University of Wisconsin Center for Wisconsin
Rural Cooperatives, September/October 1996, pp. 16-20.
Published by the Rural Business and Cooperative Development Service
Record Expansion Undertaken by Nation's Major Cooperatives
Editor's Note: this is the second article in a three part series which focuses on the 1995 financial performance of the 100 largest agricultural co-ops. Part I appears on page 12 of this issue. Part III will appear in the November/December issue.
The future strength of any business lies in its balance sheet. The balance sheet reveals not only the type and amount of resources available to a business, but also those who lay claim to these resources. Over the past two years, the top 100 agricultural cooperatives have been building their asset base more quickly than in the prior 15 years (table 1). While both debt and equity positions have increased, most of the expansion throughout 1995 was due to higher liabilities.
Strong Growth in Assets
The asset base for USDA's Top 100 agricultural cooperatives grew by $2.3 billion in 1995, to $23.2 billion—an 11-percent increase. The Top 100's strong surge in asset accumulation marks the first time that assets increased more than $2 billion. This is the second year in a row for a sizable growth in the asset base of the Top 100.
This growth in 1994 and 1995 contributed to nearly 60 percent of the total asset growth during the 16-year history of the Top 100. In 1994, assets grew 10 percent. However, a large part of this asset growth during the past two years was due to merges and acquisitions. Figure 1 shows the composition of assets for the Top 100.
Current Assets Lead the Way
A 14-percent increase in current assets was the largest contributor to the increase in the asset base of the Top 100 (figure 2). The growth in inventories ($800 million)
and accounts receivable ($518 million) accounted for 56 percent of the surge in total assets. Cash on hand in 1995 increased $42 million (5 percent), to $936 million. Other current assets increased 25 percent, to $1.1 billion. Total current assets at the end of 1995 stood at $13.2 billion.
If the increases in inventory levels and accounts receivable are a reaction to a greater demand, then it should be no cause for concern. However, the rise in these current assets could be a cause for concern if the build-up of inventory is due to lower than expected sales and if higher accounts receivable are caused by members' tight cash-flow.
Looking at inventory and accounts receivable as a percentage of total sales, the ratios have not changed much in the past five years. Accounts receivable remained steady at 8 percent of sales and inventory levels in 1995 and have been between 9 and 10 percent of sales for the past five years. Therefore, these increases do not seem to pose a problem for cooperatives. A more in-depth analysis of operational efficiencies will be provided in Part III of this series.
The grain, farm supply, fruit and vegetable and diversified cooperative groups accounted for more than 88 percent of the increases in current assets. Each of these four commodity groups saw total current assets increase by more than $325 million.
These three commodity groups also accounted for 70 percent of the increase in accounts receivable. Grain cooperatives had the largest increase with $128 million, followed by fruit and vegetable with $120 million and the diversified group with $115 million.
Nearly 70 percent of the $800 million increase in inventories was due to increased inventories held by the grain group ($247 million) and diversified cooperatives ($298 million).
Non-current Assets Also Rising
Investments in cooperatives and other businesses increased by 13 percent, to $2.5 billion (table 2). The largest increase in investments was in the less-than-20-percent investment group for both cooperatives and non-cooperative businesses.
However, 93 percent of the increase in investments in cooperatives was due to joint ventures by seven cooperatives. Four cooperatives accounted for 92 percent of the total increase in investments in noncooperative businesses.
Fixed assets increased by 6 percent from 1994. This increase marks the first time that net fixed assets totaled more than $6.5 billion. Although the fixed-asset base did not expand as much as in 1994 (8.6 percent), it was the second year in a row when net fixed assets increased.
Leading the way was the diversified commodity group with an increase of $133 million (11 percent) in fixed assets. Farm supply ($72 million), fruit and vegetable ($120 million) and dairy ($72 million) groups had increases in net fixed assets despite having fewer representatives in the Top 100. Dairy had three less cooperatives in the Top 100 while both farm supply and fruit and vegetable cooperatives each lost one cooperative (figure 3).
On the other hand, the grain group added three cooperatives to the Top 100 yet realized a 10.7 percent drop in total net fixed assets. The cotton group—which expanded its presence in the Top 100 by two co-ops in 1995—had total net fixed assets of $34 million, a 31.5-percent increase. This was the largest increase for any commodity group in the Top 100.
Sugar, rice and poultry and livestock cooperatives maintained the same number of cooperatives in the Top 100 and posted mixed results. The sugar group added 9 percent ($30 million) to its net fixed-asset base while rice cooperatives gained only 1.5 percent ($2 million). Poultry and livestock was the only other group to have less net fixed assets in 1995 ($16.6 million) than in 1994 ($16.8 million).
Current Liabilities Support Asset Growth
Total current liabilities for the Top 100 expanded by 15 percent, to nearly $10 billion. Figure 4 shows the composition of current liabilities for 1995. This is the largest amount of current liabilities ever recorded for the Top 100. However, this year's growth in current liabilities did not out-pace growth in current assets, as it did in 1994. The major increase was in short-term debt. This marks the second time since 1991 that short-term debt was higher than trade accounts payable.
Short-term debt includes operating loans, current portion of long-term debt, government programs and other short-term loan obligations. At $3.3 billion, short-term debt is at its highest level in the 16-year history of the Top 100. The only other times this debt exceeded $3 billion was in 1981 and 1982. Figure 5 presents the sources of short-term debt over the past five years.
Loans from banks for cooperatives and commercial banks are the largest source of short-term-debt funding for cooperatives. Together, these two sources provide nearly 75 percent of the total outside funding for cooperatives.
Banks for cooperatives supplied more than 55 percent of the total amount of short-term debt to the Top 100 in 1995. This is up from 51 percent in 1994, an
increase of $433 million. Commercial banks are the next largest supplier of funds to cooperatives. In 1995, commercial banks provided cooperatives with $632 million in short-term funds.
Commercial banks are increasingly becoming important to cooperatives for short/term loans. In 1991, only 7 percent of total short-term loans were provided by commercial banks. By 1995 they were providing 19 percent of short-term loans. Other sources of short-term debt have become less relevant for the Top 100.
Long-term debt as a percentage of total debt for the top 100 is close to a 15-year low. The current portion stood at $395 million (12 percent) of total short-term debt in 1995. Only 1993 saw the current portion of long-term debt at a lower level—$394 million.
The value of bonds issued increased by 27 percent, to $248 million. However, this remains 7 percent of total short-term debt. Commercial paper increased 6 percent, to $148 million, but dropped from 5 to 4 percent of total short-term debt outstanding in 1994. Other sources of funds, including the government, made up only around 2 percent of total short-term debt.
Trade accounts payable increased 12 percent, to $3.2 billion—the highest level in the 16-year history of the Top 100. Also reaching record highs were cash payments to members declared, but not yet paid, and pooling liabilities. Together, these two member/patron payable liabilities increased by 12 percent, to $1.9 billion and represent 19 percent of current liabilities.
Long-term Debt Increases Again
With lower interest rates over the past few years, cooperatives have increased their holding of long-term debt (figure 6). The 9-percent increase in 1995 matched the increase in 1994. The Top 100 held $4.2 billion worth of long-term debt, up $339 million from 1994. This is the highest amount of debt held by the Top 100 since the early 1980s. However, long-term debt as a percent of total debt declined to 31 percent, down from 33 percent in 1994.
CoBank and the St. Paul Bank for Cooperatives continue to provide the bulk of long-term debt funding. These sources have increased the amount of funds provided by 18 percent, to $2.3 billion. This represents 49 percent of total long-term debt outstanding.
Cooperatives also issued a record amount of debt in 1995. Bonds and notes issued and outstanding by cooperatives were more than $1 billion for the first time in the 16-year history of the Top 100. This amount was an 18-percent increase from 1994. Together, these two sources of long-term debt contributed to just under 75 percent of total long-term debt.
All other sources of long-term debt have decreased since 1994. Insurance companies as a long-term funding source declined 21 percent, to $398 million. Likewise, industrial development bonds decreased 5 percent, to $209 million. Other types of debt, including government sources and long-term leases, totaled $196 million or more than 4.5 percent of total long-term debt.
Cotton, sugar, rice and poultry and livestock groups relied almost exclusively on the cooperative banking system for their total debt. Cooperative banks provided 87 percent of total borrowed long-term funds for these groups.
This contrasts with the diversified cooperative group, which relied on notes and bonds for most of their debt financing. These notes and bonds made up 50 percent of the diversified group's total borrowed long-term funds and represented 75 percent of the total amount of all notes and bonds issued by the Top 100. Cooperative banks supplied only 21 percent of this group's long-term debt. The other cooperatives, while also relying heavily on the cooperative banks, use a variety of sources of long-term financing to fund their operations.
Minority Interest Nears Record
When a cooperative holds more than a 50-percent equity position in a subsidiary, the cooperative must consolidate the financial statements of the subsidiary with its own statements. If the cooperative does not own 100 percent of the subsidiary, there will be a minority interest that represents interest of outside investors in the subsidiary that is consolidated into the parent cooperative.
This situation can also arise within the cooperative framework. In a federated cooperative or marketing-agency-in-common, one cooperative can hold more than 50 percent of the total equity. The majority cooperative is required to consolidate the financial statements. While both are equal partners, the other cooperative will be considered the minority interest.
Eleven cooperatives in the Top 100 reported minority interest. Minority interest increased 62 percent from 1994, to $194 million. The only other time this interest was greater was in 1992, when it reached $201 million.
Farm supply, diversified, and grain cooperatives accounted for 98 percent of the total minority interest outstanding. However, grain cooperatives showed a 351 percent increase in minority ownership.
Member Equity Continues Upward
Total member equities averaged a steady increase of 3.7 percent per year over the past 16 years (figure 7). In 1995, total equity reached $8.2 billion, an increase of $485 million (6.3 percent) from 1994.
Common stock is generally used as the initial investment in a cooperative. Each cooperative member purchases a single voting share, which usually accounts for less than 5 percent of total equity. However, in five cooperatives, common stock represented more than 20 percent of total outstanding equity.
The importance of common stock has been steadily dwindling. In 1995, common stock represented 7 percent of total equity, down from 17 percent in 1980. However, common stock rebounded slightly from a record low in 1994. The value of common stock was up $6 million to $569 million.
The diversified and fruit and vegetable cooperative groups had the highest value of common stock, accounting for 93 percent of the Top 100's total.
Equity certificates and credits were down $4 million from the record high of $4.4 billion in 1994. Yet, equity certificates and credits still account for the major portion of the Top 100's total equity and represent 54 percent of the total.
Farm supply cooperatives were the major cause for the decline. The value of equity for farm supply cooperatives dropped 28 percent, or $155 million. However, the drop in farm supply equity certificates and credit was more than compensated for by an increase in their value of preferred stock.
Both preferred stocks and unallocated equities reached record highs in 1995. Preferred stock was up $221 million (16 percent), to $1.6 billion. This represents 20 percent of the Top 100's total equity. Leading the increase was the farm supply group, with a $209 million increase. Unallocated equity increased 20 percent, to $1.6 billion. All cooperatives increased their amount of unallocated equity except the sugar cooperatives. Unallocated equity was used to absorb most of the operating losses.