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TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark one)
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ý
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the Fiscal Year Ended February 24, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
.
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Commission File Number 000-51035
UAP Holding Corp.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation or Organization)
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11-3708834
(I.R.S. Employer Identification No.)
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7251 W. 4
th
Street, Greeley, Colorado
(Address of Principal Executive Offices)
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80634
(Zip Code)
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(970) 356-4400
(Registrant's Telephone Number, Including Area Code)
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Securities registered pursuant to Section 12(b) of the Act:
Common Stock, par value $.001
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Securities registered pursuant to Section 12(g) of the Act:
None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined by Rule 405 of the Securities
Act. Yes
ý
No
o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 of 15(d) of the
Act. Yes
o
No
ý
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. Yes
ý
No
o
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 the 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.
ý
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
ý
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
o
No
ý
As of August 26, 2007, which was the last day of the registrants most recently completed second fiscal quarter, the aggregate market value of the common
stock held by non-affiliates of the registrant was approximately $1.5 billion, based on the price at which the common stock was last sold on such date.
The
number of shares outstanding of the registrant's common stock as of April 16, 2008 was 52,945,668.
DOCUMENTS INCORPORATED BY REFERENCE
Certain information required in Part III hereof is being incorporated by reference herein from the registrant's definitive proxy statement (or an amendment
to the registrant's Annual Report on Form 10-K) to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this Form 10-K.
TABLE OF CONTENTS
Forward-Looking Statements
This Report and the documents we have incorporated by reference into this report include "forward-looking statements," as that term is defined by The Private
Securities Litigation Reform Act of 1995 or by the Securities and Exchange Commission ("SEC") in its rules, regulations, and releases that involve risks and uncertainties. Forward-looking statements
include statements concerning our plans, objectives, goals, strategies, future events, future revenue or performance, capital expenditures, financing needs, plans or intentions relating to
acquisitions and divestitures, business trends, and other information that is not historical information, and, in particular, appear under the heading "Management's Discussion and Analysis of
Financial Condition and Results of Operations." When used in this Report, the words "estimates," "expects," "anticipates," "projects," "plans," "intends," "believes," "forecasts," "foresees,"
"likely," "may," "should," "goal," "target," and variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements are based upon
information available to us on the date of this Report.
These
forward-looking statements are subject to risks, uncertainties, and other factors, many of which are outside of our control, that could cause actual results to differ materially
from the results discussed in the forward-looking statements including, among other things, the matters discussed in this Report in "Item 1A. Risk Factors" and "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations." Such risks, uncertainties, and other factors may include, among others:
-
-
the
ability of Agrium Inc. to complete the transactions contemplated by the Agreement and Plan of Merger dated December 2, 2007, between
UAP Holding Corp., Agrium and Utah Acquisition Co., and our ability to satisfy certain other conditions in such agreement;
-
-
general
economic and business conditions;
-
-
industry
trends;
-
-
restrictions
contained in our debt agreements;
-
-
our
substantial leverage, including the inability to generate the necessary amount of cash to service our existing debt and the incurrence of substantial indebtedness in the
future;
-
-
the
seasonality of our business and weather conditions;
-
-
the
possibility of liability for pollution and other damage that is not covered by insurance or that exceeds our insurance coverage;
-
-
increased
competition in the markets in which we operate;
-
-
price
changes in, and supply and demand of certain commodities;
-
-
our
ability to provide product to our customers when they need it;
-
-
our
dependence on product mix and rebate programs to attain profitability;
-
-
our
dependence on a limited number of key executives who we may not be able to adequately replace if they leave our Company;
-
-
we
may not be able to retain key employees or attract new employees;
-
-
changes
in government regulations, agricultural policy, and environmental, health, and safety laws and regulations;
-
-
changes
in business strategy, development plans, or cost savings plans;
-
-
our
ability to reduce working capital and manage expenses;
2
-
-
changes
in the number of acres planted and the mix of principal crops planted by our customers;
-
-
our
ability to integrate newly acquired operations into our existing operations;
-
-
our
ability to raise debt or equity financing to fund our acquisition strategy in the future;
-
-
the
loss of any of our major suppliers or the bankruptcy or financial distress of our customers;
-
-
the
ability to maintain prices and/or attain any price increases for our products;
-
-
availability,
terms, and deployment of capital; and
-
-
other
factors over which we have little or no control.
There
may be additional factors, including those discussed elsewhere in this Report, which could cause our actual results to differ materially from the results referred to in the
forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Report and are expressly qualified in their entirety by
the cautionary statements included in this Report. We undertake no obligation to publicly update or revise forward-looking statements to reflect events or circumstances after the date made or to
reflect the occurrence of unanticipated events.
3
PART I
Unless the context requires otherwise, all references to "Company," "we," "us," "our," and "UAP" refer specifically to UAP Holding Corp.
and its consolidated subsidiaries. Additionally, all references to UAP Holding Corp. refer specifically only to UAP Holding Corp., excluding its subsidiaries, all references to "United Agri Products"
refer specifically only to United Agri Products, Inc., and its subsidiaries, and all references to "United Agri Products, Inc." refer specifically to United Agri Products, Inc.,
excluding its subsidiaries.
We operate on a 52-week or 53-week fiscal year. Fiscal years are identified in this Report according to the calendar year in which they
ended. The 52 weeks ended February 24, 2008, will be referred to as "fiscal 2008," the 52 weeks ended February 25, 2007, will be referred to as "fiscal 2007," and the
52 weeks ended February 26, 2006, will be referred to as "fiscal 2006."
Item 1. Business.
Overview
We are the largest independent distributor of agricultural inputs and professional non-crop products in the United States and Canada. We market a
comprehensive line of products including chemicals, fertilizer, and seed to farmers, commercial growers, and regional dealers. In addition to our agricultural input product offering, we provide a
broad array of value-added services including crop management, biotechnology advisory services, custom fertilizer blending, seed treatment, inventory management, and custom applications of crop
inputs. The products and services we offer are critical to our customers because they lower the overall cost of crop production and improve crop quality and yield. We also operate in the professional
non-crop markets that consist of
turf and ornamental (golf courses, resorts, nurseries, and greenhouses), pest control operators, forestry, and vegetation management.
We
operate a comprehensive network of approximately 380 distribution and storage facilities, strategically located in major crop-producing areas throughout the United States
and Canada, and three formulation plants. Our integrated sales network offers over 77,000 active stock keeping units, or SKUs, supported by approximately 1,100 sales professionals. Over half of these
SKUs relate to seed, where individual varieties are tracked under multiple SKUs. This network of facilities, together with our technical expertise, enables us to efficiently process, distribute, and
store products close to our end-users and to supply our customers on a timely basis during the compressed planting and growing seasons. In addition, our widespread geographical presence
provides a diversified base of sales that helps insulate our overall business from difficult farming conditions in any one area as a result of poor weather or adverse market conditions for specific
crops or regions.
We
distribute agricultural inputs and professional non-crop products purchased from the world's leading chemical, fertilizer, and seed companies, including BASF, Bayer,
ConAgra International Fertilizer Company, Dow AgroSciences, DuPont, Monsanto, and Syngenta. We believe we are among the largest customers of agricultural inputs of these suppliers and have
long-standing relationships with these companies. We also distribute products from hundreds of other agricultural and professional non-crop product suppliers. In addition to
products we purchase from third parties, we market over 200 key proprietary branded products under the Loveland Products, Inc. ("LPI") and Dyna-Gro® brand names. Our
extensive infrastructure is a critical element of our suppliers' route-to-market. As a result of our broad scale and scope, we provide agricultural input and professional
non-crop product companies with an efficient means to access a highly fragmented customer base of farmers, commercial growers, regional dealers, and professional non-crop
consumers.
United
Agri Products was initially formed by ConAgra Foods, Inc. ("ConAgra Foods" or "ConAgra") through a series of acquisitions, beginning in May 1978. On November 24,
2003, ConAgra
4
Foods
sold United Agri Products and its related businesses to UAP Holding Corp., which we refer to as the "Acquisition." UAP Holding Corp.'s primary asset is the ownership of 100% of the outstanding
capital stock of United Agri Products, Inc. UAP Holding Corp. consummated the initial public offering of its common stock in November 2004, which we refer to as the "Common Stock Offering."
During
fiscal 2008, we sold products or services to over 110,000 customers, with our ten largest customers accounting for less than 4% of our net sales. Our customers include farmers,
commercial growers, and regional dealers, as well as consumers in professional non-crop markets. We believe our significant scale provides our customers with an efficient and
cost-effective method of purchasing agricultural inputs and professional non-crop products. We strive to be the distributor of choice in our industry and earn the trust of our
customers by providing high quality products at competitive prices, supported by consistent and reliable service and expertise.
On
December 2, 2007, UAP, Agrium Inc. ("Agrium"), and a subsidiary of Agrium, entered into an agreement and plan of merger ("Merger Agreement") pursuant to which Agrium,
through its subsidiary Agrium U.S. Inc., commenced a tender offer on December 10, 2007 ("Tender Offer"), to purchase all the outstanding shares of common stock of UAP Holding Corp. for
$39.00 in cash per share. The Tender Offer is currently scheduled to expire on May 2, 2008, but it is possible that the expiration date will be extended. The Merger Agreement provides that
following completion of the Tender Offer and assuming certain conditions are satisfied, UAP Holding Corp. will then engage in a merger (the "Merger") with a subsidiary of Agrium, pursuant to which
each outstanding share of UAP Holding Corp. common stock not tendered in the Tender Offer will be converted into the right to receive $39.00 in cash. Upon completion of the Merger, UAP Holding Corp.
will become a wholly-owned subsidiary of Agrium. Agrium is a leading global producer and marketer of agricultural nutrients, industrial products and specialty products, and a major retailer of
agricultural products and services in North and South America.
The
closing of the Tender Offer is subject to the stockholders of UAP Holding Corp. tendering a majority of the outstanding shares of UAP Holding Corp. common stock in the Tender Offer
and satisfaction of certain other conditions, including receipt of certain U.S. and Canadian regulatory approvals. On January 18, 2008, the Commissioner of Competition, appointed under the
Competition Act of Canada, issued a "no action" letter with respect to the proposed transaction, thereby satisfying one of the closing conditions under the Merger Agreement. On April 16, 2008,
we reached an agreement with the Federal Trade Commission ("FTC") staff on the terms of a consent decree, which is subject to the review and approval of the FTC Commissioners.
If
the Merger is completed, we expect to cease reporting financial results as a stand-alone company. If the Merger is not completed and the Merger Agreement is terminated under certain
circumstances, UAP Holding Corp. may be liable to Agrium for a termination fee of $44 million, plus reimbursement to Agrium of up to $10 million in costs incurred by Agrium in
connection with the transactions. If the Merger is not completed due to failure to obtain regulatory approval, subject to certain conditions, Agrium may be liable to UAP Holding Corp. for a
reverse break-up fee of $54 million.
Industry Overview and Trends
The agricultural inputs market in the United States was estimated at $37.7 billion for 2007, and has grown at a compound annual growth rate of
approximately 4.4% over the past 15 years, as measured by total U.S. farm sector production expenses, according to the most recent available data from the United States Department of
Agriculture ("USDA") Economic Research Services ("ERS"). The growth is due to, among other things, continued population growth, rising standards of living throughout many developing countries, the use
of more effective chemicals and fertilizer, relatively stable planted acreage, the trend towards larger and more efficient farms, and the increased adoption
5
of
seed varieties with enhanced technology. The three primary product categories of the agricultural input and professional non-crop markets are chemicals, fertilizer, and seed.
Chemicals.
Agricultural chemicals expenditures in the United States were estimated at
$9.1 billion for 2007, according to the most recent available data provided by the ERS. According to the same source, the chemical product category's 15 year compound annual growth rate
is approximately 2.3%. The volume of agricultural chemicals sold in the United States continues to increase but overall revenues have remained essentially flat since 1996 primarily due to the
replacement of higher-priced patented products with lower-priced generic products. This product category includes: (i) herbicides, which keep weed infestations from depriving crops of plant
nutrients and water; (ii) insecticides, which keep insects from damaging crops; (iii) fungicides, which guard against plant diseases; and (iv) other chemicals such as adjuvants
and surfactants, each of which modify the effect of the applied chemicals.
Fertilizer.
Fertilizer expenditures in the United States were estimated at $16.0 billion for
2007, according to the most recent available data provided by the ERS. The last several years have seen significant price increases in fertilizer products. From 1992 through 2007, fertilizer
expenditures in the United States grew at a compound annual rate of approximately 4.4% per year, based on data available from the ERS. Fertilizer is added to the soil to replace or supplement one or
more deficient nutrients necessary for plant growth. Nearly all commercial crops grown in the United States and Canada today are produced with the use of a commercial fertilizer, as modern crop
varieties and higher yields cannot be sustained by other methods.
Seed.
Seed expenditures in the United States were estimated at $12.6 billion for 2007,
according to the most recent available data provided by the ERS. As a result of improvements in seed technology, the seed market in the United States has experienced a compound annual growth rate of
6.5% over the past 15 years, according to the same source, driven primarily by increased pricing. In particular, biological "traits" are being genetically engineered into seeds, which result in
benefits such as increasing farm efficiencies with respect to labor and equipment, reducing the need for chemical treatment, or providing "output" trait benefits such as high oil content. These traits
include providing a plant with the ability to resist pests without a chemical application and the ability of a plant to selectively resist the effects of herbicides. These technological improvements,
together with the
availability of more productive seed hybrids, have resulted in higher crop yields, as well as increased seed expenditures.
Business Operations
We manage our businesses on a centralized basis, with operating managers focused on product categories and geographic regions throughout the United States and
Canada. Each geographic region sells and distributes agricultural inputs and professional non-crop products and offers services to farmers, commercial growers, regional dealers, and
professional non-crop customers in each region based on the specific crops and industry practices in that geography. Our operations entail a network of approximately 380 sales and
distribution facilities throughout the United States and Canada. Additionally, we operate three formulation facilities that produce some of our proprietary and private label chemicals and plant
nutrition products. We source, formulate, package, and market certain of our proprietary and private label products and provide formulating, blending, and packaging services for third parties,
primarily our major suppliers. Sales of our proprietary and private label chemicals and seed accounted for approximately 17.1% of our total chemical and seed sales in fiscal 2008, compared to 15.0% in
fiscal 2007.
Distribution Operations
We operate distribution centers and locations serving retailers, growers, and professional non-crop customers. Retail centers typically service
end-users within a 10 to 50 mile radius of their location. We
6
operate
retail centers in major crop-producing regions of the United States. Our distribution network, though centrally managed, is operated by region due to its size. The following table
outlines our regions and identifies states and provinces served (subject to occasional overlap), major crops serviced, approximate number of employees (including hourly and temporary employees) as of
February 24, 2008, and total net sales for each region in fiscal 2008:
Region
|
|
States/Provinces Served
|
|
Major Crops Serviced
|
|
Employees
|
|
Fiscal 2008 Net
Sales
|
|
|
|
|
|
|
|
|
(dollars in
millions)
|
Northeast
|
|
CT, DE, IL, IN, KY, MA, MD, ME, MI, MO, NH, NJ, NY, OH, PA, RI, VA, VT, WI, WV
|
|
Corn, soybeans, tree fruits, nuts, vines, vegetables, alfalfa, and tobacco
|
|
671
|
|
$
|
706.4
|
Southeast
|
|
AL, AR, FL, GA, LA, MO, MS, NC, SC, TN
|
|
Citrus, tree fruits, cotton, corn, peanuts, rice, soybeans, vegetables, and tobacco
|
|
816
|
|
$
|
910.2
|
West
|
|
AK, AZ, CA, CO, HI, ID, KS, MO, NM, NV, OK, OR, TX, UT, WA, WY
|
|
Cotton, corn, soybeans, rice, peanuts, potatoes, vegetables, vines, tree fruits, nuts, and wheat
|
|
719
|
|
$
|
846.6
|
Midwest
|
|
IA, MN, MT, ND, NE, SD, WY
|
|
Corn, soybeans, potatoes, canola, sugar beets, alfalfa, and wheat
|
|
575
|
|
$
|
861.2
|
Canada
|
|
AB, BC, MB, NB, NS, ON, PE, QC, SK
|
|
Tree fruits, vegetables, soybeans, corn, wheat, canola, and tobacco
|
|
93
|
|
$
|
70.5
|
The
above table excludes non-distribution revenue of $16.5 million, which primarily relates to export sales.
Products
We sell a complete line of products and services to end-users through our distribution facilities, with each site tailoring its product offering to
the specific needs of farmers, growers, and professional non-crop consumers in its service area. In many of our locations, our product offering, coupled with the advice of our sales
professionals, provides our customers with a "one-stop shop" for all their agricultural and/or professional non-crop needs.
Chemicals.
Sales of chemicals to both agricultural and professional non-crop customers
represent a significant portion of our business, accounting for approximately 53% of our net sales in fiscal 2008. We distribute a full range of chemicals through our distribution locations, including
herbicides, insecticides, fungicides, adjuvants, and surfactants. We also provide a variety of services related to the application of certain chemicals.
Fertilizer.
We distribute a full range of fertilizer products through our distribution centers,
including nitrogen, potassium, and phosphorous, as well as various micronutrients such as iron, boron, and calcium. We also provide fertilizer application services and customized fertilizer blending
for the specific needs of individual growers.
Seed.
We have placed an emphasis on new seed technology and provide a complete range of seed and seed
treatments to growers through our distribution centers. Many of our seed products are sourced from leading seed companies and sold both under their brand names and our private labels
7
(for
example, Dyna-Gro®). As a result of advances in seed technology, we often bundle chemicals with complementary seed products.
Services.
In addition to selling traditional crop production inputs, our distribution centers provide
agronomic services to growers. These services range from traditional custom fertilizer blending and application of crop nutrients to meet the needs of individual growers to more sophisticated and
technologically advanced services such as soil sampling, pest level monitoring, and crop yield monitoring. We also offer a proprietary comprehensive crop nutritional service called
NutriScription®. This service provides specific recommendations for a customer's crop or turf needs. In addition, our Ag Depot and Access Canada businesses offer warehousing and logistics
services to agricultural input suppliers.
Professional Products.
We also distribute chemicals, fertilizer, and seed to various professional
non-crop markets, such as turf and ornamental (golf courses, resorts, nurseries, and
greenhouses), pest control operators, forestry, and vegetation management. The professional non-crop products business is a niche market unique from most of our agricultural customers and
requires different service levels. We service these unique markets from our locations that are close to suburban areas or leisure centers. We believe we are the only national distributor in our
markets with a presence in the three major professional non-crop market areas of turf and ornamental, pest control operators, and vegetation management. Sales to professional
non-crop customers are included in our discussion of chemicals, fertilizer, and seed throughout this Report.
The
following table shows net sales dollars and the percentage of our net sales by product category for fiscal years 2008, 2007, and 2006, respectively:
|
|
Fiscal Year Ended
|
|
|
|
February 24, 2008
|
|
February 25, 2007
|
|
February 26, 2006
|
|
Product Category
|
|
|
Net Sales
|
|
Percent
|
|
Net Sales
|
|
Percent
|
|
Net Sales
|
|
Percent
|
|
|
|
(dollars in thousands)
(percentages are of total net sales for the corresponding fiscal year)
|
|
Chemicals
|
|
$
|
1,800,657
|
|
53
|
%
|
$
|
1,651,440
|
|
58
|
%
|
$
|
1,633,862
|
|
60
|
%
|
Fertilizer
|
|
|
1,036,565
|
|
30
|
%
|
|
707,752
|
|
25
|
%
|
|
682,137
|
|
25
|
%
|
Seed
|
|
|
474,886
|
|
14
|
%
|
|
410,782
|
|
14
|
%
|
|
349,318
|
|
13
|
%
|
Services and other
|
|
|
99,308
|
|
3
|
%
|
|
84,134
|
|
3
|
%
|
|
62,472
|
|
2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,411,416
|
|
100
|
%
|
$
|
2,854,108
|
|
100
|
%
|
$
|
2,727,789
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We
sell a wide variety of branded products, with the top ten brands sold during fiscal 2008 accounting for approximately 16% of net sales.
Proprietary and Private Label Products
We coordinate the marketing, registration and regulatory affairs, sourcing, formulation, and packaging operations for our proprietary and private label products.
Our marketing group works with our operating regions to manage our product portfolio, sales activities, advertising, and technical service. We operate three formulation facilities that produce certain
of our proprietary branded products as well as some private label products. These products are developed independently by us or in cooperation with our leading suppliers. These products are
distributed almost entirely through our network of 380 distribution locations. Additionally, we maintain approximately 280 federal registrations. In order to support these proprietary private label
products and registrations, we maintain approximately 7,950 state registrations.
8
We
market over 200 key proprietary branded products. We have a broad product offering of proprietary brands in each of our product categories. Some of our key proprietary branded
products in each category are listed in the table below:
Categories
|
|
Key Proprietary Branded Products
|
Chemicals / Adjuvants
|
|
Saber®, Potenza®, Salvo®, Leci Tech®, Intensity One®, LI 700®, Choice®, Weather Guard Complete®, Liberate®, Boll Buster®, Makaze®, Sword®, Tombstone®, Helios®,
Sherpa®, Vader®, Maddog Plus®
|
Fertilizer
|
|
ACA®, Awaken®, Nortrace®
|
Seed and Seed Treatments
|
|
Dyna-Gro®, Dyna-Start®, Dyna-Shield®, So-Fast®
|
Professional Non-Crop
|
|
Signature®, Bisect®, Kleenup Pro®, Covert®, Feature®
|
Our
proprietary and private label products enhance our product offerings and provide formulations designed to meet the needs of growers and professional non-crop users. We
believe our proprietary and private label products represent a significant value for our customers and help increase the overall value of our suppliers' products. We typically obtain a higher
contribution margin from our proprietary and private label products than from the branded products we distribute from other suppliers. Our formulation plants also provide formulating, blending, and
packaging services for third parties, primarily our major suppliers, allowing us to leverage our fixed costs and increase plant efficiencies.
Intellectual Property
We use a wide array of technological and proprietary processes to enhance our chemical, fertilizer, seed, and product development programs. We believe these
technologies and proprietary processes enable us to create novel product concepts and reduce time to market. In certain circumstances, we file
for patents on technology that we believe is patentable. As of February 24, 2008, we believe we had 274 trademarks (pending or registered) in the United States, 69 Canadian trademarks (pending
or registered), 378 international trademarks (pending or registered), 20 patents (pending or registered) in the United States, and 48 international patents (pending or registered). These trademarks
and patents pertain to products formulated and distributed by us, including chemicals, plant nutrition products, fertilizer, and seed. In addition, we possess contractual rights to certain trademarks
held by third parties through arrangements with certain of our suppliers and distributors. Intellectual property rights help protect our products and technologies from use by competitors and others.
In addition to trademarks and patents, intellectual property rights of importance to us include trade secrets, confidential statements of formulation, and other proprietary manufacturing information.
We use nondisclosure agreements to protect our proprietary and confidential information. Such nondisclosure agreements specifically address the confidential information disclosed and concern the
protection of our intellectual property. Our objectives are to prevent disclosure of sensitive information and to protect our legal interests if our trade secrets are appropriated. We will continue to
aggressively enforce all of our intellectual property rights.
Seasonality
Our and our customers' businesses are seasonal, based upon the planting, growing, and harvesting cycles. During the last three years, as a result of the condensed
nature of the planting season, more than 70% of our net sales occurred during the first and second fiscal quarters of each year. As a result of the seasonality of sales, we experience significant
quarterly fluctuations in our sales, income, and working capital levels. See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of
OperationsSeasonality and Quarterly Fluctuations" for further information.
Our
integrated network of formulation and blending, distribution and warehousing facilities, and technical expertise allows us to efficiently process, distribute, and store products
close to our end-users
9
and
to supply our customers on a timely basis during the compressed planting and growing seasons. See "Item 1A. Risk FactorsOur and our customers' businesses are subject to
seasonality and this may affect our revenues, carrying costs, and collection of receivables" for further information.
Due
to the seasonal nature of our business, the amount of borrowings outstanding under the senior secured revolving credit facility varies significantly throughout our fiscal year.
During the 52 weeks ended February 24, 2008, short-term borrowings reached a daily peak of $569.8 million on September 28, 2007. Our average daily
short-term borrowings, net of cash, for fiscal 2008, were approximately $352.0 million.
Competition
The market for the distribution of chemicals, fertilizer, seed, and agronomic services is highly competitive. In each of our local markets, we typically compete
with two or more distributors. These distributors include multinational corporation-owned distribution outlets, agricultural cooperatives, and other independent regional and local distribution
companies. Agricultural cooperatives are operated for the benefit of their member growers and include companies such as Agriliance, LLC and Growmark, Inc. Multinational corporation-owned
distribution outlets include companies such as Helena Chemical Company (a subsidiary of Marubeni Corporation) and Western Farm Service, Inc. and Crop Production Services, Inc.
(subsidiaries of Agrium Inc.). We generally compete with other distributors on the basis of breadth of product offering, ability to provide "one-stop shopping" with customized local
products and services, our sales force's knowledge of and relationships with our customers, and price. Additionally, we compete within our industry for talented employees in the areas of sales and
operations. We strive to provide competitive compensation and benefits packages to retain and attract key employees.
Sales on Credit, Extensions of Credit, and Accounts Receivable
A significant portion of our sales to growers and independent retailers are made through the use of our credit programs. Typically, we sell products and services
on cash or credit terms, with credit terms ranging from 30 days to crop terms. Crop terms typically require payment in the fall and may be as late as December following harvest. Many customer
accounts accrue service charges. As of February 24, 2008, our aggregate accounts receivable, most of which constituted extensions of credit to trade customers, totaled $366.3 million
compared to $354.0 million as of February 25, 2007.
We
have a dedicated and focused credit department, responsible for all our credit and customer receivable risk management. Our credit department is also responsible for establishing
credit terms and credit limits, compiling data and generating reports to monitor collections, reserves for bad debt, and the progress of credit related initiatives, assuring data integrity, and
distributing relevant reports to our field credit managers. Our credit policies and procedures include a detailed computerized analysis of a particular customer's credit prior to the sale, routine
monitoring of customer credit limits, and systematic inactivation of non-conforming accounts. Our centralized credit and procurement functions are responsible for coordinating various
sales and working capital initiatives. In late fiscal 2008, we began offering third party sponsored credit programs, which are financed, operated, and serviced by third party finance companies on a
non-recourse basis. We pay a negotiated fee to the finance companies on some of these programs and they retain all credit risk associated with these accounts. These arrangements give our
customers the opportunity to finance their purchases without using our working capital. Most of the benefits from these third party programs are expected to be realized in fiscal 2009 and beyond.
We
have a customer prepay program which is coordinated by our sales, credit, and procurement staffs and encourages customers to prepay us for their future crop input needs. As of
February 24,
10
2008,
we had a net balance of customer prepayments of $435.4 million compared to $296.8 million as of February 25, 2007.
Management Information Systems
Our finance, credit, and information technology departments are responsible for all our financial reporting, information technology and operating systems,
treasury and cash management, financial analysis and budgeting, tax filings, and credit and risk management. In addition, our finance department performs financial modeling and analysis, due
diligence, and contract negotiations for acquisitions.
Our
sales locations have real-time access to our systems that provide point-of-sale support, maintain perpetual inventory records for each sales location and produce daily reports,
including sales and profitability data, credit information, and working capital data. We use these systems to provide data for inventory control, credit controls, budgeting, forecasting, and working
capital management requirements.
Raw Materials and Supplies
We purchase chemicals and seed products from many of the world's leading agricultural input and professional non-crop manufacturers. We have contracts
with BASF, Bayer Crop Science, Dow AgroSciences, DuPont, Monsanto, Syngenta, and other prominent suppliers in the industry. We purchase chemical and seed products at the manufacturer's distributor
price and typically receive a rebate based on volume and type of product. Vendor rebates are typically paid after the end of the vendor's crop year. Such rebate programs may be either published
programs, in which case rebates are calculated similarly among all buyers, or unpublished programs, in which case rebates are structured solely according to our business.
We
purchase fertilizer from many of the world's leading fertilizer manufacturers. Some of our largest suppliers are ConAgra International Fertilizer Company, Mosaic, Koch Industries,
Simplot, Potash Corp., and Terra. We prepay some vendors for fertilizer in advance of our peak selling seasons (late fall and early spring) in order to lock in supply and/or price for a portion of our
forecasted need.
Employees and Labor Relations
As of February 24, 2008, we employed approximately 3,150 non-unionized salaried and hourly employees, approximately 85 unionized employees, and
approximately 240 temporary employees to meet our seasonal needs. We believe we have good relations with our employees. All our unionized employees work at our formulation facility in Greenville,
Mississippi, and are all subject to a collective bargaining agreement. On August 20, 2007, we entered into a new agreement with our unionized employees, which is scheduled to expire on
August 22, 2010. We have not had any work stoppages in the past five years.
Environmental Matters
Our facilities and operations must comply with a wide variety of federal, state, and local environmental laws, regulations and ordinances, including those related
to air emissions, water discharges, and chemical and hazardous waste management and disposal. Our operations are regulated at the federal level under numerous laws, including the Federal Insecticide,
Fungicide, and Rodenticide Act, Emergency Planning and Community Right to Know Act, Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Occupational Safety and Health Act,
Hazardous Materials Transportation Act, and, at the state level, analogous state laws and regulations. Our operations also are governed by laws relating to workplace safety and worker health,
primarily the rules of the Occupational Safety and Health Administration and the United States Department of Transportation.
11
Several
of the products we distribute are also covered under Department of Homeland Security regulations. Non-compliance with these environmental, health, safety, and security laws can
result in significant fines or penalties or restrictions on our ability to sell or transport products. We manage these regulatory risks by employing a staff of highly trained professionals, by
performing periodic compliance audits, and by participating in industry stewardship initiatives. We believe that our operations are in compliance in all material respects with current requirements
under environmental, transportation, and employee safety laws.
Environmental
laws may hold current owners or operators of land or businesses liable for their own and for previous owners' or operators' releases of hazardous or toxic substances,
materials, wastes, pollutants or contaminants, including petroleum and petroleum products. Because of our operations, the history of industrial or commercial uses at some of our facilities, the
operations of predecessor owners or operators of some of the facilities, and the use, production and release of hazardous substances at these sites, we are affected by the liability provisions of
environmental laws. Many of our facilities have experienced some level of regulatory scrutiny in the past and are, or may be subject to, further regulatory inspections, future requests for
investigation, or liability for hazardous substance management practices.
From
time to time, we incur expenses in connection with remediation of hazardous substances, including chemicals and fertilizer in soil and/or groundwater at our current and former
facilities. While a portion of this work is conducted on a voluntary basis under state law, most of it is conducted as part of a state directed enforcement action, some of which provides for
reimbursement of expenses by state agricultural funds. In addition, we are engaged in corrective action under the Resource Conservation and Recovery Act at our facilities in Billings, Montana and
Garden City, Kansas, and our former facility in Nichols, Iowa. We have also removed or closed underground storage tanks from some of our facilities and, in some instances, are responding to historic
releases at these locations. In total, both voluntary and government ordered cleanups of releases of hazardous substances are planned or being performed at approximately 50 sites. In some cases, third
parties (including government reimbursement funds and insurers) may contribute to the cost of cleanup at these sites. Without consideration of third-party contributions, the cost of these
on-going and potential response actions is not expected to have a material adverse effect on our business, financial condition, cash flow, results of operations, or liquidity.
The
Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), provides for responses to, and, in some instances, joint and several liability for
releases of hazardous substances into the environment. At the present time, there are three off-site disposal or formulation facilities at which we have been identified as a potentially
responsible party under CERCLA: Malone in Texas City, Texas; Red Panther in Clarksdale, Mississippi; and Aberdeen Pesticide Dump in Aberdeen, North Carolina. We believe that the cost of participating
in these on-going and potential response actions will not have a material adverse effect on our business, financial condition, cash flow, results of operations, or liquidity.
ConAgra
has agreed to provide us with a partial reimbursement of costs that we may incur in the future relating to any cleanup requirements arising out of certain environmental
conditions at our Greenville, Mississippi facility that existed prior to the Acquisition. On October 14, 2002, December 23, 2002, and December 31, 2002, three separate lawsuits
were filed in the Circuit Court of Washington County, Mississippi against our subsidiary, Platte Chemical Co. ("Platte"), and certain former employees of Platte, relating to alleged releases
from Platte's Greenville, Mississippi facility. The plaintiffs in such suits are seeking compensation for alleged personal injury and property damage. In connection with the Acquisition, ConAgra
agreed to partially reimburse us, subject to a cap, for fees and expenses we incur in connection with such lawsuits. Subsequent to November 23, 2003, another lawsuit not covered by the ConAgra
cost sharing agreement was filed against us in the Circuit Court of Washington County, Mississippi, which lawsuit relates to the same alleged releases from the Greenville, Mississippi facility. While
discovery in the Greenville litigations is not yet complete, based on
12
information
available to us at this time we do not believe that such litigations, if adversely determined, would have a material adverse effect on our business, financial condition, cash flow, results
of operations, or liquidity.
Regulatory License and Approvals
As a seller and distributor of crop production inputs, we are subject to registration requirements under the Federal Insecticide, Fungicide, and Rodenticide Act
and related state statutes, which require us to provide information to regulatory authorities regarding the benefits and risks of the products we sell and distribute, and to periodically update that
information. Risk information supplied to governmental authorities by us or others could result in the cancellation of products or limitations on their use. In addition, these laws regulate
information contained in product labels and promotional materials, require that products are manufactured in adherence to manufacturing specifications, and impose reporting and recordkeeping
requirements relating to production and sale of certain pesticides. Non-compliance with these environmental, health and safety laws can result in significant fines, penalties, or
restrictions on our ability to sell our products. Based on our experience to date, these requirements are not expected to have a material adverse effect on our business, financial condition, cash
flow, results of operations, or liquidity.
Available Information
We make available free of charge on our web site,
www.uap.com
, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(b) of the
Securities Exchange Act of 1934 (the "Exchange Act"), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. On the investor relations page of
our web site, we also maintain certain corporate governance documents, including our Company's codes of conduct and the charters for our various board committees. We do not intend for the information
found on our web site to be part of this document.
13
Item 1A. Risk Factors.
You should carefully consider the risk factors set forth below as well as the other information contained in this Report. The risks
described below are not the only risks facing us. Additional risks and uncertainties not currently known to us or those we currently deem to be immaterial may also materially and adversely affect our
business, financial condition, cash flow, results of operations, or liquidity. Any of the following risks could materially adversely affect our business, financial condition, cash flow, results of
operations, or liquidity.
We are subject to numerous risks associated with our planned acquisition by Agrium.
On December 3, 2007, we announced that we had entered into the Merger Agreement with Agrium pursuant to which Agrium U.S. Inc., a subsidiary of
Agrium, would commence a tender offer at an offer price of $39.00 per share to acquire all of the outstanding shares of our common stock. Under the terms of the Merger Agreement, if at least a
majority of UAP Holding Corp. shares are tendered and certain other conditions are satisfied, Agrium U.S. Inc. must promptly purchase all of the tendered shares. Following completion of
the Tender Offer, Utah Acquisition Co., a Delaware corporation and a wholly-owned subsidiary of Agrium, will merge with and into UAP Holding Corp. and we will become a wholly-owned subsidiary
of Agrium, thus ending our existence as a standalone publicly-traded company.
Beginning
with December 3, 2007, the first trading date following the announcement of the Merger Agreement, and continuing through the date hereof, our common stock has traded
within a narrow price range: from a low of $37.82 per share on January 22, 2008, to a high of $39.23 per share on January 9, 2008. We expect that a relatively narrow trading range under
$39.00 per share is likely to continue until the closing of the Tender Offer and Merger, although there can be no guarantees of such price range. As a result of this relatively narrow trading range,
together with the expected $39.00 per share cash payment to be paid to the non-tendering UAP Holding Corp. stockholders pursuant to the terms of the Merger Agreement, the returns on any
new investments in our common stock may be significantly limited.
Because the Tender Offer has not yet been completed, we cannot be sure that the transactions contemplated by the Merger Agreement will be consummated.
Failure to consummate these transactions could have a negative effect on our financial performance and stock price.
The obligation of Agrium to consummate the Tender Offer and the Merger is subject to certain conditions, including the absence of the occurrence of any material
adverse effect on our business prior to the closing of the Tender Offer. If the conditions set forth in the Merger Agreement are not timely satisfied or waived, our acquisition by Agrium may not
occur. These conditions are set forth in the Merger Agreement which we filed with the SEC on December 3, 2007, as an exhibit to the Current Report on Form 8-K. We cannot
ensure that each of the conditions set forth in the Merger Agreement will be satisfied, and failure to complete these transactions could have a negative effect on our financial performance and stock
price.
If
the Merger Agreement is terminated, it may cause a material disruption to our business and, under certain circumstances, we may be required to pay Agrium a termination fee of
$44 million plus reimbursement for up to $10 million in costs incurred by Agrium in connection with the Tender Offer and Merger. In addition to such adverse consequences and possible
adverse effects on our business which may result from the announcement of the Merger Agreement, if the acquisition is not consummated we could suffer a number of further consequences that may
adversely affect our business, results of operations and stock price, including, but not limited to, the following:
-
-
we
would not realize any anticipated benefits from being a part of a combined company;
14
-
-
the
price of our common stock could decline to the extent that its current market price reflects a market assumption that the Tender Offer and Merger will be completed;
-
-
we
may experience difficulties in attracting customers and strategic partners due to changed perceptions about our competitive position, our management, or other aspects of
our business;
-
-
we
have incurred and may be liable for additional costs related to the Tender Offer and Merger;
-
-
activities
relating to the acquisition and related uncertainties may lead to a loss of revenue and market position that we may not be able to regain;
-
-
we
may not be able to retain key employees or attract new employees in areas of growth or need; and
-
-
we
may not be able to take advantage of alternative business opportunities or effectively respond to competitive pressures due to a loss of our sales personnel.
Our and our customers' businesses are subject to seasonality and this may affect our revenues, carrying costs, and collection of receivables.
Our and our customers' businesses are seasonal, based upon the planting, growing, and harvesting cycles, and the inherent seasonality of the industry we serve
could have a material adverse effect on our business. During fiscal years 2006 through 2008, more than 70% of our net sales occurred during the first and second fiscal quarters of each year due to the
condensed nature of the planting and growing seasons. Because interim period operating results reflect the seasonal nature of our business, they are not indicative of results expected for the full
fiscal year. In addition, quarterly results can vary significantly from one year to the next, primarily due to weather-related shifts in planting schedules and purchase patterns. We incur substantial
expenditures for fixed costs throughout the year and substantial expenditures related to inventory in advance of the spring planting season.
Seasonality
also relates to the limited windows of opportunity that our customers have to complete required tasks at each stage of crop cultivation. Should events such as adverse weather
or transportation interruptions occur during these seasonal windows, we would face the possibility of reduced revenue without the opportunity to recover until the following season. In addition,
because of the seasonality of agriculture, we face the risk of significant inventory carrying costs should our customers' activities be curtailed during their normal seasons. These factors can also
negatively impact the timing of our accounts receivable collections as well as the amount of accounts receivables charged to bad debt expense.
Weather conditions may materially impact the demand for our products and services.
Weather conditions have a significant impact on the farm economy and, consequently, on our operating results. Weather conditions affect the demand and, in some
cases, the supply of products, which, in turn, may have an impact on our prices. For example, weather patterns such as flood, drought, or frost can cause crop failures which affect the supply of feed
and seed and the marketing of grain products, as well as the demand for chemicals, fertilizer, seed, and other agronomic supplies. In recent years, we have experienced unusually severe weather
conditions, including hurricanes, ice storms, floods, wind damage, and drought in some states. Adverse weather conditions can also impact the financial position of agricultural producers who do
business with us, including producers to whom we extend credit. This, in turn, may adversely affect the ability of those producers to pay their obligations to us in a timely manner. Accordingly, the
weather can have a material effect on our business, financial condition, cash flow, results of operations, or liquidity.
15
Our industry is very competitive and increased competition could reduce our sales and profit margins.
We operate in a highly competitive and fragmented industry, particularly with respect to price and service. Our principal competitors in the distribution of crop
production inputs include agricultural cooperatives, international fertilizer producers, major grain companies, multinational corporation-owned distribution outlets, other independent regional and
local distributors, and brokers. Some of our competitors may have greater financial, marketing, and research and development resources, and/or better name recognition than we do and can better
withstand adverse economic or market conditions. In addition, as a result of increased pricing pressures caused by competition, we may experience reductions in profit margins on sales or may be unable
to pass future material price increases on to our customers, either of which would reduce our profit margins.
Government regulation and agricultural policy may affect the demand for our products and therefore our financial viability.
Existing and future government regulations and laws may greatly influence how we operate our business, our business strategy, and, ultimately, our financial
viability. Existing and future laws may impact the amounts and locations of pesticide and fertilizer applications. The Clean Water Act and the equivalent state and local water pollution control laws
are designed to protect water quality. Pesticide and fertilizer applications have been identified as a source of water pollution and are currently regulated and may be more closely regulated in the
future. This regulation may lead to decreases in the
quantity of pesticides and fertilizer applied to crops. The application of fertilizer can also result in the emissions of nitrogen compounds and particulate matter into the air. Compliance with future
requirements to limit these emissions under the Clean Air Act and the equivalent state and local air pollution control laws may affect the quantity and/or timing of fertilizer used by our customers.
U.S.
governmental policies and regulations may directly or indirectly influence the number of acres planted, the level of inventories, the mix of crops planted, crop prices, and the
amounts of and locations where pesticides and fertilizer may be applied. The market for our products could also be affected by challenges brought under the Endangered Species Act and by changes in
regulatory policies affecting genetically modified seeds.
Our industry is dependent on farm expenditures for crop inputs. Factors that affect the levels of crop input spending could adversely impact our
business.
We operate in the agricultural inputs distribution industry. Our industry depends on farm expenditures for crop inputs, which, in turn, is dependent upon planted
acreage in the United States. The amount of crop input expenditures and planted acreage can be impacted by the following factors:
-
-
grain
prices;
-
-
crops
planted in other parts of the world;
-
-
the
types of crops planted in the U.S., including shifts from one type to another which have different levels of input spending requirements;
-
-
government
subsidies, including farm and biofuel subsidies and commodity support programs;
-
-
government
policies, such as federal legislation mandating greater use of renewable fuels, which have led to an increase in ethanol production and a related increase in the
amount of corn grown in the United States; and
-
-
our
customers' net income levels, which can be impacted by the above factors, as well as interest rates, labor costs, fuel prices, and crop input costs.
16
Our growth within the agricultural inputs distribution industry is partially dependent upon acquisitions, which could adversely affect our future
performance.
The growth in net sales and operating income of our business depends in part on our ability to expand through acquisitions and on our ability to successfully
assimilate new businesses and locations into our existing operations. Our failure to do this could adversely impact our future financial performance. Please refer to "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of OperationsBuilding upon our Distribution Network" for more information.
We are subject to expenses, claims, and liabilities under environmental, health, and safety laws and regulations.
We operate in a highly regulated environment. As a producer and distributor of crop production inputs, we must comply with federal, state, and local
environmental, health, and safety laws and regulations. These regulations govern our operations and our storage, handling, discharge, and disposal of a variety of substances. Our operations are
regulated at the federal level under numerous laws, including the Clean Air Act, Clean Water Act, Resource Conservation and Recovery Act, Occupational Safety and Health Act, and under analogous state
laws and regulations. As a formulator, seller, and distributor of crop production inputs, we are also subject to registration requirements under the Federal Insecticide, Fungicide and Rodenticide Act
and related state statutes, which require us to provide information to regulatory authorities regarding the benefits and risks of the products we sell and distribute and to update that information.
Risk information supplied to governmental authorities by us or others could result in the cancellation of products or in limitations on their use. In addition, these laws govern information contained
in product labels and in promotional materials, require that products are manufactured in adherence to manufacturing specifications, and impose reporting and recordkeeping requirements relating to
production and sale of certain pesticides. Non-compliance with these environmental, health, and safety laws can result in significant fines, penalties, or restrictions on our ability to
sell or transport products.
Under
the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, we could be held jointly and severally responsible for the removal or remediation of any
hazardous substance contamination at facilities that we currently own or operate, at facilities that we owned or operated in the past, at neighboring properties to which such contamination has
migrated from our facilities, and at third party waste disposal sites to which we have sent waste. We could also be held liable for natural resource damages.
We
may incur substantial costs to comply with requirements under these environmental, health, and safety laws. We also may incur substantial costs for liabilities arising from past
releases of, or exposure to, hazardous substances. From time to time, claims have been made against us alleging injury arising out of human exposure to these substances or other damage, including
property damages. Currently, four such claims are pending in relation to our Platte facility in Greenville Mississippi. In addition, we may discover currently unknown environmental problems or
conditions. The continued compliance with environmental laws, the discovery of currently unknown environmental problems or conditions, changes in environmental, health, and safety laws and regulations
or other unanticipated events may subject us to material expenditures or liabilities in the future.
Our substantial indebtedness could adversely affect our financial condition and impair our ability to operate our business or pay dividends on our
common stock.
We currently have a senior secured credit facility consisting of a senior secured term loan with a current principal amount of $396.8 million due
June 1, 2012, and a senior secured revolving credit facility with a maximum limit of $675 million, which matures on June 1, 2011. As of February 24, 2008,
17
we
had $506.8 million of outstanding indebtedness, consisting of $110.0 million of borrowings under the senior secured revolving credit facility and $396.8 million of borrowings
under the term loan facility.
We
are a highly leveraged company and this level of leverage could have significant consequences, including the following:
-
-
limit
our ability to borrow money or sell stock to fund our working capital, capital expenditures, and debt service requirements;
-
-
limit
our flexibility in planning for, or reacting to, changes in our business;
-
-
may
be more highly leveraged than some of our competitors, which may place us at a competitive disadvantage;
-
-
our
financial results may be more vulnerable to a downturn in our business or the economy;
-
-
may
require us to dedicate a substantial portion of our cash flow from operations to the repayment of our indebtedness, thereby reducing the availability of our cash flow
for other purposes, such as payments of dividends on our common stock; and
-
-
materially
and adversely affect our business and financial condition if we are unable to service our indebtedness or obtain additional financing, as needed.
In
addition, the senior secured credit facility contains financial and other restrictive covenants discussed below that may limit our ability to engage in activities that may be in our
long-term best interest. Our failure to comply with those covenants could result in an event of default, which, if not cured or waived, could result in the acceleration of all of our debt.
The supply and demand of certain commodities has an impact on our business, and we are sensitive to factors outside of our control.
We buy, sell and hold inventories of various commodities, such as fertilizer and certain chemicals. Our revenues and earnings are affected by market prices for
these commodities, which prices generally are influenced by a wide range of factors beyond our control. These factors include the weather, the availability and adequacy of supply, demand for these
commodities, both locally and globally, government regulation and policies, and general political and economic conditions. Increases in market prices for the commodities that we purchase without a
corresponding increase in the prices of our products or our sales volume or a decrease in our other operating expenses, could reduce our gross profit and/or our net income. At any given time, we may
have significant prepayments from customers related to future sales of our products. Although we strive to maintain inventory levels and/or have purchase orders to fulfill commitments associated with
customer prepayments, in a market of short supply or rising prices there is no guarantee that we will achieve normal operating margins on these amounts. Additionally, in a market where prices are
decreasing, our ability to sell our inventory and commitments associated with our vendor prepayments at normal profit margins may be difficult to achieve.
Currency exchange rate changes can adversely affect the pricing and profitability of our products.
We currently operate sales and service facilities outside of the United States. We also purchase products and materials from foreign suppliers. Accordingly, we
are subject to risks associated with operations in foreign countries, including fluctuations in currency exchange rates and additional costs of compliance with local regulations. These costs could
adversely affect our operations and financial results in the future.
18
Restrictive covenants in our senior secured credit facility may restrict our ability to pursue our business strategies or pay dividends on our common
stock.
The senior secured credit facility limits our ability and the ability of our subsidiaries to, among other things:
-
-
incur
additional indebtedness or contingent obligations;
-
-
pay
dividends or make distributions to our stockholders;
-
-
repurchase
or redeem our stock;
-
-
make
investments;
-
-
grant
liens;
-
-
make
capital expenditures;
-
-
enter
into transactions with our stockholders and affiliates;
-
-
sell
assets; and
-
-
acquire
the assets of, or merge or consolidate with, other companies.
In
addition, the senior secured credit facility requires us to maintain a fixed charge coverage ratio (as defined in our senior secured credit facility) if our revolving credit
availability drops below $50.0 million. We may not be able to maintain this ratio in the future. Covenants in the senior secured revolving credit facility may also impair our ability to finance
future operations or capital needs, or to enter into acquisitions or joint ventures, or to engage in other favorable business activities.
If
we default under the senior secured credit facility under certain circumstances, the lenders could require immediate payment of the entire principal amount. These circumstances
include, among other things, a change of control, default under agreements governing any other indebtedness, material judgments in excess of a specified amount, or breach of representations and
warranties. If the lenders under the senior secured credit facility require immediate repayment, we may not be able to repay them in full. Our ability to comply with these covenants and restrictions
contained in the senior secured credit facility may be affected by changes in economic or business conditions or other events beyond our control.
Our profitability depends significantly on rebates from our suppliers. If we are unsuccessful in negotiating, earning, or collecting rebates, it could
have an adverse impact on our business.
We receive rebates from chemical and seed suppliers based on programs offered to their customers. The programs vary based on product type and specific supplier
practice. The majority of the rebate programs run on a crop year basis, typically from September 1st to August 31st, although other periods are sometimes utilized. The majority of
these rebates are product-specific and are based on our sales of that product in a given crop year.
Our
ability to negotiate, earn, and collect rebates is critical to the success of our business. We price our products to our customers based on the cost of the products less the amount
of rebates we expect to receive at the end of the crop year. However, the amount of rebates we earn and the nature of our rebate programs are determined by our suppliers and are directly related to
the performance of our business. If our sales in any crop year are lower than expected, either because of poor weather conditions, increased competition, or for any other reason, we may earn fewer
rebates, and our gross margins may suffer. Additionally, our suppliers may reduce the amount of rebates offered under their programs or increase the sales goals or other conditions we must meet to
earn rebates to levels that we cannot achieve. Finally, our ability to negotiate individually for additional rebates may cease or become limited, and our efforts to collect cash rebates periodically
throughout the year may be unsuccessful.
19
The
occurrence of any of these events could have a material adverse effect on our business, financial condition, cash flow, results of operations, or liquidity.
For
more information, see "Item 7. Management's Discussion and Analysis of Financial Condition and Results of OperationsCritical Accounting Policies and
EstimatesVendor Rebate Receivables" and Note 1 in the "Notes to our Financial Statements."
UAP Holding Corp. is a holding company and we rely on our subsidiaries for cash to pay dividends on our common stock.
UAP Holding Corp. has no direct operations and no significant assets other than ownership of 100% of the stock of United Agri Products, Inc. Because UAP
Holding Corp. conducts its operations through its subsidiaries, UAP Holding Corp. depends on those entities for dividends and other payments to generate the funds necessary to meet its financial
obligations and to pay dividends with respect to our common stock. Legal and contractual restrictions in the senior secured credit facility and any other agreements governing future indebtedness of
UAP Holding Corp.'s subsidiaries, as well as the financial condition and operating requirements of UAP Holding Corp.'s subsidiaries, may limit UAP Holding Corp.'s ability to obtain cash from its
subsidiaries. All of UAP Holding Corp.'s subsidiaries are separate and independent legal entities and have no obligation whatsoever to pay any dividends, distributions, or other payments to UAP
Holding Corp.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
Our properties are located in major crop-producing regions of the United States and Canada. We are headquartered in Greeley, Colorado, and we operate
three formulation facilities located throughout the United States. The following table lists our principal locations and the square footage along with the production capacity in terms of square
footage:
Location
|
|
Owned/Leased
|
|
Function
|
|
Building(s) Square Footage
|
|
Formulating/Production Square Footage
|
Greeley, Colorado
|
|
Leased
|
|
Headquarters
|
|
47,753
|
|
N/A
|
Greeley, Colorado
|
|
Owned
|
|
Formulating
|
|
67,100
|
|
11,500
|
Greenville, Mississippi
|
|
Owned
|
|
Formulating
|
|
291,000
|
|
57,000
|
Billings, Montana
|
|
Owned
|
|
Formulating
|
|
61,071
|
|
20,320
|
In
addition, as of February 24, 2008, we owned or leased approximately 380 properties that are used to store inventory, distribute, and sell our products to our customers. We
determine the number of sales and distribution facilities as those managed by a single location manager. Because there may be more than one property that we own or lease managed by a location manager,
the number of our sales and distribution facilities are less than the total number of leased and owned properties. We also utilize other facilities, including seasonal storage in our distribution
business and facilities used for
20
administrative
purposes only. We organize our properties for geographic and administrative purposes into five primary regions, as noted below:
Region
|
|
States/Provinces Served
|
|
Owned
|
|
Leased
|
Northeast
|
|
CT, DE, IL, IN, KY, MA, MD, ME, MI, MO, NH, NJ, NY, OH, PA, RI, VA, VT, WI, WV
|
|
50
|
|
43
|
Southeast
|
|
AL, AR, FL, GA, LA, MO, MS, NC, SC, TN
|
|
38
|
|
73
|
West
|
|
AK, AZ, CA, CO, HI, ID, KS, MO, NM, NV, OK, OR, TX, UT, WA, WY
|
|
42
|
|
52
|
Midwest
|
|
IA, MN, MT, ND, NE, SD, WY
|
|
45
|
|
49
|
Canada
|
|
AB, BC, MB, NB, NS, ON, PE, QC, SK
|
|
|
|
7
|
Administrative
|
|
CO
|
|
|
|
3
|
|
|
|
|
|
|
|
Total
|
|
|
|
175
|
|
227
|
All
of our owned properties and substantially all of our leased properties secure our obligations under the senior secured credit facility. Thirty-seven of these carry mortgages.
We
believe that our facilities are well maintained, suitable for our business, and occupy sufficient space to meet our operating needs. As a part of our normal business, we regularly
evaluate our locations' financial and operational performance and site suitability, and may relocate a location or consolidate locations that are redundant, located in a market that is under
performing, or otherwise deemed unsuitable.
Item 3. Legal Proceedings.
In addition to the matters discussed above under "Item 1. BusinessEnvironmental Matters," we are involved in periodic litigation in the
ordinary course of our business, including intellectual property infringement claims, product liability claims, property damage claims, personal injury claims, contract claims, worker's compensation
claims, and lawsuits brought by employees and former employees alleging discriminatory practices. We do not believe that there are any pending or threatened legal proceedings, including ordinary
litigation incidental to the conduct of our business and the ownership of our properties that, if adversely determined, would have a material adverse effect on our business, financial condition, cash
flow, results of operations, or liquidity. However, we cannot assure you that future litigation will not adversely affect our business, financial condition, cash flow, results of operations, or
liquidity.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
21
Executive Officers of the Registrant
The executive officers of UAP Holding Corp. are listed as follows. There are no family relationships among them.
Name
|
|
Age
|
|
Date First Elected Executive Officer
|
|
Position
|
L. Kenneth Cordell
|
|
50
|
|
2003
|
|
Chairman, President, and Chief Executive Officer
|
David W. Bullock
|
|
43
|
|
2003
|
|
Executive Vice President and Chief Operating Officer
|
Jeffrey L. Rutherford
|
|
47
|
|
2007
|
|
Executive Vice President and Chief Financial Officer
|
David J. Tretter
|
|
51
|
|
2003
|
|
Executive Vice President, Wholesale Sales
|
Dean M. Williams
|
|
43
|
|
2007
|
|
Executive Vice President, Retail Sales
|
Kevin M. Howard
|
|
41
|
|
2004
|
|
Executive Vice President, Products Company
|
Todd A. Suko
|
|
41
|
|
2003
|
|
Vice President, General Counsel, and Secretary
|
Alan E. Kessock
|
|
48
|
|
2006
|
|
Chief Accounting Officer
|
Business Experience
L. Kenneth Cordell
has been President and a director of UAP Holding Corp. and United Agri Products, Inc.
since the closing of the Acquisition on November 24, 2003, and became the Chief Executive Officer of United Agri Products in December 2003 and of UAP Holding Corp. in January 2004. He was
elected Chairman of our Board of Directors in July 2006. He joined United Agri Products in 2001 and was promoted to President and Chief Operating Officer in February 2002. Prior to joining United Agri
Products, Mr. Cordell worked for FMC Agricultural Products Group from 1992 to 2001, serving most recently as Director of the North American Agricultural Products Group.
David W. Bullock
has been Executive Vice President of UAP Holding Corp. and United Agri Products, Inc. since the closing of the
Acquisition on November 24, 2003, and became the Chief Operating Officer of UAP Holding Corp. and United Agri Products in October 2007. Mr. Bullock served as our Chief Financial
Officer from January 2004 until October 2007, and served as Chief Financial Officer of United Agri Products from December 2003, until October 2007. He joined United Agri Products in June 2002 as
Senior Financial Officer. Prior to joining United Agri Products, Mr. Bullock worked for FMC Agricultural Products Group from 1995 to 2002, serving most recently as Controller of the North
American agriculture business.
Jeffrey L. Rutherford
has been Executive Vice President and Chief Financial Officer of UAP Holding Corp. and United Agri
Products, Inc. since October 2007. Prior to joining UAP, Mr. Rutherford worked for Lesco, Inc., now a part of John Deere & Co., from February 2002 until October
2007, serving most recently as President and Chief Executive Officer. Prior to joining Lesco, Mr. Rutherford worked for OfficeMax, Inc. from 1997 until 2001, serving as its Senior Vice
President, Treasurer and Chief Financial Officer.
David J. Tretter
has been Executive Vice President, Wholesale Sales, for UAP Holding Corp. and United Agri Products, Inc. since
October 2007. From January 2007 until October 2007, Mr. Tretter served as Executive Vice President, Distribution (North Divisions) for UAP Holding Corp. and United Agri Products, Inc.
Prior to becoming Executive Vice President, Distribution, he was Executive Vice
President, Procurement for UAP Holding Corp. and United Agri Products, and held that role since the closing of the Acquisition on November 24, 2003. He joined UAP in July 1985 as Fertilizer
Manager and has held various positions in sales management, general management, and executive management since that time.
Dean M. Williams
has been Executive Vice President, Retail Sales of UAP Holding Corp. and United Agri Products, Inc. since October
2007. From January 2007 until October 2007, Mr. Williams served as Executive Vice President, Distribution (South Divisions) for UAP Holding Corp. and United
22
Agri
Products, Inc. Mr. Williams joined United Agri Products in January 1988 and has served in various sales and management positions.
Kevin M. Howard
has been Executive Vice President, Products Company of UAP Holding Corp. and United Agri Products, Inc. since
January 2004. Prior to joining UAP, Mr. Howard worked for BASF from 1997 through 2003, serving most recently as Vice President of Operations for Microflo Inc. (a division of BASF).
Todd A. Suko
has been Vice President, General Counsel and Secretary of UAP Holding Corp. and United Agri Products, Inc. since the
closing of the Acquisition on November 24, 2003. He joined United Agri Products in February 2001 as Associate Counsel and was promoted to Vice President Legal and Regulatory Services and
Corporate Counsel in October 2002. Prior to joining United Agri Products, he practiced law at McKenna & Cuneo, LLP in Washington, D.C. from 1996 to 2001.
Alan E. Kessock
has been Chief Accounting Officer of UAP Holding Corp. and United Agri Products, Inc. since April 2006. He joined
UAP in March 2006 as Corporate Controller. Prior to joining UAP, he served as the Director of Retail Planning and Analysis at Circuit City Stores, Inc. from August 2005 until March 2006. Prior
to joining Circuit City, Mr. Kessock served as Vice President and Treasurer for Affordable Residential Communities from February to August 2005. Prior to that time, Mr. Kessock served in
various positions at Ultimate Electronics, Inc., including Controller, Senior Vice President of Finance, Chief Financial Officer, and Senior Vice President of Operations, from 1985 to 2004.
Ultimate Electronics, Inc. filed for bankruptcy on January 11, 2005, subsequent to Mr. Kessock's resignation, and was liquidated on December 9, 2005.
23
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities.
Market Information.
Our common stock, $0.001 par value, has been traded on the NASDAQ Global Select
Market under the symbol "UAPH" since November 22, 2004. Prior to that time, we were a privately held company and there was no trading market for our equity. On April 16, 2008, the last
recorded sale price for our common stock was $38.68 per share.
The
following table sets forth, for the fiscal year periods indicated, the high and low sales prices per share for our common stock, as reported on the NASDAQ Global Select Market:
|
|
High Price
|
|
Low Price
|
|
Price Range of Common Stock:
|
|
|
|
|
|
|
Fiscal Year2008
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
39.23
|
|
$
|
28.40
|
|
Third Quarter
|
|
|
32.37
|
|
|
27.93
|
|
Second Quarter
|
|
|
33.19
|
|
|
26.03
|
|
First Quarter
|
|
|
29.81
|
|
|
22.75
|
Fiscal Year2007
|
|
|
|
|
|
|
|
Fourth Quarter
|
|
$
|
26.63
|
|
$
|
21.66
|
|
Third Quarter
|
|
|
25.28
|
|
|
20.25
|
|
Second Quarter
|
|
|
23.82
|
|
|
17.72
|
|
First Quarter
|
|
|
23.90
|
|
|
19.52
|
Holders.
The number of stockholders of record as of April 16, 2008, was 64, and the estimated
number of beneficial stockholders was 3,300.
Dividends.
The table below outlines our dividend history as a public company:
Declaration Date
|
|
Record Date
|
|
Payment Date
|
|
Dividend Amount per share
|
|
Total
Dividend
|
|
|
|
|
|
|
|
|
|
(in thousands)
|
|
April 18, 2008
|
|
May 1, 2008
|
|
May 15, 2008
|
|
$
|
0.2250
|
|
$
|
12,100
|
(*)
|
January 16, 2008
|
|
February 1, 2008
|
|
February 15, 2008
|
|
|
0.2250
|
|
|
12,061
|
|
October 5, 2007
|
|
November 15, 2007
|
|
December 3, 2007
|
|
|
0.2250
|
|
|
12,065
|
|
July 11, 2007
|
|
August 15, 2007
|
|
September 4, 2007
|
|
|
0.2250
|
|
|
12,209
|
|
April 25, 2007
|
|
May 15, 2007
|
|
June 1, 2007
|
|
|
0.2250
|
|
|
11,595
|
|
January 11, 2007
|
|
February 15, 2007
|
|
March 1, 2007
|
|
|
0.1875
|
|
|
9,599
|
|
October 5, 2006
|
|
November 15, 2006
|
|
December 1, 2006
|
|
|
0.1875
|
|
|
9,559
|
|
July 11, 2006
|
|
August 15, 2006
|
|
September 1, 2006
|
|
|
0.1875
|
|
|
9,556
|
|
April 4, 2006
|
|
May 15, 2006
|
|
June 1, 2006
|
|
|
0.1875
|
|
|
9,545
|
|
January 5, 2006
|
|
February 15, 2006
|
|
March 1, 2006
|
|
|
0.1875
|
|
|
9,528
|
|
October 6, 2005
|
|
November 15, 2005
|
|
December 1, 2005
|
|
|
0.1625
|
|
|
8,202
|
|
July 18, 2005
|
|
August 15, 2005
|
|
September 1, 2005
|
|
|
0.1625
|
|
|
8,202
|
|
April 29, 2005
|
|
May 13, 2005
|
|
June 1, 2005
|
|
|
0.1250
|
|
|
6,304
|
|
-
(*)
-
Estimated
amount
Currently,
we intend to pay quarterly cash dividends on our common stock at an annual rate of $0.90 per share. However, there can be no assurance that we will declare or pay any cash
dividends. The declaration and payment of future dividends to holders of our common stock will be at the
24
discretion
of our board of directors and will depend upon many factors, including our financial condition, earnings, legal requirements, restrictions in our debt agreements, the closing of the Tender
Offer by Agrium U.S. Inc., and other factors our board of directors deems relevant. As described more fully below, the terms of our senior secured credit facility may also restrict us
from paying cash dividends on our common stock under some circumstances. As of February 24, 2008, approximately $56.2 million of permitted distributions were available to pay dividends
under our restricted payment covenant in our senior secured credit facility before giving effect to the anticipated May 15, 2008 dividend payment estimated to be $12.1 million.
Restrictions on Payments of Dividends.
The payment of any cash dividend on our common stock is
considered a restricted payment under our senior secured credit facility, and we are restricted from paying any cash dividend on our common stock unless we satisfy certain conditions.
The
terms of our senior secured credit facility generally restrict our ability to declare and pay dividends as follows:
-
-
aggregate
amount of dividends payable by us generally cannot exceed $25.0 million plus 50% of the cumulative consolidated net income (as defined in the senior secured
credit facility) of United Agri Products from November 24, 2003, until June 1, 2006, and 75% of the cumulative consolidated net income since June 1, 2006, plus 100% of any amounts
contributed to our common equity capital or received from the sale of any equity interest;
-
-
immediately
following the dividend, at least $40.0 million must be available for borrowing under the revolving credit facility;
-
-
immediately
following the dividend, the outstanding aggregate principal amount of any over advances under the revolving credit facility shall be less than or equal to
$35.0 million; and
-
-
no
event of default under the revolving credit facility has occurred and, is continuing, or would result after giving effect to such dividend.
In
addition, the Merger Agreement requires us to obtain Agrium's consent before we can increase our quarterly dividend above $0.225 per share or pay any special dividend.
UAP
Holding Corp. depends on dividends from United Agri Products, Inc. in order to make dividend payments on our capital stock. See "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of OperationsLiquidity and Capital ResourcesHolding Company."
25
Stock Performance Graph
The chart below compares the 39 month cumulative return, assuming the reinvestment of dividends, on UAP Holding Corp. common stock with that of NASDAQ
Composite Index and a group of our peers. This graph assumes $100.00 was invested on November 23, 2004, in each of UAP Holding Corp. common stock, the NASDAQ Composite Index, and our peer
group. We believe our peer group to be representative due to the fact that they are all distribution companies, though they are not distributors of agricultural inputs, and they have been used by
analysts covering the performance of our stock as the group of companies most comparable to our business. The companies consist of Airgas Inc. ("ARG"), Genuine Parts Co. ("GPC"), Tractor
Supply Company ("TSCO"), W.W. Grainger, Inc. ("GWW"), Watsco, Incorporated ("WSO"), and Wesco International, Inc. ("WCC").
UAP
Holding Corp. management cautions that the stock price performance shown in the graph below should not be considered indicative of potential future stock price performance. Beginning
with December 3, 2007, the first trading date following the announcement of the Merger Agreement, and continuing through the date hereof, our common stock has traded within a relatively narrow
price range. We expect that a relatively narrow trading range under $39.00 per share is likely to continue until the closing of the Tender Offer and Merger, although there can be no guarantees of such
price range.
COMPARISON OF 39 MONTH CUMULATIVE TOTAL RETURN*
Among UAP Holding Corp., The NASDAQ Composite Index
And A Peer Group
-
*
-
$100
invested on 11/23/04 in stock or 10/31/04 in index-including reinvestment of dividends.
Index
calculated on month-end basis.
26
Item 6. Selected Financial Data.
|
|
UAP Holding Corp.
|
|
Combined Predecessor EntityConAgra Agricultural Products Business Thirty-Nine Weeks Ended November 23, 2003
|
|
|
|
Fiscal Year Ended February 24, 2008
|
|
Fiscal Year Ended February 25, 2007
|
|
Fiscal Year Ended February 26, 2006
|
|
Fiscal Year Ended February 27, 2005
|
|
Thirteen Weeks Ended February 22, 2004
|
|
|
|
(in thousands, except share data)
|
|
Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
3,411,416
|
|
$
|
2,854,108
|
|
$
|
2,727,789
|
|
$
|
2,506,730
|
|
$
|
227,778
|
|
$
|
2,224,107
|
|
Gross profit
|
|
$
|
480,729
|
|
$
|
384,460
|
|
$
|
390,079
|
|
$
|
334,234
|
|
$
|
57,048
|
|
$
|
286,097
|
|
Income from continuing operations
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
$
|
28,812
|
|
$
|
9,653
|
|
$
|
40,985
|
|
Loss from discontinued operations, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(4,708
|
)
|
Net income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
$
|
28,812
|
|
$
|
9,653
|
|
$
|
36,277
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.57
|
|
$
|
0.66
|
|
$
|
1.31
|
|
$
|
0.60
|
|
$
|
0.21
|
|
|
|
|
|
Diluted
|
|
$
|
1.53
|
|
$
|
0.64
|
|
$
|
1.27
|
|
$
|
0.58
|
|
$
|
0.21
|
|
|
|
|
Cash dividends per share of common stock
|
|
$
|
0.90
|
|
$
|
0.75
|
|
$
|
0.6375
|
|
$
|
0.00
|
|
$
|
0.00
|
|
|
|
|
Businesses
not acquired from ConAgra Agricultural Products Business are reflected as discontinued operations in the above statement of operations data.
|
|
UAP Holding Corp.
|
|
|
As of February 24, 2008
|
|
As of February 25, 2007
|
|
As of February 26, 2006
|
|
As of February 27, 2005
|
|
As of February 22, 2004
|
|
|
(in thousands)
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,792
|
|
$
|
19,506
|
|
$
|
79,168
|
|
$
|
48,204
|
|
$
|
172,647
|
Working capital
|
|
$
|
413,214
|
|
$
|
150,039
|
|
$
|
311,484
|
|
$
|
256,742
|
|
$
|
226,296
|
Total assets
|
|
$
|
1,892,080
|
|
$
|
1,559,186
|
|
$
|
1,381,910
|
|
$
|
1,337,342
|
|
$
|
1,263,963
|
Total short-term debt
|
|
$
|
114,006
|
|
$
|
184,739
|
|
$
|
|
|
$
|
55
|
|
$
|
|
Total long-term debt
|
|
$
|
392,812
|
|
$
|
172,390
|
|
$
|
306,339
|
|
$
|
295,948
|
|
$
|
308,570
|
Capital leases
|
|
$
|
358
|
|
$
|
340
|
|
$
|
365
|
|
$
|
|
|
$
|
|
Stockholders' equity
|
|
$
|
230,425
|
|
$
|
170,254
|
|
$
|
159,739
|
|
$
|
116,487
|
|
$
|
76,788
|
27
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
We intend for this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") to provide the reader
with information that will assist in understanding UAP, our consolidated financial condition, liquidity and capital resources, and results of operations for the periods presented. You should read this
MD&A in conjunction with our consolidated financial statements and the accompanying notes thereto appearing elsewhere in this Report.
We operate on a 52-week or 53-week fiscal year. Fiscal years are identified in this Report according to the calendar year in which they
ended. The 52 weeks ended February 24, 2008, will be referred to as "fiscal 2008," the 52 weeks ended February 25, 2007, will be referred to as "fiscal 2007," and the
52 weeks ended February 26, 2006, will be referred to as "fiscal 2006."
On November 24, 2003, UAP Holding Corp. acquired the United States and Canadian agricultural inputs businesses of ConAgra Foods in a series of transactions
referred to in this Report as the "Acquisition." In this Report, the term "ConAgra Agricultural Products Business" means the entities that were historically operated by ConAgra Foods as an integrated
business, which included a wholesale fertilizer company and other international crop distribution businesses that we did not acquire in the Acquisition.
In addition, the statements in the discussion and analysis regarding industry outlook, our expectations regarding the performance of our business, our liquidity
and capital resources, and the other non-historical statements in the discussion and analysis are forward-looking statements. See "Forward Looking Statements" and "Item 1A. Risk
Factors."
Our Business
We are the largest independent distributor of agricultural inputs and professional non-crop products in the United States and Canada. We strive to be
the distributor of
choice in our industry and earn the trust of our customers and suppliers by providing high quality products at competitive prices, supported by consistent and reliable service, and expertise. Our
customers include farmers, commercial growers, regional dealers, and consumers in the professional non-crop market. Over 110,000 customers purchased products or services from us during
fiscal 2008.
We
market a comprehensive line of products, including chemicals, fertilizer, and seed manufactured and/or marketed by the world's leading agricultural input companies, including BASF,
Bayer, ConAgra International Fertilizer Company, Dow AgroSciences, DuPont, Monsanto, and Syngenta. In addition to our product offering, we provide a broad array of value-added services including crop
management, biotechnology advisory services, custom fertilizer blending, seed treatment, inventory management, and custom applications of crop inputs. The products and services we offer are critical
to our customers because they lower the overall cost of crop production and improve crop quality and yield.
In
addition to the products we purchase from our suppliers for resale, we also source, formulate, package, market, and distribute over 200 key proprietary branded products. These
products allow us to obtain a higher gross margin than from the other branded products we distribute. Sales of our proprietary and private label chemical and seed products accounted for 17.1% of our
total chemical and seed sales in fiscal 2008 compared to 15.0% in fiscal 2007.
Our
operations entail a network of approximately 380 sales and distribution facilities, strategically located in major crop-producing areas of the United States and Canada,
and three formulation plants. Our integrated distribution network enables our approximately 1,100 salespeople to provide our customers with a broad range of products and reliable service. As a result
of our broad scale, we provide leading agricultural and professional product input companies with an efficient means to access a highly fragmented customer base of farmers, growers, and professional
non-crop consumers.
28
Our
and our customers' businesses are highly seasonal, based upon the planting, growing, and harvesting cycles. During the last three fiscal years, greater than 70% of our net sales
occurred during the first and second fiscal quarters of each year because of the condensed nature of the planting season. As a result of the seasonality of sales, we experience significant
fluctuations in our revenues, net income, and net working capital levels throughout our fiscal year.
Tender Offer
On December 2, 2007, UAP Holding Corp., Agrium Inc. ("Agrium"), and a subsidiary of Agrium, entered into an agreement and plan of merger ("Merger
Agreement") pursuant to which Agrium, through its subsidiary Agrium U.S. Inc., commenced a tender offer on December 10, 2007 ("Tender Offer"), to purchase all the outstanding shares of
common stock of UAP Holding Corp. for $39.00 in cash per share. The Tender Offer is currently scheduled to expire on May 2, 2008, but it is possible that the expiration date will be extended.
The Merger Agreement provides that following completion of the Tender Offer and assuming certain conditions are satisfied, UAP Holding Corp. will then merge (the "Merger") with a subsidiary of Agrium,
pursuant to which each outstanding share of our common stock not tendered in the Tender Offer will be converted into the right to receive $39.00 in cash. Upon completion of the Merger, UAP Holding
Corp. will become a wholly owned subsidiary of Agrium. Agrium is a leading global producer and marketer of agricultural nutrients, industrial products and specialty products, and a major retailer of
agricultural products and services in North and South America.
The
closing of the Tender Offer is subject to UAP Holding Corp's stockholders tendering a majority of the outstanding shares of our common stock in the Tender Offer and satisfaction of
certain other conditions, including receipt of certain regulatory approvals. On January 18, 2008, the Commissioner of Competition, appointed under the Competition Act of Canada, issued a
no-action letter, thereby satisfying one of the closing conditions under the Merger Agreement. On April 16, 2008, we reached an agreement with the Federal Trade Commission ("FTC")
staff on the terms of a consent decree, which is subject to the review and approval of the FTC commissioners.
If
the Merger is completed, we expect to cease reporting financial results as a stand-alone company. If the Merger is not completed and the Merger Agreement is terminated under certain
circumstances, UAP Holding Corp. may be liable to Agrium for a termination fee of $44 million, plus reimbursement to Agrium of up to $10 million in costs incurred by Agrium in
connection with the transactions. If the Merger is not completed due to failure to obtain regulatory approval, subject to certain conditions, Agrium may be liable to UAP Holding Corp. for a
reverse break-up fee of $54 million.
The Agricultural Inputs Distribution Industry
We operate in the highly competitive agricultural inputs distribution industry. Our industry depends on farm expenditures for crop inputs, which in turn is
dependent upon planted acreage in the United States and Canada. Over the last 15 years, agricultural input expenses in the United States grew at a compound annual growth rate of 4.4%, based on
historical data obtained from the Economic Research Service of the USDA. Planted acreage has been relatively flat over the last 15 years, leading to a relatively stable but very competitive
industry for crop inputs.
The
key drivers of our industry include: continued world population growth; rising standards of living throughout many developing countries; the use of more effective chemicals and
fertilizer; stable planted acreage; the trend towards larger and more efficient farms; the increased production of renewable fuels from corn, soybeans, and other crops; and the increased use of
biotechnology in the production of seed. The three primary product areas of the agricultural input and professional non-crop markets are chemicals, fertilizer, and seed.
29
Our
principal competitors in the distribution of crop production inputs include agricultural cooperatives, national and international fertilizer producers, major grain companies,
multinational corporation-owned distribution outlets, other regional and local independent distributors, and brokers. In each of our local markets, we typically compete with two or more distributors
on the basis of breadth of product offering, customized local products and services, our sales-force's knowledge of and relationships with our customers, and price. Additionally, we compete with our
industry peers for talented employees in the areas of sales and operations.
Our
industry in general is affected by a number of factors including, but not limited to, cost to distribute products, customer financial condition, local and national laws and
regulations, economic conditions, employment, inflation, political climate, interest rates, fuel prices, and weather patterns.
Our
opportunities within the industry include the use of our national distribution network to further participate in the growing fertilizer and seed markets as we extend those product
offerings to existing customers, continue expanding our proprietary and private label lines of chemicals and seed, grow market share where gaps exist through sales-force penetration, adding or
acquiring locations, and gaining additional efficiencies in working capital and expenses.
Market Conditions and Outlook
On average over the past 15 years, approximately 325 million acres were planted per year in principal crops according to the USDA. During this same period,
no year's planted acreage deviated more than 3% from the average, providing a stable base for the agricultural inputs industry. The last four years have seen total acres planted in principal crops
fall below average, with just under 320 million acres planted in 2007. Although planted acreage has been below average in recent years, agricultural input spending during that same
four-year period rose approximately 27%. Acres forecast to be planted in 2008, according to the "Prospective Plantings" report released on March 31, 2008, by the National
Agricultural Statistics Service of the USDA are expected to increase slightly over last year to approximately 321.4 million acres.
According
to the most recent forecast by the Economic Research Service of the USDA, crop input expenses for 2008 are expected to increase 11.9% over 2007, to $42.2 billion.
Fertilizer and chemicals are forecast to increase by 18.8% and 11.0%, respectively, in 2008. Together fertilizer and chemicals make up approximately 69% of the total industry. However, because we are
a distributor, our opportunity to capture increased gross profits related to any price appreciation in the fertilizer market is limited since we typically pass through product costs and only retain a
specific per ton margin.
The
charts below summarize the historical data related to crop input expenses, acres planted, and calculated crop input expenses per acre.
U.S. Crop Input Expenses
Source: Economic Research ServiceUSDA
(in millions)
30
Total Acres PlantedPrincipal Crops
Source: National Agricultural Statistics ServiceUSDA
(acres in millions)
Calculated Crop Input Expense per Acre Planted
Despite
rising crop input expenses per acre planted, calendar year 2007 created record level net farm income. Crop commodity prices were higher than in recent years and exports were
strong while production conditions were favorable compared to 2006. According to the 2008 forecast by the Economic Research Service of the USDA, net farm income is expected to increase by 4.1% above
2007 and by 51.1% above the 10-year average. The rate of price increases for crop commodities is expected to outpace the rising crop production expenses. Crop input expenses represent
approximately 15.1% of the total U.S. farm sector production expenses. Because crop input expenses are a relatively small percentage of total U.S. farm sector production expenses, 2008 should present
another good opportunity for agricultural input distributors.
Ethanol
made from corn and biodiesel made from soybeans may provide a future alternative to our country's dependency on foreign-based petroleum. Ethanol production continues to expand
rapidly with U.S. ethanol production capacity currently at approximately 6.0 billion gallons per year according to the American Coalition for Ethanol. The Energy Policy Act of 2005 requires
7.5 billion gallons of renewable fuels to be used in the nation's highway fuel supply by 2012. The March 31, 2008 issue of "Prospective Plantings" published by the National Agricultural
Statistics Service of the USDA indicates that increased ethanol production and the impacts it had on corn acreage in 2007 continues to impact the mix in total acres of principal crops forecast to be
planted in 2008. According to this report, planted corn acreage in 2008 is expected to decrease to 86.0 million acres compared to 93.6 million
31
acres
in 2007, which is a projected decrease of 8.1%. Despite the decrease from last year, corn acreage is expected to remain at historically high levels as the price of corn remains strong due to
continued expansion in ethanol production. Additionally, due to strong prices and demand for soybeans and wheat, forecast acres of soybeans and wheat planted in 2008 are projected to increase by 17.5%
to 74.8 million acres and 5.6% to 63.8 million acres, respectively. Due to high prices for grains and oilseed crops, cotton acres are again forecast to decrease. Cotton acres are
forecast at 9.4 million acres, down 13.3% from last year. The impact these significant changes in the crop mix of acres planted will have this year and in future years on the agricultural
distribution industry and other industries such as livestock production, fertilizer manufacturing, textiles, and food processing is difficult to predict and will continue to evolve over time.
Strategic Initiatives
We will continue to seek to grow our business, improve profitability, and improve working capital through specific strategic initiatives. Primary areas of focus
will be:
-
-
expanding
our distribution network and leveraging our scale;
-
-
strengthen
our presence in fertilizer and seed;
-
-
growth
in our proprietary and private label products; and
-
-
continued
emphasis on profitability enhancement through working capital and expense management.
Building upon our Distribution Network
One of our key initiatives is to grow our retail business by leveraging our size and
leading market share across North America. We study our market share by state, county, and customer, and develop sales initiatives at local and regional levels to address any gaps and opportunities we
have in our distribution network for chemicals, fertilizer, and seed. Where our data indicates an opportunity, we have the potential to add sales personnel and/or locations and assets, or acquire
businesses to fill gaps in our coverage.
We
have been growing our retail business by leveraging our size and leading market share across North America.
During
fiscal 2008, we completed the acquisition of four businesses. During fiscal 2007, we completed 11 acquisitions. Nine of the acquisitions, including Terral, Boettcher, and AGSCO,
were completed during our third and fourth quarters of fiscal 2007.
Immediately
following the announcement of the Merger Agreement, UAP suspended business acquisition activity.
Fertilizer and Seed Revenue Growth
We have experienced revenue growth in both of these product areas and believe there are
continued growth opportunities going forward. As seed varieties continue to be enhanced through biotechnology, we believe they will serve as a growth platform due to the increased value-added nature
of their sale to the customer. We intend to leverage our growth in the seed business through: advanced technical training of our sales force, hiring and strategically placing experienced salespeople,
using incentive compensation plans incorporating seed-specific performance goals, nurturing our relationships with our seed suppliers, and targeting new retail opportunities to enhance our
sales presence in regions where gaps exist. We will also leverage our growth in the fertilizer business by nurturing relationships with fertilizer suppliers and by making investments in storage and
blending facilities in regions where gaps exist.
Proprietary and Private Label Business
Our proprietary and private label products offer higher gross margins than the supplier
branded products we sell. We currently market over 200 key proprietary branded products and have a broad proprietary product offering in each of our core product areas,
32
including
professional non-crop. We continue to work with nearly all of our key suppliers on additional private label opportunities.
Working Capital and Expense Management
We believe we are well positioned to continue to improve the financial performance of
our business. We monitor performance regularly on key operating statistics such as inventory efficiency, credit, operating expenses, gross profit generation, and overall return on invested capital. We
use this information to manage expenses and reduce average levels of working capital as a percentage of net sales by concentrating on the following: earlier collection of supplier rebates, continuing
inventory efficiencies through SKU reduction efforts and centralized purchasing, evaluating our suppliers on a total return basis including working capital management, continuing to focus on credit
policies and procedures to maximize profitability, utilization of third party financing programs where possible and using competition and best practices among our operating divisions to drive overall
focus on working capital and expense management that are tied to variable compensation plans. In some cases, our working capital levels increase as a result of building inventory and/or securing
product in markets of short supply and rising prices. We strive to balance these factors in maximizing the use of our working capital.
Implementation
of these strategies, however, may be significantly impacted by the Tender Offer.
Factors Impacting Our Results in Fiscal 2008
During fiscal 2008, several events took place that had an impact on our business including the following:
-
-
According
to the December 2007 "Crop Production" report published by the National Agricultural Statistics Service of the USDA, the 2007 planted corn acreage of
93.6 million acres increased 20% from the 78.3 million acres planted in 2006. In contrast, soybean acres were down 16% from the record high acres planted in 2006 and planted cotton acres
were the lowest since 1989, down 29% from 2006. Our fiscal 2008 results reflect this shift in our customers' acreage of specific crops. The impact of higher corn production, primarily resulting from
increased demand associated with ethanol production, is reflected in increased fertilizer sales for fiscal 2008. Our operations in the Midwest portions of the United States experienced the most
significant sales increases from increased corn acreage. However, the decrease in both soybean and cotton planted acres for fiscal 2008 have resulted in lower sales from inputs on those crops.
-
-
Tight
supply and increased prices in the chemical and fertilizer markets prevailed in late fiscal 2008 and are expected to continue into fiscal 2009. As a result, and in
anticipation of expected continued strong demand for crop inputs in fiscal 2009, we have strategically built inventory levels and increased prepayments to vendors to secure supply and price of certain
products. Customer prepayments also increased significantly at the end of fiscal 2008, reflecting our customers' desire to secure product and their availability of cash resulting from higher commodity
prices realized in fiscal 2008.
-
-
We
have been growing our retail business by leveraging our size and leading market share across North America. During fiscal 2008, we completed the acquisition of four
businesses and paid $8.7 million in purchase price. Immediately following the announcement of the Merger Agreement, UAP suspended business acquisition activity.
-
-
In
the fourth quarter of fiscal 2008, we incurred $2.9 million of costs related to the Tender Offer as well as $2.7 million of additional incentive-based
compensation expense resulting from certain compensation being paid in cash instead of grants of stock-based awards. If stock-based awards would have been granted, as was customary in prior years, the
expense would have been recorded over the vesting period of the awards. However, because the cash awards have no vesting period, we recognized all of the expense in fiscal 2008.
33
-
-
During
fiscal 2007, we completed 11 acquisitions. Nine of the acquisitions, including Terral, Boettcher, and AGSCO, were completed during our third and fourth quarters of
fiscal 2007. These businesses, like our business, complete most of their sales in the first and second quarters. Correspondingly, our fiscal 2008 results reflect a full year of operations for these
acquisitions, whereas in most cases fiscal 2007 results do not reflect any significant benefit from their sales and corresponding gross margin, but do reflect additional associated fixed expenses.
-
-
In
October 2007, United Agri Products amended the senior secured credit facility to, among other things, increase its senior secured term loan facility by
$225 million to a total of $400 million. Proceeds from the increase were used to pay down the outstanding balance under United Agri Products' revolving credit facility and to pay related
fees and expenses.
34
Results of Operations
Analysis of Consolidated Statements of Earnings
(in thousands, except share data)
|
|
|
|
|
|
|
|
Percent Change
|
|
|
|
Fiscal Year 2008
|
|
Fiscal Year 2007
|
|
Fiscal Year 2006
|
|
FY'08 vs.
FY'07
|
|
FY'07 vs.
FY'06
|
|
Net sales
|
|
$
|
3,411,416
|
|
$
|
2,854,108
|
|
$
|
2,727,789
|
|
19.5
|
%
|
4.6
|
%
|
|
Cost of goods sold
|
|
|
2,930,687
|
|
|
2,469,648
|
|
|
2,337,710
|
|
18.7
|
%
|
5.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
480,729
|
|
|
384,460
|
|
|
390,079
|
|
25.0
|
%
|
(1.4
|
)%
|
|
Selling, general and administrative expenses
|
|
|
329,844
|
|
|
270,958
|
|
|
273,023
|
|
21.7
|
%
|
(0.8
|
)%
|
|
Royalties, service charges and other (income) and expenses
|
|
|
(32,561
|
)
|
|
(28,439
|
)
|
|
(29,128
|
)
|
14.5
|
%
|
(2.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
183,446
|
|
|
141,941
|
|
|
146,184
|
|
29.2
|
%
|
(2.9
|
)%
|
|
Interest expense
|
|
|
45,167
|
|
|
37,768
|
|
|
37,340
|
|
19.6
|
%
|
1.1
|
%
|
|
Finance related and other charges
|
|
|
3,358
|
|
|
48,270
|
|
|
330
|
|
NM
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
134,921
|
|
|
55,903
|
|
|
108,514
|
|
141.3
|
%
|
(48.5
|
)%
|
|
Income tax expense
|
|
|
53,366
|
|
|
22,449
|
|
|
42,137
|
|
137.7
|
%
|
(46.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
143.8
|
%
|
(49.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.57
|
|
$
|
0.66
|
|
$
|
1.31
|
|
137.9
|
%
|
(49.6
|
)%
|
|
Diluted earnings per share
|
|
$
|
1.53
|
|
$
|
0.64
|
|
$
|
1.27
|
|
139.1
|
%
|
(49.6
|
)%
|
NM = not meaningful
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
39.6
|
%
|
|
40.2
|
%
|
|
38.8
|
%
|
|
|
|
|
Comparisons as a percent of net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin
|
|
|
14.1
|
%
|
|
13.5
|
%
|
|
14.3
|
%
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
9.7
|
%
|
|
9.5
|
%
|
|
10.0
|
%
|
|
|
|
|
Operating income
|
|
|
5.4
|
%
|
|
5.0
|
%
|
|
5.4
|
%
|
|
|
|
|
Fiscal 2008 Compared to Fiscal 2007
Net Sales.
Sales increased 19.5% to $3,411.4 million in fiscal 2008, compared to
$2,854.1 million in fiscal 2007. Sales of proprietary chemical and seed products were 17.1% of total chemical and seed sales in fiscal 2008, compared to 15.0% in fiscal 2007.
Sales
of chemicals increased to $1,800.6 million in fiscal 2008, from $1,651.4 million in fiscal 2007. Acquired businesses contributed approximately $117 million of
retail chemical sales, some of which were offset by lost wholesale sales as some of our acquisitions were former wholesale customers. In addition to the effect of acquisitions, sales of herbicides
increased in fiscal 2008, from the comparable period in fiscal 2007, primarily due to increased sales of glyphosate herbicides, resulting from increased adoption of glyphosate tolerant corn and the
effect of dealers purchasing product in late fiscal 2008 in anticipation of short supply for fiscal 2009. Fungicide sales increased as a result of acquisitions and increased applications for general
plant health. Insecticide sales decreased due to the lack of insect
35
pressure
and the adoption of insect resistant corn seed to protect from corn rootworm, resulting in less insecticides used at planting time.
Sales
of fertilizer increased to $1,036.6 million in fiscal 2008, from $707.8 million in fiscal 2007. Acquired businesses contributed approximately $59 million of
additional fertilizer sales in fiscal 2008. In addition, fiscal 2008 sales were higher because of increases in volumes sold, primarily resulting from growers switching their planted acreage to corn
from soybeans in the Midwest. Favorable weather conditions and higher commodity prices also supported increased applications. Increases in per ton selling price also contributed to the increase in
fiscal 2008.
Sales
of seed increased to $474.9 million in fiscal 2008, from $410.8 million in fiscal 2007. Acquired businesses represented approximately $33 million of the
increase. Sales of corn seed increased in fiscal 2008, primarily as a result of volume growth in third party and proprietary brands, higher prices, and increased sales of seed with enhanced traits.
Sales of wheat and soybean seed also increased in fiscal 2008, while sales of cotton seed decreased as farmers shifted away from cotton acreage to corn and other crops. Although soybean planted acres
were lower in fiscal 2008 than in fiscal 2007, the effect of acquisitions as well as double crop planting in some areas of the South resulted in increased sales.
Other
sales increased to $99.3 million in fiscal 2008, from $84.1 million in fiscal 2007, due to acquired businesses, and additional transportation and warehousing revenue.
Cost of Goods Sold.
Cost of goods sold was $2,930.7 million in fiscal 2008, compared to
$2,469.6 million in fiscal 2007. Gross profit was $480.7 million in fiscal 2008, compared to $384.5 million in fiscal 2007. Gross margin (gross profit as a percentage of net
sales) was 14.1% for fiscal 2008, compared to 13.5% for fiscal 2007. The increase in gross profit was primarily a result of increased sales of higher-margin proprietary chemical products, higher
fertilizer volumes with better unit profits, higher sales of corn seed with better unit margins across our seed business, and the effect of acquired businesses.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses increased
to $329.8 million (9.7% of sales) in fiscal 2008, from $271.0 million (9.5% of sales) in fiscal 2007. The
increase in expenses was due to the additional expenses from our acquired businesses, higher incentive-based compensation commensurate with our Company's performance, and higher stock-based
compensation expense. As a result of restrictions on stock-based awards in the Tender Offer, our incentive-based compensation for fiscal 2008 includes $2.7 million of additional expense
resulting from certain compensation being paid in cash instead of grants of stock-based awards. If stock-based awards would have been granted, as was customary in prior years, the expense would have
been recorded over the vesting period of the awards. However, because the cash awards have no vesting period, we recognized all of the expense in fiscal 2008. Higher fuel costs and maintenance costs
for our buildings and equipment also contributed to the increase.
Royalties, Service Charges and Other Income and Expenses.
These items include royalty income
generated by our proprietary products group, service charge income paid by customers who do business with us on terms, as well as other items. Other income increased to $32.6 million in fiscal
2008, up from $28.4 million in fiscal 2007, primarily due to higher customer service charge income associated with higher sales, a higher percentage of receivables which incurred service
charges, and higher royalties from increased sales of certain products in our proprietary products group.
Interest Expense, Net.
Interest expense increased to $45.2 million in fiscal 2008, from
$37.8 million fiscal 2007. The increase was due to higher interest expense resulting from increased short-term borrowings related to our acquisition activity and increased working
capital needs as well as higher long-term debt outstanding due to our add-on to the term loan.
Finance Related and Other Charges.
Finance related and other charges of $3.4 million in fiscal
2008 primarily relate to costs incurred in connection with the Tender Offer. Finance related and other
36
charges
in fiscal 2007 were $48.3 million, $47.9 million of which relates to the refinancing of our long-term debt. The remaining $0.4 million relates to the secondary
offerings of our common stock completed during fiscal 2007.
Income Taxes.
The effective income tax rate was 39.6% for fiscal 2008, versus 40.2% for fiscal 2007.
The lower tax rate for fiscal 2008 was primarily due to higher pre-tax income.
Fiscal 2007 Compared to Fiscal 2006
Net Sales.
Sales increased 4.6% to $2,854.1 million in fiscal 2007, compared to
$2,727.8 million in fiscal 2006. Sales of proprietary chemical and seed products were 15.0% of total chemical and seed sales in fiscal 2007, compared to 14.3% in fiscal 2006.
Sales
of chemicals increased to $1,651.4 million in fiscal 2007, from $1,633.9 million in fiscal 2006. Fiscal 2007 included net chemical sales from acquisition and
divestiture activity of $111.3 million. Without sales from acquisitions, sales of chemicals were lower than last year as many of our most productive regions were impacted by drought conditions.
These conditions ranged from "severe" to "exceptional" according to the U.S. Drought Monitor, released on August 24, 2006, by the National Drought Mitigation Center. By product line, sales of
herbicides increased over fiscal 2006 due to acquisitions. The increase in herbicides included an increase in sales of glyphosate products as higher volumes of glyphosate herbicides more than offset
lower end-user unit prices. The increased adoption of Roundup Ready corn also had a negative impact on certain herbicide products. Demand for products that control Asian Soybean Rust was
not as strong as fiscal 2006, and as such, sales of fungicides decreased. Sales of insecticides were lower as lighter crop insect pressure and an increased adoption of seed varieties with insect
resistance traits decreased demand compared to fiscal 2006. Sales of chemical seed treatments increased as farmers protected their investment in seed.
Sales
of fertilizer increased to $707.8 million in fiscal 2007, from $682.1 million in fiscal 2006. Sales of fertilizer from retail locations sold in Western Canada totaled
$11.9 million in fiscal 2006. These sales were nearly offset by additional retail locations subsequently acquired in the United States. The overall increase in fertilizer sales was due to
higher per ton selling prices on slightly higher volumes sold. Fertilizer is typically applied either in the fall or spring seasons. Our third and fourth quarters of fiscal 2006 showed fertilizer
volume increases as favorable weather conditions allowed more fertilizer to be applied in the fall and winter months. These increased fall and winter volumes replaced tons that otherwise would have
been applied in the spring planting season of fiscal 2007. Additionally, a 4.2% reduction in crop year 2006 corn acres planted and severe drought conditions in many cotton and wheat producing areas
reduced the opportunity for fertilizer sales and application. We also believe higher fertilizer prices during the first half of fiscal 2007, the traditional planting and growing seasons, caused some
of our customers to reduce fertilizer purchases compared to prior years.
Sales
of seed increased to $410.8 million in fiscal 2007, from $349.3 million in fiscal 2006. The increase was due to volume growth in both third party and proprietary
brands of corn, cotton, and soybeans and higher selling prices for corn and cotton seed due to increased sales of seeds with enhanced traits. Higher selling prices were partially offset by competitive
pressure on third party branded seed.
Other
sales increased to $84.1 million in fiscal 2007, from $62.5 million in fiscal 2006, due to additional contract service revenue from the UAP Timberland acquisition,
increased application fees, and increased transportation and warehousing revenue from our Canadian business.
Cost of Goods Sold.
Cost of goods sold was $2,469.6 million in fiscal 2007, compared to
$2,337.7 million in fiscal 2006. Gross profit (net sales less cost of goods sold) was $384.5 million in the fiscal 2007, compared to $390.1 million in fiscal 2006. Gross margin
(gross profit as a percentage of net sales) was 13.5% in fiscal 2007, compared to 14.3% in fiscal 2006. The decrease in gross profit was primarily due to lower gross profit per ton on fertilizer
sales. Higher average selling prices per ton did
37
not
offset the higher average cost per ton. In addition, we experienced lower gross profit on supplier branded seed, due to competitive pressure, which was partially offset by increased gross profit
on application and contract services compared to last year and increased gross profit on chemicals due to acquisitions. Increases in salaries and benefits, building and equipment leases, vehicle and
fuel expense, and repairs and maintenance due to acquisitions contributed to increased supply chain costs.
Selling, General and Administrative Expenses.
Selling, general and administrative expenses decreased
to $271.0 million (9.5% of sales) in fiscal 2007, from $273.0 million (10.0% of sales) in fiscal 2006. The decrease was due primarily to lower incentive compensation, commensurate with
company performance, of $20.8 million. This was offset primarily by additional expenses of $19.6 million brought on by our acquisition activity.
Royalties, Service Charges and Other Income and Expenses.
These items include royalty income, service
charge income paid by customers who do business with us on terms, and equity earnings in UAP Timberland when it was an unconsolidated subsidiary in fiscal 2006, as well as other items. Other income
decreased to $28.4 million in fiscal 2007, from $29.1 million in fiscal 2006. Equity earnings from UAP Timberland were $(0.4) million in fiscal 2007, compared to $1.9 million in
fiscal 2006. Service charge income increased due to additional receivables on hand during the year from increased year to date sales, our acquisition activity, and longer payment terms offered to
customers bearing service charges. Royalty income was lower compared to the same period last year due to slower international and domestic sales of products which constitute our royalty stream.
Restructuring costs in fiscal 2007 were $0.4 million compared to $1.6 million in fiscal 2006. The restructuring costs that occurred during fiscal 2007 and fiscal 2006 were mainly related
to severance expenses and contract termination costs associated with our management reorganization and administrative consolidation announced during the third quarter of fiscal 2006.
Interest Expense.
Interest expense was slightly higher at $37.8 million in fiscal 2007,
compared to $37.3 million in fiscal 2006. Increased short-term borrowings related to our acquisition activity and increased working capital needs offset the reduction in interest
rates as a result of the refinancing.
Finance Related and Other Charges.
Finance related and other charges in fiscal 2007 were
$48.3 million, $47.9 million of which relates to the refinancing of our long-term debt. The remaining $0.4 million relates to the secondary offerings completed during
fiscal 2007. We incurred finance related and other charges during fiscal 2006 of $0.3 million as a result of our secondary stock offering completed on March 9, 2006.
Income Taxes.
The effective income tax rate was 40.2% for fiscal 2007, versus 38.8% for fiscal 2006.
The higher tax rate for fiscal 2007 was primarily due to lower pre-tax book income, federal deduction limits on debt retirement costs, and higher state tax contingencies relating primarily
to the debt retirement costs.
Seasonality and Quarterly Fluctuations
Our business is highly seasonal. In general, sales and operating income are highest during the first and second fiscal quarters which represent peak months in the
planting and growing seasons of crops in the United States and Canada. Sales are substantially lower during the third and fourth fiscal quarters when we may incur net losses. During the last three
years, as a result of the condensed nature of the planting season, more than 70% of our net sales occurred during the first and second fiscal quarters of each year.
We
typically have a build-up of product inventories and accounts payable during the fourth fiscal quarter in anticipation of the peak selling season. Because of our high
accounts receivable balances and payments to suppliers for inventory sold during the first and second quarters, our peak borrowing usually occurs during the third quarter. Our peak accounts receivable
collections and advances from
38
customers
typically occur in the third and fourth fiscal quarters following the harvest of our customers' annual crops.
The
following tables present certain quarterly data for fiscal 2008 and fiscal 2007. We have included income statement and balance sheet data as well as sales by product category for the
most recent eight fiscal quarters to allow for a meaningful comparison of the seasonal fluctuations in these amounts. In our opinion, this information reflects all normal and recurring adjustments
considered necessary for a fair presentation of this data. The following items which affected our quarterly results should be noted:
-
-
In
the second and third quarters of fiscal 2008, we acquired four businesses. During fiscal 2007, we completed 11 acquisitions, nine of which were completed during the third
and fourth quarters of fiscal 2007. These businesses, like our business, complete most of their sales in the first and second quarters. Correspondingly, our fiscal 2008 results reflect a full year of
operation for these acquisitions, whereas in most cases fiscal 2007 results do not reflect any significant benefit from their sales and gross margin, but do reflect additional associated fixed
expenses.
-
-
During
the second fiscal quarter of 2007, we refinanced our existing revolving credit facility and entered into a new senior secured credit facility. During the same period
we also completed tender offers and consent solicitations for the 10
3
/
4
% Senior Discount Notes due 2012 issued by UAP Holding Corp. and the 8
1
/
4
% Senior Notes due 2011
issued by United Agri Products, Inc. (collectively, the "Senior Notes"). As a result, the second fiscal quarter of 2007 included a $30.0 million after-tax charge due to the
refinancing.
-
-
In
the third quarter of fiscal 2008, we amended the senior secured credit facility to, among other things, increase its senior secured term loan facility by
$225 million to a total of $400 million. Proceeds from the increase were used to pay down the outstanding balance under United Agri Products' revolving credit facility and to pay related
fees and expenses.
-
-
In
the fourth quarter of fiscal 2008, we incurred $2.9 million of costs related to the Tender Offer as well as $2.7 million of additional incentive-based
compensation expense resulting from certain compensation being paid in cash instead of grants of stock-based awards. If stock-based awards would have been granted, as was customary in prior years, the
expense would have been recorded over the vesting period of the awards. However, because the cash awards have no vesting period, we recognized all of the expense in the fourth quarter of fiscal 2008.
-
-
Quarterly
results of fiscal 2008, as compared to those in fiscal 2007, were impacted by differences in the timing of vendor rebates. In fiscal 2008, vendors were supplying
more timely information, better definition of criteria for earning rebates, and improved communication of local area programs, all resulting in our ability to recognize rebates earlier in the year. As
a result of this, we believe that rebates in the fourth quarter of fiscal 2008 were approximately $9 million lower as compared to the fourth quarter of fiscal 2007.
39
Due
to the seasonal nature of the agricultural inputs industry, the results of any one or more fiscal quarters are not necessarily indicative of results for an entire fiscal year or of
continuing trends.
|
|
Fiscal Quarter 2008
|
|
Fiscal Quarter 2007
|
|
Statement of Income Data
|
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
|
(in thousands)
|
|
Net sales
|
|
$
|
1,605,018
|
|
$
|
862,532
|
|
$
|
497,773
|
|
$
|
446,093
|
|
$
|
1,398,023
|
|
$
|
767,792
|
|
$
|
375,728
|
|
$
|
312,565
|
|
Gross profit
|
|
|
240,001
|
|
|
138,157
|
|
|
57,016
|
|
|
45,555
|
|
|
185,649
|
|
|
108,346
|
|
|
40,621
|
|
|
49,844
|
|
Operating income (loss)
|
|
|
150,326
|
|
|
68,759
|
|
|
(16,631
|
)
|
|
(19,008
|
)
|
|
104,023
|
|
|
50,057
|
|
|
(9,946
|
)
|
|
(2,193
|
)
|
Net income (loss)
|
|
|
87,683
|
|
|
35,019
|
|
|
(19,014
|
)
|
|
(22,133
|
)
|
|
58,316
|
|
|
(4,298
|
)
|
|
(13,151
|
)
|
|
(7,413
|
)
|
Net sales % of total fiscal year
|
|
|
47.0
|
%
|
|
25.3
|
%
|
|
14.6
|
%
|
|
13.1
|
%
|
|
49.0
|
%
|
|
26.9
|
%
|
|
13.2
|
%
|
|
11.0
|
%
|
Gross profit % of total fiscal year
|
|
|
49.9
|
%
|
|
28.7
|
%
|
|
11.9
|
%
|
|
9.5
|
%
|
|
48.3
|
%
|
|
28.2
|
%
|
|
10.6
|
%
|
|
13.0
|
%
|
Operating income (loss) % of total fiscal year
|
|
|
82.0
|
%
|
|
37.5
|
%
|
|
(9.1
|
)%
|
|
(10.4
|
)%
|
|
73.3
|
%
|
|
35.3
|
%
|
|
(7.0
|
)%
|
|
(1.5
|
)%
|
Net income (loss) % of total fiscal year
|
|
|
107.5
|
%
|
|
42.9
|
%
|
|
(23.3
|
)%
|
|
(27.1
|
)%
|
|
174.3
|
%
|
|
(12.8
|
)%
|
|
(39.3
|
)%
|
|
(22.2
|
)%
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
13,049
|
|
$
|
12,079
|
|
$
|
23,310
|
|
$
|
51,792
|
|
$
|
29,800
|
|
$
|
7,249
|
|
$
|
35,405
|
|
$
|
19,506
|
|
Total receivables, net
|
|
|
1,280,852
|
|
|
1,061,679
|
|
|
772,465
|
|
|
349,904
|
|
|
1,131,516
|
|
|
943,188
|
|
|
724,930
|
|
|
338,229
|
|
Inventories
|
|
|
793,749
|
|
|
613,003
|
|
|
684,087
|
|
|
1,063,480
|
|
|
714,215
|
|
|
570,648
|
|
|
599,474
|
|
|
883,033
|
|
Vendor prepayments
|
|
|
10,558
|
|
|
30,135
|
|
|
40,864
|
|
|
146,100
|
|
|
9,833
|
|
|
13,725
|
|
|
12,950
|
|
|
64,700
|
|
Customer prepayments
|
|
|
52,086
|
|
|
30,334
|
|
|
81,697
|
|
|
435,394
|
|
|
55,891
|
|
|
23,297
|
|
|
65,818
|
|
|
296,824
|
|
Trade payables
|
|
|
1,381,941
|
|
|
905,789
|
|
|
592,960
|
|
|
585,963
|
|
|
1,352,900
|
|
|
1,005,007
|
|
|
662,896
|
|
|
629,808
|
|
Short-term debt
|
|
|
313,278
|
|
|
402,484
|
|
|
293,879
|
|
|
114,006
|
|
|
133,784
|
|
|
191,765
|
|
|
373,615
|
|
|
184,739
|
|
Long-term debt
|
|
|
171,953
|
|
|
171,515
|
|
|
393,828
|
|
|
392,812
|
|
|
175,347
|
|
|
174,952
|
|
|
172,828
|
|
|
172,390
|
|
Net working capital
|
|
|
228,162
|
|
|
255,797
|
|
|
441,661
|
|
|
413,214
|
|
|
227,391
|
|
|
219,530
|
|
|
193,518
|
|
|
150,039
|
|
|
|
Fiscal Quarter 2008
|
|
Fiscal Quarter 2007
|
Net Sales by Product Category
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
|
(in thousands)
|
Chemicals
|
|
$
|
732,034
|
|
$
|
609,416
|
|
$
|
233,700
|
|
$
|
225,507
|
|
$
|
713,949
|
|
$
|
566,813
|
|
$
|
218,279
|
|
$
|
152,399
|
Fertilizer
|
|
|
480,127
|
|
|
198,665
|
|
|
209,467
|
|
|
148,306
|
|
|
334,330
|
|
|
156,471
|
|
|
116,180
|
|
|
100,771
|
Seed
|
|
|
357,577
|
|
|
27,057
|
|
|
32,216
|
|
|
58,036
|
|
|
321,615
|
|
|
21,601
|
|
|
19,319
|
|
|
48,247
|
Other
|
|
|
35,280
|
|
|
27,394
|
|
|
22,390
|
|
|
14,244
|
|
|
28,129
|
|
|
22,907
|
|
|
21,950
|
|
|
11,148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,605,018
|
|
$
|
862,532
|
|
$
|
497,773
|
|
$
|
446,093
|
|
$
|
1,398,023
|
|
$
|
767,792
|
|
$
|
375,728
|
|
$
|
312,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40
Liquidity and Capital Resources
Overview
Liquidity is defined as the ability to generate adequate amounts of cash to meet current cash needs. We assess our liquidity in terms of our ability to generate
cash to fund our operating activities, taking into consideration the seasonal nature of our business. Significant factors which could affect our liquidity include the following:
-
-
cash
flows generated from operating activities;
-
-
the
adequacy of available borrowings;
-
-
dividend
payments;
-
-
capital
expenditures;
-
-
acquisitions;
and
-
-
the
ability to attract long-term capital with satisfactory terms.
Our
principal liquidity requirements are for working capital; capital expenditures; debt service; and dividends on our common stock. We currently finance and expect to continue to
finance these activities through cash flows from operations and from amounts available under our senior secured credit facility described in "Credit Facility and Other Long-Term Debt"
below. If the Tender Offer and Merger are not completed, we may also require availability of funds for future acquisition activity. Based on the amount of future acquisition activity, we may need to
seek other financing alternatives, including possible debt or equity financings.
Together,
our cash balances, other liquid assets, projected operating cash flows, access to debt and equity capital markets, and borrowing capacity are expected to provide adequate
resources to fund capital expenditures, debt service payments, acquisition activity and our intended dividend payments on our common stock. If our cash flows from operating activities are not
sufficient to fund dividend payments at intended levels, we will need to reduce or eliminate dividends or, to the extent we are permitted to do so under our debt agreements, fund dividends with
borrowings or from other sources. If we use working capital or permanent borrowings to fund dividends, we will have less cash available for future dividends and other purposes, which could negatively
impact our financial condition, our results of operations, and our ability to maintain or expand our business. Additionally, our senior secured revolving credit facility will mature in 2011 and our
term loan facility will mature in 2012. If the Tender Offer and Merger are not completed, and we are unable to refinance any such existing or future indebtedness prior to its stated maturity, we will
be required to use cash to repay such indebtedness, and we may not have sufficient cash available to us at that time. Even if we have sufficient cash, such a repayment would sufficiently decrease the
amount of cash, if any, that is available to pay dividends.
Historical Cash Flows
Operating Activities.
Cash flows (used in) provided by operating activities totaled ($17.7) million
in fiscal 2008, $36.1 million in fiscal 2007, and $62.1 million in fiscal 2006. Included in fiscal 2008 are cash outflows for the $177.7 million increase in inventory, the
$81.0 million increase in vendor prepays, and the $43.8 million decrease in accounts payable, all of which were attributable to securing early inventory positions in certain fertilizer
and chemical products to mitigate the tight supply and rising prices. Partially offsetting these were inflows from $81.6 million of net income and a $137.2 million increase in customer
prepayments as customers with available cash made deposits to secure product for fiscal 2009.
Fiscal
2007 operating cash flows were impacted by an increase in accounts receivable of $25.1 million and inventories of $96.0 million. These items were only partially
offset by a $50.2 million
41
increase
in accounts payable, customer prepayments accrued liabilities, and non-current liabilities. Accounts receivable increased due to increased sales, specifically in the area of seed,
an increase in customers with extended terms, as well as our acquisition activity. Inventory increased due to acquisition activity. Increased stock of certain herbicide and insecticide chemical
products caused by lower than expected sales also contributed to the inventory increase at year-end. The increase in accounts payable is due to our acquisition activity and working capital
initiatives. In addition, fiscal 2007 net cash flow provided by operations was driven by net income of $33.5 million, as well as premiums paid to tender our notes payable of
$31.7 million and debt issue costs which were written off due to the refinancing of $16.0 million.
Fiscal
2006 net cash flows provided by operations were driven by net income of $66.4 million and a reduction of prepayments to suppliers of $79.2 million. Cash flow
benefits in fiscal 2006 were partially offset by uses of cash primarily due to increases in inventory purchases and accounts receivable of $(36.5) million and $(53.1) million, respectively.
Investing Activities.
Cash flows used in investing activities totaled $42.3 million in fiscal
2008, $97.8 million in fiscal 2007, and $15.2 million in fiscal 2006. Additions to property, plant and equipment were $24.4 million in fiscal 2008, with the majority of spending
for expansion and infrastructure improvements. During fiscal 2008, our largest projects included a fertilizer terminal in Plymouth, WA and a warehouse consolidation project in Attica, OH. In fiscal
2008 we acquired four businesses for a total purchase price of $8.7 million. In addition, during fiscal 2008, we paid $6.5 million for additional purchase price related to acquisitions
completed in prior years. The majority of our capital spending relates to expansion, cost reduction, and infrastructure replacement projects.
Fiscal
2007 cash used for business acquisitions was $82.1 million. Acquisition spending was primarily for the acquisitions of UAP Timberland, Terral, Boettcher Enterprises, and
AGSCO. Additions to property, plant and equipment were $23.0 million in fiscal 2007. The majority of our spending relates to expansion, cost reduction, and infrastructure replacement projects.
During fiscal 2007, we expanded our fertilizer operations, most notably with a new facility in Covington, Tennessee, and we purchased several locations that we previously leased. Proceeds from the
sale of assets were $9.4 million during fiscal 2007, most notably from the sale of some of our retail locations in Western Canada.
Cash
flows used in investing activities during fiscal 2006 related to acquisitions and business expansion projects totaling approximately $8.2 million, while the remaining
spending was for infrastructure replacement, cost reduction, and computer hardware and software projects. Most notably, we completed the expansion of our Mississippi River fertilizer terminal in
Quincy, Illinois in the second half of fiscal 2006.
Financing Activities.
Cash flows from financing activities were $91.4 million in fiscal 2008,
compared to $2.3 million in fiscal 2007, and $(17.1) million in fiscal 2006. In fiscal 2008, we increased our senior secured term loan facility by $225.0 million. We also recognized
$16.2 million of excess tax benefits from stock-based compensation arrangements. Cash dividends for fiscal 2008 were $57.5 million and checks not yet presented resulted in cash outflow
of $14.8 million. We actively manage our cash balances which results in check float on zero balance accounts. Balances can vary depending on the timing and the amount of checks written.
Redeeming
our senior notes and refinancing our revolving credit facility during fiscal 2007 used cash of $338.9 million. We replaced our senior notes with a new
$175.0 million senior secured term loan facility and $183.0 million in additional borrowings from the new senior secured revolving credit facility. Other uses of cash during fiscal 2007
were $38.2 million of cash dividends paid on our common stock and $6.4 million of debt issue costs from the new senior secured credit facility. Other sources of cash included
$14.2 million from checks not yet presented and $12.8 million of excess tax benefits from stock-based compensation arrangements.
42
Cash
flows used in financing activities in fiscal 2006 represent $22.7 million of cash dividends on our common stock, slightly offset by the change in our check float on zero
balance accounts compared to fiscal 2006.
Credit Facility and Other Long-Term Debt
Senior Secured Credit Facility.
In June 2006, United Agri Products refinanced both its revolving
credit facility and Senior Notes with borrowings under a new senior secured credit facility. The senior secured credit facility at that time included a six-year $175 million senior
secured term loan facility and a five-year senior secured asset based revolving credit facility in an aggregate
principal amount of $675 million, including $50 million for letters of credit (jointly referred to hereafter as the "senior secured credit facility").
In
October 2007, United Agri Products amended the senior secured credit facility to, among other things, increase its senior secured term loan facility by $225 million to a total
of $400 million. Proceeds from the increase were used to pay down the outstanding balance under United Agri Products' revolving credit facility and to pay related fees and expenses.
Interest
rates with respect to the term loan facility are based on, at United Agri Products' option, (a) LIBOR plus the applicable margin (as defined below) and (b) the
base rate, which will be the higher of (i) the rate publicly quoted by The Wall Street Journal as the "base rate on corporate loans posted by at least 75% of the nation's 30 largest banks" and
(ii) the Federal Funds rate plus 0.50%, plus the applicable margin. The applicable margin is 2.75% for LIBOR loans and 1.75% for base rate loans.
The
applicable margin for the revolving credit facility is 1.25% for LIBOR advances and 0.00% for base rate advances. The revolving credit facility is secured by a first-priority lien on
all accounts, inventory, general intangibles related to accounts and inventory, and all proceeds of the foregoing ("Current Asset Collateral") of UAP Holding Corp. and its subsidiaries, and a second
priority lien (subject to certain exclusions and exceptions) on other assets and proceeds of such other assets. The term loan facility is secured by a first-priority lien (subject to certain
exclusions and exceptions) in all assets of UAP Holding Corp. and its subsidiaries, and all proceeds thereof other than the Current Asset Collateral, and a second-priority lien in the Current Asset
Collateral.
In
connection with the June 2006 refinancing and early extinguishment of the senior notes, the Company recorded a pretax charge to finance related and other charges of approximately
$47.9 million for fiscal 2007, all of which were primarily incurred in the thirty-nine weeks ended November 26, 2006. These costs include approximately $31.8 million
for debt tender premiums and related transaction costs to acquire the debt and $16.1 million for the write-off of unamortized debt issue costs.
Availability
of the revolving credit facility is subject to a borrowing base formula, which includes availability of an over-advance during certain periods. At
February 24, 2008, there was $627.7 million of total borrowing capacity under the revolving credit facility and United Agri Products had aggregate borrowing availability of
$502.3 million (after giving effect to $110.0 million of revolving loans outstanding and $15.4 million of letters of credit outstanding under the senior secured credit facility).
At
February 24, 2008, we believe that the permitted distributions available to pay dividends under the restricted payment covenant in our senior secured credit facility were
approximately $56.2 million before giving effect to the estimated $12.1 million dividend payment expected to be made on May 15, 2008.
Due
to the seasonal nature of our business, the amount of borrowings outstanding under the senior secured revolving credit facility, all of which are short-term, varies
significantly throughout our fiscal year. During the fifty-two weeks ended February 24, 2008, short-term borrowings reached a daily peak of $569.8 million on
September 28, 2007. Our average daily short-term borrowings, net of cash, for fiscal 2008, were approximately $352.0 million.
43
Our
weighted average interest rate on short-term borrowings outstanding was 4.5% and 6.6% at February 24, 2008 and February 25, 2007, respectively.
Our
senior secured credit facility contains certain customary representations, warranties, and affirmative covenants. At February 24, 2008, we were in compliance with all
covenants under our senior secured credit facility.
Senior Notes.
In June 2006, UAP Holding Corp. and United Agri Products, Inc. consummated the
tender offers and consent solicitations for the 10
3
/
4
% Senior Discount Notes due 2012 issued by UAP Holding Corp. and the 8
1
/
4
% Senior Notes due 2011 issued by United
Agri Products, Inc. (collectively, the "Senior Notes"). The companies accepted for purchase $123.1 million principal amount at maturity of the 10
3
/
4
% Senior Discount Notes
(representing 98.5% of the previously outstanding 10
3
/
4
% Senior Discount Notes) and $203.5 million principal amount of the 8
1
/
4
% Senior Notes representing
approximately 99.9% of the previously outstanding 8
1
/
4
% Senior Notes. Total consideration paid for the notes tendered plus accrued interest thereon was $120.6 million for the
10
3
/
4
% Senior Discount Notes and $227.2 million for the 8
1
/
4
% Senior Notes. These payments and related expenses were financed through borrowings under the senior
secured credit facility.
Subsequently,
UAP Holding Corp. repurchased in brokered market transactions all of the $1.9 million principal amount at maturity of its 10
3
/
4
% Senior Discount Notes
due 2012 that had remained outstanding following the closing on June 1, 2006, of the tender offer and consent solicitation. Accordingly, all of the 10
3
/
4
% Senior Discount Notes
previously issued and authenticated under the indenture dated as of January 26, 2004, as supplemented (the "Indenture"), between UAP Holding Corp. and The Bank of New York (formerly JPMorgan
Chase Bank, N.A.), as trustee (the "Trustee"), had been delivered by UAP Holding Corp. to the Trustee and cancelled. In accordance with Section 11.01 of the Indenture, UAP Holding Corp.
satisfied and discharged the Indenture, which satisfaction and discharge was acknowledged by the Trustee on November 24, 2006. Upon satisfaction and discharge, the Indenture ceased to be of
further effect (except for certain rights of the Trustee).
During
fiscal 2008, we completed the redemption of the remaining 8
1
/
4
% Senior Notes and discharged our obligations.
Contractual Obligations and Other Commercial Commitments
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments. The following is a summary of our contractual obligations
and other commercial commitments as of February 24, 2008:
|
|
Payments Due in Fiscal Year Ending February
|
Contractual Obligations:
|
|
Total
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014 and
beyond
|
|
|
(in thousands)
|
Short-term borrowings under revolving credit facility
|
|
$
|
110,006
|
|
$
|
110,006
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Long-term debt (including short-term portion)
|
|
|
396,812
|
|
|
4,000
|
|
|
4,000
|
|
|
4,000
|
|
|
4,000
|
|
|
380,812
|
|
|
|
Interest payments on long-term debt
|
|
|
112,981
|
|
|
25,542
|
|
|
26,705
|
|
|
27,467
|
|
|
26,194
|
|
|
7,073
|
|
|
|
Operating lease obligations
|
|
|
39,883
|
|
|
11,131
|
|
|
10,197
|
|
|
6,510
|
|
|
4,304
|
|
|
3,005
|
|
|
4,736
|
Other long-term obligations(1)
|
|
|
12,581
|
|
|
40
|
|
|
2,342
|
|
|
2,681
|
|
|
6,446
|
|
|
428
|
|
|
644
|
Unconditional purchase obligations(2)
|
|
|
23,411
|
|
|
21,811
|
|
|
800
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
695,674
|
|
$
|
172,530
|
|
$
|
44,044
|
|
$
|
41,458
|
|
$
|
40,944
|
|
$
|
391,318
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
Commitments that Expire in Fiscal Year Ending February
|
Other Commercial Commitments:
|
|
Total
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014 and
beyond
|
|
|
(in thousands)
|
Standby letters of credit
|
|
$
|
15,346
|
|
$
|
15,346
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Guarantees
|
|
|
60
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial commitments(3)
|
|
|
91,952
|
|
|
47,558
|
|
|
22,977
|
|
|
13,216
|
|
|
6,093
|
|
|
1,853
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,358
|
|
$
|
62,964
|
|
$
|
22,977
|
|
$
|
13,216
|
|
$
|
6,093
|
|
$
|
1,853
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Other
long-term obligations primarily consist of interest rate swaps, pension liability, capital leases, and other miscellaneous liabilities, but exclude obligations for uncertain tax
positions as the timing of the payments cannot be reasonably estimated. For additional information, refer to Note 9 in "Notes to Financial Statements."
-
(2)
-
We
enter into unconditional purchase obligation arrangements (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or
minimum prices, such as "take-or-pay" contracts) in the normal course of business to ensure that adequate levels of sourced product are available to us.
-
(3)
-
Other
commercial commitments include lease obligations cancellable within one year, acquisition earn-outs, employment agreements, bonds, and other potential contract
obligations.
Leases.
We lease certain facilities and transportation equipment under agreements that expire at
various dates. We expect that in the normal course of business, we will renew or replace necessary leases that expire. Substantially all leases require the payment of property taxes, insurance, and
maintenance costs in addition to rental payments. Capital leases are not significant. Rent expense under all operating leases was $57.5 million in fiscal 2008, $45.6 million in fiscal
2007, and $40.0 million in fiscal 2006.
Included
in other commercial commitments in the table above is approximately $64.9 million of potential lease obligations for leases that are cancelable within one year.
Acquisition Earn-outs.
In addition to the initial consideration for our acquisitions,
certain acquisition agreements contain performance based earn-out clauses. These contingent
earn-outs amount to a maximum payment of $3.0 million in a given year and an aggregate maximum payment of $4.6 million. Any contingent earn-out payment made would
be accounted for as additional purchase price and would likely increase goodwill. At February 24, 2008, goodwill includes $0.4 million related to payment and $1.4 million for
accrual of these earn-outs.
Employment Agreements.
In May 2007, the Company entered into agreements with certain officers and key
employees to provide certain benefits in the event of a "change in control," as such term is defined in these agreements, and the occurrence of certain other events. If during the two-year
period following a change of control, such officer or key employee's employment with the Company is terminated, either by the Company without "cause" or by the employee for "good reason", as such
terms are defined in these agreements, then within 30 days of such termination the Company will pay these officers and employees a pro rata target bonus, any accrued vacation pay and between
one and two times their annual base salary and target bonus, depending on the employee. In addition, the Company will pay for the continuation coverage under the Company's health care plans for up to
18 months following the date of termination. These agreements were amended and restated in December 2007 to reflect certain technical changes as a result of guidance from the Internal Revenue
Service on deferred compensation. The annual base salary and annual cash bonus portion of the agreements would aggregate approximately $11 million at the rate of compensation in effect at
February 24, 2008.
45
Legal Matters.
In some cases, third parties (including government reimbursement funds and insurers)
may contribute to the costs of cleanup at certain sites. ConAgra has agreed to provide us with a partial reimbursement of costs that we may incur relating to any cleanup requirements due to
environmental conditions at our Greenville, Mississippi facility prior to our purchase of the site from them in November, 2003. On October 14, 2002, December 23, 2002, and
December 31, 2002, three separate lawsuits were filed in the Circuit Court of Washington County, Mississippi against our subsidiary, Platte Chemical Company ("Platte"), and certain former
employees of Platte, relating to alleged releases from Platte's Greenville, Mississippi facility. The plaintiffs in such suits are seeking compensation for alleged personal injury and property damage.
In connection with the Acquisition, ConAgra agreed to partially reimburse us, subject to a cap, for fees and expenses we incur in connection with such lawsuits. Subsequent to November 23, 2003,
another lawsuit not covered by the ConAgra cost sharing agreement was filed in the Circuit Court of Washington County, Mississippi against us, which lawsuit relates to the same alleged releases from
the Greenville, Mississippi facility. While discovery in the Greenville litigations is not yet complete, based on information available to us at this time we do not believe that such litigations, if
adversely determined, would have a material adverse effect on our business, financial condition, cash flows, results of operations, or liquidity.
We
are a party to a number of lawsuits and claims arising out of the operation of our businesses. We believe the ultimate resolution of such matters should not have a material adverse
effect on our financial condition, cash flows, results of operations, or liquidity.
Pension and Postretirement Benefits
We have a management incentive plan for key officers and employees, based on growth, profitability, individual performance of each operating center and key
performance metrics, including overall company operating performance. We maintain the United Agri Products, Inc. Retirement Income Savings Plan. Participants who meet certain eligibility
requirements may make contributions and may receive company matching and discretionary contributions under this plan. United Agri Products Canada, Inc. ("UAP Canada"), one of our subsidiaries,
currently has two retirement plans for employees of UAP Canada. One plan is an optional defined contribution plan. The second is a defined benefit plan. They are eligible to participate in these plans
after completing one year of service. There is no defined benefit pension plan for U.S. employees.
Refer
to Note 16. (Employee Benefit Plans) in Notes to Financial Statements for additional information.
Capital Expenditures
Capital expenditures were $24.4 million for fiscal 2008, compared to $23.0 in fiscal 2007, and $16.2 million in fiscal 2006. During fiscal 2008, we
completed various projects related to the acquisitions, expansion, especially within our fertilizer operations, and infrastructure improvements, primarily within our warehouse and distribution
facilities. The largest projects completed during the year include a fertilizer terminal in Plymouth, Washington and a fertilizer terminal and warehouse consolidation project in Attica, Ohio. During
fiscal 2007, we completed various projects related to the expansion of our business totaling approximately $7.8 million, while the remaining spending was for cost reduction, infrastructure
replacement, and computer hardware and software projects. The expansion of a fertilizer blending facility in Covington, Tennessee was the largest expansion project. Our cost reduction spending
primarily consisted of the purchase of locations that we previously leased. During fiscal 2006, we completed the expansion of our Mississippi River fertilizer terminal in Quincy, Illinois. We expect
we will finance all capital expenditures with cash generated from operations, reductions in working capital, or incremental debt. However, the Merger Agreement limits our ability to make capital
expenditures in excess of $1 million without Agrium's consent.
46
Holding Company
As a holding company, our investments in our operating subsidiaries, including United Agri Products, constitute substantially all of our operating assets.
Consequently, our subsidiaries conduct all of our consolidated operations and own substantially all of our operating assets. Our principal source of the cash required to pay our and our subsidiaries'
obligations is the cash that our subsidiaries generate from their operations and our borrowings under the senior secured revolving credit facility. Our subsidiaries are separate and distinct legal
entities and have no obligations to make funds available to us. The terms of the agreements governing our existing indebtedness generally restrict our subsidiaries from paying dividends, making loans
or other distributions, and otherwise transferring assets to us. Furthermore, our subsidiaries are permitted under the terms of the senior secured credit facility to incur additional indebtedness that
may severely restrict or prohibit the making of distributions, the payment of dividends, or the making of loans by such subsidiaries to us. We cannot assure you that the agreements governing our
current and future indebtedness will permit our subsidiaries to provide us with sufficient dividends, distributions, or loans to fund scheduled interest and principal payments on our indebtedness when
due. If we consummate an acquisition, our debt service requirements could increase. We may need to refinance all or a portion of our indebtedness on or before maturity. We cannot assure you that we
will be able to refinance any of our indebtedness on commercially reasonable terms or at all.
Dividend Policy
See the table in Item 5. "Dividend History," which outlines our dividend history.
We
intend to pay quarterly cash dividends on our common stock in fiscal 2009 at an annual rate of $0.90 per share. The Merger Agreement requires us to obtain Agrium's consent before we
can increase the rate of our quarterly dividend above $0.225 per share or pay any special dividend.
On
April 18, 2008, our board of directors declared a quarterly dividend on our common stock in the amount of $0.225 per share of common stock. The record date for the dividend
payment is May 1, 2008, and the payment date is expected to be May 15, 2008.
There
are no assurances that we will declare or pay any cash dividends in the future. The declaration and payment of future dividends to holders of our common stock is at the discretion
of our board of directors and depends upon many factors including our financial condition, earnings, legal requirements, restrictions in our debt agreements, and other factors our board of directors
deems relevant. The terms of our senior secured credit facility may also restrict us from paying cash dividends on our common stock under some circumstances. At February 24, 2008, we believe
that the permitted distributions available to pay dividends under the restricted payment covenant in our senior secured
credit facility were approximately $56.2 million before giving effect to the estimated $12.1 million dividend payment expected to be made on May 15, 2008.
In
the past, cash flow from our operating activities has been highly variable, resulting in negative cash flow during certain periods. Because of the variability, if our cash flow from
operating activities is insufficient to fund dividend payments at intended levels, we may need to reduce or eliminate dividends or, to the extent permitted by our debt agreements, fund all or part of
the dividends with additional debt or other sources of cash. To the extent we pay dividends, the amount of cash available to us to pay principal of, and interest on, our outstanding debt will be
reduced. A failure to pay principal of, or interest on, our debt would constitute an event of default under the applicable debt agreements giving the holders of the debt the right to accelerate its
maturity. If any of our debt is accelerated, we may not have sufficient cash available to repay it in full and we may be unable to refinance it on satisfactory terms or at all. An event of default
under debt agreements, or an acceleration of the debt hereunder, could also trigger an event of default under other debt agreements. Furthermore, if we fund dividends
47
with
additional debt, our interest expense will increase which may cause a further reduction in the amount of cash available to us.
Trading Activities
Use of Derivatives.
In July 2006, in compliance with the terms of our new senior secured credit
facility, we entered into two interest rate swaps to manage exposure to changes in cash flows related to changes in the variable interest rate on a portion of our long term debt. Under the terms of
the swaps, we will pay a designated fixed rate and receive a variable rate which is based on LIBOR. The rate received is expected to offset the variable rate to be paid on the long term debt which is
also based on LIBOR.
The
derivative transactions are designated as cash flow hedges. Since the critical terms of the cash flow hedge match the critical terms of the hedged item, using the critical terms test
under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," we have concluded that there is no hedge ineffectiveness as changes in cash flows attributable to the risk being
hedged are expected to be offset completely by the changes in the hedging relationship. As such, no gain or loss has been recognized due to hedge ineffectiveness.
At
February 24, 2008, we had two outstanding interest rate swaps with a total notional value of $165 million. These are amortizing swaps and their notional values will
decline to $90 million prior to expiration in July 2011. The fair value of the interest rate swaps at February 24, 2008, was $(9.4) million
and is classified as "Other non-current liabilities" on the balance sheet. The mark-to-market loss, net of taxes, deferred in accumulated other comprehensive income
at February 24, 2008, is $5.8 million.
Critical Accounting Policies and Estimates
The process of preparing our consolidated financial statements in accordance with U.S. generally accepted accounting principles (GAAP), requires management to
make estimates, judgments, and assumptions that affect the amounts reported and the accompanying note disclosures. The estimates made by management are based on historical experience combined with
management's understanding of current facts and circumstances. Management identifies critical accounting estimates as:
-
-
those
that require the use of assumptions about matters that are inherently and highly uncertain at the time the estimates are made; and
-
-
those
for which changes in the estimates, judgments, or assumptions, or the use of different estimates, judgments, and assumptions could have a material impact on our
consolidated results of operations or financial condition.
Management
has discussed the development, selection, and disclosure of critical accounting policies and estimates with the Audit Committee of our board of directors. We believe that our
most critical accounting policies and estimates, those which are both important to the portrayal of our financial condition and results of operations and require the most difficult, subjective,
complex, or significant judgment on the part of management, are the following:
-
-
Allowance
for Doubtful Accounts;
-
-
Inventories;
-
-
Vendor
Rebate Receivables: and
-
-
Income
Taxes.
For
a discussion of the Company's significant accounting policies, refer to Note 1 in "Notes to Financial Statements."
48
Allowance for Doubtful Accounts.
Our allowance for doubtful accounts reflects reserves against
customer receivables, reducing customer receivables to net amounts expected to be collected. Management uses significant judgment in estimating uncollectible amounts, taking into consideration factors
such as current overall economic conditions, industry-specific economic conditions, historical customer performance, and anticipated customer performance.
We
estimate uncollectible receivables as a percentage of net sales based on our historical bad debt experience and establish a general reserve accrual as sales are made. Our allowance
for doubtful accounts is adjusted based on credit evaluations of specific customer receivables, taking into account a variety of factors, including customer credit worthiness, past payment
performance, changes in a customer's ability to meet their financial commitments, and any collateral that we hold. We also make adjustments if additional information or collateral from the customer
substantiates the basis for a change. Additionally, some customers may have insurance that is assigned to us in the event of crop disasters and there may also be government disaster payments.
While
we have a large customer base that is geographically dispersed, our business is seasonal, like our customers' businesses, and is based on crop specific planting, growing, and
harvesting needs. A decrease in crop yields and/or commodity prices in the markets in which we operate may result in higher than expected uncollectible accounts, and therefore we may need to revise
estimates for doubtful accounts. To the extent that our historical credit experience is not indicative of future performance or other assumptions used by management do not prevail, the allowance for
doubtful accounts could differ significantly, resulting in either higher or lower future provisions (or credits) for doubtful accounts. Management believes our processes effectively address our
exposure for doubtful accounts. However, changes in the economy, industry, or specific customer conditions may require adjustment to the allowance for doubtful accounts recorded by us.
Inventories.
Inventories consist primarily of chemicals, fertilizer, and seed products purchased from
our suppliers, or produced by one of our three facilities, for resale to our customers. We record inventory at the lower of cost or market. Inherent in our criteria for valuing inventory at the lower
of cost or market are certain significant management judgments and estimates including, among others, evaluating
market prices in volatile commodity markets and determining the impact of obsolete or slow-moving inventory on inventory values. We maintain perpetual inventory systems, which we reconcile
to physical counts at each location periodically.
We
account for rebates and prepay discounts as a reduction of the prices of the suppliers' products. At February 24, 2008, and February 25, 2007, our inventory included
reductions of $22.3 million and $13.8 million, respectively, for rebates and prepays discounts paid on purchases which had not yet been sold and therefore were unearned.
Vendor Rebate Receivables.
We receive vendor rebates, primarily from our chemical and seed suppliers.
Most rebates are covered by binding agreements and published programs. Other rebates can be open-ended, subject to future definition or revision. Rebates earned are generally based on
achieving targeted sales, purchases, volume tiers, sales growth, or market share growth rates.
Rebates
typically cover performance during the crop year, which is based on planting, growing, and harvesting cycles. This may differ from our fiscal year. The crop year for fiscal 2008
began as early as September 2006 and ended as late as December 2007, depending on the product. Because of the timing of the crop year relative to our fiscal year and because most of our vendor
programs are typically not multi-year programs, the rebate income earned and recognizable for the crop year ended during the current fiscal year will largely be received and recorded by
our fiscal year-end. Since we estimate rebates earned from our vendors throughout the year, changes in estimates can impact our margin percentages by quarter.
49
Rebates
that are probable and can be reasonably estimated are accrued at expected rates based on total estimated crop year performance. Rebates that are not probable or estimable are
accrued when certain milestones are achieved. Rebates not covered by binding agreements or published vendor programs are accrued when conclusive documentation of right of receipt is obtained.
Rebates
based on the amount of materials purchased reduce cost of goods sold as inventory is sold. Rebates that are based on sales volume are offset to cost of goods sold when we
determine they have been earned based on our sales volume of related products.
Income Taxes.
Income taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year
in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that
includes the enactment date. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
The
determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment
is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefit of uncertain tax positions are recorded in our
financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing
authorities. Any tax benefit recorded for uncertain tax positions is measured at the amount at which the Company believes has a greater than 50% probability of being sustained. When facts and
circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. FASB No. 48, "Accounting for Uncertainty in Income Taxes"
("FIN 48"), effective for the Company for fiscal year 2008, sets out the framework by which such judgments are to be made. FIN 48 was adopted for fiscal year 2008. The impact of adoption
of FIN 48 is discussed in Note 9 in "Notes to Financial Statements."
New Accounting Pronouncements
Information regarding new accounting pronouncements is included in "Notes to Financial Statements," primarily in Note 2.
Off-Balance Sheet Arrangements
We use off-balance sheet arrangements where the economics and sound business principles warrant their use. We periodically enter into operating
leases, letters of credit and other contractual arrangements as part of transactions in the ordinary course of our business. For information, see "Contractual Obligation and Other Commercial
Commitments" above.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Market risks affecting our business are exposure to changes in energy prices, fertilizer product prices, interest rates and foreign currency exchange rates.
Changes
in energy prices have a direct impact on our fuel costs. These price increases impact our supply chain and selling expenses. Based on our historic usage, an approximate $0.12
increase in the annual average per gallon price of fuel would increase our annual fuel expense by $1.0 million. Higher fuel prices also affect our customers such that higher expenses for fuel
may reduce the cash or credit available to our customers with which they purchase other products or services from us.
50
Our
inventory of fertilizer products has price risk related to changes in energy prices and fertilizer global supply and demand patterns. Our revenues and earnings are affected by market
prices for these commodities, which prices generally are influenced by a wide range of factors beyond our control. These factors include the weather, the availability and adequacy of supply, demand
for these commodities, both locally and globally, government regulation and policies, and general political and economic conditions. Fertilizer is particularly susceptible to price volatility and
potential product shortage. Our total fertilizer inventories were $241.6 million and $142.9 million at February 24, 2008, and February 25, 2007, respectively. In order to
secure supply and pricing, we sometimes prepay vendors for fertilizer inventory. This fertilizer will be delivered later in the current fiscal year or early in the next fiscal year. In a market where
prices are decreasing, our ability to sell our inventory and commitments associated with our vendor prepayments at normal profit margins may be difficult to achieve. Our prepaid fertilizer was
$123.8 million and $41.3 million at February 24, 2008, and February 25, 2007, respectively.
At
any given time, we may have significant prepayments from customers related to future sales of our products. When customers give us advances, in exchange for a future discount, or
agreed-to-pricing, the advances are included in customer prepayments. These customer prepayments may relate to fertilizer, crop protection chemicals, and seed. Although we
strive to maintain inventory levels and/or have purchase orders to fulfill commitments associated with customer prepayments, in a market of short supply or rising prices there is no guarantee that we
will achieve normal operating margins on these amounts. Our customer prepayments were $435.4 million and $296.8 million at February 24, 2008, and February 25, 2007,
respectively.
The
senior secured credit facility is affected by changes in interest rates. Based upon the amount of our average daily borrowings, including the unhedged portion of the term loan for
fiscal 2008, a one percentage point change in the assumed weighted average interest rate on such credit facility would change our annual interest expense by $5.8 million.
In
July 2006, in compliance with the terms of our senior secured credit facility, we entered into two interest rate swaps to manage exposure to changes in cash flows related to changes
in the variable interest rate on a portion of our long-term debt. Under the terms of the swaps, we pay a designated fixed rate and receive a variable rate, which is based on LIBOR. The
rate received is expected to offset the variable rate to be paid on the long-term debt which is also based
on LIBOR. At February 24, 2008, the notional value of the interest rate swaps was $165 million. These notional values of these amortizing swaps will decline to $90 million prior
to expiration in July 2011. At February 24, 2008, the fair value of the swaps was $(9.4) million. The fair value of the swap agreements is the estimated amount that we would receive or
(pay) to terminate the agreements at the reporting date, taking into account current interest rates and the creditworthiness of the counterparty. If future interest rates continue to decline, the
amount of the mark-to-market loss may increase.
The
functional currency for our Canadian subsidiary is the Canadian dollar and our foreign currency risk is primarily related to the exchange rate differential in the Canadian and U.S.
dollar. The exchange rate was 0.9878 and 0.8626 at February 24, 2008, and February 25, 2007, respectively. The exchange rate varied between 0.8455 and 1.1038 during fiscal 2008. A
one-percentage point change in the exchange rate would have approximately a $0.2 million impact on the balance sheet value at February 24, 2008.
51
Item 8. Financial Statements and Supplementary Data.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
UAP Holding Corp.
Greeley, Colorado
We
have audited the accompanying consolidated balance sheets of UAP Holding Corp. and subsidiaries (the "Company") as of February 24, 2008 and February 25, 2007, and the
related consolidated statements of earnings, stockholders' equity, and cash flows for each of the three years in the period ended February 24, 2008. Our audits also included the financial
statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statements and financial statement schedules 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 examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes 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, such consolidated financial statements present fairly, in all material respects, the financial position of UAP Holding Corp. and subsidiaries as of February 24,
2008 and February 25, 2007, and the results of their operations and their cash flows for each of the three years in the period ended February 24, 2008, in conformity with accounting
principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements
taken as a whole, present fairly, in all material respects, the information set forth therein.
As
discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for uncertain tax positions on February 26, 2007 in accordance
with the Financial Accounting Standards Board's Interpretation No. 48,
Accounting for Uncertainty in Income Taxes
.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of
February 24, 2008, based on the criteria established in
Internal ControlIntegrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission and our report dated April 18, 2008 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
|
|
|
Denver, Colorado
April 18, 2008
|
|
|
52
UAP HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
|
|
February 24, 2008
|
|
February 25, 2007
|
|
ASSETS
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
51,792
|
|
$
|
19,506
|
|
|
Receivables, net (Note 3)
|
|
|
349,904
|
|
|
338,229
|
|
|
Inventories (Note 4)
|
|
|
1,063,480
|
|
|
883,033
|
|
|
Deferred income taxes (Note 9)
|
|
|
29,704
|
|
|
28,046
|
|
|
Vendor prepayments
|
|
|
146,100
|
|
|
64,700
|
|
|
Other current assets
|
|
|
8,703
|
|
|
8,547
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,649,683
|
|
|
1,342,061
|
|
Property, plant and equipment (Note 5)
|
|
|
169,339
|
|
|
145,455
|
|
|
Less accumulated depreciation
|
|
|
(47,908
|
)
|
|
(35,234
|
)
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
121,431
|
|
|
110,221
|
|
Intangible assets, net (Note 7)
|
|
|
51,040
|
|
|
50,076
|
|
Goodwill (Note 6)
|
|
|
49,499
|
|
|
45,138
|
|
Deferred income taxes (Note 9)
|
|
|
9,096
|
|
|
4,448
|
|
Debt issuance costs, net (Note 8)
|
|
|
9,283
|
|
|
5,445
|
|
Other assets
|
|
|
2,048
|
|
|
1,797
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,892,080
|
|
$
|
1,559,186
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
585,963
|
|
$
|
629,808
|
|
|
Customer prepayments
|
|
|
435,394
|
|
|
296,824
|
|
|
Short-term debt (Note 11)
|
|
|
114,006
|
|
|
184,739
|
|
|
Deferred income taxes (Note 9)
|
|
|
2,127
|
|
|
2,200
|
|
|
Other accrued liabilities
|
|
|
98,979
|
|
|
78,451
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,236,469
|
|
|
1,192,022
|
|
Long-term debt (Note 11)
|
|
|
392,812
|
|
|
172,390
|
|
Deferred income taxes (Note 9)
|
|
|
14,928
|
|
|
17,953
|
|
Other non-current liabilities (Notes 10 and 16)
|
|
|
17,446
|
|
|
6,567
|
|
Commitments and contingencies (Note 12)
|
|
|
|
|
|
|
|
Stockholders' equity: (Note 13)
|
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 90,000,000 shares authorized, 52,702,658 and 51,194,620 issued and outstanding, respectively
|
|
|
53
|
|
|
51
|
|
|
Additional paid-in capital
|
|
|
167,387
|
|
|
138,569
|
|
|
Retained earnings
|
|
|
60,178
|
|
|
27,801
|
|
|
Accumulated other comprehensive income
|
|
|
2,807
|
|
|
3,833
|
|
|
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
230,425
|
|
|
170,254
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
1,892,080
|
|
$
|
1,559,186
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the financial statements.
53
UAP HOLDING CORP.
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except share data)
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
Net sales
|
|
$
|
3,411,416
|
|
$
|
2,854,108
|
|
$
|
2,727,789
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
2,930,687
|
|
|
2,469,648
|
|
|
2,337,710
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
480,729
|
|
|
384,460
|
|
|
390,079
|
|
|
Selling, general and administrative expenses (Notes 14 and 16)
|
|
|
329,844
|
|
|
270,958
|
|
|
273,023
|
|
|
Royalties, service charges and other income and expenses (Note 15)
|
|
|
(32,561
|
)
|
|
(28,439
|
)
|
|
(29,128
|
)
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
183,446
|
|
|
141,941
|
|
|
146,184
|
|
|
Interest expense, net
|
|
|
45,167
|
|
|
37,768
|
|
|
37,340
|
|
|
Finance related and other charges (Note 17)
|
|
|
3,358
|
|
|
48,270
|
|
|
330
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
134,921
|
|
|
55,903
|
|
|
108,514
|
|
Income tax expense (Note 9)
|
|
|
53,366
|
|
|
22,449
|
|
|
42,137
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.57
|
|
$
|
0.66
|
|
$
|
1.31
|
|
|
Diluted
|
|
$
|
1.53
|
|
$
|
0.64
|
|
$
|
1.27
|
|
Cash dividends declared per share of common stock
|
|
$
|
0.90
|
|
$
|
0.75
|
|
$
|
0.6375
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,078,318
|
|
|
50,972,368
|
|
|
50,494,690
|
|
|
Diluted
|
|
|
53,238,708
|
|
|
52,469,497
|
|
|
52,252,512
|
|
The
accompanying notes are an integral part of the financial statements.
54
UAP HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
|
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
13,639
|
|
|
11,711
|
|
|
11,043
|
|
|
|
Stock-based compensation
|
|
|
10,898
|
|
|
3,315
|
|
|
792
|
|
|
|
Amortization of intangibles
|
|
|
8,192
|
|
|
3,033
|
|
|
1,367
|
|
|
|
Deferred income taxes
|
|
|
(6,966
|
)
|
|
(1,193
|
)
|
|
(2,207
|
)
|
|
|
Payroll taxes on stock-based compensation
|
|
|
(2,270
|
)
|
|
(400
|
)
|
|
|
|
|
|
Amortization of debt issuance costs
|
|
|
1,697
|
|
|
2,002
|
|
|
4,400
|
|
|
|
Write-off of debt issuance costs
|
|
|
|
|
|
15,957
|
|
|
|
|
|
|
Premium paid to tender notes payable
|
|
|
|
|
|
31,714
|
|
|
|
|
|
|
Accretion of discount on notes
|
|
|
|
|
|
|
|
|
10,391
|
|
|
|
Other
|
|
|
607
|
|
|
703
|
|
|
(1,402
|
)
|
|
|
Change in operating assets and liabilities, net of effects of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Receivables, net
|
|
|
(13,515
|
)
|
|
(25,149
|
)
|
|
(53,070
|
)
|
|
|
|
Inventories
|
|
|
(177,742
|
)
|
|
(96,029
|
)
|
|
(36,473
|
)
|
|
|
|
Vendor prepay
|
|
|
(80,993
|
)
|
|
6,428
|
|
|
79,169
|
|
|
|
|
Other operating assets
|
|
|
1,123
|
|
|
340
|
|
|
382
|
|
|
|
|
Customer prepayments
|
|
|
137,243
|
|
|
17,586
|
|
|
8,044
|
|
|
|
|
Current liabilities and non-current liabilities
|
|
|
8,807
|
|
|
32,606
|
|
|
(26,736
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by operations
|
|
|
(17,725
|
)
|
|
36,078
|
|
|
62,077
|
|
Investing
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
(24,404
|
)
|
|
(23,026
|
)
|
|
(16,246
|
)
|
|
Acquisitions, net of cash acquired
|
|
|
(8,702
|
)
|
|
(82,125
|
)
|
|
(1,350
|
)
|
|
Additions to purchase price of previous acquisitions
|
|
|
(6,535
|
)
|
|
|
|
|
|
|
|
Addition to other long-lived assets
|
|
|
(4,535
|
)
|
|
(2,076
|
)
|
|
|
|
|
Proceeds from sale of assets
|
|
|
2,358
|
|
|
9,402
|
|
|
2,354
|
|
|
Other
|
|
|
(446
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing
|
|
|
(42,264
|
)
|
|
(97,825
|
)
|
|
(15,242
|
)
|
Financing
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt issued
|
|
|
225,000
|
|
|
175,000
|
|
|
|
|
|
Net (payments) borrowings on revolving line of credit
|
|
|
(72,983
|
)
|
|
182,989
|
|
|
(55
|
)
|
|
Dividend and dividend equivalents paid
|
|
|
(57,530
|
)
|
|
(38,188
|
)
|
|
(22,708
|
)
|
|
Excess income tax benefits from stock-based compensation arrangements
|
|
|
16,158
|
|
|
12,791
|
|
|
|
|
|
Checks not yet presented
|
|
|
(14,817
|
)
|
|
14,160
|
|
|
5,999
|
|
|
Debt issuance costs
|
|
|
(5,535
|
)
|
|
(6,374
|
)
|
|
(1,297
|
)
|
|
Proceeds from common stock options exercised
|
|
|
3,429
|
|
|
844
|
|
|
1,009
|
|
|
Long-term debt redemption and payments
|
|
|
(2,328
|
)
|
|
(338,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing
|
|
|
91,394
|
|
|
2,309
|
|
|
(17,052
|
)
|
|
|
|
|
|
|
|
|
Net effect of exchange rates on cash and cash equivalents
|
|
|
881
|
|
|
(224
|
)
|
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
32,286
|
|
|
(59,662
|
)
|
|
30,964
|
|
Cash and cash equivalents at beginning of period
|
|
|
19,506
|
|
|
79,168
|
|
|
48,204
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
51,792
|
|
$
|
19,506
|
|
$
|
79,168
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for interest
|
|
$
|
44,059
|
|
$
|
36,904
|
|
$
|
24,825
|
|
|
Cash paid during the year for income taxes
|
|
$
|
37,796
|
|
$
|
12,918
|
|
$
|
41,178
|
|
|
Cash paid for prior years' accreted discount on notes payable
|
|
$
|
|
|
$
|
20,968
|
|
$
|
|
|
|
Dividends and dividend equivalents declared but not yet paid
|
|
$
|
|
|
$
|
9,599
|
|
$
|
9,528
|
|
The accompanying notes are an integral part of the financial statements.
55
UAP HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands)
|
|
Common
Stock
|
|
Additional
Paid in
Capital
|
|
Rabbi
Trust
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Total
Stockholders'
Equity
|
|
Balance at February 27, 2005
|
|
$
|
50
|
|
$
|
109,863
|
|
$
|
4,819
|
|
$
|
(1,535
|
)
|
$
|
3,290
|
|
$
|
116,487
|
|
Dividends
|
|
|
|
|
|
|
|
|
|
|
|
(32,236
|
)
|
|
|
|
|
(32,236
|
)
|
Stock-based compensation
|
|
|
|
|
|
792
|
|
|
|
|
|
|
|
|
|
|
|
792
|
|
Excess income tax benefits from stock-based compensation
|
|
|
|
|
|
4,866
|
|
|
|
|
|
|
|
|
|
|
|
4,866
|
|
Exercise of stock-based compensation
|
|
|
1
|
|
|
1,008
|
|
|
|
|
|
|
|
|
|
|
|
1,009
|
|
Rabbi trust distribution
|
|
|
|
|
|
863
|
|
|
(863
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
66,377
|
|
|
|
|
|
66,377
|
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,444
|
|
|
2,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
66,377
|
|
|
2,444
|
|
|
68,821
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 26, 2006
|
|
$
|
51
|
|
$
|
117,392
|
|
$
|
3,956
|
|
$
|
32,606
|
|
$
|
5,734
|
|
$
|
159,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
|
(38,259
|
)
|
|
|
|
|
(38,259
|
)
|
Stock-based compensation
|
|
|
|
|
|
3,986
|
|
|
|
|
|
|
|
|
|
|
|
3,986
|
|
Payroll taxes on stock-based compensation
|
|
|
|
|
|
(400
|
)
|
|
|
|
|
|
|
|
|
|
|
(400
|
)
|
Excess income tax benefits from stock-based compensation
|
|
|
|
|
|
12,791
|
|
|
|
|
|
|
|
|
|
|
|
12,791
|
|
Exercise of stock-based compensation
|
|
|
|
|
|
844
|
|
|
|
|
|
|
|
|
|
|
|
844
|
|
Rabbi trust distribution
|
|
|
|
|
|
3,956
|
|
|
(3,956
|
)
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
33,454
|
|
|
|
|
|
33,454
|
|
|
Cash flow hedges (net of tax of $991)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,596
|
)
|
|
(1,596
|
)
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(305
|
)
|
|
(305
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
33,454
|
|
|
(1,901
|
)
|
|
31,553
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 25, 2007
|
|
$
|
51
|
|
$
|
138,569
|
|
$
|
|
|
$
|
27,801
|
|
$
|
3,833
|
|
$
|
170,254
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adoption of FASB Interpretation No. 48
|
|
|
|
|
|
|
|
|
|
|
|
(1,247
|
)
|
|
|
|
|
(1,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted balance at beginning of fiscal year
|
|
|
51
|
|
|
138,569
|
|
|
|
|
|
26,554
|
|
|
3,833
|
|
|
169,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends and dividend equivalents
|
|
|
|
|
|
|
|
|
|
|
|
(47,931
|
)
|
|
|
|
|
(47,931
|
)
|
Stock-based compensation
|
|
|
|
|
|
11,503
|
|
|
|
|
|
|
|
|
|
|
|
11,503
|
|
Payroll taxes on stock-based compensation
|
|
|
|
|
|
(2,270
|
)
|
|
|
|
|
|
|
|
|
|
|
(2,270
|
)
|
Excess income tax benefits from stock-based compensation
|
|
|
|
|
|
16,158
|
|
|
|
|
|
|
|
|
|
|
|
16,158
|
|
Exercise of stock-based compensation
|
|
|
2
|
|
|
3,427
|
|
|
|
|
|
|
|
|
|
|
|
3,429
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
|
|
|
|
|
|
|
|
|
|
81,555
|
|
|
|
|
|
81,555
|
|
|
Cash flow hedges (net of tax of $2,571)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,198
|
)
|
|
(4,198
|
)
|
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,172
|
|
|
3,172
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
81,555
|
|
|
(1,026
|
)
|
|
80,529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at February 24, 2008
|
|
$
|
53
|
|
$
|
167,387
|
|
$
|
|
|
$
|
60,178
|
|
$
|
2,807
|
|
$
|
230,425
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the financial statements.
56
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
Unless the context requires otherwise, all references to "Company," "we," "us," "our," and "UAP" refer specifically to UAP Holding Corp. and its consolidated
subsidiaries. Additionally, all references to UAP Holding Corp. refer specifically only to UAP Holding Corp., excluding its subsidiaries, all references to "United Agri Products" refer specifically
only to United Agri Products, Inc., and its subsidiaries, and all references to "United Agri Products, Inc." refer specifically to United Agri Products, Inc., excluding its
subsidiaries.
1. Description of the Business and Summary of Significant Accounting Policies
Business.
UAP is the largest independent distributor of agricultural and professional
non-crop inputs in the United States and Canada. We market a comprehensive line of products including chemicals, fertilizer, and seed to farmers, commercial growers, and regional dealers.
We operate a comprehensive network of approximately 380 distribution and storage facilities, strategically located in major crop-producing areas throughout the United States and Canada,
and three formulation plants.
The
predecessor of UAP Holding Corp. was initially formed by ConAgra Foods, Inc. ("ConAgra") through a series of acquisitions, beginning in May 1978. On November 24, 2003,
Apollo Management V, L.P. ("Apollo"), and UAP Holding Corp. acquired ConAgra Foods' United States and Canadian Agricultural Products Businesses, excluding its wholesale fertilizer and
other international crop distribution businesses, which we refer to as the "Acquisition." On November 29, 2004, we consummated the initial public offering of our common stock, (the "Common
Stock Offering") which is traded under the symbol "UAPH" on the NASDAQ Global Select Market.
Tender Offer.
On December 2, 2007, UAP Holding Corp., Agrium Inc. ("Agrium"),
and a subsidiary of Agrium, entered into an agreement and plan of merger ("Merger Agreement") pursuant to which Agrium, through its subsidiary Agrium U.S., Inc., commenced a tender offer on
December 10, 2007 ("Tender Offer"), to purchase all the outstanding shares of common stock of UAP Holding Corp. for $39.00 in cash per share. The Merger Agreement provides that following
completion of the Tender Offer and assuming certain conditions are satisfied, UAP Holding Corp. will then engage in a merger (the "Merger") with a subsidiary of Agrium, pursuant to which each
outstanding share of UAP Holding Corp. common stock not tendered in the Tender Offer will be converted into the right to receive $39.00 in cash. Upon completion of the Merger, UAP Holding Corp. will
become a wholly-owned subsidiary of Agrium. Agrium is a leading global producer and marketer of agricultural nutrients, industrial products and specialty products, and a major retailer of agricultural
products and services in North and South America.
The
closing of the Tender Offer is subject to the stockholders of UAP Holding Corp. tendering a majority of the outstanding shares of UAP Holding Corp. common stock in the Tender Offer
and satisfaction of certain other conditions, including receipt of certain U.S. and Canadian regulatory approvals. On January 18, 2008, the Commissioner of Competition, appointed under the
Competition
Act of Canada, issued a "no action" letter with respect to the proposed transaction, thereby satisfying one of the closing conditions under the Merger Agreement.
If
the Merger is completed, we expect to cease reporting financial results as a stand-alone company. If the Merger is not completed and the Merger Agreement is terminated under certain
circumstances, UAP Holding Corp. may be liable to Agrium for a termination fee of $44 million, plus reimbursement to Agrium of up to $10 million in costs incurred by Agrium in
connection with the transactions. If the Merger is not completed due to failure to obtain regulatory approval, subject to
57
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
certain
conditions, Agrium may be liable to UAP Holding Corp. for a reverse break-up fee of $54 million.
See
Note 20, Subsequent Events
for additional information about the Tender Offer.
Principles of Consolidation.
The consolidated financial statements include our accounts and the
accounts of all our wholly-owned subsidiaries. Significant intercompany balances and transactions have been eliminated. Investments in and the operating results of 50%-or-less
owned entities over which we do not have the ability to exercise significant control are accounted for using the equity method of accounting.
Fiscal Year.
Our fiscal year operates on a 52-week or 53-week period ending
on the last Sunday in February. The 52 weeks ended February 24, 2008, will be referred to as "fiscal 2008," the 52 weeks ended February 25, 2007, will be referred to as
"fiscal 2007," and the 52 weeks ended February 26, 2006, will be referred to as "fiscal 2006."
Seasonality.
Our and our customers' businesses are seasonal, based upon the planting, growing, and
harvesting cycles. During fiscal years 2006 through 2008, more than 70% of our net sales occurred during the first and second fiscal quarters of each year because of the condensed nature of the
planting season. As a result of the seasonality of sales, we experience significant fluctuations in our revenues, income, and net working capital levels. In addition, weather conditions and changes in
the mix of crops planted can cause quarterly results to vary.
Since
our suppliers typically operate on a crop year, which is a different year than our fiscal year, our rebate agreements with our suppliers are estimated throughout the year. Changes
in estimates can impact our margin percentages by quarter.
Our
results of operations over any one quarter are not necessarily indicative of the results to be expected over the full fiscal year.
Use of Estimates.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make estimates and assumptions. These estimates or assumptions affect reported amounts of assets, liabilities, revenue, and
expenses as reflected in the financial statements. Actual results could differ from those estimates and the differences could be material. Estimates are also required for other items.
Cash and Cash Equivalents.
We consider all highly liquid investments with maturities of three months
or less when purchased to be cash equivalents.
Receivables and Allowance for Doubtful Accounts.
Our receivables include receivables from customers,
less allowances for doubtful accounts, vendor rebates receivable, and miscellaneous receivables. To establish our allowance for doubtful accounts, we evaluate the collectibility of specific accounts
receivable based upon a variety of factors, including customer credit worthiness, past payment performance, and collateral that we hold. We adjust the bad debt expense accordingly. We estimate
uncollectible receivables based on the historical bad debt experience and establish a general reserve accrual as sales are made. The specific estimates are adjusted when we are aware of changes in a
customer's ability to meet their financial commitments. We also make changes when we have additional
58
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
information
or collateral from the customer that substantiates the basis for a change. Some customers have insurance that may be assigned to us in the event of crop disasters and there may also be
government disaster payments.
While
we have a large customer base that is geographically dispersed, a decrease in crop yields and/or commodity prices in the markets in which we operate may result in higher than
expected uncollectible accounts, and, therefore, we may need to revise estimates for bad debts. To the extent that our historical credit experience is not indicative of future performance or other
assumptions used by management do not prevail, the allowance for doubtful accounts could differ significantly, resulting in either higher or lower future provisions (or credits) for doubtful accounts.
Vendor Rebate Receivables.
We receive vendor rebates, primarily from our chemical and seed suppliers.
Most rebates are covered by binding agreements and published programs. Other rebates can be open-ended, subject to future definition or revision. Rebates earned are generally based on
achieving targeted sales, purchases, volume tiers, sales growth, or market share growth rates.
Rebates
typically cover performance during the crop year, which is based on planting, growing, and harvesting cycles. This may differ from our fiscal year. The crop year for fiscal 2008
began as early as
September 2006 and ended as late as December 2007, depending on the product. Because of the timing of the crop year relative to our fiscal year and because most of our vendor programs are typically
not multi-year programs, the rebate income earned and recognizable for the crop year ended during the current fiscal year will largely be received and recorded by our fiscal
year-end. Since we estimate rebates earned from our vendors throughout the year, changes in estimates can impact our margin percentages by quarter.
Rebates
that are probable and can be reasonably estimated are accrued at expected rates based on total estimated crop year performance. Rebates that are not probable or estimable are
accrued when certain milestones are achieved. Rebates not covered by binding agreements or published vendor programs are accrued when conclusive documentation of right of receipt is obtained.
Rebates
based on the amount of materials purchased reduce cost of goods sold as inventory is sold. Rebates that are based on sales volume are offset to cost of goods sold when we
determine they have been earned based on our sales volume of related products.
Inventories.
Inventories consist primarily of chemicals, fertilizer, and seed products purchased from
our suppliers, or produced by one of our three facilities, for resale to our customers. We record inventory at the lower of cost or market. Inherent in our criteria for valuing inventory at the lower
of cost or market are certain significant management judgments and estimates including, among others, evaluating market prices in volatile commodity markets and determining the impact of obsolete or
slow-moving inventory on inventory values. We maintain perpetual inventory systems, which we reconcile to physical counts at each location periodically.
We
account for rebates and prepay discounts as a reduction of the prices of the suppliers' products. At February 24, 2008, and February 25, 2007, our inventory included
reductions of $22.3 million and $13.8 million, respectively, for rebates and prepays discounts paid on purchases which had not yet been sold and therefore were unearned.
59
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
Vendor Prepayments.
Prepayments to vendors consist of payments for inventory that has not yet been
received. We are able to obtain discounts by prepaying for product and receiving it later, when needed. When the inventory is received, it is valued at cost, which is net of the applicable discount.
Other Current Assets.
Other current assets include certain prepaid expenses and assets held for sale.
If we decide to sell certain long-lived assets and certain criteria are met, including probable sale of the assets within one year, we classify the assets as assets held for sale. These
assets
are recorded at the lower of their carrying amount or fair value less cost to sell. At February 24, 2008 and February 25, 2007, there were $1.0 million and $1.7 million,
respectively, of assets held for sale included in other current assets. During fiscal 2008, we entered into a sale and leaseback agreement for machinery and equipment, previously classified as assets
held for sale, totaling $1.5 million. Because the assets were previously written down to their fair value, no gain or loss was recognized on this transaction.
Property and Equipment.
Property and equipment are recorded at cost and depreciated based on the
following estimated useful lives of the assets:
Land improvements
|
|
15 years
|
Buildings
|
|
15 - 40 years
|
Leasehold improvements
|
|
1 - 15 years
|
Machinery and equipment
|
|
5 - 10 years
|
Furniture, fixtures, office equipment, and other
|
|
3 - 7 years
|
Maintenance
and repair costs are charged to expense as incurred. Renewals and improvements that extend the useful lives of assets are capitalized. Gains or losses are recognized upon
disposition.
Impairment of Long-Lived Assets Other than Goodwill.
We periodically evaluate the
recoverability of the carrying amount of long-lived assets to be held and used, other than goodwill and purchased intangible assets with indefinite useful lives, whenever events or changes
in circumstances indicate the carrying amounts of such assets may not be fully recoverable. We evaluate events or changes in circumstances based on a number of factors including operating results,
business plans and forecasts, general industry trends and economic projections, and anticipated cash flows. An impairment exists when the undiscounted expected future cash flows derived from an asset
are less than its carrying amount. In that event, an impairment charge is recognized to the extent the carrying value of the asset exceeds its fair value.
Goodwill.
Goodwill represents the excess of the purchase price paid over the fair value of the net
assets acquired in connection with the business acquisitions plus costs of acquisition. Goodwill is not
amortized. In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets," we test goodwill for impairment annually as well as whenever events or changes in circumstances indicate that
the carrying amount may not be fully recoverable. We completed our annual goodwill impairment test as of November 25, 2007, and determined that there was no impairment as of that date. We may
be subject to earnings volatility if goodwill impairment occurs at a future date.
Intangible Assets, Net.
Intangible assets consist primarily of assets acquired in our acquisitions
and are recorded at their respective fair market values in accordance with SFAS No. 141, "Business Combinations." Our intangible assets consist of finite-lived and indefinite-lived assets.
Finite-lived
60
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
intangible
assets are tested for impairment as noted above under "Impairment of Long-Lived Assets Other than Goodwill" and are amortized based on their estimated useful lives as follows:
EPA registrations
|
|
10 years
|
Customer relationships
|
|
10 years
|
Non-compete agreements
|
|
5 - 8 years
|
Product supply arrangements
|
|
3 - 5 years
|
Other
|
|
5 - 10 years
|
Trademarks
are considered indefinite-lived assets. Indefinite-lived assets are not amortized but tested for impairment in accordance with SFAS No. 142, "Goodwill and Other
Intangible Assets."
No
impairment of intangible assets was recognized in fiscal years 2008, 2007, or 2006.
Investments in Unconsolidated Affiliates.
Our investment in unconsolidated affiliates consist of
investments in which we have a less than 50% ownership. These investments are accounted for using the equity
method of accounting and our proportionate share of income resulting from this investment is included in our operating income under "Royalties, service charges and other income and expenses."
Our
investment in unconsolidated affiliates was $0.4 million at February 24, 2008, and $0.1 million at February 25, 2007. Our share of the equity in
unconsolidated affiliate earnings was $(0.2) million in fiscal year 2008, $(0.5) million in fiscal year 2007, and $2.6 million in fiscal year 2006.
In
fiscal 2006, our investment in unconsolidated affiliates included a 50% ownership in UAP Timberland, LLC which was accounted for using the equity method of accounting.
In March 2006, we purchased the other 50% interest in the joint venture which resulted in this affiliate's financial statements being consolidated beginning in fiscal 2007. See
Note 6. Acquisitions and
Divestitures
for additional information.
Accounts Payable.
Accounts payable includes payables to our vendors for goods or services we have
received. At the end of the crop season, some of our vendors agree to repurchase our inventory that is currently on hand and allow us to repurchase such inventory under new terms, effectively
extending our terms to the next crop season.
Customer Prepayments.
When customers give us advances, in exchange for a future discount or
agreed-to-pricing, they are recorded as customer prepayments.
Other Accrued Liabilities.
Other accrued liabilities include liabilities for expenses, claims
incurred but not yet billed, checks not yet presented, and asset retirement obligations, self-insurance reserves and environmental reserves as set forth below. Checks not yet presented
represent bank accounts with negative balances due to outstanding checks not yet presented to the bank. We may also provide additional discounts and cash rebates to customers that meet certain target
programs, which are accrued in this account.
Self-Insurance Reserves.
We are self-insured for certain losses and expenses within the retentions of
our insurance policies for claims relating to workers' compensation, employee medical, automobile, general and product liability, and crop claims, as well as claims for which we are not insured
61
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
("self-insured
losses"). We maintain stop loss coverage to limit the exposure that could arise out of such claims. Self-insurance losses for claims filed and claims incurred
but not reported are accrued based upon our estimates of the aggregate liability for uninsured claims using loss development factors and actuarial assumptions followed in the insurance industry and
our historical loss development experience. Our reserves for self-insured losses were $10.4 million on February 24, 2008, and $11.4 million on February 25,
2007. To the extent the projected losses resulting from claims incurred as of February 24, 2008, differ from the actual development of such losses in future periods, our
self-insurance reserves could differ significantly, resulting in either higher or lower future self-insurance expenses.
Environmental Reserves.
Environmental costs, other than those of a capital nature, are accrued at the time the exposure
becomes known and costs can reasonably be estimated. Costs are accrued based upon management's estimates of all direct costs, after taking into account reimbursements by third parties. We do not
accrue liabilities for unasserted claims that we do not reasonably believe are probable or for which we do not believe it is possible to develop an estimate of the range of reasonably possible
environmental loses due to uncertainties regarding the status of laws, regulations, enforcement policies, the impact of other potentially responsible parties, technology, information related to
individual sites, and other factors. Our environmental reserves were $2.5 million and $2.6 million as of February 24, 2008, and February 25, 2007, respectively. To the
extent the projected future development of losses resulting from environmental claims incurred as of February 24, 2008, differs from the actual development of such losses in future periods, our
environmental reserves could differ significantly, resulting in either higher or lower future expense.
Asset Retirement Obligations.
SFAS No. 143, "Accounting for Asset Retirement Obligations," ("SFAS 143")
requires us to record an asset and related liability for the costs associated with the retirement of long-lived tangible assets when a legal obligation to retire the asset exists. This
includes obligations incurred as a result of the acquisition, construction, or normal operation of a long-lived asset. In March 2005, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 47 ("FIN 47") "Accounting for Conditional Asset Retirement Obligations," providing final guidance that clarifies how companies should account for asset
retirement obligations at fair value at the time the liability is incurred. Accretion expense is recognized as an operating expense using the credit-adjusted risk-free interest rate in
effect when the liability was recognized. The associated asset retirement obligations are capitalized as part of the carrying amount of the long-lived asset and depreciated over the
estimated remaining useful life of the asset. The majority of our asset retirement obligations relate to environmental testing and potential property restoration costs.
Fair Values of Financial Instruments.
Unless otherwise specified, we believe the carrying amount of
financial instruments approximates their fair value.
Revenue Recognition.
Sales revenue is recognized when the earnings process is complete, which is
generally when title and risk of ownership are transferred to our customers. In all cases, we apply the following criteria in recognizing revenue: persuasive evidence of an arrangement exists,
delivery has occurred or services have been rendered, the selling price is fixed or determinable, and collection is reasonably assured. Sales revenue is recognized as the net amount to be received
after deducting estimated amounts for discounts, trade allowances, customer rebates, and product returns. Service fee
62
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
income
and royalty income are recognized when earned and are included in other income. All taxes collected from customers that are remitted to governmental authorities are excluded from revenues.
Concentration of Credit Risk.
The majority of our sales are credit sales, which are made primarily to
customers whose ability to pay is dependent, in part, upon the weather conditions and general economic conditions in the areas in which they operate. Concentration of credit risk with respect to trade
accounts receivable is limited by the large number of customers comprising our customer base and the geographic regions in which they operate. We perform ongoing credit evaluations of our customers
and in certain situations obtain collateral sufficient to protect our credit position.
Shipping and Handling Fees and Costs.
We include shipping and handling fees billed to customers in
net sales. Shipping and handling costs associated with inbound freight are capitalized to inventories and included in cost of sales as inventories are sold. Shipping and handling costs associated with
outbound freight are included within distribution and delivery expense as part of cost of goods sold.
Income Taxes.
Income taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized in income in the period that includes the enactment date. Valuation allowances are established when
necessary to reduce deferred tax assets to the amounts more likely than not to be realized.
The
determination of our provision for income taxes requires significant judgment, the use of estimates, and the interpretation and application of complex tax laws. Significant judgment
is required in assessing the timing and amounts of deductible and taxable items and the probability of sustaining uncertain tax positions. The benefit of uncertain tax positions are recorded in our
financial statements only after determining a more-likely-than-not probability that the uncertain tax positions will withstand challenge, if any, from taxing
authorities. Any tax benefit recorded for uncertain tax positions is measured at the amount at which the Company believes has a greater than 50% probability of being sustained. When facts and
circumstances change, we reassess these probabilities and record any changes in the financial statements as appropriate. FASB No. 48, "Accounting for Uncertainty in Income Taxes"
("FIN 48"), effective for the Company for fiscal year
2008, sets out the framework by which such judgments are to be made. FIN 48 was adopted for fiscal year 2008. The impact of adoption of FIN 48 is discussed in
Note 9.
63
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
Earnings Per Share.
Earnings per share are based on the weighted average number of shares of common
stock outstanding during the period as follows:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
(in thousands, except share data)
|
Net Income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
|
|
|
|
|
|
Weighted average shares of common stock outstanding used in computing basic earnings per share
|
|
|
52,078,318
|
|
|
50,972,368
|
|
|
50,494,690
|
Net effect of dilutive stock options and restricted stock units
|
|
|
1,160,390
|
|
|
1,497,129
|
|
|
1,757,822
|
|
|
|
|
|
|
|
Weighted average shares of common stock used in computing diluted earnings per share
|
|
|
53,238,708
|
|
|
52,469,497
|
|
|
52,252,512
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
1.57
|
|
$
|
0.66
|
|
$
|
1.31
|
Diluted earnings per share
|
|
$
|
1.53
|
|
$
|
0.64
|
|
$
|
1.27
|
Dividends.
Dividends are recorded when declared. In addition to dividends to our stockholders, the
restricted stock units that we have granted to eligible employees, management, and members of our board of directors include the right to receive dividend equivalent payments on each RSU that are
equal to dividends paid on each share of our common stock.
Foreign Currency Translation.
The assets and liabilities of our Canadian subsidiary are translated
using exchange rates at the balance sheet date. The income statement is translated using average exchange rates for the period. Related translation adjustments are recorded as a component of
accumulated other comprehensive income.
Accumulated Other Comprehensive Income.
Comprehensive income is net income plus certain other items
that are recorded directly to shareholders' equity. Amounts included in accumulated other comprehensive income for the Company's derivative instruments are recorded net of the related income tax
effects. Deferred taxes are not provided on translation adjustments as the differences between the financial carrying value and tax basis arising from these adjustments are considered essentially
permanent in duration under SFAS 109, Accounting for Income Taxes.
Stock-Based Compensation.
On February 27, 2006, the beginning of fiscal 2007, the Company
adopted SFAS 123(R), Share-Based Payments ("SFAS 123(R)") which requires the measurement and recognition of compensation cost for all share-based payment awards made to employees and
directors based on the grant date estimated fair value of each award, net of estimated forfeitures, over the employee's requisite service period. Prior to the adoption of SFAS 123(R), the
Company accounted for share-based awards to employees and directors using the intrinsic value method in accordance with APB 25, Accounting for Stock Issued to Employees ("APB 25") as
allowed under SFAS 123, Accounting for Stock Based Compensation ("SFAS 123"). Under the intrinsic value method, no share-based compensation cost related to stock options was recognized
in the Company's earnings because the exercise price was at least equal to the market value of the common stock on the grant date.
64
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
1. Description of the Business and Summary of Significant Accounting Policies (Continued)
The
Company elected to use the modified prospective transition method upon adoption of SFAS 123(R), which requires the application of the accounting standard on the first day of
the Company's fiscal year 2007. In accordance with this transition method, the Company's consolidated
financial statements for prior periods have not been restated to reflect, and do not include, the impact of SFAS 123(R).
Under
SFAS 123(R), for share-based payment awards granted subsequent to February 27, 2006, the fair value of awards that are expected to ultimately vest is recognized as
expense over the requisite service periods. SFAS 123(R) requires forfeitures to be estimated at the time of grant in order to estimate the amount of share-based payment awards that will
ultimately vest. Forfeiture rates are based on historical rates. The estimated forfeiture rate is adjusted if actual forfeitures differ from original estimates. The effect of any change in estimated
forfeitures is recognized through a cumulative catch-up adjustment that will be included in compensation cost in the period of the change in estimate. For share-based payment awards
granted prior to February 27, 2006, the Company recognizes remaining unvested SFAS 123 pro forma expenses according to the remaining vesting conditions.
Hedging Instruments.
We use a limited number of derivative financial instruments to mitigate our
interest rate and foreign currency exposure. Derivative instruments are recorded on the consolidated balance sheet at their fair value as either assets or liabilities. To date, our designated hedge
transactions have been cash-flow hedges. For cash-flow hedge transactions, the effective portion of the changes in fair value of derivatives are reported as other comprehensive
income and are recognized in interest expense in the period or periods during which the hedged transaction effects current earnings. Amounts excluded from the effectiveness calculation and any
ineffective portions of the change in fair value of the derivative of a cash-flow hedge are recognized in current earnings. For a derivative to qualify as a hedge at inception and
throughout the hedged period, we formally document the nature and relationships between the hedging instruments and hedged items. We also document our risk-management objectives,
strategies for undertaking various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected
terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it is later deemed probable that the forecasted transaction
will not occur, the gain or loss is recognized in current earnings. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedge instrument
and the item being hedged, both at inception and throughout the hedged period. Significant hedges are approved by the board of directors. The company does not use derivative financial instruments for
trading or speculative purposes.
2. New Accounting Standards Not Yet Adopted
Business Combinations and Noncontrolling Interests.
In December 2007, the FASB issued Statement of
Financial Accounting Standards No. 141(R), "Business Combinations" ("SFAS 141(R)") and Statement of Financial Accounting Standards No. 160 "Accounting and Reporting of
Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51" ("SFAS 160"). SFAS 141(R) and SFAS 160 significantly change the accounting for
and reporting of business combination transactions and noncontrolling (minority) interests. SFAS 141(R) and SFAS 160 are effective for the fiscal years beginning after
December 15, 2008. SFAS 141(R) and SFAS 160 are
65
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
2. New Accounting Standards Not Yet Adopted (Continued)
effective
prospectively; however, the reporting provisions of SFAS 160 are effective retroactively. SFAS 141(R) applies prospectively to business combinations for which the acquisition
date is on or after December 15, 2008. Earlier adoption is prohibited. Accordingly, we will record and disclose business combinations under the revised standards beginning in
February 2009.
Fair Value Option for Financial Assets and Financial Liabilities.
In February 2007, the FASB issued
Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115"
("SFAS 159"). SFAS 159 permits an entity to elect fair value as the initial and subsequent measurement attribute for many financial assets and liabilities. SFAS 159 is effective
for the fiscal years beginning after November 15, 2007. The Company does not currently expect to elect to measure any eligible financial instruments at fair value under this guidance.
Fair Value Measurement.
In September 2006, the FASB issued Statement of Financial Accounting
Standards No. 157, "Fair Value Measurements" ("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value in accordance with generally accepted
accounting principles and expands disclosures about fair value measurements. SFAS 157 is effective for the fiscal years beginning after November 15, 2007; however, the FASB has agreed to
a one-year deferral of the adoption of the SFAS 157 for nonfinancial assets and liabilities. The Company's evaluation of the impact of the adoption of SFAS 157 is ongoing;
however, the Company does not expect the impact of SFAS 157 on the Company's financial condition and results of operations to be material. The Company anticipates the primary impact of the
standard will be the measurement of fair value in its recurring impairment test calculation for goodwill and the valuation of its derivative financial instruments, and investments held by its pension
plan.
Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards.
In June 2007, the FASB
ratified Emerging Issues Task Force No. 06-11 "Accounting for the Income Tax Benefits of Dividends on Share-Based Payments Awards" ("EITF 06-11").
EITF 06-11 requires companies to recognize the tax benefits of dividends on unvested share-based payments in equity and reclassify those tax benefits from additional
paid-in capital (APIC) to the income statement when the related award is forfeited or no longer expected to vest. The amount reclassified is limited to the amount of the Company's APIC
pool balance on the reclassification date. EITF 06-11 is effective, on a prospective basis, for fiscal years beginning after December 15, 2007. The Company is currently
reviewing the requirements of this statement and, at this time, we cannot determine the impact, if any, that this statement may have on our business, financial condition, cash flow, results of
operations, or liquidity.
Collaborative Arrangements.
In December 2007, the FASB ratified the Emerging Issues Task Force
consensus on EITF Issue No. 07-1, "Accounting for Collaborative Arrangements" ("EITF 07-1") that discusses how parties to a collaborative arrangement (which does
not establish a legal entity within such arrangement) should account for and report on various activities. EITF 07-1 is effective for the Company beginning February 23, 2009
and is to be applied retrospectively to all periods presented for collaborative arrangements existing as of the date of adoption. The Company is currently reviewing the requirements of this statement
and, at this time, we cannot determine the impact, if any, that this statement may have on our business, financial condition, cash flow, results of operations, or liquidity.
66
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
2. New Accounting Standards Not Yet Adopted (Continued)
Disclosures about Derivative Instruments and Hedging Activities.
In March 2008, the Financial
Accounting Standards Board issued SFAS Statement No. 161, "Disclosures about Derivative Instruments and Hedging Activities" ("SFAS 161"). This standard is intended to improve financial
reporting about derivative instruments and hedging activities by requiring enhanced disclosures to enable investors to better understand their effects on an entity's financial position, financial
performance, and cash flows. It is effective for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. The
Company is currently evaluating the impact, if any, that this statement will have on its disclosures related to hedging activities.
3. Receivables, Net
Our receivables include receivables from customers, net of allowances for doubtful accounts, vendor rebates receivable, and miscellaneous receivables as follows:
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
|
(in thousands)
|
|
Receivables and Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
Receivables from customers
|
|
$
|
287,177
|
|
$
|
289,160
|
|
|
Allowance for doubtful accounts
|
|
|
(16,397
|
)
|
|
(15,735
|
)
|
|
|
|
|
|
|
|
|
Receivables from customers, net
|
|
|
270,780
|
|
|
273,425
|
|
|
Vendor rebates receivable
|
|
|
64,298
|
|
|
47,439
|
|
|
Miscellaneous receivables
|
|
|
14,826
|
|
|
17,365
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
349,904
|
|
$
|
338,229
|
|
|
|
|
|
|
|
4. Inventories
Inventories are comprised of the following:
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
(in thousands)
|
Inventories:
|
|
|
|
|
|
|
|
Raw materials and work in process
|
|
$
|
21,762
|
|
$
|
18,129
|
|
Finished goods
|
|
|
1,041,718
|
|
|
864,904
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,063,480
|
|
$
|
883,033
|
|
|
|
|
|
67
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
5. Property, Plant and Equipment
Property, plant and equipment are comprised of the following:
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
|
(in thousands)
|
|
Property, Plant and Equipment:
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
20,689
|
|
$
|
16,594
|
|
|
Buildings and leasehold improvements
|
|
|
80,908
|
|
|
67,057
|
|
|
Machinery and equipment
|
|
|
43,618
|
|
|
34,488
|
|
|
Furniture, fixtures, office equipment and other
|
|
|
20,243
|
|
|
17,774
|
|
|
Construction in progress
|
|
|
3,881
|
|
|
9,542
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
169,339
|
|
|
145,455
|
|
|
Less: accumulated depreciation
|
|
|
(47,908
|
)
|
|
(35,234
|
)
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
121,431
|
|
$
|
110,221
|
|
|
|
|
|
|
|
We
recognized an impairment charge of $0.6 million for fiscal 2008 and $0.1 million for fiscal 2006 related to property, plant and equipment. No impairment charge was
recognized for fiscal 2007.
6. Acquisitions and Divestitures
During fiscal 2008, we acquired four retail distribution locations from independent retail distributors and paid $8.7 million in purchase price. The total
initial purchase price paid may increase or decrease primarily due to adjustments to working capital made in accordance with contractual provisions.
During
fiscal 2007, we acquired 11 businesses at a total initial purchase price of $82.1 million, net of cash received. We also paid an additional $6.5 million in
fiscal 2008, for certain items, primarily customary working capital adjustments, related to prior acquisitions. Our major acquisitions in fiscal 2007 were (a) the first fiscal quarter purchase
of the remaining 50% share of our joint venture in UAP Timberland, LLC, (b) the third fiscal quarter purchase of Terral AgriServices, Inc. and certain assets of Terral
FarmService, Inc. and Wisner Elevator, Inc., and (c) the fourth fiscal quarter purchase of certain retail and service assets of AGSCO, Inc. and AG Depot, Inc., and
certain retail distribution assets of Boettcher Enterprises.
In
addition to the initial consideration for our acquisitions, certain acquisition agreements contain performance based earn-out clauses. These contingent
earn-outs amount to a maximum payment of $3.0 million in a given year and an aggregate maximum payment of $4.6 million. Any contingent earn-out payment made would
be accounted for as additional purchase price and would likely increase goodwill. At February 24, 2008, goodwill includes $0.4 million related to payment and $1.4 million for
accrual of these earn-outs.
68
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
6. Acquisitions and Divestitures (Continued)
A
summary of the estimated fair values of assets acquired and liabilities assumed at the acquisition dates for fiscal 2008 and fiscal 2007 acquisitions are as follows (in thousands):
|
|
Fiscal 2008
Acquisitions
|
|
Fiscal 2007
Acquisitions
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
Cash paid in fiscal year ended February 25, 2007
|
|
$
|
|
|
$
|
82,125
|
|
|
Cash paid in fiscal year ended February 24, 2008
|
|
|
8,702
|
|
|
6,535
|
|
|
Accrued earn-outs at February 24, 2008
|
|
|
|
|
|
1,385
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
8,702
|
|
$
|
90,045
|
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
|
|
$
|
24,372
|
|
|
Inventories
|
|
|
2,337
|
|
|
55,873
|
|
|
Property, plant and equipment
|
|
|
2,096
|
|
|
10,779
|
|
|
Customer relationships
|
|
|
3,806
|
|
|
16,607
|
|
|
Non-compete agreements
|
|
|
406
|
|
|
3,124
|
|
|
Other
|
|
|
677
|
|
|
1,297
|
|
|
|
|
|
|
|
Total assets acquired
|
|
|
9,322
|
|
|
112,052
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
|
|
(37,822
|
)
|
|
Other
|
|
|
(1,624
|
)
|
|
(5,328
|
)
|
|
|
|
|
|
|
Total liabilities assumed
|
|
|
(1,624
|
)
|
|
(43,150
|
)
|
|
|
|
|
|
|
Net assets acquired
|
|
$
|
7,698
|
|
$
|
68,902
|
|
|
|
|
|
|
|
Goodwill at February 24, 2008
|
|
$
|
1,004
|
|
$
|
21,143
|
|
|
|
|
|
|
|
Had
the fiscal 2007 acquisitions occurred at the beginning of fiscal 2007, and fiscal 2006, an estimate of certain pro forma operating results is as follows (in thousands, except share
data):
|
|
Fiscal Year
Ended
February 25, 2007
|
|
Fiscal Year
Ended
February 25, 2006
|
Revenue
|
|
$
|
3,064,048
|
|
$
|
3,042,941
|
Net income
|
|
$
|
35,699
|
|
$
|
69,660
|
Earnings per shareBasic
|
|
$
|
0.70
|
|
$
|
1.38
|
Diluted
|
|
$
|
0.68
|
|
$
|
1.33
|
During
fiscal 2008, we sold a retail location in Washington for total consideration of $2.2 million. During fiscal 2007, we sold a portion of our retail locations in western
Canada for total consideration of $7.6 million.
69
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
7. Intangible Assets
Intangible assets are as follows:
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
|
(in thousands)
|
Intangible Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EPA registrations
|
|
$
|
5,450
|
|
$
|
(2,316
|
)
|
$
|
3,134
|
|
$
|
5,450
|
|
$
|
(1,771
|
)
|
$
|
3,679
|
|
|
Customer relationships
|
|
|
24,356
|
|
|
(6,505
|
)
|
|
17,851
|
|
|
20,851
|
|
|
(1,765
|
)
|
|
19,086
|
|
|
Non-compete agreements
|
|
|
6,769
|
|
|
(3,267
|
)
|
|
3,502
|
|
|
6,063
|
|
|
(2,177
|
)
|
|
3,886
|
|
|
Product supply arrangements
|
|
|
8,534
|
|
|
(1,032
|
)
|
|
7,502
|
|
|
4,000
|
|
|
(200
|
)
|
|
3,800
|
|
|
Other
|
|
|
5,082
|
|
|
(2,431
|
)
|
|
2,651
|
|
|
4,948
|
|
|
(1,723
|
)
|
|
3,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
50,191
|
|
$
|
(15,551
|
)
|
$
|
34,640
|
|
$
|
41,312
|
|
$
|
(7,636
|
)
|
$
|
33,676
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-amortizing intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
14,000
|
|
|
|
|
|
14,000
|
|
|
14,000
|
|
|
|
|
|
14,000
|
|
|
Other
|
|
|
2,400
|
|
|
|
|
|
2,400
|
|
|
2,400
|
|
|
|
|
|
2,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal
|
|
$
|
16,400
|
|
$
|
|
|
$
|
16,400
|
|
$
|
16,400
|
|
$
|
|
|
$
|
16,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
66,591
|
|
$
|
(15,551
|
)
|
$
|
51,040
|
|
$
|
57,712
|
|
$
|
(7,636
|
)
|
$
|
50,076
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
fiscal 2008 increase in other identifiable intangible assets is related to the asset purchase of several businesses during the year and product supply arrangements. The customer
relationships related to our acquisitions are generally amortized on an accelerated basis, a method that approximates the rate in which the economic benefits of the intangible are utilized. At
February 24, 2008, the weighted average period for amortizing intangible assets on a combined basis is 4.1 years.
The
aggregate amortization expense for the fiscal years ended February 24, 2008, February 25, 2007, and February 26, 2006, was $8.2 million,
$3.0 million, and $1.4 million, respectively. Based on our intangible asset base on February 24, 2008, we estimate that our total annual amortization expense will be approximately
$8.6 million, $7.3 million, $6.5 million, $4.8 million, and $2.9 million for each of the next five fiscal years, respectively.
8. Debt Issuance Costs
Debt issuance costs are being amortized on a straight-line basis, which approximates the effective interest method, over the terms of the debt to
which the costs relate. The related amortization is recognized as interest expense. Our debt issuance costs, net of amortization, were $9.3 million and $5.4 million at the end of fiscal
2008, and fiscal 2007, respectively. Our debt issuance costs at the end of
fiscal 2007 consisted of costs associated with United Agri Products' revolving credit facility, United Agri Products' 8
1
/
4
% Senior Notes due 2011 (the "8
1
/
4
% Senior
Notes"), and our 10
3
/
4
% Senior Discount Notes due 2012 (the "10
3
/
4
% Senior Discount Notes"). During fiscal 2007, we wrote off $16.1 million of debt issuance costs
related to our previous financing arrangement. During fiscal 2008, we added $5.5 million related to the $225 million increase in our term loan.
70
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
9. Income Taxes
The following table summarizes our income tax provision:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
|
(in thousands)
|
|
Income tax provision (benefit):
|
|
|
|
|
|
|
|
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
$
|
52,161
|
|
$
|
18,362
|
|
$
|
38,050
|
|
|
U.S. state
|
|
|
4,092
|
|
|
1,933
|
|
|
3,832
|
|
|
Outside United States
|
|
|
4,079
|
|
|
3,347
|
|
|
2,462
|
|
|
|
|
|
|
|
|
|
|
|
Total Current
|
|
|
60,332
|
|
|
23,642
|
|
|
44,344
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal
|
|
|
(7,428
|
)
|
|
(163
|
)
|
|
(2,081
|
)
|
|
U.S. state
|
|
|
364
|
|
|
(1,066
|
)
|
|
(424
|
)
|
|
Outside United States
|
|
|
98
|
|
|
36
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
Total Deferred
|
|
|
(6,966
|
)
|
|
(1,193
|
)
|
|
(2,207
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,366
|
|
$
|
22,449
|
|
$
|
42,137
|
|
|
|
|
|
|
|
|
|
The
factors which cause our effective tax rate to differ from the U.S. federal statutory rate are as follows:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
|
(in thousands)
|
|
Factors causing income taxes to differ from U.S. federal statutory rate:
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal statutory rate
|
|
$
|
47,222
|
|
$
|
19,566
|
|
$
|
37,981
|
|
|
Dividends on shares of stock held in a rabbi trust
|
|
|
|
|
|
(101
|
)
|
|
(387
|
)
|
|
State income taxes
|
|
|
4,456
|
|
|
1,822
|
|
|
3,408
|
|
|
Foreign credits
|
|
|
(396
|
)
|
|
(528
|
)
|
|
(461
|
)
|
|
Non-deductible Tender Offer costs
|
|
|
1,002
|
|
|
|
|
|
|
|
|
Other
|
|
|
1,082
|
|
|
1,690
|
|
|
1,596
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
53,366
|
|
$
|
22,449
|
|
$
|
42,137
|
|
|
|
|
|
|
|
|
|
71
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
9. Income Taxes (Continued)
Deferred
tax assets and liabilities have been recorded as follows:
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
|
(in thousands)
|
|
Deferred income tax balances relate to:
|
|
|
|
|
|
|
|
|
Allowances
|
|
$
|
9,360
|
|
$
|
8,615
|
|
|
Inventories
|
|
|
10,589
|
|
|
9,868
|
|
|
Accrued expenses
|
|
|
9,529
|
|
|
9,304
|
|
|
Pension and other postretirement benefits
|
|
|
226
|
|
|
259
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax assets
|
|
|
29,704
|
|
|
28,046
|
|
|
Non-current liabilities
|
|
|
231
|
|
|
430
|
|
|
Depreciation and amortization
|
|
|
798
|
|
|
390
|
|
|
Foreign tax credit carryover
|
|
|
|
|
|
863
|
|
|
Stock-based compensation
|
|
|
3,685
|
|
|
1,774
|
|
|
Federal tax benefit of state FIN 48 liabilities
|
|
|
820
|
|
|
|
|
|
Interest rate swaps (included in accumulated other comprehensive income)
|
|
|
3,562
|
|
|
991
|
|
|
|
|
|
|
|
|
|
Total long-term deferred tax asset
s
|
|
|
9,096
|
|
|
4,448
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
38,800
|
|
|
32,494
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
(1,786
|
)
|
|
(1,692
|
)
|
|
Other
|
|
|
(341
|
)
|
|
(508
|
)
|
|
|
|
|
|
|
|
|
|
|
Total current deferred tax liabilitie
s
|
|
|
(2,127
|
)
|
|
(2,200
|
)
|
|
Depreciation and amortization
|
|
|
(2,170
|
)
|
|
(3,126
|
)
|
|
Basis differenceacquired assets
|
|
|
(12,758
|
)
|
|
(14,827
|
)
|
|
|
|
|
|
|
|
|
|
|
Total long-term deferred tax liabilities
|
|
|
(14,928
|
)
|
|
(17,953
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilitie
s
|
|
|
(17,055
|
)
|
|
(20,153
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
s
|
|
$
|
21,745
|
|
$
|
12,341
|
|
|
|
|
|
|
|
We
adopted the provisions of FIN 48 at the beginning of our current fiscal year, as required. The cumulative effect of adoption was a $1.2 million reduction of retained
earnings. At February 25, 2007, the total amount of unrecognized tax benefits, excluding interest, was $4.2 million, all of which would impact the effective tax rate, if recognized. Upon
adoption, approximately $4.1 million of the unrecognized tax benefits were reflected in other non-current liabilities.
Interest
and penalties associated with uncertain tax positions are recognized as components of "Income tax expense." The Company's accrual for interest and penalties was
$0.3 million upon adoption of FIN 48.
At
February 24, 2008, the total amount of unrecognized tax benefits was $4.3 million, all of which would impact the effective tax rate if recognized. The Company's accrual
for interest and penalties was $0.8 million at February 24, 2008. The Company accrued $0.5 million for interest and penalties during fiscal 2008.
72
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
9. Income Taxes (Continued)
A reconciliation of the beginning and ending amount of unrecognized tax benefits, excluding interest, is as follows (in thousands):
Balance at February 25, 2007
|
|
$
|
4,178
|
Additions based on tax positions related to current year
|
|
|
148
|
|
|
|
|
Balance at February 24, 2008
|
|
$
|
4,326
|
The
Company is subject to U.S. federal, state and local income tax audits for fiscal 2004 through fiscal 2008. The Company is also subject to Canadian income tax audits for fiscal 2006
through fiscal 2008. It is reasonably possible that the amount of unrecognized tax benefits could decrease between $1 million and $2 million in the next 12 months due to
completion of income tax audits related to the Apollo acquisition of United Agri Products from ConAgra and the expiration of federal and state statute of limitations.
10. Other Non-Current Liabilities
Hedging Activities.
In July 2006, in compliance with the terms of our new credit facility, we entered
into two interest rate swaps to manage exposure to changes in cash flows related to changes in the variable interest rate on a portion of our long term debt. Under the terms of the swaps, we will pay
a designated fixed rate and receive a variable rate which is based on LIBOR. The rate received is expected to offset the variable rate to be paid on the long term debt which is also based on LIBOR.
The
hedge transactions are designated as cash flow hedges. Since the critical terms of the cash flow hedge match the critical terms of the hedged item, using the critical terms test
under SFAS 133, "Accounting for Derivative Instruments and Hedging Activities," we have concluded that there is no hedge ineffectiveness as changes in cash flows attributable to the risk being
hedged are expected to be offset completely by the changes in the hedging relationship. As such, no gain or loss due to hedge ineffectiveness has been recognized.
At
February 24, 2008, and February 25, 2007, we had two outstanding interest rate swaps with a total notional value of $165 million. These are amortizing swaps and
their notional values will decline to $90 million prior to expiration in July 2011. The fair value of the interest rate swaps is the estimated amount that we would receive or (pay) to terminate
the agreements at the reporting date, taking into account current interest rates and the creditworthiness of the counterparty. The fair value of the interest rate swaps at February 24, 2008,
and February 25, 2007, was $(9.4) million and $(2.6) million, respectively, and are classified as "Other non-current liabilities" on the balance sheet. The
mark-to-market loss, net of taxes, included in accumulated other comprehensive income at February 24, 2008, and February 25, 2007, was $5.8 million and
$1.6 million, respectively.
In
fiscal 2008, $0.5 million of accumulated other comprehensive loss was recognized in earnings. No significant gains or losses were transferred from accumulated other
comprehensive income and recognized within earnings during fiscal 2007. At February 24, 2008, the amount of accumulated other comprehensive loss expected to be reclassified into earnings within
the next 12 months is approximately $3.8 million.
73
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
10. Other Non-Current Liabilities (Continued)
Asset Retirement Obligations.
We also have asset retirement obligations related to SFAS 143,
"Accounting for Asset Retirement Obligations." At each of February 24, 2008, February 25, 2007, and February 26, 2006, the total asset retirement obligations were
$0.3 million.
11. Debt
Senior Secured Credit Facility.
In June 2006, United Agri Products refinanced both its revolving
credit facility and Senior Notes with borrowings under a new senior secured credit facility. The senior secured credit facility at that time included a six-year $175 million senior
secured term loan facility and a five-year senior secured asset based revolving credit facility in an aggregate principal amount of $675 million, including $50 million for
letters of credit (jointly referred to hereafter as the "senior secured credit facility").
In
October 2007, United Agri Products amended the senior secured credit facility to, among other things, increase its senior secured term loan facility by $225 million to a total
of $400 million. Proceeds from the increase were used to pay down the outstanding balance under United Agri Products' revolving credit facility and to pay related fees and expenses.
Interest
rates with respect to the term loan facility are based on, at United Agri Products' option, (a) LIBOR plus the applicable margin (as defined below) and (b) the
base rate, which will be the higher of (i) the rate publicly quoted by The Wall Street Journal as the "base rate on corporate loans posted by at least 75% of the nation's 30 largest banks" and
(ii) the Federal Funds rate plus 0.50%, plus the applicable margin. The applicable margin is 2.75% for LIBOR loans and 1.75% for base rate loans.
The
applicable margin for the revolving credit facility is 1.25% for LIBOR advances and 0.00% for base rate advances. The revolving credit facility is secured by a first-priority lien on
all accounts, inventory, general intangibles related to accounts and inventory, and all proceeds of the foregoing ("Current Asset Collateral") of UAP Holding Corp. and its subsidiaries, and a second
priority lien (subject to certain exclusions and exceptions) on other assets and proceeds of such other assets. The term loan facility is secured by a first-priority lien (subject to certain
exclusions and exceptions) in all assets of UAP Holding Corp. and its subsidiaries, and all proceeds thereof other than the Current Asset Collateral, and a second-priority lien in the Current Asset
Collateral.
In
connection with the June 2006 refinancing and early extinguishment of the senior notes, the Company recorded a pretax charge to finance related and other charges of approximately
$47.9 million for fiscal 2007, all of which were primarily incurred in the thirty-nine weeks ended November 26, 2006. These costs include approximately $31.8 million
for tender premiums and related transaction costs to acquire the debt and $16.1 million for the write-off of unamortized debt issue costs.
Availability
of the revolving credit facility is subject to a borrowing base formula, which includes availability of an over-advance during certain periods. At
February 24, 2008, there was $627.7 million of total borrowing capacity under the revolving credit facility and United Agri Products had aggregate borrowing availability of
$502.3 million (after giving effect to $110.0 million of revolving loans outstanding and $15.4 million of letters of credit outstanding under the senior secured credit facility).
74
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
11. Debt (Continued)
At
February 24, 2008, we believe that the permitted distributions available to pay dividends under the restricted payment covenant in our senior secured credit facility were
approximately $56.2 million before giving effect to the declared May 15, 2008 dividend payment estimated to be $12.1 million.
Due
to the seasonal nature of our business, the amount of borrowings outstanding under the senior secured revolving credit facility, all of which are short-term, varies
significantly throughout our fiscal year. During the fifty-two weeks ended February 24, 2008, short-term borrowings reached a daily peak of $569.8 million on
September 28, 2007. Our average daily short-term borrowings, net of cash, for fiscal 2008, were approximately $352.0 million.
Our
weighted average interest rate on short-term borrowings outstanding was 4.5% and 6.6% at February 24, 2008 and February 25, 2007, respectively.
Our
senior secured credit facility contains certain customary representations, warranties, and affirmative covenants. At February 24, 2008, we were in compliance with all
covenants under our senior secured credit facility.
Senior Notes.
In June 2006, UAP Holding Corp. and United Agri Products, Inc. consummated the
tender offers and consent solicitations for the 10
3
/
4
% Senior Discount Notes due 2012 issued by UAP Holding Corp. and the 8
1
/
4
% Senior Notes due 2011 issued by United
Agri Products, Inc. (collectively, the "Senior Notes"). The companies accepted for purchase $123.1 million principal amount at maturity of the 10
3
/
4
% Senior Discount Notes
(representing 98.5% of the previously outstanding 10
3
/
4
% Senior Discount Notes) and $203.5 million principal amount of the 8
1
/
4
% Senior Notes representing
approximately 99.9% of the previously outstanding 8
1
/
4
% Senior Notes. Total consideration paid for the notes tendered plus accrued interest thereon was $120.6 million for the
10
3
/
4
% Senior Discount Notes and $227.2 million for the 8
1
/
4
% Senior Notes. These payments and related expenses were financed through borrowings under the senior
secured credit facility.
Subsequently,
UAP Holding Corp. repurchased in brokered market transactions all of the $1.9 million principal amount at maturity of its 10
3
/
4
% Senior Discount Notes
due 2012 that had remained outstanding following the closing on June 1, 2006, of the tender offer and consent solicitation. Accordingly, all of the 10
3
/
4
% Senior Discount Notes
previously issued and authenticated under the indenture dated as of January 26, 2004, as supplemented (the "Indenture"), between UAP Holding Corp. and The Bank of New York (formerly JPMorgan
Chase Bank, N.A.), as trustee (the "Trustee"), had been delivered by UAP Holding Corp. to the Trustee and cancelled. In accordance with Section 11.01 of the Indenture, UAP Holding Corp.
satisfied and discharged the Indenture, which satisfaction and discharge was acknowledged by the Trustee on November 24, 2006. Upon satisfaction and discharge, the Indenture ceased to be of
further effect (except for certain rights of the Trustee).
During
fiscal 2008, we completed the redemption of the remaining 8
1
/
4
% Senior Notes and discharged our obligations.
75
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
11. Debt (Continued)
Total
current and long-term debt as of February 24, 2008, and February 25, 2007, consisted of the following:
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
(in thousands)
|
Total debt:
|
|
|
|
|
|
|
|
Senior Secured Asset Based Revolving Credit Facility
|
|
$
|
110,006
|
|
$
|
182,989
|
|
Term Loan Facility
|
|
|
396,812
|
|
|
174,125
|
|
8
1
/
4
% Senior Notes
|
|
|
|
|
|
15
|
|
|
|
|
|
|
|
Total
|
|
|
506,818
|
|
|
357,129
|
Less current portion:
|
|
|
|
|
|
|
|
Senior Secured Asset Based Revolving Credit Facility
|
|
|
110,006
|
|
|
182,989
|
|
Term Loan Facility
|
|
|
4,000
|
|
|
1,750
|
|
|
|
|
|
|
|
Total long-term
|
|
$
|
392,812
|
|
$
|
172,390
|
|
|
|
|
|
Maturities
of debt for each of the five years subsequent to February 24, 2008, are as follows:
Fiscal Year Ending
|
|
(in thousands)
|
2009
|
|
$
|
114,006
|
2010
|
|
|
4,000
|
2011
|
|
|
4,000
|
2012
|
|
|
4,000
|
2013
|
|
|
380,812
|
|
|
|
|
Total
|
|
$
|
506,818
|
|
|
|
76
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
12. Commitments and Contingencies
As part of our ongoing operations, we enter into arrangements that obligate us to make future payments. The following is a summary of our contractual obligations
and other commercial commitments as of February 24, 2008:
|
|
Payments Due in Fiscal Year Ending February
|
Contractual Obligations:
|
|
Total
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014 and
beyond
|
|
|
(in thousands)
|
Short-term borrowings under revolving credit facility
|
|
$
|
110,006
|
|
$
|
110,006
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Long-term debt (including short-term portion)
|
|
|
396,812
|
|
|
4,000
|
|
|
4,000
|
|
|
4,000
|
|
|
4,000
|
|
|
380,812
|
|
|
|
Interest payments on long-term debt
|
|
|
112,981
|
|
|
25,542
|
|
|
26,705
|
|
|
27,467
|
|
|
26,194
|
|
|
7,073
|
|
|
|
Operating lease obligations
|
|
|
39,883
|
|
|
11,131
|
|
|
10,197
|
|
|
6,510
|
|
|
4,304
|
|
|
3,005
|
|
|
4,736
|
Other long-term obligations(1)
|
|
|
12,581
|
|
|
40
|
|
|
2,342
|
|
|
2,681
|
|
|
6,446
|
|
|
428
|
|
|
644
|
Unconditional purchase obligations(2)
|
|
|
23,411
|
|
|
21,811
|
|
|
800
|
|
|
800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
695,674
|
|
$
|
172,530
|
|
$
|
44,044
|
|
$
|
41,458
|
|
$
|
40,944
|
|
$
|
391,318
|
|
$
|
5,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments that Expire in Fiscal Year Ending February
|
Other Commercial Commitments:
|
|
Total
|
|
2009
|
|
2010
|
|
2011
|
|
2012
|
|
2013
|
|
2014 and
beyond
|
|
|
(in thousands)
|
Standby letters of credit
|
|
$
|
15,346
|
|
$
|
15,346
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
|
$
|
|
Guarantees
|
|
|
60
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other commercial commitments(3)
|
|
|
91,952
|
|
|
47,558
|
|
|
22,977
|
|
|
13,216
|
|
|
6,093
|
|
|
1,853
|
|
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
107,358
|
|
$
|
62,964
|
|
$
|
22,977
|
|
$
|
13,216
|
|
$
|
6,093
|
|
$
|
1,853
|
|
$
|
255
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-
(1)
-
Other
long-term obligations primarily consist of interest rate swaps, pension liability, capital leases, and other miscellaneous liabilities, but exclude obligations for uncertain tax
positions as the timing of the payments cannot be reasonably estimated. See
Note 9. Income Taxes
for additional information.
-
(2)
-
We
enter into unconditional purchase obligation arrangements (i.e., obligations to transfer funds in the future for fixed or minimum quantities of goods or services at fixed or
minimum prices, such as "take-or-pay" contracts) in the normal course of business to ensure that adequate levels of sourced product are available to us.
-
(3)
-
Other
commercial commitments include lease obligations cancellable within one year, acquisition earn-outs, employment agreements, bonds, and other potential contract obligations.
Leases.
We lease certain facilities and transportation equipment under agreements that expire at
various dates. We expect that in the normal course of business, we will renew or replace necessary leases that expire. Substantially all leases require the payment of property taxes, insurance, and
maintenance costs in addition to rental payments. Capital leases are not significant. Rent expense under
77
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
12. Commitments and Contingencies (Continued)
all
operating leases was $57.5 million in fiscal 2008, $45.6 million in fiscal 2007, and $40.0 million in fiscal 2006.
Included
in other commercial commitments in the table above is approximately $64.9 million of potential lease obligations for leases that are cancelable within one year.
Acquisition Earn-outs.
In addition to the initial consideration for our acquisitions,
certain acquisition agreements contain performance based earn-out clauses. These contingent earn-outs amount to a maximum payment of $3.0 million in a given year and an
aggregate maximum payment of $4.6 million. Any contingent earn-out payment made would be accounted for as additional purchase price and would likely increase goodwill. At
February 24, 2008, goodwill includes $0.4 million related to payment and $1.4 million for accrual of these earn-outs.
Employment Agreements.
In May 2007, the Company entered into agreements with certain officers and key
employees to provide certain benefits in the event of a "change in control," as such term is defined in these agreements, and the occurrence of certain other events. If during the two-year
period following a change of control, such officer or key employee's employment with the Company is terminated, either by the Company without "cause" or by the employee for "good reason", as such
terms are defined in these agreements, then within 30 days of such termination the Company will pay these officers and employees a pro rata target bonus, any accrued vacation pay and between
one and two times their annual base salary and target bonus, depending on the employee. In addition, the Company will pay for the continuation coverage under the Company's health care plans for up to
18 months following the date of termination. These agreements were amended and restated in December 2007 to reflect certain technical changes as a result of guidance from the Internal Revenue
Service on deferred compensation. The annual base salary and annual cash bonus portion of the agreements would aggregate approximately $11 million at the rate of compensation in effect at
February 24, 2008.
Legal Matters.
In some cases, third parties (including government reimbursement funds and insurers)
may contribute to the costs of cleanup at certain sites. ConAgra has agreed to provide us with a partial
reimbursement of costs that we may incur relating to any cleanup requirements due to environmental conditions at our Greenville, Mississippi facility prior to our purchase of the site from them in
November, 2003. On October 14, 2002, December 23, 2002, and December 31, 2002, three separate lawsuits were filed in the Circuit Court of Washington County, Mississippi against
our subsidiary, Platte Chemical Company ("Platte"), and certain former employees of Platte, relating to alleged releases from Platte's Greenville, Mississippi facility. The plaintiffs in such suits
are seeking compensation for alleged personal injury and property damage. In connection with the Acquisition, ConAgra agreed to partially reimburse us, subject to a cap, for fees and expenses we incur
in connection with such lawsuits. Subsequent to November 23, 2003, another lawsuit not covered by the ConAgra cost sharing agreement was filed in the Circuit Court of Washington County,
Mississippi against us, which lawsuit relates to the same alleged releases from the Greenville, Mississippi facility. While discovery in the Greenville litigations is not yet complete, based on
information available to us at this time we do not believe that such litigations, if adversely determined, would have a material adverse effect on our business, financial condition, cash flows,
results of operations, or liquidity.
78
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
12. Commitments and Contingencies (Continued)
We
are a party to a number of lawsuits and claims arising out of the operation of our businesses. We believe the ultimate resolution of such matters should not have a material adverse
effect on our financial condition, cash flows, results of operations, or liquidity.
13. Equity
Common Stock.
The company issued common stock to Apollo and to certain members of management upon the
acquisition from ConAgra in November of 2003. We consummated our initial public offering of common stock, on November 29, 2004. Prior to the Common Stock Offering, Apollo owned approximately
95% of our outstanding common stock. Following the consummation of the Common Stock Offering, Apollo owned approximately 34% of our outstanding common stock. On March 9, 2006, Apollo sold
common stock in a secondary offering pursuant to an existing registration statement. Following this sale, Apollo owned approximately 17% of our outstanding common stock.
On
November 2, 2006, Apollo and employees, including certain members of our management, sold additional shares of our common stock in a secondary offering pursuant to an existing
registration statement. Immediately following this sale, Apollo no longer beneficially owned any of our outstanding common stock.
Rabbi Trust.
We maintained deferred compensation plans ("DCP"), including the 2003 DCP, which
provided for the crediting of deferred shares for each executive who entered into a retention agreement at the time of the Acquisition, and the 2004 DCP which provided for the crediting of deferred
shares for each member of management who waived the right to receive a portion of their cash bonus for fiscal 2004. Various members of our management were credited with a total of 2,515,122 deferred
shares in the 2003 DCP and the 2004 DCP. The rabbi trust was credited with one share of our common stock for each deferred share interest held by the management participants in the 2003 DCP and the
2004 DCP. In connection with the Common Stock Offering, 631,656 shares of our common stock were released from the rabbi trust, and these shares were subsequently sold in the Common Stock Offering. An
additional 337,401 shares were released from the rabbi trust and sold during fiscal 2006. During fiscal 2007, the remaining 1,546,065 shares were transferred from the rabbi trust to the recipients and
there were no shares of our common stock remaining in the rabbi trust. The shares of common stock that were held by the rabbi trust were issued and outstanding, and therefore participated in dividends
and were included in the calculation of the weighted average share computation.
Dividends.
The Company declared cash dividends of $0.90, $0.75, and $0.6375 per share of common stock
in fiscal 2008, fiscal 2007, and fiscal 2006, respectively.
See
Note 20. Subsequent Events
regarding subsequent dividends declared.
14. Stock-Based Compensation
Our stock-based compensation programs include non-qualified stock options, restricted stock units, and deferred compensation. At our annual meeting in
July 2007, our stockholders ratified the 2007 Long-Term Incentive Plan (the "2007 LTIP"). At February 24, 2008, our stock compensation programs were in accordance with the equity
compensation plans maintained by the Company: the 2007 LTIP, the 2004 Long-Term Incentive Plan (the "2004 LTIP"), the 2003 Stock Option Plan (the "2003 Plan"), the
79
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
14. Stock-Based Compensation (Continued)
2004
Non-Executive Director Stock Option Plan (the "Director Option Plan"), and the Director Deferred Compensation Plan (the "Director DCP"). Awards after July 2007 were made pursuant to
the 2007 LTIP. There will be no further awards under each of the 2003 Plan, the 2004 LTIP, and the Director Option Plan.
Stock Options.
Certain of our employees were granted stock options from our 2003 Plan. This plan
provides for the granting of options to our employees, directors, and consultants for the purchase of shares of our common stock. The exercise price, term, and other terms and conditions of the option
were determined by our board of directors (or its compensation committee) when the option was granted. Options granted under the plan consist of three tranches, each with different vesting
requirements. The award agreements provide for accelerated vesting if there is a "change in control" of the Company. They generally expire eight years after the grant date. All options granted under
the plan were granted at fair market value at the date of the grant and have an exercise price of $2.56 per share.
There
were no options granted under the 2003 Plan in fiscal years 2008, 2007, or 2006. At February 24, 2008, the aggregate number of options granted under the 2003 Plan was
3,066,400, and there were 991,558 options vested and outstanding. There were 146,150, 349,639, and 519,516, unvested options as of fiscal year-ends 2008, 2007, and 2006, respectively.
Prior
to fiscal 2006, non-executive members on our board of directors were granted options to purchase shares of our common stock under our Director Option Plan, all of which
vested immediately. There were no awards granted under the Director Option Plan during fiscal years 2008, 2007, or 2006. During fiscal years 2008 and 2007, 117,254 and 175,881 options, respectively,
were exercised. There were no options exercised in fiscal 2006. At February 24, 2008, there were no
outstanding option awards remaining from the Director Option Plan. There were 117,254 and 293,135 options vested and outstanding at February 25, 2007, and February 26, 2006,
respectively.
The
changes in the outstanding stock options under the 2003 Plan and the Director Option Plan during the year ended February 24, 2008, are summarized below:
Stock options
|
|
Shares subject to
option
|
|
Weighted-
average exercise
price per share
|
Balance at February 25, 2007 (2,161,639 shares vested and exercisable)
|
|
2,511,278
|
|
$
|
2.56
|
|
Granted
|
|
|
|
$
|
|
|
Exercised
|
|
(1,339,958
|
)
|
$
|
2.56
|
|
Forfeited
|
|
(33,612
|
)
|
$
|
2.56
|
|
|
|
|
|
|
Balance at February 24, 2008 (991,558 shares vested and exercisable)
|
|
1,137,708
|
|
$
|
2.56
|
|
|
|
|
|
|
At
February 24, 2008, there was $0.1 million of unrecognized compensation cost related to stock options. The aggregate intrinsic value of outstanding options was
$40.9 million and the aggregate intrinsic value of exercisable options was $35.6 million at the end of fiscal 2008. The weighted average remaining contractual life of both outstanding
and exercisable options was 3.8 years.
80
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
14. Stock-Based Compensation (Continued)
In
fiscal years 2008, 2007, and 2006, 169,877, 169,877, and 170,814 options vested, respectively. Compensation expense, which is recognized over the vesting period of the stock options
and is included in selling, general and administrative expenses, was $0.1 million in each of fiscal years 2008 and 2007.
The
total intrinsic value of options exercised in fiscal years 2008, 2007, and 2006 was $37.3 million, $6.4 million, and $6.9 million, respectively.
The
following table illustrates the effect on net income and earnings per share if we had applied the fair value recognition provisions of FAS 123(R) to options granted prior to
the beginning of fiscal 2007:
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
|
(in thousands, except share data)
|
|
Net income as reported
|
|
$
|
66,377
|
|
|
Add: Total stock-based compensation included in net income, net of tax (represents RSU expense)
|
|
|
792
|
|
|
Less: Total stock-based compensation expense determined under fair-value-based method for all awards, net of tax
|
|
|
(826
|
)
|
|
|
|
|
Pro Forma Net Income
|
|
$
|
66,343
|
|
|
|
|
|
Basic earnings per share:
|
|
|
|
|
|
As reported
|
|
$
|
1.31
|
|
|
Pro Forma
|
|
$
|
1.31
|
|
Diluted earnings per share:
|
|
|
|
|
|
As reported
|
|
$
|
1.27
|
|
|
Pro Forma
|
|
$
|
1.27
|
|
Restricted Stock Units.
We granted restricted stock units ("RSUs" or "RSU") to eligible employees,
management, and members of our board of directors pursuant to the 2004 LTIP and the 2007 LTIP which are converted into shares of UAP common stock upon vesting. At February 24, 2008, there were
5,495,650 shares available for award grants under the 2007 LTIP.
81
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
14. Stock-Based Compensation (Continued)
The following is a summary of RSU activity for the years ended February 24, 2008, February 25, 2007, and February 26, 2006:
Restricted Stock Units
|
|
Shares subject to
option
|
|
Weighted-
average grant
price per share
|
Balance at February 27, 2005
|
|
|
|
|
|
|
Granted
|
|
249,575
|
|
$
|
15.94
|
|
Vested
|
|
|
|
|
|
|
Cancelled
|
|
(25,525
|
)
|
$
|
15.94
|
|
|
|
|
|
|
Balance at February 26, 2006
|
|
224,050
|
|
$
|
15.94
|
|
|
|
|
|
|
|
Granted
|
|
528,250
|
|
$
|
21.12
|
|
Vested
|
|
(70,576
|
)
|
$
|
16.97
|
|
Cancelled
|
|
(13,917
|
)
|
$
|
19.43
|
|
|
|
|
|
|
Balance at February 25, 2007
|
|
667,807
|
|
$
|
19.85
|
|
|
|
|
|
|
|
Granted
|
|
864,845
|
|
$
|
26.18
|
|
Vested
|
|
(254,419
|
)
|
$
|
20.63
|
|
Cancelled
|
|
(45,859
|
)
|
$
|
22.36
|
|
|
|
|
|
|
Balance at February 24, 2008 (all unvested and unexercisable)
|
|
1,232,374
|
|
$
|
23.91
|
|
|
|
|
|
|
At
February 24, 2008, there was approximately $16.1 million of unrecognized compensation expense, before taxes and net of estimated forfeitures, related to RSU grants,
which will be recognized over a weighted average remaining period of 2.7 years. The aggregate intrinsic value of outstanding restricted stock units at February 24, 2008, was
$47.5 million.
Restricted
stock unit awards granted in fiscal years 2006 through 2008 vest over either a three or four year period. The award agreements provide for accelerated vesting if there is a
"change in control" of the Company. Compensation expense is recognized over the vesting periods based on the market value of our common stock on the date of the award. Total compensation expense
recognized for restricted stock units during fiscal years 2008, 2007, and 2006, was $10.8 million, $3.3 million, and $0.8 million, respectively. Additional paid-in
capital is increased as compensation expense is recognized.
When
RSUs vest and are converted to common stock, payroll taxes customary with all compensation are withheld and paid. These taxes are paid by netting the number of shares that an
employee receives, as defined in the agreements. During fiscal years 2008 and 2007, there were 86,107 and 20,380 shares, respectively, used for payment of such withholding taxes.
Deferred Compensation.
We maintain the Director DCP which allows our non-employee
directors to elect to defer payment of all or a portion of their fees and have such amounts credited under the plan in the form of deferred shares. Shares awarded under the Director DCP were charged
against the share limits of our 2004 LTIP. In fiscal 2007, 4,300 deferred restricted stock units, all of which vested immediately, were issued to certain members of our board of directors at a
weighted average grant price per share of $22.18. These shares remain outstanding at February 24, 2008. We recognized compensation expense of $0.1 million for these deferred shares in
fiscal 2007.
82
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
15. Royalties, Service Charges and Other Income and Expenses
Royalties, service charges and other income and expenses consist of the following:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
|
(in thousands)
|
|
Royalties, service charges and other (income) and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Service charge income
|
|
$
|
(17,145
|
)
|
$
|
(12,379
|
)
|
$
|
(8,824
|
)
|
|
Royalty income
|
|
|
(9,253
|
)
|
|
(8,150
|
)
|
|
(11,600
|
)
|
|
Gain on sale of assets
|
|
|
(2,275
|
)
|
|
(3,042
|
)
|
|
(2,007
|
)
|
|
Currency transaction loss or (gain)
|
|
|
(857
|
)
|
|
10
|
|
|
(594
|
)
|
|
Loss (earnings) of unconsolidated affiliates
|
|
|
193
|
|
|
492
|
|
|
(2,612
|
)
|
|
Miscellaneous income
|
|
|
(3,224
|
)
|
|
(5,370
|
)
|
|
(3,491
|
)
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(32,561
|
)
|
$
|
(28,439
|
)
|
$
|
(29,128
|
)
|
|
|
|
|
|
|
|
|
Royalty
income is attributable to agreements held by our proprietary products group.
16. Employee Benefit Plans
Incentive-Based Compensation Plan.
We have a management incentive plan for key officers and
employees, based on growth, profitability, individual performance of each operating center and key performance metrics, including overall company operating performance. Amounts charged to expense
totaled $22.5 million in fiscal 2008, $0.7 million in fiscal 2007, and $17.2 million in fiscal 2006. These costs exclude related payroll taxes and benefits.
As
a result of restrictions on stock-based awards in the Tender Offer, our incentive-based compensation for fiscal 2008 includes $2.7 million of additional expense resulting from
certain compensation being paid in cash instead of grants of stock-based awards. If stock-based awards would have been granted, as was customary in prior years, the expense would have been recorded
over the vesting period of the awards. However, because the cash awards have no vesting period, we recognized all of the expense in fiscal 2008.
Retirement Program for U.S. Employees.
We maintain the United Agri Products, Inc. Retirement
Income Savings Plan. Participants who meet certain eligibility requirements may make contributions and may receive company matching and discretionary contributions under this plan. We matched 66.66%
of the amount participants elect to contribute to the plan up to 6% of their pay. We have the following additional contribution obligations as part of the plan:
-
-
Annual
Retirement and Performance Discretionary Contribution that is allocated among all eligible participants as provided under the terms of the plan. This contribution is
subject to approval by the compensation committee of the board of directors.
-
-
Transition
Contribution that is allocated annually through 2008 to those eligible participants who were age 50 or greater and had ten or more years of service upon our
divestiture from ConAgra.
Amounts
charged to expense for this plan total $7.7 million for fiscal 2008, $4.3 million for fiscal 2007, and $7.0 million for fiscal 2006.
There
is no defined benefit pension plan for U.S. employees.
83
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
16. Employee Benefit Plans (Continued)
Retirement Program for Canadian Employees.
United Agri Products Canada, Inc. ("UAP Canada"),
one of our subsidiaries, currently has two retirement plans for employees of UAP Canada. They are eligible to participate in these plans after completing one year of service. One plan is an optional
defined contribution plan. UAP Canada matches 50% of an employee's first 6% of contributions to the plan. For this plan, amounts charged to expense were $0.1 million in each of fiscal years
2008, 2007, and 2006.
The
second plan is a defined benefit plan. UAP Canada is responsible for funding this plan and is currently contributing at a rate of 7.1% of payroll. Benefits are based on years of
credited service and average compensation in the last 5 years of service.
At
the beginning of fiscal 2007, we adopted the provisions of FASB Statement No. 158, "Employers' Accounting for Defined Benefit Pension and Other Postretirement
Plansan amendment of FASB Statements No. 87, 88, 106, and 132(R)" ("SFAS 158"). SFAS 158 required employers that sponsor one or more defined benefit plans to
(i) recognize the funded status of a benefit plan in its statement of financial position, (ii) recognize the gains or losses and prior service costs or credits that arise during the
period as a component of other comprehensive income, net of tax, (iii) measure the defined benefit plan assets and obligations as of the date of the employer's fiscal year-end
statement of financial position, and (iv) disclose in the notes to the financial statements additional information about certain effects on net periodic cost for the next fiscal year that arise
from delayed recognition of the gains or losses, prior service costs or credits, and transition asset or obligation. The adoption of SFAS 158 did not have a material impact on our financial
condition, cash flows, results of operations, or liquidity.
The
change in pension benefit costs is as follows:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
|
(in thousands)
|
|
Components of net periodic pension costs
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
458
|
|
$
|
325
|
|
$
|
359
|
|
|
Interest cost
|
|
|
368
|
|
|
262
|
|
|
276
|
|
|
Expected return on plan assets
|
|
|
(324
|
)
|
|
(254
|
)
|
|
(218
|
)
|
|
Other
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension cost
|
|
$
|
502
|
|
$
|
286
|
|
$
|
417
|
|
|
|
|
|
|
|
|
|
Assumptions
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
5.25
|
%
|
|
5.75
|
%
|
|
Expected return on plan assets
|
|
|
6.25
|
%
|
|
6.50
|
%
|
|
6.50
|
%
|
|
Rate of compensation increase
|
|
|
3.50
|
%
|
|
3.50
|
%
|
|
3.50
|
%
|
The
expected return on assets represents our best estimate of the long-term rate of return on plan assets applied to the fair value of plan assets. The Company establishes
its estimate of the expected rate of return on plan assets based on the fund's target asset allocation, historical returns, and estimated long-term rates of return for each asset class.
Estimated rates of return are based on expected returns from fixed income securities which take into account bond yields. An equity risk premium is then applied to estimate equity returns. Differences
between expected and actual return are included in actuarial gains and losses.
84
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
16. Employee Benefit Plans (Continued)
The
change in projected benefit obligations, the change in plan assets and the funded status of the plans at February 24, 2008, and February 25, 2007, is as follows:
Obligations and Funded Status
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
|
|
(in thousands)
|
|
Change in projected benefit obligations
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
5,300
|
|
$
|
5,074
|
|
|
Exchange rate adjustment
|
|
|
492
|
|
|
(535
|
)
|
|
Service cost
|
|
|
458
|
|
|
325
|
|
|
Interest cost
|
|
|
368
|
|
|
262
|
|
|
Actuarial (gain) loss
|
|
|
(475
|
)
|
|
310
|
|
|
Benefits paid
|
|
|
(210
|
)
|
|
(89
|
)
|
|
Curtailment
|
|
|
|
|
|
(47
|
)
|
|
|
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
5,933
|
|
$
|
5,300
|
|
|
|
|
|
|
|
Change in plan assets
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
4,472
|
|
$
|
3,706
|
|
|
Foreign currency exchange rate changes
|
|
|
416
|
|
|
41
|
|
|
Actual return on plan assets
|
|
|
(151
|
)
|
|
392
|
|
|
Employer contribution
|
|
|
421
|
|
|
422
|
|
|
Benefits paid
|
|
|
(210
|
)
|
|
(89
|
)
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
4,948
|
|
$
|
4,472
|
|
|
|
|
|
|
|
|
Underfunded status
|
|
$
|
(985
|
)
|
$
|
(828
|
)
|
|
Unrecognized actuarial loss
|
|
|
190
|
|
|
36
|
|
|
|
|
|
|
|
|
|
Accrued pension costs
|
|
$
|
(795
|
)
|
$
|
(792
|
)
|
|
|
|
|
|
|
Assumptions:
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
5.25
|
%
|
|
Rate of compensation increase
|
|
|
3.50
|
%
|
|
3.50
|
%
|
Plan
assets are primarily invested in a Canadian mutual fund that invests in equity securities, and corporate and government debt securities. The primary goal of the plan is to provide
beneficiaries with a satisfactory level of retirement income at a reasonable cost. The prudent and effective management of the plans' assets will have a direct impact on the achievement of this goal.
85
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
16. Employee Benefit Plans (Continued)
Plan
assets are invested as listed below. Since portions of the plan assets are being actively managed, the actual plan asset mix at any time may deviate from the target allocation. The
deviations are within a defined acceptable range.
|
|
|
|
Actual Allocation
|
|
Plan Assets by Asset Category
|
|
Target
Allocation
|
|
Fiscal Year Ending
February 24, 2008
|
|
Fiscal Year Ending
February 25, 2007
|
|
Canadian equity securities
|
|
33
|
%
|
28
|
%
|
27
|
%
|
International equity securities
|
|
25
|
%
|
30
|
%
|
28
|
%
|
Debt securities
|
|
37
|
%
|
31
|
%
|
38
|
%
|
Other
|
|
5
|
%
|
11
|
%
|
7
|
%
|
|
|
|
|
|
|
|
|
|
Total
|
|
100
|
%
|
100
|
%
|
100
|
%
|
|
|
|
|
|
|
|
|
Expected
cash flows are as follows:
Expected Cash Flows
|
|
Fiscal Year
|
|
Amount
|
|
|
|
|
(in thousands)
|
Expected employer contributions for fiscal year ending February
|
|
2009
|
|
$
|
421
|
Expected benefit payments for fiscal year ending February
|
|
2009
|
|
|
193
|
|
|
2010
|
|
|
201
|
|
|
2011
|
|
|
215
|
|
|
2012
|
|
|
245
|
|
|
2013
|
|
|
265
|
|
|
Next 5 years
|
|
|
1,546
|
17. Finance Related and Other Charges
Finance related and other charges are composed of costs and fees related to the Tender Offer, the refinancing of our revolving credit facility and related
financing activities. These charges relate to obtaining funding or the termination of funding or other financial transaction agreements.
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
(in thousands)
|
Finance related and other charges:
|
|
|
|
|
|
|
|
|
|
|
Tender Offer costs
|
|
$
|
2,864
|
|
$
|
|
|
$
|
|
|
Early extinguishment of debt
|
|
|
|
|
|
47,852
|
|
|
|
|
Other
|
|
|
494
|
|
|
418
|
|
|
330
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,358
|
|
$
|
48,270
|
|
$
|
330
|
|
|
|
|
|
|
|
86
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
18. Business Segment and Related Information
The Company has one reporting segment, selling agricultural inputs to growers and regional dealers. Net sales and long-lived assets by geographical
area are as follows:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
(in thousands)
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,340,952
|
|
$
|
2,792,330
|
|
$
|
2,646,436
|
|
Canada
|
|
|
70,464
|
|
|
61,778
|
|
|
81,353
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,411,416
|
|
$
|
2,854,108
|
|
$
|
2,727,789
|
|
|
|
|
|
|
|
|
|
February 24, 2008
|
|
February 25, 2007
|
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
119,976
|
|
$
|
109,334
|
|
|
|
|
Canada
|
|
|
1,455
|
|
|
887
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
121,431
|
|
$
|
110,221
|
|
|
|
|
|
|
|
|
|
|
|
Net
sales by product category are as follows:
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
|
(in thousands)
|
Net sales by product category:
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
$
|
1,800,657
|
|
$
|
1,651,440
|
|
$
|
1,633,862
|
|
Fertilizer
|
|
|
1,036,565
|
|
|
707,752
|
|
|
682,137
|
|
Seeds
|
|
|
474,886
|
|
|
410,782
|
|
|
349,318
|
|
Other
|
|
|
99,308
|
|
|
84,134
|
|
|
62,472
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
3,411,416
|
|
$
|
2,854,108
|
|
$
|
2,727,789
|
|
|
|
|
|
|
|
No
single customer accounted for more than one percent of our net sales in each of fiscal 2008, 2007, and 2006. Net sales by geographical area are based on the location of the facility
producing the sales. Revenues from the United States include export sales of $10.7 million, $7.5 million, and $7.0 million, respectively, in fiscal years 2008, 2007, and 2006.
Long-lived
assets consist of property, plant and equipment, net of depreciation. Long-lived assets by geographical area are based on location of facilities.
87
UAP HOLDING CORP.
NOTES TO FINANCIAL STATEMENTS (Continued)
Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
19. Selected Quarterly Financial DataUnaudited
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
Total
|
|
|
(in thousands)
|
Fiscal 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,605,018
|
|
$
|
862,532
|
|
$
|
497,773
|
|
$
|
446,093
|
|
$
|
3,411,416
|
Gross profit
|
|
|
240,001
|
|
|
138,157
|
|
|
57,016
|
|
|
45,555
|
|
|
480,729
|
Net income (loss)
|
|
|
87,683
|
|
|
35,019
|
|
|
(19,014
|
)
|
|
(22,133
|
)
|
|
81,555
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.71
|
|
$
|
0.67
|
|
$
|
(0.36
|
)
|
$
|
(0.42
|
)
|
$
|
1.57
|
|
Diluted earnings (loss) per share
|
|
$
|
1.66
|
|
$
|
0.66
|
|
$
|
(0.36
|
)
|
$
|
(0.42
|
)
|
$
|
1.53
|
Fiscal 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
1,398,023
|
|
$
|
767,792
|
|
$
|
375,728
|
|
$
|
312,565
|
|
$
|
2,854,108
|
Gross profit
|
|
|
185,649
|
|
|
108,346
|
|
|
40,621
|
|
|
49,844
|
|
|
384,460
|
Net income (loss)
|
|
|
58,316
|
|
|
(4,298
|
)
|
|
(13,151
|
)
|
|
(7,413
|
)
|
|
33,454
|
Earnings (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share
|
|
$
|
1.15
|
|
$
|
(0.08
|
)
|
$
|
(0.26
|
)
|
$
|
(0.15
|
)
|
$
|
0.66
|
|
Diluted earnings (loss) per share
|
|
$
|
1.11
|
|
$
|
(0.08
|
)
|
$
|
(0.26
|
)
|
$
|
(0.15
|
)
|
$
|
0.64
|
The
following items which affected our quarterly results should be noted:
-
-
In
the second and third quarters of fiscal 2008, we acquired four businesses. During fiscal 2007, we completed eleven acquisitions, nine of which were completed during the
third and fourth quarters of fiscal 2007. These businesses, like our business, complete most of their sales in the first and second quarters. Correspondingly, our fiscal 2008 results reflect a full
year of operation for these acquisitions, whereas in most cases fiscal 2007 results do not reflect any significant benefit from their sales and gross margin, but do reflect additional associated fixed
expenses.
-
-
In
the fourth quarter of fiscal 2008, we incurred $2.9 million of costs related to the Tender Offer as well as $2.7 million of additional incentive-based
compensation expense resulting from certain compensation being paid in cash instead of grants of stock-based awards. If stock-based awards would have been granted, as was customary in prior years, the
expense would have been recorded over the vesting period of the awards. However, because the cash awards have no vesting period, we recognized all of the expense in the fourth quarter of fiscal 2008.
-
-
Quarterly
results of fiscal 2008, as compared to those in fiscal 2007, were impacted by differences in the timing of vendor rebates. In fiscal 2008, vendors were supplying
more timely information, better definition of criteria for earning rebates, and improved communication of local area programs, all resulting in our ability to recognize rebates earlier in the year. As
a result of this, we believe that rebates in the fourth quarter of fiscal 2008 were approximately $9 million lower as compared to the fourth quarter of fiscal 2007.
20. Subsequent Events
On April 16, 2008, we reached an agreement with the Federal Trade Commission ("FTC") staff on the terms of a consent decree, which is subject to the review
and approval of the FTC commissioners.
The
Tender Offer described in
Note 1. Description of the Business and Summary of Significant Accounting Policies
, was extended on
April 18, 2008. It is currently scheduled to expire on May 2, 2008, but it is possible that the expiration date may be extended.
On
April 18, 2008, our board of directors declared a quarterly dividend on our common stock in the amount of $0.225 per share. The record date for the dividend payment will be
May 1, 2008, and the payment date will be May 15, 2008.
88
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
UAP Holding Corp.'s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure
controls and procedures as of the end of the period covered by this Report. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that such disclosure
controls and procedures were effective as of the end of the period covered by this Report. There have been no changes that have materially affected, or are reasonably likely to materially affect, UAP
Holding Corp.'s internal control over financial reporting that have occurred during the period covered by this Report.
Management's Report on Internal Control Over Financial Reporting
UAP Holding Corp. management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in
Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. UAP Holding Corp.'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. UAP
Holding Corp.'s internal control over financial reporting includes those policies and procedures that:
-
(i)
-
pertain
to the maintenance of records that, in a reasonable detail, accurately and fairly reflect the transactions and dispositions of UAP Holding Corp.'s assets;
-
(ii)
-
provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of UAP Holding Corp.'s management and directors; and
-
(iii)
-
provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of UAP Holding Corp.'s assets that could have a
material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 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.
Management
assessed the effectiveness of UAP Holding Corp.'s internal control over financial reporting as of February 24, 2008. In making this assessment, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework.
Based
on this assessment, management determined that UAP Holding Corp. maintained effective internal control over financial reporting as of February 24, 2008.
Deloitte
& Touche LLP, our independent public accounting firm has issued an attestation report on the Company's internal control over financial reporting as included on the next
page.
89
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders of
UAP Holding Corp.
Greeley, Colorado
We
have audited the internal control over financial reporting of UAP Holding Corp. and subsidiaries (the "Company") as of February 24, 2008, based on criteria established in
Internal ControlIntegrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's
management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our
audit.
We
conducted our audit 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 effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control
over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A
company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or
persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;
(2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because
of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material
misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to
future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 24, 2008, based on the criteria established in
Internal ControlIntegrated
Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We
have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement
schedules as of and for the year ended February 24, 2008 of the Company, and our report dated April 18, 2008, expressed an unqualified opinion on those financial statements and financial
statement schedules and included an explanatory paragraph regarding the Company's adoption on February 26, 2007 of the Financial Accounting Standard Board's Interpretation No. 48,
Accounting for Uncertainty in Income
Taxes
.
/s/ DELOITTE & TOUCHE LLP
Deloitte & Touche LLP
|
|
|
Denver, Colorado
April 18, 2008
|
|
|
90
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers, and Corporate Governance.
Information relating to the Directors of UAP Holding Corp., as well as information relating to compliance with Section 16(a) of the Securities Exchange Act
of 1934, will be contained in our definitive Proxy Statement involving the election of the Directors which will be filed with the SEC pursuant to Regulation 14A (or, if a definitive Proxy
Statement is not filed, an amendment to our Annual Report on Form 10-K) not later than 120 days after February 24, 2008, and such information is incorporated herein by reference.
Certain other information relating to the Executive Officers of UAP Holding Corp. appears in Part I of this Report under the heading "Executive Officers of the Registrant."
UAP
Holding Corp.'s Code of Business Conduct is available, free of charge, on our website
www.uap.com
under the heading "Investor
Relations" (see "Corporate Governance"/ "Committees & Charters"), or by writing to UAP Holding Corp., 7251 W. 4
th
Street, Greeley Colorado 80634, c/o Vice President and
Corporate Secretary. UAP Holding Corp.'s Code of Business Conduct applies to all of our directors, officers (including the Chief Executive Officer, Chief Operating Officer, Chief Financial Officer,
and Chief Accounting Officer) and employees. Amendments to, or waivers of the Code of
Business Conduct granted to any of our directors or executive officers will be published on our website within five business days of such amendment or waiver.
Item 11. Executive Compensation.
Information relating to executive compensation is being incorporated by reference herein from our definitive proxy statement (or, if a definitive Proxy Statement
is not filed, an amendment to our Annual Report on Form 10-K) to be filed with the Securities and Exchange Commission within 120 days of the end of the fiscal year ended
February 24, 2008 in connection with our 2008 Annual Meeting of Stockholders.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters.
Information relating to security ownership of certain beneficial owners and management, equity compensation plans and related stockholder matters is being
incorporated by reference herein from our definitive proxy statement (or, if a definitive Proxy Statement is not filed, an amendment to our Annual Report on Form 10-K) to be filed
with the Securities and Exchange Commission within 120 days of the end of the fiscal year ended February 24, 2008 in connection with our 2008 Annual Meeting of Stockholders.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Information relating to certain relationships and related transactions and director independence being incorporated by reference herein from our definitive proxy
statement (or, if a definitive Proxy Statement is not filed, an amendment to our Annual Report on Form 10-K) to be filed with the Securities and Exchange Commission within
120 days of the end of the fiscal year ended February 24, 2008 in connection with our 2008 Annual Meeting of Stockholders.
Item 14. Principal Accountant Fees and Services.
Information relating to fees paid to and service performed by Deloitte & Touche LLP in fiscal 2008 and fiscal 2007 and our Audit Committee's
pre-approval policies and procedures with respect to non-audit services is being incorporated by reference herein from our definitive proxy statement (or, if a definitive Proxy
Statement is not filed, an amendment to our Annual Report on Form 10-K) to be filed with the Securities and Exchange Commission within 120 days of the end of the fiscal year
ended February 24, 2008 in connection with our 2008 Annual Meeting of Stockholders.
91
PART IV
Item 15. Exhibits and Financial Statement Schedules.
-
(1)
-
Financial
Statements
The
following financial statements of UAP Holding Corp., together with the Report of Independent Registered Public Accounting Firm, are included in Part II, Item 8 of this
Report:
-
-
Report
of Independent Registered Public Accounting Firm
-
-
Consolidated
Balance Sheets at February 24, 2008, and February 25, 2007
-
-
Consolidated
Statements of Earnings for the Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
-
-
Consolidated
Statements of Cash Flows for the Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
-
-
Consolidated
Statements of Stockholders' Equity for the Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
-
-
Notes
to Financial Statements
-
(2)
-
Financial
Statement Schedules
-
-
Schedule 1Condensed
Financial Information of Registrant
-
-
Schedule 2Valuation
and Qualifying Accounts
-
(3)
-
Exhibits
No.
|
|
Item
|
2.1
|
|
Agreement and Plan of Merger, dated as of December 2, 2007, by and among Agrium, Utah Acquisition Co. and UAP Holding Corp. (incorporated herein by reference to Exhibit 2.1 of Form 8-K filed by
UAP on December 3, 2007).
|
3.2
|
|
Certificate of Amendment dated November 24, 2003, to the Certificate of Incorporation of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp.'s Registration Statement on Form S-4 dated March 5, 2004
(File No. 333-113345)).
|
3.3
|
|
Certificate of Designation, Preferences and Rights of Series A Redeemable Preferred Stock dated November 24, 2003 (incorporated by reference to Exhibit 3.3 to UAP Holding Corp.'s Registration Statement on Form S-4 dated
March 5, 2004 (File No. 333-113345)).
|
3.4
|
|
By-Laws of UAP Holding Corp. as adopted on October 29, 2003 (incorporated by reference to Exhibit 3.4 to UAP Holding Corp.'s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)).
|
3.5
|
|
Amended and Restated Certificate of Incorporation of UAP Holding Corp. filed with the Secretary of State of the State of Delaware on November 17, 2004 (incorporated by reference to Exhibit 3.5 to Amendment No. 6 to UAP Holding Corp.'s
Registration Statement on Form S-1 dated November 18, 2004 (File No. 333-114278)).
|
3.6
|
|
Certificate of Elimination of Series A Redeemable Preferred Stock (incorporated by reference to Exhibit 3.1 to UAP Holding Corp.'s Current Report on Form 8-K dated December 3, 2004 (File No. 000-51035)).
|
92
3.7
|
|
Amended and Restated Bylaws of UAP Holding Corp. (incorporated by reference to Exhibit 3.2 to UAP Holding Corp.'s Current Report on Form 8-K dated December 3, 2004 (File No. 000-51035)).
|
4.1
|
|
Indenture dated as of December 16, 2003, among United Agri Products, Inc., the Guarantors named therein, and JPMorgan Chase Bank, as trustee (incorporated by reference to Exhibit 4.4 to United Agri Products, Inc.'s Registration
Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)).
|
4.2
|
|
Amended and Restated Credit Agreement, dated as of November 29, 2004, by and among United Agri Products, Inc. and United Agri Products Canada, Inc., as borrowers, the other persons party thereto that are designated as credit parties,
General Electric Capital Corporation, as Agent, L/C Issuer and a Lender and GE Canada Finance Company, as Canadian Agent, and the other financial institutions party thereto (incorporated by reference to Exhibit 4.1 to UAP Holding Corp.'s Current
Report on Form 8-K dated December 3, 2004 (File No. 000-51035)).
|
4.3
|
|
First Consent and Limited Waiver and Amendment to Amended and Restated Credit Agreement, dated as of February 28, 2006, by and among United Agri Products, Inc., United Agri Products Canada Inc., as borrowers, the other persons party
thereto that are designated as credit parties, General Electric Capital Corporation, as the initial L/C Issuer and Agent, GE Canada Finance Holding Company as Canadian Agent, and the other financial institutions party thereto (incorporated by
reference to Exhibit 10.1 to UAP Holding Corp.'s Current Report on Form 8-K dated March 3, 2006 (File No. 000-51035)).
|
4.4
|
|
Third Amendment to the Second Amended and Restated Credit Agreement (incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated October 16, 2007).
|
10.1
|
|
Indemnification Agreement, dated as of November 24, 2003, by and among ConAgra Foods, Inc., United Agri Products, Inc., United Agri Products Canada Inc., 2326396 Canada, Inc., AG-Chem, Inc., Balcom Chemicals, Inc.,
UAP 23, Inc., Cropmate Company, CSK Enterprises, Inc., GAC 26, Inc., UAP 27, Inc., Genmarks, Inc., Grower Service Corporation (New York), HACO, Inc., Loveland Industries, Inc., Loveland Products, Inc., Midwest
Agriculture Warehouse Co., Ostlund Chemical Co., Platte Chemical Co., Pueblo Chemical & Supply Co., Ravan Products, Inc., S.E. Enterprises, Inc., Snake River Chemicals, Inc., Transbas, Inc., Tri-River
Chemical Company, Inc., Tri-State Chemicals, Inc., Tri-State Delta Chemicals, Inc., UAP/GA AG Chem, Inc., UAPLP, Inc., UAP 22, Inc., UAP Receivables Corporation, United Agri ProductsFlorida, Inc., United Agri
Products Financial Services, Inc., Verdicon and YVC, Inc. (incorporated by reference to Exhibit 10.3 to United Agri Products, Inc.'s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)
).
|
10.2
|
|
Fertilizer Supply Agreement, dated as of November 24, 2003, between ConAgra International Fertilizer Company and United Agri Products, Inc. (incorporated by reference to Exhibit 10.4 to United Agri Products, Inc.'s Registration
Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)).
|
10.3
|
|
International Supply Agreement, dated as of November 24, 2003, between United Agri Products, Inc. and ConAgra Foods, Inc. (incorporated by reference to Exhibit 10.5 to United Agri Products, Inc.'s Registration Statement on
Form S-4 dated January 5, 2004 (File No. 333-111710)).
|
93
10.4
|
|
Buyer Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and the Acquired Companies (as defined therein) (incorporated by reference to Exhibit 10.6 to United Agri Products, Inc.'s Registration Statement
on Form S-4 dated January 5, 2004 (File No. 333-111710)).
|
10.5
|
|
Seller Release Agreement, dated as of November 24, 2003, between ConAgra Foods, Inc. and UAP Holding Corp. (incorporated by reference to Exhibit 10.7 to United Agri Products, Inc.'s Registration Statement on Form S-4 dated
January 5, 2004 (File No. 333-111710)).
|
10.6
|
|
2003 Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.8 to United Agri Products, Inc.'s Registration Statement on Form S-4 dated January 5, 2004 (File No. 333-111710)).
|
10.7
|
|
Registration Rights Agreement, dated as of November 24, 2003, between UAP Holding Corp. and the Apollo Investors (incorporated by reference to Exhibit 10.15 to UAP Holding Corp.'s Registration Statement on Form S-4 dated March 5,
2004 (File No. 333-113345)).
|
10.8
|
|
2003 Deferred Compensation Plan of UAP Holding Corp (incorporated by reference to Exhibit 10.17 to UAP Holding Corp.'s Registration Statement on Form S-4 dated March 5, 2004 (File No. 333-113345)).
|
10.9
|
|
2004 Deferred Compensation Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.18 to Amendment to 5 to UAP Holding Corp.'s Registration Statement on Form S-1 dated November 9, 2004 (File No. 333-114278)
).
|
10.10
|
|
2004 Non-Executive Director Stock Option Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.19 to Amendment to 5 to UAP Holding Corp.'s Registration Statement on Form S-1 dated November 9, 2004 (File No. 333-114278)
).
|
10.11
|
|
Management Incentive Agreement, dated as of November 29, 2004, by and among UAP Holding Corp. and the holders listed on the signature pages hereto (incorporated by reference to Exhibit 10.1 to UAP Holding Corp.'s Current Report on
Form 8-K dated December 3, 2004 (File No. 000-51035)).
|
10.12
|
|
Letter Agreement dated as of November 29, 2004, regarding termination of Management Consulting Agreement between United Agri Products, Inc. and Apollo Management V, L.P. (incorporated by reference to Exhibit 10.2 to UAP Holding
Corp.'s Current Report on Form 8-K dated December 3, 2004 (File No. 000-51035)).
|
10.13
|
|
2004 Long-Term Incentive Plan of UAP Holding Corp. (incorporated by reference to Exhibit 10.3 to UAP Holding Corp.'s Current Report on Form 8-K dated December 3, 2004 (File No. 000-51035).
|
10.14
|
|
Letter Agreement, dated December 23, 2004, amending and restating the Letter Agreement, dated as of November 29, 2004, regarding termination of Management Consulting Agreement between United Agri Products, Inc. and Apollo Management V,
L.P. (incorporated by reference to Exhibit 10.21 to Amendment No. 1 to United Agri Products, Inc.'s Registration Statement on Form S-4 dated December 23, 2004 (File No. 333-111710)).
|
10.15
|
|
UAP Retirement Income Savings Plan, effective November 24, 2003 (incorporated by reference to Exhibit 10.1 to UAP Holding Corp's Current Report on Form 8-K dated July 28, 2005, (File No. 333-113345)).
|
10.16
|
|
Separation and General Release Agreement, dated January 10, 2006, between Robert A. Boyce and UAP Distribution, Inc. (incorporated by reference to Exhibit 10.1 to UAP Holding Corp.'s Current Report on Form 8-K dated
January 13, 2006 (File No. 000-51035)).
|
94
10.17
|
|
Form of 2007 Restricted Stock Unit Award Agreement of UAP Holding Corp. (incorporated by reference to Exhibit 10.01 to UAP Holding Corp's Current Report on Form 8-K dated April 5, 2007, (File No. 000-51035)).
|
10.18
|
|
Form of Amendment to the 2006 Three Year Restricted Stock Unit Award Agreement of UAP Holding Corp. and 2006 Four Year Restricted Stock Unit Award Agreement of UAP Holding Corp. (incorporated by reference to Exhibit 10.02 to UAP Holding Corp.'s
Current Report on Form 8-K dated April 5, 2007 (File No. 000-51035)).
|
10.19
|
|
UAP Form of Amended and Restated 2005 Restricted Stock Unit Award Agreement of UAP Holding Corp. (incorporated by reference to Exhibit 10.03 to UAP Holding Corp's Current Report on Form 8-K dated April 5, 2005, (File No. 000-51035)
).
|
10.20
|
|
Form of UAP Holding Corp. 2004 Long-Term Incentive Plan/Directors Deferred Compensation Plan Restricted Stock Unit Award Agreement (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated
October 6, 2006.
|
10.21
|
|
UAP Holding Corp. 2007 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.1 to the Company's Quarterly Report on Form 10-Q dated October 4, 2007).
|
10.22
|
|
UAP Holding Corp. 2007 Long-Term Incentive Plan Restricted Stock unit Agreement (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated October 16, 2007).
|
10.23
|
|
Amended and Restated Change of Control Employment Agreement between Larry K. Cordell and UAP Holding Corp., dated as of December 4, 2007 (incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated
December 6, 2007).
|
10.24
|
|
Form of Amended and Restated Change of Control Employment Agreement (for David Bullock, Todd Suko and Jeffrey Rutherford) (incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K dated December 6,
2007).
|
10.25
|
|
Form of Amended and Restated Change of Control Employment Agreement (for Kevin Howard, Dean Williams and David Tretter) (incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K dated December 6,
2007).
|
10.26
|
|
Amended and Restated Change of Control Employment Agreement between Alan Kessock and UAP Holding Corp., dated as of December 5, 2007 (incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K dated
December 6, 2007).
|
21.1
|
|
List of Subsidiaries of UAP Holding Corp.
|
23.1
|
|
Consent of Independent Registered Public Accounting Firm.
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
32.1
|
|
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
32.2
|
|
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
95
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 on the 18th day of April, 2008.
|
|
UAP HOLDING CORP.
(Registrant)
|
|
|
By:
|
|
/s/
L. KENNETH CORDELL
L. Kenneth Cordell
President, Chief Executive Officer and
Director
|
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 dates indicated.
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/
L. KENNETH CORDELL
L. Kenneth Cordell
|
|
President, Chief Executive Officer and Director (principal executive officer)
|
|
April 18, 2008
|
/s/
JEFFREY L. RUTHERFORD
Jeffrey L. Rutherford
|
|
Chief Financial Officer (principal financial officer)
|
|
April 18, 2008
|
/s/
ALAN E. KESSOCK
Alan E. Kessock
|
|
Chief Accounting Officer and Corporate Controller (principal accounting officer)
|
|
April 18, 2008
|
/s/
SCOTT L. THOMPSON
Scott L. Thompson
|
|
Director
|
|
April 18, 2008
|
/s/
STEVEN Y. GOLD
Steven Y. Gold
|
|
Director
|
|
April 18, 2008
|
/s/
MICHAEL E. DUCEY
Michael E. Ducey
|
|
Director
|
|
April 18, 2008
|
/s/
CARL J. RICKERTSEN
Carl J. Rickertsen
|
|
Director
|
|
April 18, 2008
|
96
/s/
DAVID R. BIRK
David R. Birk
|
|
Director
|
|
April 18, 2008
|
/s/
THOMAS MIKLICH
Thomas Miklich
|
|
Director
|
|
April 18, 2008
|
/s/
WILLIAM H. SCHUMANN III
William H. Schumann III
|
|
Director
|
|
April 18, 2008
|
97
Schedule 1
UAP HOLDING CORP.
CONDENSED BALANCE SHEETS
(in thousands, except share data)
|
|
February 24,
2008
|
|
February 25,
2007
|
ASSETS
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
|
|
$
|
52
|
|
Receivables from unconsolidated affiliates
|
|
|
120,687
|
|
|
94,084
|
|
Other current assets
|
|
|
772
|
|
|
878
|
|
|
|
|
|
|
|
Total current assets
|
|
|
121,459
|
|
|
95,014
|
Investment in affiliates
|
|
|
108,935
|
|
|
84,911
|
Other assets
|
|
|
53
|
|
|
82
|
|
|
|
|
|
Total assets
|
|
$
|
230,447
|
|
$
|
180,007
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
12
|
|
$
|
18
|
|
Dividends Payable
|
|
|
|
|
|
9,599
|
|
Other accrued liabilities
|
|
|
10
|
|
|
136
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
22
|
|
|
9,753
|
Stockholders' equity:
|
|
|
|
|
|
|
|
Common stock, $.001 par value, 90,000,000 shares authorized, 52,702,658 and 51,194,620 issued and outstanding, respectively
|
|
|
53
|
|
|
51
|
|
Additional paid-in capital
|
|
|
167,387
|
|
|
138,569
|
|
Retained earnings
|
|
|
60,178
|
|
|
27,801
|
|
Accumulated other comprehensive income
|
|
|
2,807
|
|
|
3,833
|
|
|
|
|
|
|
|
Total stockholders' equity
|
|
|
230,425
|
|
|
170,254
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
|
$
|
230,447
|
|
$
|
180,007
|
|
|
|
|
|
See
Notes to Financial Statements in Item 8. Financial Statements and Supplementary Data. The condensed financial information and the consolidated financial statements were prepared using the
same accounting policies.
98
UAP HOLDING CORP.
CONDENSED STATEMENT OF EARNINGS
(in thousands except share data)
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
Net sales
|
|
$
|
|
|
$
|
|
|
$
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
Cost of goods sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,726
|
|
|
3,141
|
|
|
(291
|
)
|
|
Royalties, service charges and other (income) and expenses
|
|
|
(5,698
|
)
|
|
(44,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,972
|
|
|
41,142
|
|
|
291
|
|
|
Third party interest expense
|
|
|
|
|
|
3,039
|
|
|
10,485
|
|
|
Finance related and other charges
|
|
|
2,864
|
|
|
19,218
|
|
|
330
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations before income taxes
|
|
|
108
|
|
|
18,885
|
|
|
(10,524
|
)
|
Income tax (benefit)
|
|
|
1,128
|
|
|
8,143
|
|
|
(3,844
|
)
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
(1,020
|
)
|
|
10,742
|
|
|
(6,680
|
)
|
Equity in earnings of affiliates
|
|
|
82,575
|
|
|
22,712
|
|
|
73,057
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.57
|
|
$
|
0.66
|
|
$
|
1.31
|
|
|
Diluted
|
|
$
|
1.53
|
|
$
|
0.64
|
|
$
|
1.27
|
|
Cash dividends declared per share of common stock
|
|
$
|
0.90
|
|
$
|
0.75
|
|
$
|
0.6375
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,078,318
|
|
|
50,972,368
|
|
|
50,494,690
|
|
|
Diluted
|
|
|
53,238,708
|
|
|
52,469,497
|
|
|
52,252,512
|
|
See
Notes to Financial Statements in Item 8. Financial Statements and Supplementary Data. The condensed financial information and the consolidated financial statements were prepared using the
same accounting policies.
99
UAP HOLDING CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
Fiscal Year Ended
February 24, 2008
|
|
Fiscal Year Ended
February 25, 2007
|
|
Fiscal Year Ended
February 26, 2006
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
81,555
|
|
$
|
33,454
|
|
$
|
66,377
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangibles
|
|
|
|
|
|
|
|
|
34
|
|
|
Amortization of debt issuance costs
|
|
|
|
|
|
|
|
|
193
|
|
|
Accretion of discount on notes
|
|
|
|
|
|
|
|
|
10,391
|
|
|
Write-off of debt issuance costs
|
|
|
|
|
|
3,082
|
|
|
|
|
|
Equity in undistributed earnings of affiliates
|
|
|
(24,024
|
)
|
|
17,376
|
|
|
(42,222
|
)
|
|
Deferred income taxes
|
|
|
|
|
|
9,089
|
|
|
(3,685
|
)
|
|
Change in operating assets and liabilities
|
|
|
15,030
|
|
|
2,450
|
|
|
7,861
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operations
|
|
|
72,561
|
|
|
65,451
|
|
|
38,949
|
|
Financing
|
|
|
|
|
|
|
|
|
|
|
|
Debt issuance costs
|
|
|
|
|
|
|
|
|
(396
|
)
|
|
Due (from) to unconsolidated affiliates
|
|
|
(34,670
|
)
|
|
61,939
|
|
|
(16,803
|
)
|
|
Long-term debt redemption
|
|
|
|
|
|
(102,839
|
)
|
|
|
|
|
Excess tax benefit from stock-based compensation arrangements
|
|
|
16,158
|
|
|
12,791
|
|
|
|
|
|
Proceeds from exercise of stock options and additions to rabbi trust
|
|
|
3,429
|
|
|
844
|
|
|
1,009
|
|
|
Common stock dividend
|
|
|
(57,530
|
)
|
|
(38,188
|
)
|
|
(22,708
|
)
|
|
|
|
|
|
|
|
|
|
|
Net cash (used for) financing
|
|
|
(72,613
|
)
|
|
(65,453
|
)
|
|
(38,898
|
)
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents
|
|
|
(52
|
)
|
|
(2
|
)
|
|
51
|
|
Cash and cash equivalents at beginning of period
|
|
|
52
|
|
|
54
|
|
|
3
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
|
|
$
|
52
|
|
$
|
54
|
|
|
|
|
|
|
|
|
|
Subsidiary dividends to parent
The wholly owned subsidiaries of UAP Holding Corp. paid dividends to UAP Holding Corp. (their parent company) of $57.5 million, $38.2 million, and
$22.7 million during fiscal years 2008, 2007, and 2006, respectively.
See
Notes to Financial Statements in Item 8. Financial Statements and Supplementary Data. The condensed financial information and the consolidated financial statements were prepared using the
same accounting policies.
100
Schedule 2
Valuation and Qualifying Accounts
For the Fiscal Years Ended February 24, 2008, February 25, 2007, and February 26, 2006
(in thousands)
Allowance for Doubtful Accounts
|
|
Beginning of period
|
|
Charged against
Income
|
|
Deductions*
|
|
Balance at End of
Period
|
Year ended February 26, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
13,749
|
|
$
|
(2,538
|
)
|
$
|
(1,559
|
)*
|
$
|
12,770
|
Year ended February 25, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
12,770
|
|
$
|
2,137
|
|
$
|
(828
|
)*
|
$
|
15,735
|
Year ended February 24, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
15,735
|
|
$
|
4,475
|
|
$
|
3,813
|
*
|
$
|
16,397
|
-
*
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Bad
debts charged off, less recoveries
101
Uap Hldg Corp (MM) (NASDAQ:UAPH)
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From Apr 2024 to May 2024
Uap Hldg Corp (MM) (NASDAQ:UAPH)
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From May 2023 to May 2024