Company allocated non-qualified patronage to the members for the years ended August 31, 2010, 2009 and 2008 of $4,020,142, $3,727,840, and $5,117,244, respectively.

During the year ended August 31, 2010, the Company revolved the remaining 66% of the allocated patronage for the fiscal year ended August 31, 2004 totaling $2,876,660 and 31% of the allocated patronage for the fiscal year ended August 31, 2005, totaling $1,143,629. In addition, for the fiscal period ending August 31, 2010, 2009 and 2008 the Company revolved $-0-, $101,701, and $-0- of allocated patronage to certain deceased members’ estates.

During the year ended August 31, 2009, the Company revolved the remaining 46% of the allocated patronage for the fiscal year ended August 31, 2003 totaling $2,199,418 and 33% of the allocated patronage for the fiscal year ended August 31, 2004, totaling $1,426,511.

During the year ended August 31, 2008, the Company revolved the remaining 52% of the allocated patronage for the fiscal year ended August 31, 2002 totaling $1,868,412 and 54% of the allocated patronage for the fiscal year ended August 31, 2003, totaling $2,548,991.

NOTE 6 - INVESTMENT IN MARKETING COOPERATIVES

The Company has formed common marketing agency agreements with United Sugars Corporation (United Sugars) and Midwest Agri-Commodities (Midwest) to be the exclusive marketing agents for all products produced by the Company and other member processors.

67


The Company’s ownership requirement in United Sugars is calculated periodically and is based on the average volume of sugar produced during the five previous fiscal years. The investment is accounted for on the equity method and the amount of sales and related costs recognized by each member processor is allocated based on their pro-rata share of production for the year. The Company provided United Sugars with cash advances on an ongoing basis for its share of operating and marketing expenses incurred. During the years ended August 31, 2010, 2009 and 2008, the Company had advanced $26,299,502, $30,087,285 and $34,383,138, for operating and marketing expenses incurred respectively. The Company had outstanding advances due to/(from) United Sugars as of August 31, 2010, 2009 and 2008 of $(1,424,545), $(1,740,649) and $(2,064,475), respectively. The Company accounts for United Sugars’ FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans adjustment as an additional change in accumulated other comprehensive income (loss).

The Company has a one-fourth ownership interest in Midwest. The amount of the investment is accounted for using the equity method. All sugarbeet pulp and a portion of the molasses produced are sold by Midwest as an agent for the Company. The amount of sales and related costs to be recognized by each owner is allocated based on their pro-rata share of production for the year. The Company provided Midwest with cash advances on an ongoing basis for its share of operating and marketing expenses incurred by Midwest. The Company advanced Midwest during the years ended August 31, 2010, 2009 and 2008, $9,235,346, $8,440,062 and $9,026,985, respectively. The Company had outstanding advances due to Midwest as of August 31, 2010, 2009 and 2008 of $1,708,006, $634,852 and $572,020, respectively. The owners of Midwest guarantee, on a pro-rata basis, the $9,000,000 short-term line of credit that Midwest has with its primary lender. The Company accounts for Midwest’s FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans adjustment as an additional change in accumulated other comprehensive income (loss).

NOTE 7 - INCOME TAXES

The Company is a nonexempt cooperative as described under Section 1381(a) (2) of the Internal Revenue Code of 1986. Accordingly, net margins from business done with member patrons, which are allocated and distributed as prescribed in Section 1382 of the Code, will be taxable to the members and not to the Company. To the extent that net margins are not allocated and paid as stated above or arise from non-patronage business, the Company shall have taxable income subject to corporate income tax rates.

68


The significant components of deferred tax assets and liabilities included on the balance sheet at August 31 are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

 

 

 

 

 

 

 

 

Non-qualified unit retains and allocated patronage due to members

 

$

11,319,500

 

$

11,319,000

 

$

11,319,000

 

Net operating loss carry-forwards

 

 

7,241,900

 

 

6,121,600

 

 

5,706,455

 

Other

 

 

2,443,123

 

 

1,113,741

 

 

2,427,545

 

 

 

 

 

 

 

 

 

 

 

 

Total deferred tax assets

 

 

21,004,523

 

 

18,554,341

 

 

19,453,000

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

 

 

 

 

Depreciation

 

 

18,503,239

 

 

18,528,741

 

 

16,325,000

 

Other

 

 

2,767,083

 

 

354,400

 

 

3,426,000

 

 

 

 

 

 

 

 

 

 

 

 

Total deferred tax liabilities

 

 

21,270,323

 

 

18,883,141

 

 

19,751,000

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred tax asset (liability)

 

$

(265,800

)

$

(328,800

)

$

(298,000

)

 

 

 

 

 

 

 

 

 

 

 

Classified as follows

 

 

 

 

 

 

 

 

 

 

Current asset

 

$

 

$

25,600

 

$

145,000

 

Long-term asset (liability)

 

 

(265,800

)

 

(354,400

)

 

(443,000

)

 

 

 

 

 

 

 

 

 

 

 

Net deferred tax asset (liability)

 

$

(265,800

)

$

(328,800

)

$

(298,000

)

 

 

 

 

 

 

 

 

 

 

 

The state and federal operating loss carry forwards totaling approximately $18,100,000 will expire in 2015 through 2029.

 

 

 

 

 

 

 

 

 

 

 

 

The provision for income taxes is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Current expense (benefit)

 

$

406,579

 

 

(535,945

)

 

107,679

 

Net change in temporary differences

 

 

(62,999

)

 

30,800

 

 

1,136,000

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes

 

$

343,580

 

$

(505,145

)

$

1,243,679

 

Deferred tax assets are reduced by a valuation allowance to the extent Management concludes it is more likely than not that the assets will not be realized. For the years ended August 31, 2010, 2009, and 2008 the Company had a valuation allowance of $705,400, $335,300 and $-0- respectively.

The items accounting for the difference between expected tax (benefit) computed at the federal statutory rate of 35% and the provision of income taxes were as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

Expected federal income tax expense at the statutory rate

 

 

35.0

%

 

35.0

%

 

35.0

%

State tax expense at statutory rate

 

 

5.0

%

 

5.0

%

 

5.0

%

Payments to members

 

 

-39.4

%

 

-40.0

%

 

-38.3

%

Other, net

 

 

-0.3

%

 

-0.5

%

 

-0.6

%

 

 

 

 

 

 

 

 

 

 

 

Effective tax rate

 

 

0.3

%

 

-0.5

%

 

1.1

%

The Company allocates the patronage related benefits of the Domestic Production Activities Deduction directly to its patrons. During the years ended August 31, 2010, 2009 and 2008 the Company passed through $5,944,573, $5,742,508 and $-0- respectively to its patrons.

Significant temporary timing differences between financial and income tax reporting are as follows:

 

 

 

 

1.

When non-qualified allocated patronage is elected by the Board of Directors, the Company is not allowed an income tax deduction until they are paid in cash to the member-producers, where as qualified allocated patronage is deducted when declared.

 

2.

Depreciation - For financial reporting purposes, the Company uses straight-line and accelerated methods of depreciation with lives of 3 to 40 years, while, for income tax purposes, the Company uses required statutory depreciable lives and methods.

69



 

 

 

 

3.

Non-qualified patronage credits from investments in other cooperatives - For financial statement purposes, the Company recognizes income when the patronage credit notification is received while, for income tax purposes, the companies recognize income when the patronage is received in cash.

 

4.

Inventory capitalization - For income tax reporting purposes, certain overhead costs are included as a part of inventory costs in accordance with inventory capitalization rules. These costs are charged to expense as incurred for financial reporting purposes.

 

5.

Recognition of vacation pay - For financial reporting purposes, vacation pay is charged to expense as accrued, whereas, for income tax purposes, vacation pay is deducted to the extent paid within 2 ½ months of year end.

 

6.

On August 31, 2006, the Company had a net $915,560 in non-patronage long-term tax liability resulting from a combination of non-patronage tax issues that will reverse over the life of certain assets now considered to be member business related. The Company will amortize the $915,560 long-term liability over the approximate remaining book life of those assets generating the liability. The amortization of the long-term tax liability for the years ended August 31, 2010, 2009 and 2008 was $88,600, $88,600 and $236,280, respectively leaving a remaining balance on August 31, 2010 of $265,800 to be amortized in future years.

 

7.

Non-qualified deferred compensation is deducted for book purposes as incurred and deducted for tax purposes as paid.

Adoption of FASB ASC 740-10, Accounting for Uncertainty in Income Taxes

On September 1, 2007 The Company adopted the provisions of FASB ASC 740-10, “Accounting for Uncertainty in Income Taxes – An Interpretation of FASB Statement No. 109”. FASB ASC 740-10 prescribes a threshold for the financial statement recognition and measurement of a tax position taken or expected to be taken in an income tax return. FASB ASC 740-10 requires that the company determine whether the benefits of tax positions are more likely than not of being sustained upon audit based upon the technical merits of the tax position. For tax positions that are more likely than not of being sustained upon audit, the Company recognizes the largest amount of the benefit that is more likely than not of being sustained in our financial statements. For tax positions that are not more likely than not of being sustained upon audit, the Company does not recognize any portion of the benefit in its financial statements.

As of August 31, 2010, the company’s financial statements reflect the final settlement pertaining to its only income tax activity qualifying for FASB ASC 740-10 treatment. For purposes of FASB ASC Topic 740-10, the Company recognizes any interest and penalties accrued related to unrecognized tax benefits in tax expense.

The total amount of unrecognized tax benefits as of August 31, 2010 is $-0-.

The aggregate changes in the balance of the Company’s gross unrecognized tax benefits were as follows for the periods indicated:

 

 

 

 

 

 

 

 

 

 

 

Year Ended August 31,

 

2010

 

2009

 

2008

 

 

Balance of unrecognized tax benefits beginning balance

 

$

274,075

 

$

256,075

 

$

 

Increases for tax positions related to current year

 

 

13,500

 

 

18,000

 

 

 

Increases for tax positions related to prior year

 

 

 

 

 

 

 

256,075

 

Reductions for tax positions of prior years

 

 

 

 

 

 

 

Decreases related to settlements

 

 

(287,575

)

 

 

 

 

Reductions due to lapsed statute of limitations

 

 

 

 

 

 

 

Balance of unrecognized tax benefits at August 31

 

$

 

$

274,075

 

$

256,075

 

70


Tax returns filed as of August 31, 2004 through current filings are open for examination.

NOTE 8 - DEPRECIATION

The Company’s depreciation expense for the years ended August 31, 2010, 2009 and 2008 was $8,808,312, $8,440,002 and $8,115,079, respectively.

NOTE 9 - ENVIRONMENTAL MATTERS

The Company is subject to extensive federal and state environmental laws and regulations with respect to water and air quality, solid waste disposal and odor and noise control. The Company conducts an ongoing and expanding control program designed to meet these environmental laws and regulations. While the Company will continue to have ongoing environmental compliance requirements, currently there are no pending regulatory enforcement actions and the Company believes that it is in substantial compliance with applicable environmental laws and regulations.

The Company cannot predict whether future changes in environmental laws or regulations might increase the cost of operating its facilities and conducting its business. Any such changes could have financial consequences for the Company and its members.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

During fiscal year 1997, the Company entered into a long-term lease agreement on a property, which included providing a guarantee for the notes to finance the leased property. The Company’s contingent liability related to these notes totaled $555,286 as of August 31, 2010.

During fiscal year 2000, the Company sold certain notes receivable with recourse. The Company’s contingent liability related to these notes totaled $23,585 as of August 31, 2010.

During the fiscal year 2010, the Company entered into a coal purchase agreement requiring a minimum annual purchase of coal in the amount of $1.6 million for each of the fiscal years ending August 31, 2011, 2012 and 2013 respectively.

NOTE 11 - OPERATING LEASES

The Company is a party to various operating leases for vehicles and equipment. Future minimum payments for long-term leases for the years ending August 31, under these obligations, are as follows:

 

 

 

 

 

Years ending August 31,

 

 

 

 

 

 

 

 

2011

 

$

74,540

 

2012

 

 

67,258

 

2013

 

 

38,222

 

 

 

$

180,020

 

Operating lease and contract expenses for the years ended August 31, 2010, 2009 and 2008, totaled $960,068, $1,145,998 and $1,535,475, respectively.

71


NOTE 12 - EMPLOYEE BENEFIT PLANS

401(k) Plan

The Company has a qualified 401(k) employee benefit plan that covers all employees meeting eligibility requirements. The Company’s matching contribution to the plan is at a level of 100% of employee contributions, with a maximum of 4% of compensation. Employer contributions to the plan for the years ended August 31, 2010, 2009 and 2008 totaled $660,677, $637,822 and $631,063, respectively.

Effective September 1, 2007, individual participating employees who have met the non-elective eligibility requirements of the plan received a contribution of 4% of their compensation each pay period as provided by the plan. Individuals participating in this benefit are excluded from the non-contributory defined benefit plan. Employer contributions to the plan for the years ended August 31, 2010, 2009, and 2008 totaled $79,385, $65,657 and $53,907, respectively.

Pension plan

The Company has a non-contributory defined benefit plan, which covers substantially all employees who meet certain requirements of age, hours worked per year, years of service, and age at retirement or termination. The pension funding policy is to deposit amounts allowable by law with independent trustees. Funds deposited with independent trustees maintained to provide pension benefits to plan participants and their beneficiaries. The Company’s measurement date was changed in 2009 which resulted in measurement dates of August 31, 2010 and 2009, and for the prior year the measurement date was May 31, 2008.

In August 2006, the Pension Protection Act (PPA) was signed into law. The PPA modified the funding requirements for defined benefit pension plans by subjecting defined benefit plans to 100% of the current liability-funding target. Defined benefit plans with a funding status of less than 80% of the current liability are defined as being “at risk”. These provisions do not apply to plans with less than 500 participants. As of the last plan filing, the Company’s plan had 477 participants.

In September 2006, the FASB issued FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans. This standard requires employers to recognize the underfunded or overfunded status of defined benefit pension and Post-retirement plans as an asset or liability in its statement of financial position, and recognize changes in the funded status in the year in which the changes occur through accumulated other comprehensive loss, which is a component of stockholders’ equity. As a result of the application of FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans as of August 31, 2010, 2009 and 2008 the Company increased liabilities by $6,802,344, $7,547,180 and $639,310. These liabilities were offset to accumulated other comprehensive income (loss). As a result of FASB ASC 715, in the year ended August 31, 2010, 2009 and 2008 the Company recognized an increase in accumulated other comprehensive income/(loss) of ($6,274,921), ($7,080,155) and ($2,218,282), respectively. In accordance with FASB ASC 715, the measurement date was moved from May 31, 2008 to August 31, 2009 creating a fifteen-month period vs. twelve-month period the preceding year.

72


The following table sets forth the plan’s funded status at August 31:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Change in pension benefit obligation

 

 

 

 

 

 

 

 

 

 

Benefit obligation at beginning of year

 

$

31,076,170

 

$

26,101,309

 

$

25,712,339

 

Service cost

 

 

1,003,895

 

 

1,284,966

 

 

940,135

 

Interest cost

 

 

1,843,576

 

 

2,175,966

 

 

1,558,671

 

Experience (gain)/loss due to participant changes

 

 

7,260,190

 

 

2,774,339

 

 

(1,351,129

)

Benefits paid

 

 

(1,051,850

)

 

(1,260,410

)

 

(758,707

)

 

 

 

 

 

 

 

 

 

 

 

Benefit obligation at end of year

 

 

40,131,981

 

 

31,076,170

 

 

26,101,309

 

 

 

 

 

 

 

 

 

 

 

 

Change in plan assets

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

 

 

18,480,578

 

 

20,158,363

 

 

20,277,824

 

Actual return on plan assets

 

 

1,882,201

 

 

(2,494,214

)

 

(360,683

)

Employer contribution

 

 

1,512,580

 

 

2,097,024

 

 

1,060,000

 

Benefits and expenses paid

 

 

(1,068,267

)

 

(1,280,595

)

 

(818,778

)

 

 

 

 

 

 

 

 

 

 

 

Fair value of plan assets at end of year

 

 

20,807,092

 

 

18,480,578

 

 

20,158,363

 

 

 

 

 

 

 

 

 

 

 

 

Accrued pension benefit cost liability

 

$

(19,324,889

)

$

(12,595,592

)

$

(5,942,946

)


 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Benefits

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Non-current assets

 

$

 

$

 

$

 

Current liabilities

 

 

 

 

 

 

 

Noncurrent liabilities

 

 

(19,324,889

)

 

(12,595,592

)

 

(5,942,946

)

 

 

$

(19,324,889

)

$

(12,595,592

)

$

(5,942,946

)

The estimated amounts that will be amortized from Accumulated Other Comprehensive Income to future fiscal years are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated loss

 

$

17,802,784

 

$

11,525,420

 

$

4,436,275

 

Prior service cost

 

 

104,828

 

 

136,860

 

 

169,107

 

 

 

$

17,907,612

 

$

11,662,280

 

$

4,605,382

 

The accumulated benefit obligations for all defined benefit pension plans for the years ended August 31, 2010, 2009 and 2008 were $29,641,358, $22,858,793 and $19,721,092, respectively.

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average assumptions as of August 31

 

 

 

 

 

 

 

 

 

 

Discount rate

 

 

5.2%

 

 

6.2%

 

 

6.5%

 

Expected return on plan assets

 

 

8.0%

 

 

8.0%

 

 

8.0%

 

Rate of total compensation increase

 

 

4.5%

 

 

4.3%

 

 

4.3%

 

73


The net periodic pension cost for the years ended August 31, includes the following components:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Components on net periodic pension benefit cost

 

 

 

 

 

 

 

 

 

 

Service cost

 

$

1,003,895

 

$

1,284,966

 

$

940,135

 

Interest cost

 

 

1,843,576

 

 

2,175,966

 

 

1,558,671

 

Expected return on plan assets

 

 

(1,492,426

)

 

(2,036,453

)

 

(1,621,109

)

Amortization of prior service cost

 

 

32,032

 

 

32,247

 

 

32,782

 

Amortization of transition amount

 

 

 

 

 

 

 

Amortization of net (gain) or loss

 

 

609,468

 

 

236,046

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net periodic pension benefit cost

 

$

1,996,545

 

$

1,692,772

 

$

910,479

 

The 2009 data includes a fifteen-month period. The net periodic cost was allocated as follows:

 

 

 

 

 

Current Period

 

$

1,407,876

 

Adjustment to Retained Earnings

 

 

284,896

 

Total

 

$

1,692,772

 

The Company’s pension plan weighted-average asset allocation at August 31, by asset category is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Asset category

 

 

 

 

 

 

 

 

 

 

Equity securities

 

 

59

%

 

61

%

 

66

%

Debt securities

 

 

35

%

 

37

%

 

31

%

Real estate

 

 

4

%

 

0

%

 

0

%

Other

 

 

2

%

 

2

%

 

3

%

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

100

%

 

100

%

 

100

%

74


The fair values of the company’s pension plan assets at August 31, 2010, by asset category are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plan Assets
Fair Value Measurements at
August 31, 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant
Observable
Inputs (Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

544,983

 

$

544,983

 

$

 

$

 

Domestic Common Stocks

 

$

2,708,722

 

$

2,708,722

 

$

 

$

 

Foreign Stocks

 

$

85,377

 

$

85,377

 

$

 

$

 

Mutual Funds-Equity

 

$

8,018,686

 

$

8,018,686

 

$

 

$

 

Mutual Funds-Fixed Income

 

$

6,978,002

 

$

6,978,002

 

$

 

$

 

Core Equity Account

 

$

296,753

 

$

296,753

 

$

 

$

 

International Equity Account

 

$

2,174,569

 

$

2,174,569

 

$

 

$

 

 

 

$

20,807,092

 

$

20,807,092

 

$

 

$

 

The fair values of the company’s pension plan assets at August 31, 2009, by asset category are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plan Assets
Fair Value Measurements at
August 31, 2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant
Observable
Inputs (Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

924,841

 

$

924,841

 

$

 

$

 

Domestic Common Stocks

 

$

2,400,669

 

$

2,400,669

 

$

 

$

 

Foreign Stocks

 

$

131,010

 

$

131,010

 

$

 

$

 

Mutual Funds-Equity

 

$

6,482,750

 

$

6,482,750

 

$

 

$

 

Mutual Funds-Fixed Income

 

$

6,460,184

 

$

6,460,184

 

$

 

$

 

Core Equity Account

 

$

440,639

 

$

440,639

 

$

 

$

 

International Equity Account

 

$

1,640,485

 

$

1,640,485

 

$

 

$

 

 

 

$

18,480,578

 

$

18,480,578

 

$

 

$

 

75


The fair values of the company’s pension plan assets at August 31, 2008, by asset category are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pension Plan Assets
Fair Value Measurements at
August 31, 2008

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

Quoted Prices in
Active Markets
(Level 1)

 

Significant
Observable
Inputs (Level 2)

 

Significant
Unobservable
Inputs (Level 3)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

943,634

 

$

943,634

 

$

 

$

 

Domestic Common Stocks

 

$

2,580,263

 

$

2,580,263

 

$

 

$

 

Foreign Stocks

 

$

151,351

 

$

151,351

 

$

 

$

 

Mutual Funds-Equity

 

$

8,737,566

 

$

8,737,566

 

$

 

$

 

Mutual Funds-Fixed Income

 

$

5,893,353

 

$

5,893,353

 

$

 

$

 

Core Equity Account

 

$

568,645

 

$

568,645

 

$

 

$

 

International Equity Account

 

$

1,283,551

 

$

1,283,551

 

$

 

$

 

 

 

$

20,158,363

 

$

20,158,363

 

$

 

$

 

Discount Rate

The Company’s methodology for selecting the discount rate for the Company’s plan was to seek guidance from outside pension experts for determination of the appropriate discount rate through August 31, 2008 and use the Mercer Index for dates beginning September 1, 2008. The decision to use the Mercer index rate was intended to provide an outside unbiased benchmark for this key accounting assumption.

Investment Philosophy

The Company’s Board of Directors appoints individuals to serve as Trustees of the Company’s Pension Plans. The Trustees approve the Investment Policy Statement for the Company’s Pension Plans. The Pension Operating committee is responsible for administering and following the Investment Policy Statement. The independent Investment Consultant provides investment advice and assistance regarding the investments of the Trust, analyzes investment expenses, and negotiates fees of Investment Managers and Custodians. The Investment Policy Statement is designed to diversify against the risk of large losses while still achieving long-term return goals on a historical basis. The Investment Policy is reviewed at least annually by the Operating Committee who recommends changes to the Trustees. Diversification of investment risk is consistent with other pension plans of similar size and demographics as reviewed by the Company’s independent Investment Consultant. The asset allocation targets for the plan consist of five primary areas: Domestic Equity, International Equity, Real Estate, Marketable Alternatives and Fixed Income. Cash allocations are allowed only as necessary for impending benefit payments. The stated goal for each allocation target is to exceed the return of its corresponding benchmark without exposure to excessive risk.

76


Percentage of Pension Plan Assets by Asset Class as of August 31, 2010

 

 

 

 

 

 

 

Asset Class

 

Target Range

 

Actual Allocations

 

 

 

 

 

 

 

 

Large Cap Us Common Stocks

 

25% - 30%

 

30.8

%

 

 

 

 

 

 

 

 

Mid and Small Cap US Common Stock

 

10% - 20%

 

14.7

%

 

 

 

 

 

 

 

 

Total Domestic Equity

 

40% - 50%

 

45.5

%

 

 

 

 

 

 

 

 

International (Non US) Equity

 

15% - 21%

 

15.8

%

 

 

 

 

 

 

 

 

Total Equity

 

58% - 68%

 

61.3

%

 

 

 

 

 

 

 

 

Real Estate

 

2.5% - 5.5%

 

4.4

%

 

 

 

 

 

 

 

 

Marketable Alternatives

 

1.5% - 4.5%

 

3.3

%

 

 

 

 

 

 

 

 

Total Fixed Income

 

25% - 40%

 

31.0

%

 

 

 

 

 

 

 

 

Cash

 

0% - 5%

 

0.0

%

 

 

 

 

 

 

 

 

Prohibited Investments
Non-Marketable Securities
Short Sales or Purchases on Margin

There have been no changes in the valuation methodologies used at August 31, 2010, 2009 and 2008. The Plan’s investment in any category over 10% is diversified through the use of multiple investment alternatives to reduce risk.

Expected Return on Plan Assets

The expected long-term rate of return on plan assets should, over time, approximate the historical long-term returns on pension plan assets. The Company’s methodology for selecting the Expected Return on Plan Assets is to seek guidance from outside pension experts for an appropriate rate.

The expected return on total Plan assets is developed by combining the Plan’s long-term asset class allocation targets with the long-term return expectations for each of these asset classes. Expected asset class returns are developed by the Plan’s investment consultant. The final assumption is chosen by the company as their best estimate among a range of possible alternatives, and reviewed for reasonableness by the Plan actuary.

Contributions

The Company expects to contribute $1,790,000 to its pension plan in 2011.

Distributions (Expected Future)

The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid:

77



 

 

 

 

 

2011

 

$

929,000

 

2012

 

 

884,000

 

2013

 

 

968,000

 

2014

 

 

899,000

 

2015

 

 

1,038,000

 

Thereafter, through 2020

 

 

8,426,000

 

 

 

$

13,144,000

 

As a result of FASB ASC 715, Accounting for Defined Benefit Pension and Other Postretirement Plans, the Company has recognized a charge to accumulated other comprehensive loss as follows:

 

 

 

 

 

 

 

 

 

 

 

Fiscal Year Ended August 31:

 

2010

 

2009

 

2008

 

 

 

 

 

 

 

 

 

 

 

 

Beginning Balance

 

$

12,811,235

 

$

4,890,516

 

 

2,368,458

 

Minn Dak Farmers Cooperative

 

 

6,274,921

 

 

7,080,155

 

 

2,218,280

 

United Sugars

 

 

(315,151

)

 

771,949

 

 

209,017

 

Midwest Agri

 

 

66,152

 

 

68,615

 

 

94,761

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance

 

$

18,837,157

 

$

12,811,235

 

$

4,890,516

 

Non-qualified benefit plans

The Company has various non-qualified plans for those employees who meet certain requirements.

The Supplemental Executive Retirement Plan (SERP) is designed to provide an employee who exceeds the annual compensation limit of the Company’s defined benefit plan with a benefit as if the annual compensation limit didn’t apply. This plan is unfunded; therefore there are no assets associated with this plan. The cumulative liability for this plan for the years ended August 31, 2010, 2009, and 2008 was $304,815, $231,768 and $276,562, respectively.

The Non-Qualified Deferred Compensation plan allows an employee to defer wages to a future date. The deferment becomes part of the company assets. To receive payments under this plan, the participant must meet the requirements of the plan or separate from the Company. The cumulative assets and liabilities for this plan for the years ended August 31, 2010, 2009, and 2008 were $411,507, $365,015 and $385,745, respectively.

Non-Qualified key-life insurance - The Company has life insurance policies on a former executive sufficient to cover a $500,000 obligation to the former executive’s estate. The policies are self sufficient, and requiring no additional funding for the term of the policies.

NOTE 13 - FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Quoted market prices are generally not available for the Company’s financial instruments. Fair values are based on judgments regarding anticipated cash flows, future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These estimates involve uncertainties and matters of judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

78



 

 

 

 

o

Long-Term Debt, Inclusive of Current Maturities - Based upon discounted cash flows and current borrowing rates with similar maturities, the book value of the Bank debt of approximately $19.1 million, $22.5 million and $15.8 million compares to fair values of $19.2 million, $22.8 million and $16.1 million respectively as of August 31, 2010, 2009 and 2008. Also included in the Company’s long-term debt was $19.2 million, $13.5, million and $15.5 million in tax exempt bonds, in comparison to the fair value of $19.2 million, $13.5 million and $15.5 million respectively for the periods ending August 31, 2010, 2009 and 2008.

 

 

 

 

o

Proceeds for Bond Issuance Transferred to Restricted Investment – included in the Company’s current bond trust and restricted long-term other assets was $7.0 million in comparison to the fair value of $7.0 million as of August 31, 2010.

 

 

 

 

o

Investments in CoBank, 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.

NOTE 14 – SUBSEQUENT EVENTS

The Company has considered subsequent events through the date the financial statements were issued.

79



 

 

Item 15c.

Exhibits

 

 

 

Index

 

 

3(i)

 

Articles of Amendment to the Articles of Incorporation of Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1996 as filed on November 21, 1996.

3(ii)

 

Articles of Incorporation of Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.

3(iii)

 

Amended Bylaws of Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s7 Annual Report on Form 10-K for the fiscal year ended August 31, 2008 as filed on November 26, 2008.

10(a)

 

Growers’ Agreement (example of agreement which each Shareholder is required to sign).

10(b)

 

Amended and Restated Uniform Member Marketing Agreement by and between United Sugars Corporation and Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Annual Report on Form 10-k for the fiscal year ended August 31, 2007 as filed November 29, 2007.

10(e)

 

Memorandum of Understanding and Uniform Member Agreement by and between Midwest Agri-Commodities Company and Minn-Dak Farmers Cooperative. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2006 as filed on November 28, 2006.

10(k)

 

Agreement for Electrical Service. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.

10(l)

 

Master Coal Purchase and Sale Agreement and Railroad Equipment Lease Agreement (Confidential Treatment has been requested as to certain provisions).

10(m)

 

Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.

10(p)

 

Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1997 as filed on November 25, 1997.

10(q)

 

Amendment to Minn-Dak Farmers Cooperative Pension Plan. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 1998 as filed on November 24, 1998.

10(r)

 

David H. Roche Employment Agreement. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2001 as filed on November 29, 2001 and Amended and Restated Agreement dated August 27, 2010.

10(s)

 

Richland County Development Revenue Refunding Bond agreement dated February 18, 2010.

10(t)

 

CoBank revolving credit supplement dated November 15, 2010.

12

 

Statement re Computation of Ratio of Net Proceeds to Fixed Charges.

21

 

Subsidiaries of the Registrant. Incorporated by reference from the Company’s Registration Statement on Form S-1 (File No. 33-94644), declared effective September 11, 1995.

31.1

 

Certification of the President/Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act.

31.2

 

Certification of the Executive Vice President/Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act.

31.3

 

Certification of the Controller/Chief Accounting Officer in accordance with Section 302 of the Sarbanes-Oxley Act.

32

 

Certification of the President/Chief Executive Officer and the Executive Vice President/Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act.

99.1

 

Audit Committee Charter. Incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended August 31, 2003 as filed on November 26, 2003.

80


SIGNATURES

          PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.

 

 

 

 

MINN-DAK FARMERS COOPERATIVE

 

 

 

 

BY

/S/ David H. Roche

 

 

DAVID H. ROCHE, PRESIDENT
AND CHIEF EXECUTIVE OFFICER

          PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES AND ON THE DUTIES INDICATED.

 

 

 

 

 

SIGNATURE

 

TITLE

 

REPORT DATE

 

 

 

 

 

/s/ David H. Roche

 

President and

 

11-24-10

David H. Roche

 

Chief Executive Officer

 

 

 

 

 

 

 

/s/ Steven M. Caspers

 

Executive Vice President and

 

11-24-10

Steven M. Caspers

 

Chief Financial Officer

 

 

 

 

 

 

 

/s/ Allen E. Larson

 

Controller and

 

11-24-10

Allen E. Larson

 

Chief Accounting Officer

 

 

 

 

 

 

 

/s/ Dale Blume

 

 

 

11-24-10

Dale Blume

 

Director

 

 

 

 

 

 

 

/s/ Dennis Butenhoff

 

 

 

11-24-10

Dennis Butenhoff

 

Director

 

 

 

 

 

 

 

/s/ Brent Davison

 

 

 

11-24-10

Brent Davison

 

Director

 

 

 

 

 

 

 

/s/ Doug Etten

 

 

 

11-24-10

Doug Etten

 

Director

 

 

 

 

 

 

 

/s/ Patrick Freese

 

 

 

11-24-10

Patrick Freese

 

Director

 

 

 

 

 

 

 

/s/ Dennis Klosterman

 

 

 

11-24-10

Dennis Klosterman

 

Director

 

 

 

 

 

 

 

/s/ Russell Mauch

 

Director

 

11-24-10

Russell Mauch

 

 

 

 

 

 

 

 

 

/s/ C Kevin Kutzer

 

 

 

11-24-10

C Kevin Kutzer

 

Director

 

 

 

 

 

 

 

/s/ Charles Steiner

 

 

 

11-24-10

Charles Steiner

 

Director

 

 

81