USDA
Abstract Farmer cooperatives are a major force in the U.S. dairy industry. Their share of U.S.

milk marketings rose from 53 percent in 1950 to 88 percent by 1995. Dairy cooperatives held an estimated $5.4 billion in assets in 1995. Members owned about 37 percent of the assets and creditors financed the balance with either short- or long-term

debt. Hence, the financial status of dairy cooperatives is vital to not only cooperative

member-owners and management but also to creditors. This study presents a compilation of financial data obtained from the annual reports of the nation’s largest dairy

cooperatives between 1980 and 1995. Financial data and ratios are presented for the

group as a whole. The data and derived information can be used by cooperative management and creditors to gauge the financial health of an individual dairy cooperative

compared with the large cooperative dairy industry.

Key Words: Cooperatives, dairy cooperatives, financial performance, ratio analysis,

balance sheet, income statement.

Financial Statistics of the Largest Dairy Cooperatives,

Michael D. Kane

Agricultural Economist

Rural Business-Cooperative Service

U.S. Department of Agriculture

Research Report 164

September 1998

Price: Domestic $5; Foreign $5.50

1980 - 1995
This publication profiles the balance sheet, operating statement and key financial ratios

for the largest U.S. dairy cooperatives between 1980 and 1995. Annual financial data

from individual balance sheets and income statements of the largest U.S. dairy cooperatives are consolidated by year. Ratios were derived from the financial statements of

an individual cooperative and averaged by year.

Balance sheets and operating statements were common sized for analysis. Financial

ratio analysis examines liquidity, capital structure, solvency, asset utilization, operating

performance, leverage, return-on-equity and selected hundredweight (cwt.) ratios.

Dairy cooperative management can use the financial measures as benchmarks to

assess individual cooperative performance against that of the largest dairy cooperatives in a study year.
Contents Highlights ............................................................

i

Overview.. ..........................................................

.

Total Assets .........................................................

.

Financial Structure ....................................................4

Income Statement. ....................................................7

Distribution of Net Margins ............................................. 11

FinancialRatios ...................................................

..12

Return on Investment ............................................ 12

Leverage Multiplier .............................................. 13

Return on Total Assets ...........................................13

Operating Performance. ..........................................14

AssetUse.. .................................................

..14

Capitalization and Solvency .......................................15

Liquidity.......................................................l 8

CWTRatios .................................................

..2 0

Appendix...........................................................2 2

DataLimitations ..............................................

..2 2

Methods of Analysis .............................................22

Statement Item Definitions ........................................22

Financial Ratio Terms ............................................23

Tables ......................................................

..2 5

ii
Highlights Assets for the average large dairy cooperative grew 5.1 percent annually between

1980 and 1995. But, the relative composition of assets changed during the 16-year

study period. The current assets share of the balance sheet declined along with its

largest component, accounts receivable. Inventories, the second largest current asset,

went through a series of limited contractions and expansions. Investments in other

firms expanded in the 1990s. Property, plant and equipment averaged 31.6 percent of

total assets and grew 5.4 percent annually.

Equity financed 37 percent of total assets while current liabilities supported 46.6 percent and long-term debt 16.4 percent. Current liabilities were the largest financial

resource, with equity supporting a growing share. Amounts due members was the

largest account among current liabilities, averaging 20.8 percent of assets. The percentage of long-term debt on the balance sheet showed little variation during the study

period. But, equity financing increased, growing from 1980’s low of 32 percent to a

high of 38.9 percent by 1993. Equity played a more substantial financial role in dairy

cooperatives, with positive unallocated reserves averaging 41.8 percent of assets.

Total sales and revenues for the average large dairy cooperative climbed 3.1 percent

annually. Cost of goods sold annually amounted to 91.8 percent of total sales and, as a

percent of total sales, was fairly consistent with only small annual variations. Yet, during a few of the study years, a small increase in the cost of goods sold without a corresponding increase in sales squeezed margins throughout the operating statement,

resulting in extremely low profits and major losses for some cooperatives. But, cost of

goods sold was not the only factor to determine success or failure in a given year.

Gross margins averaged 8.2 percent of total sales, with little variation. Surprisingly,

when gross margins were at their lowest levels in the early 198Os, operating margins

were at or above average. But, in the early 199Os, while gross margins were at or near

average levels, operating margins were at study lows. Other items on the income statement also had substantial effects on profitability outcomes.

Operating margins declined when administrative and selling expenses and/or operating expenses could not be contained. In 1990, high cost of goods sold coupled with

growing administrative and selling expenses resulted in the lowest operating margin of

the study period. In 1991, although cost of goods sold was slightly less than average,

both administrative and selling expenses and operating expenses were above the

norm, reducing operating margins to near the study low.

While every item on the operating statement plays a role in profitability, high administrative and selling expenses as a percent of total sales seemed to be a common factor

in years of low profitability. However, interest expenses and other income and expense

items also affected annual outcomes.

Net margins from operations averaged 1.06 percent of sales, reaching highs in the mid

to late 1980s and again in the mid-1990s. The highs in the late 1980s came about

when cost of goods sold, as a percent of total sales, was at its lowest levels and

administrative and selling expenses were just beginning to escalate.

Net margins after taxes averaged nearly 1 percent of sales but higher levels occurred

in the late 1980s. But, after-tax net margins were at their lowest levels in the early

1990s when extraordinary expenses reduced profits further.

. . . 111
Dairy cooperatives distributed 29 percent of net margins back to members as cash

patronage refunds. Losses were typically absorbed by unallocated reserves. Total

patronage refunds, cash plus non-cash, averaged 74 percent of net margins.

Return on equity (ROE) averaged 15.4 percent of sales but ROE before interest and

taxes averaged 20.1 percent, up nearly 5 percent. Returns slumped dramatically in the

early 1990s as net incomes for many cooperatives dropped and some cooperatives

reported major financial losses. Setbacks in 1991 were severe. The average return on

equity slumped to the study low of 5.8 percent. However, returns improved between

1992 and 1995, with ROE ratios growing in most years. The greater returns on equity

in the early 1980s reflected the influence of the higher financial leverage multipliers of

the period.

The leverage multiplier, total assets divided by equity, averaged 2.8 with the highest

numbers occurring in the early 1980s. The high multipliers combined with elevated

returns on total assets to bring about the highest returns on equity. But, the high interest rates and debt levels of the early 1980s also created a much riskier operating environment. In response to higher interest rates, many dairy cooperatives increased equity financing. And, as equity gained a larger share of the balance sheet, the financial

leverage multiplier declined through 1986. However, for the dairy cooperatives as a

group, there was not much change between 1986 and 1994.

Return on total assets (ROTA) averaged nearly 6.3 percent. And, the ROTA measure

before interest and taxes was higher, nearly 8 percent. Returns were higher in the

198Os, with the highest occurring in the early 1980s. The ROTA measures in the 1990s

have a way to go to get back to the levels seen in the 1980s.

Profit margins averaged 1.6 percent of sales and were at their highest in the late

1980s. Declines in administrative and selling expenses, and operating expenses

brought margin improvements in the 1990s. For instance, operating margins were

higher, averaging 1.5 percent of sales.

Total asset turnover dropped from 5.5 turns in 1981 to 4.4 by 1986 and remained low

through the balance of the study period. This slowdown in asset turnover inhibited

improvements in ROTA and ROE during the first half of the 1990s.

Sluggish sales growth coupled with additions to property, plant and equipment (PP&E)

slowed the fixed asset turnover rate in the 1980s. The turnover rate declined from the

high of 20 times in 1980 to the low of 14.2 by 1989. Some recovery was evident in the

1990s as sales growth outpaced additions to PP&E. Moreover, fixed asset turnover

during the closing years of the study averaged 16.3 times, showing some improvement

over the 14.6 average for the 1988-91 period.

Inventory turnover averaged 46 times per year, but there was a large contrast between

the higher rates of the mid-l 980s and the slower turnovers in the first half of the 1990s.

Inventory turnover rates peaked in the 198Os, averaging nearly 50 times through 1988,

but, the slowdown that began in 1989 continued through 1993. Inventory turnover

declined to the study low of 35 times, but modestly improved in the closing years of the

study. The accounts receivable turnover rate was fairly consistent, averaging almost 15

turns per year.

A slowdown in fixed asset and inventory turnover rates reflected the overall slump in
Highlights total asset turnover. And, although fixed asset turnover showed some signs of improving in the first half of the 199Os, inventory turnover remained slow and appeared to be

a challenge for the second half of the 1990s.

The capitalization and solvency ratios show improving strength in member financing

and indicate resilience in long-term solvency despite the profitability challenges of the

study period. While the financial structure of the larger dairy cooperatives appears to

be strong in the long run, an examination of liquidity suggests some short-term challenges.

Between 1982 and 1989, dairy cooperatives carried a quick ratio at or slightly above 1,

indicating the ability to maintain short-term liquidity. However, in the 1990s the ratio

began to fall. A drop in receivables as a percent of total assets, coupled with a decline

in cash accounts, contributed to the quick ratio slipping below 1. Hence, short-term liquidity is becoming more dependent on inventory turnover and the quality of accounts

receivable.

The current ratio averaged 1.4 and did not dip below 1 at any time during the study

period. The lowest measure of 1.2 occurred in 1980 and grew quickly to 1.4 by 1982

as current liabilities declined faster than current assets. The measure hovered around

1.4 through much of the study but dropped in 1994 and 1995 when receivables and

inventories declined. If trends in the quick and current ratios are considered together, it

becomes apparent that inventory turnover is critical to maintaining short-term liquidity.

But, inventory turnover slowed in the early 1990s.

The per-cwt ratios provide mixed signals. The net-income-per-cwt measure shows

signs of sluggish recovery following 1991’s low. However, sales per cwt is declining as

growing milk production is processed into lower-value products, depressing milk prices

and sales. The equity- per-cwt measures were relatively stable, with some limited

growth in the 1990s as equity increased in response to market risk. The debt-per-cwt

measure also declined as cooperatives shifted to more member financing in lieu of outside debt capital. After a decline, the assets-per-cwt measure stabilized in the 1990s.
Financial Statistics of the Largest Dairy

Cooperatives, 1980 - 1995

Michael D. Kane

Agricultural Economist

Rural Business-Cooperative Service

Overview

Every industry is confronted by a business atmosphere that affects financial performance. Since the

early 198Os, the Federal dairy price support program

has become more market oriented. Market forces

instead of Federal support prices now play a key role

in determining dairy prices and, ultimately, the mail

box price for milk. Milk and dairy product prices have

become more variable, resulting in fluctuating inventory values, just one of many factors that influence profitability.

The boards and managers of cooperatives respond

to the stress of business cycles and member demands

in different ways when making milk payment decisions and annual allocations of net income. These

events make it difficult for the management of an individual dairy cooperative to gauge financial performance compared with the entire dairy industry. Yet,

managers and directors want information that adequately represents the financial performance of the

cooperative dairy industry and that can be used as a

yardstick for measuring their own performance

against that of the industry.

Although the number of milk marketing cooperatives in the United States is on the decline, their physical size and share of all milk marketed off U.S. dairy

farms is growing (table 1). Dairy cooperatives’ share of

milk marketed from U.S. dairy farms rose from 1980’s

estimated 71 percent to 88 percent in 1995-up 1 percent during each year of this study.

In 1995, dairy cooperatives held about $5.36 billion

in assets, 53 percent more than $3.5 billion in 1981.

Members owned about 37 percent or $2.0 billion.

Member equity grew from a low of 33.4 percent in 1981

to a high of 39.4 percent in 1986 before declining to 37.6

percent in both 1992 and 1995. And, equity ownership

remained fairly strong, in the 37- to 39-percent range,

through the early 1990s. The financial performance of

U.S. dairy cooperatives is vital not only to cooperative

member-owners and management but also to creditors.

Yet, it is difficult to gauge financial performance compared with that of others in the dairy industry.

Because of their organizational nature, cooperatives may have differing performance goals and overall missions than investor-owned firms (IOFs). IOFs

are primarily driven by stockholder investors seeking

to maximize returns on investment, while cooperative

management and members often place the value of

service to member-owners first. Establishing an

assured market for their farm produce or a place to

buy farm supplies at a competitive price is often the

more important goal of cooperative members. Return

on member equity as measured in the traditional sense

is not the highest priority. Hence, cooperative managers focus not only on the bottom line but also on service to members. Consequently, comparing dairy cooperative financial data to that of investor-owned dairy

firms may be only of limited value.

Dairy cooperatives need a more appropriate basis

upon which to evaluate or compare financial performance to firms with similar missions-other dairy

cooperatives. While financial reports were not available for all U.S. dairy cooperatives in every year, annual data was available for many of the larger dairy

cooperatives.

The dairy cooperatives included in the RBS largest

cooperatives database represent about two-thirds of

the assets, dairy sales, and member equity found in all

U.S. dairy cooperatives during the period 1980-95. This

report compiles annual financial data from the balance

1
Table I- Number of dairy co-ops, milk sales, equity, and share of milk marketed off farm, selected years.

Year Dairy Net milk Gross milk Assets Net worth

co-ops sales sales

Number ------------------__~~~~~~~~~~~~~~ $r,ooo __________________________________

Share of

Market Activity

Percent

1950 2,008 N/A 2,032,OOO NIA N/A N/A

1955 1,826 2,431,522 2,909,594 N/A NIA N/A

1960 1,541 3,055,521 3,679,523 NIA NIA NIA

1965 1,286 3,769,721 4,897,604 NIA NIA NIA

1970 956 5,126,314 6,062,368 NIA NIA NIA

1975 656 7,851,029 8,822,593 N/A N/A N/A

1980 465 13,666,105 15,137,380 N/A N/A 71

1981 446 15,051,776 16,572,275 3,496,721 1,168,636 7 2

1982 427 15,776,154 17,976,595 3,831,590 1,333,491 7 7

1983 401 16,765,593 19,067,092 3,925,897 1,380,812 7 7

1984 384 16,707,616 18,757,254 4,086,384 1,492,873 7 8

1985 383 15,959,869 18,504,648 4,079,322 1,558,511 7 8

1986 345 14,821,044 16,477,608 3,942,169 1,552,468 7 8

1987 298 16,548,290 18,115,112 4,104,300 1,578,200 7 6

1988 287 17,792,748 19,320,221 4,219,600 1,634,200 7 6

1989 259 18,339,045 19,850,349 4,443,700 1,689,400 8 0

1990 264 20,719,087 21,930,190 4,426,200 1,679,600 81

1991 264 18,819,073 19,719,306 4,376,300 1,700,500 81

1992 265 20,238,617 22,204,390 4,528,300 1,701,600 8 2

1993 258 20,510,188 22,680,477 4,547,900 1,735,800 8 6

1994 247 21,502,540 23,139,135 4,960,900 1,834,500 8 6

1995 241 21,783,809 23,668,484 5,359,900 2,013,500 8 8

Source:USDA, RBS, Statistics Staff

sheets and income statements of these dairy cooperatives and should be representative of all dairy cooperatives.

Key financial ratios were calculated from the

financial data of the individual cooperatives’ annual

statements. The ratios were averaged to develop a representative financial performance ratio for use by dairy

cooperative management and others as competitive

yardsticks in gauging their individual performance

during the 16-year span.

This report focuses on financial performance measures for dairy cooperatives with a significant amount

of member equity at risk. Consequently, one functional

type of dairy cooperative was not included in the data

group-the bargaining cooperative. Cooperatives that

were primarily bargaining in nature or that reported

significant sales from non-dairy operations were also

excluded.

The exact number of dairy cooperatives included

each year depended on the availability of annual data.

Consequently, the number of cooperatives used in the

yearly calculations varied between 26 and 30. In some

cases, a cooperative failed to provide a financial report

or was involved in merger or dissolution and no

longer produced an individual report. In 1995, the mix

of cooperatives among the largest dairy firms changed

because of earlier mergers, divestitures and dissolutions. The data reflects the impact.

Total Assets

In 1980, total assets of the 24 largest dairy cooperatives approached $1.57 billion. By 1995,27 cooperatives reported assets of nearly $3.64 billion. Assets

averaged a 5.1-percent annual growth rate. The composition of the assets also shifted during the lbyear

study period.

Current assets annually account for the largest

share of total assets, averaging nearly 60 percent. But,

percent current assets declined through most of the

study period, from 63.2 percent to 56 percent (figure 1).

Accounts receivable were the largest component, averaging 34.5 percent of total assets. And, receivables

2
declined from a study high of 40.2 percent in 1981 to 31 Inventories, the second largest current asset, averpercent in 1991 before expanding slightly to 33.2 percent aged 17 percent of total assets. And, as a percent of

by 1994, and closing the study at 32.5 percent in 1995. total assets, inventories went through a series of limited contractions and expansions (figure 2). The low of

Figure I- Current Assets as a Percent of Total Assets, 1980-95

Percent of total assets

7 0

6 0

5 0

4 0

3 0

2 0

10

0

Cash and Market Securities

Accounts Receivable

Inventories

Other Current Assets

1980 8 2 8 4 8 6 8 8 9 0 9 2 94 95

Figure 2- Inventories as a Percent of Total Assets, 1980-95

Percent of total assets

2 5

2 0

15

10

5

0

1980 8 2 8 4 8 6 8 8 9 0 9 2 94 95

3
15.2 percent occurred in 1986 and the high of 19.5 percent, just four years later in 1990. Inventory changes

reflected market conditions and the fluctuating prices

of milk and milk products (cheese and non-fat dry

milk). And, at times, changing inventory evaluations

created significant challenges to the dairy industry.

Investments in other firms grew from 5.5 percent

to 10.5 percent of total assets. However, expansion was

primarily a trend of the 1990s (figure 3). Although

investments demonstrated some growth in the early

198Os, they hovered around 6 percent of total assets for

the balance of the decade. Investments share of total

assets did not expand until the 199Os, jumped to 7.1

percent in 1993, and advanced to nearly 10.7 percent in

1995. Overall, additions to investments in the Banks

for Cooperatives averaged about 8.1 percent a year.

However, investments in other cooperatives with 20

percent or more ownership grew at a 29-percent rate

during the study period and drove the investments

late in the period.

IT&E share of the balance sheet grew slowly during the 1980s. Fixed assets expanded from 28.8 percent

of total assets in 1980 to 33.9 percent by 1991, before

contracting to close the study period at 30.3 percent

(figure 4). IT&E averaged 31.6 percent of total assets

and grew 5.4 percent annually. During the mid-1990s,

the dairy cooperatives sold off unwanted assets,

merged and restructured.

Financial Structure

Although current liabilities finance the largest por-’

tion of total assets, equity’s role grew in most years of

the study. Member ownership strengthened in the

early 1980s and remained in the 37 to 38 percent range

for the balance of the study. Equity financed an average 37 percent of total assets while current liabilities

supported 46.6 percent and long-term debt 16.4 percent.

Like current assets, the current liabilities share of

total assets declined in the 1980s before expanding in

the 1990s (figure 5). Current liabilities declined from

52.2 percent of total assets in 1980 to 42.8 percent in

1991 before expanding to 49.2 percent by 1994 and

closing the study period at 46.2 percent.

Among the current liability accounts, short-term

debt averaged 6.6 percent of total assets with little

annual variation. Although trade accounts payable

averaged 15 percent, it began the study period at 15.7

percent and, for the most part, slowly declined

through the 1980s to a low of 13.7 percent in 1989. But,

trade-payables share of the balance grew quickly in the

1990s to 17.3 percent in 1994, and closed at 16.3 percent

in 1995. Did cash-flow problems cause a slowdown of

Figure s- Investments as a Percent of Total Assets, 1980-95

Percent of total assets

12

6

1980 82 84 86 88 90 92 94 95

4
payments? Or, was cooperative management slowing

trade payments in lieu of enhancing payments to

members?

For most of the study period, amounts due members was the largest account among current liabilities,

averaging 20.8 percent of assets. Notably, the percentage declined during the study period (figure 6). The

Figure 4- Property, Plant, and Equipment as a Percent of Total Assets, 1980-95

Percent of total assets

4 0

1980 8 2 8 4 8 6 8 8 9 0 9 2 94 95

Figure 5- Current Liabilities as a Percent of Total Assets, 1980-95

Percent of total assets

6 0

5 0

4 0

3 0

2 0

IO

Total Short-Term Debt

Trade Accounts Payable

Amounts Due Members

Other Current Liabilities

1980 8 2 8 4 8 6 8 8 9 0 9 2 94 95
26.7 percent share that member liabilities had in 1980

declined to 18 percent by 1990. Although there was a

temporary expansion to 20.1 percent in 1993, member

payables dropped to 17.4 percent of total assets in

1995. By 1995, member and trade payables share of the

balance sheet were almost the same, differing by only

1.1 percent.

Member payables are an aggregate of cash patronage refunds, equity redemption, cash dividends on

stock, milk payments and any other payables to members as designated in annual reports. Hence, the

decline in member payables may be attributable to a

variety of factors. However, the percentage decline in

member payables compared with trade payables and

the other current liabilities seems to indicate cooperatives are putting priority on payments to members.

The percentage of long-term debt on the balance

sheet varied slightly, averaging 15.7 percent of assets

and topping at 17.5 percent in 1982 and 1991. Debt

declined quickly in the 199Os, falling from the high in

1991 to 11 percent by 1994 but closed the study in 1995

at 14.2 percent. The 1995 measure reflects the makeup

of the new cooperative additions rather than significant changes in the long-standing financial structure.

Equity financing grew from 32 percent in 1980 to

38.9 percent by 1993 (figure 7). Preferred stock averaged about 1.7 percent of total assets annually.

Common stock was not a factor in financing dairy

cooperative operations, averaging only 0.02 percent of

assets. Allocated retained equity, the primary source of

member financing, averaged 31.9 percent of assets.

Allocated equities grew from 28.5 percent of assets in

1980 to nearly 33.9 percent in 1991, before sliding to 30

percent in 1995 when several new cooperatives qualified as the largest dairy cooperatives while others

merged or otherwise restructured.

Consolidated unallocated equity includes both the

positive unallocated reserves carried by most of the

large dairy cooperatives as well as the negative unallocated reserves carried by a few. Except for 1995, consolidated unallocated equity grew from 2.1 percent of

assets in 1980 to 4.3 percent by 1993. However, unallocated equities plummeted to 2.8 percent of total assets

in 1990 as some cooperatives reported major losses

adding to negative unallocated reserves. However, if

only positive unallocated reserves are considered, the

study average jumps to 6 percent of total assets, with a

4 to 8 percent range. Although only a few dairy cooperatives carried accumulated losses as negative unallocated reserves, the size of those reserves was significant in some instances.

Equity played an even more substantial financial

role in the vast majority of dairy cooperatives with

positive unallocated reserves. In this group, equity

averaged 41.8 percent of assets, rising from 35.9 percent in 1981 to 44.6 percent in 1994.

Figure 6- Amounts Due Members as a Percent of Total Assets, 1980-95

Percent of total assets

30

25

1980 82 84 86 88 90 92 94 95

6
Income Statement

In the cooperative dairy marketing industry, the

difference between profit and loss is often less than 1

percent of sales. Hence, even a small percentage

change in any item on the income statement can have

dramatic effects. Also, a rise in sales does not necessarily mean increased profit margin if cost of goods sold

goes up. Yet, a drop in sales often squeezes margins if

cost of goods sold is valued on higher pay prices.

Hence, the squeeze on margins often begins early in

the income statement where cooperative management

has little control.

The cost of goods sold is affected by factors

beyond the Federal support price for milk. Market

competition often dictates the final milk box price paid

to dairy farmers. For instance, cooperatives often pay

premiums for milk. This raises the costs of goods sold

and causes lower margins. Consequently, year-end

patronage refunds to the farmer are less because the

patronage was paid up front in the form of premiums.

So, the ultimate measure of their dairy cooperative’s

value is the total amount the farmer receives for milk

marketed through the cooperative.

But, how do cooperatives improve their operating

performance? The subsequent discussion indicates

cooperatives may best enhance operations by focusing

on internal cost-control efforts. See financial data related to this discussion in the appendix tables.

Total sales and revenues for the 24 dairy cooperatives ranked among the largest 100 cooperatives in

1980 equaled $8.8 billion. In 1995, the 27 dairy cooperatives in that largest group had sales and revenues

approaching $15.4 billion. During the 16-year study

period, total revenues for the average large dairy cooperative grew at a 3.1 percent annual rate (figure 8).

Dairy marketing sales annually amount to 98.4 percent

of the total revenues while sales of supplies and other

revenue items contribute 0.8 percent each.

In 1990, revenues of 29 cooperatives totaled $14.6 billion but plummeted to $13.3 billion in 1991. It took another 4 years before consolidated dairy sales surpassed the

1990 mark, albeit with fewer cooperatives. The first half

of the 1990s challenged the largest dairy cooperatives

and the entire dairy industry for a variety of reasons.

Cost of goods sold annually amounted to about

91.8 percent of total sales. Costs peaked at 92.2 percent

in 1981 and bottomed at 91.2 percent in 1986.

However, during a couple years, an increase in cost of

goods sold without a corresponding increase in sales

put a squeeze on margins which rippled down

through the operating statement. Profits were either

extremely low or major losses occurred.

Figure 7- Equity as a Percent of Total Assets, 1980-95

Percent of total assets

5 0

4 5

4 0

3 5

3 0

2 5

2 0

15

IO

5

0

1980 8 2 8 4 8 6 8 8 9 0 9 2 94 95

Preferred Stock

Allocated Equity

Unallocated Equity

7
But, cost of goods sold was not the only factor to

determine success or failure in a given year. For

instance, while cost of sales were about average in the

early 198Os, most cooperatives reported profits. Yet, in

the 199Os, net margins were the lowest of the study

period even though cost of sales were at an average

level. So, other items on the operating statement were

also responsible for dramatically different profitability

outcomes.

Gross margins averaged 8.2 percent of total sales

with little variance between the 1981 low of 7.8 percent

and the 1986 high of nearly 8.8 percent (figure 91.

Although gross margins were at their lowest levels in

the early 198Os, operating margins were average most

years. Yet, in the early 199Os, while gross margins were

near average, operating margins were lowest.

As a percent of sales, administrative and selling

expenses (A&S) held relatively firm between 1980 and

1985 but expanded during the balance of the 1980s and

into the very early 1990s (figure 10). In the early 198Os,

A&S expenses averaged 4.1 percent of sales, grew to

4.4 percent by the late 1980s and 4.6 percent in 1990

and 1991. Although the expansion seems small, growing A&S expenses helped to lower slim operating margins significantly in those years. And, when A&S

expenses declined between 1992 and 1995, operating

margins improved.

On the other hand, operating expenses were fairly

consistent, ranging from 2.6 percent in 1982 to 3.1 in 1986

and 1993. In most years, however, operating expenses

played only a minor role in overall profitability.

In 1990, the high cost of goods sold coupled with

growing A&S expenses cut operating margins to a

study low of 0.75 percent of sales. In 1991, although

cost of goods sold was slightly less than average, both

A&S and operating expenses were above the norm,

slicing operating margins to 0.92 percent of sales. Low

operating margins in 1992 primarily resulted from

high A&S expenses, 4.5 percent, as cost of goods sold

and operating expenses were at study averages of 91.8

and 2.8 percent, respectively. Administrative and selling expenses and, to a lesser degree, operating expenses seem to be the major profitability factors in any

given year. Yet, every item on the operating statement

plays a role.

Interest expense averaged 0.34 percent of sales

with high levels occurring early in both the 1980s and

1990s (figure 11). In 1984, interest expense peaked at

0.42 percent of sales but dropped to 0.26 percent in

1994. During the first half of the 198Os, interest

expense was driven by both high debt and high interest rates. Interest expense declined in the later 1980s

but rose along with growing debt levels between 1989

and 1991. Declining debt and interest rates in the closing years of the study helped lower interest expense

Figure B--- Consolidated Sales and Revenues for Largest Dairy Cooperatives, 1980-95

$ billions

Other Operating

Supply Sales

._‘(. (’ Dairy Marketing (j ‘.“. ,_,a.

‘.,,~ ,),

~:,

0 II-1 ‘i .’ ( ( *_ _ ,, d. . . . ,> _,’ ,_ ;,.” : ‘.,, )‘S ( ( ; f.

‘.” ” “.,-“““’

1980 82 84 86 aa 90 92 94 95

I Revenues

Sales

8
below the study average. But, at this point of the

income statement, interest expense can take a fairly

good bite out of operating margins that only average

1.17 percent of sales.

In the consolidated format, other income (expense)

items as a percent of total sales made positive contributions to profits in each year of the study. However,

caution is urged in making interpretations with this

Figure 9- Operating Margins as a Percent of Total Sales for the Largest Dairy Cooperatives, 1980-95

Percent of total sales

10

9

8

7

6

5

4

3

2

1

0

1980 82

4 Annual Gross Margins

Administration and Selling

Expense

Operating Expense

Operating Margin

Figure lo- Administrative, Selling, and Operating Expenses for the Largest Dairy Co-ops, 1980-95

Percent of total sales

Administration and Selling

Expense

Operating Expanse

1980 82 84 86 88 90 92 94 95

9
item on the operating statement. Income (expense) Nonetheless, other income (expense) was lowest in

items included in this category of the operating state- 1980 and increased steadily through the 1980s.

ments varied considerably among the individual dairy Although other income climbed substantially between

cooperatives. 1989 and 1991, it declined just as quickly between 1992

Figure ii- Interest Expense and Other Income for the Largest Dairy Cooperatives, 1980-95

Percent of total sales

0.8

0.7

0.6

0.5

0.4

0.3

0.2

0.1

0 I 1 I I I I I I I I I I I I I I I

1980 82 94 95

Interest Expense

Other Income (Expense)

Figure 12- Net Margins from Continuing Operations for the Largest Dairy Cooperatives, 1980-95

Percent of total sales

1.4

1.2

1

0.8

0.6

0.4

0.2

0

1980 82 84 86 88 90 92 94 95

0

Net Margin from

Continuing Operations

Extra-ordinary Income

Extra-ordinary

Expense

10
and 1995. The other income growth can be traced, at

least in part, to higher patronage refunds received

from other cooperatives. A mix of unidentifiable

income items placed into non-operating income also

contributed to the increase and, consequently, at least

in the 199Os, other income matched or was greater than

interest expenses in several years.

Net margins from operations averaged 1.06 percent of sales, peaking in the mid-to-late 1980s and

again in the mid-1990s. The initial highs reflected

record low cost of goods sold as A&S expenses were

just beginning to escalate. Net margins from operations improved significantly to 1.16 percent of sales or

more between 1993-95 but for different reasons. In

1993, percentage declines in cost of goods sold and

A&S expenses were greater than the increase in operating expenses. In 1994, declining operating expenses

tempered the impact of a rise in cost of goods sold.

And, in 1995, percentage increases in the cost of goods

sold and interest expenses were matched by declines

in both A&S and operating expenses.

Taxes averaged 0.07 percent of sales and generally

increased, from 1984’s low of 0.03 percent to 1995’s

high of 0.15 percent. While many factors affect the

level of taxes, they primarily reflect the amount of net

margins retained as unallocated reserves.

Net margins after taxes averaged 1 percent of sales.

Higher levels occurred in the latter half of the 198Osin the 1.08 to 1.20 percent range. After-tax net margins

were already at their lowest levels in the early 1990s

when extraordinary expenses further reduced profits.

Extraordinary items were not a major factor on the

operating statement until the 1990s when they cut net

margins from continuing operations significantly (figure 12). In 1990, extraordinary expenses amounted to

0.23 percent of sales, reducing already thin margins to

just 0.47 percent, the lowest for the 16-year study.

Expenses dropped 1991 margins to 0.57 percent of

sales, the second lowest mark. And, in 1992, extraordinary expenses amounting to 0.13 percent of sales

reduced net margins to 0.66 percent of sales.

Extraordinary expense items in 1993 and 1994 continued to lower otherwise improving margins but not to

the extent seen in the early 1990s.

Distribution of Net Margins

Table 2 shows the typical distribution of net margins in the study period. Dairy cooperatives distributed 29 percent of net income back to members as cash

patronage refunds. Even dairy cooperatives reporting

losses managed a cash refund averaging 2.8 percent of

total losses. The largest dairy cooperatives returned

31.7 percent of net income as cash patronage refunds.

Losses were typically absorbed by unallocated

reserves. Nonetheless, losses devalued total member

equity on the balance sheet.

Dairy cooperatives with positive margins retained

17.3 percent of earnings as unallocated reserves.

Larger distributions to unallocated reserves occurred

in the first half of the 1980s. The largest, 25.2 percent,

was made in 1984. The 1995 level was 24.7 percent.

During the study period, total patronage refunds

(cash plus non-cash) for cooperatives with positive net

income averaged 74 percent of net margins. The percentage distributed as cash increased considerably from 24.6

percent in 1980-83 to 34.7 percent in 1992-95. Total

refunds were at their highest in the late 198Os-more

than 80 percent of net margins. The highest percentage

of non-cash distributions also occurred during the 1980s.

Losses for dairy cooperatives were primarily distributed to unallocated reserves-66.1 percent. However, the

average loss distribution is deceiving because of the limited number of observations during the course of the

study. In the early 198Os, most losses went to unallocated

reserves. But, since 1986, non-cash patronage has also

absorbed some of the annual loss impact. And, in the

early 199Os, some dairy cooperatives chose to pay limited cash refunds despite operating losses.

Table 2-Average distribution of net margins (losses) for largest dairy cooperatives, 1980-95.

Method of Distribution: Net Margins Net Losses Net Margins (Losses)

Percent

Cash 29.0 -2.8 31.7

Noncash 44.9 15.3 47.8

Stock Dividends 0.5 0.0 0.6

Other 1.4 19.2 1.2

Unallocated 17.3 66.1 11.1

Taxes 6.9 2.2 7.6

Total 100.0 100.0 100.0

11
While profitability is the ultimate test of annual

financial performance, management and creditors often

use ratio analysis to look at this area over a period of

years to detect trends and potential problem areas.

Financial Ratios

Data obtained from the individual cooperative’s

balance sheets and income statements were used to

determine key financial ratios for each cooperative by

year. The average of the annual individual ratios could

be used as a financial benchmark for cooperatives in

the dairy industry. Most ratios use annual financial

data from the balance sheet and operating statement.

Some ratios repeat those generated in the common-size

analysis, but are presented again for continuity in this

important phase of the analysis. The discussion also

includes selected ratios based on a per-hundredweight

(cwt) measure.

The ratios are divided into seven areas of financial

performance: return on investment, financial leverage,

operating performance, asset utilization, capitalization

and solvency, short-term liquidity and the cwt analysis. Numeric details are in the appendix along with

definitions for each ratio.

Return on Investment

Returns in the 1980s were greater than those of the

1990s. The 18.2percent average return on allocated

equity (ROAE) was significantly bolstered by the higher

measures of the early 1980s when ratios were in the

mid-to low-20 percent range (figure 13). ROAE dropped

to 8.3 percent in 1991 but climbed to 19.4 percent by

1995 with the new cooperative additions to the group.

Return on equity (ROE) closely tracked the ROAE

measures throughout the study period, averaging 15.4

percent. ROE before interest and taxes (EBIT) averaged

20.1 percent, up nearly 5 percent. Interest expense significantly reduced returns to member investment in

the 1980s. Differentials peaked at 8.8 percent in 1984

when interest expense jumped and growing debt

drove up the costs of borrowing.

Returns on investment grew in 1988 and 1989 as net

income improved with declining interest expense.

Returns were slightly above average for all three investment measures. But, the 1990s began with a number of

cooperatives reporting significant operating losses.

Returns on member investment slumped dramatically in the early 1990s. Net incomes for many cooperatives dropped and some reported major losses.

Setbacks in 1991 were severe, with the average return

on equity among the large dairy cooperatives dropping to 5.8 percent. However, returns and ratios

improved between 1992 and 1995. By the end of 1995,

Figure IS- Return-On-Investment Ratios for the Largest Dairy Cooperatives, 1980-95

Percent

30 1

5 V

0 ’

I I I I I I I I I I I I I I I

1980 82 84 86 88 90 92 94 95

Return On Equity (EBIT)

Return On Allocated Equity

Return On Equity

12
returns closely matched those of the mid-1980s.

Internal cost controls combined with lower interest

expense to improve profits. Further analysis of dairy

cooperative members’ returns on investment examines

returns on total assets and the leverage position of the

cooperatives.

Leverage Multiplier

Total assets divided by total equity shows the

impact of financial balance on profitability. The annual

leverage multiplier interacts with the annual return on

total assets to result in a “return on equity” for the year.

A higher multiplier may result in higher returns on

investment but, perhaps more importantly for cooperatives, increases financial risk of member investment.

When the cooperative generates profits, a larger multiplier results in higher measures of return on investment. But, when an operating loss occurs, the higher

multiplier also magnifies the loss impact. Cooperative

management and directors are constantly challenged to

weigh these financial risks versus safeguarding member investment to assure financial responsibility and

continuation of services. Hence, the leverage multiplier

may be a good measure of financial balance and a valuable yardstick for gauging financial risk.

Among the largest dairy cooperatives, the leverage

multiplier averaged 2.8 for the study period. The average was bolstered by measures of 3 or more during the

early 1980s. High multipliers combined with elevated

ROTAS resulted in high returns on investment. But,

high interest rates and debt levels of the early 1980s also

created a much riskier operating environment. As interest rates climbed, many dairy cooperatives increased

equity financing, and, as that gained a larger share of

the balance sheet, the average multiplier declined.

However, the average multiplier did not change

much between 1986 and 1994. And, the jump in 1995

can be attributed to the addition and exit of other

cooperatives in the study group. The stability in the

leverage multiplier indicates that growth in member

equity has kept pace with asset additions.

Return on Total Assets

Net income divided by total assets (ROTA) measures operating effectiveness and is measured both

before and after interest expense and taxes. The two

measures contrast the impact of debt-related interest

expense and taxes on operating efficiency and profitability. ROTA measures the rate of return on members’ total investment, total assets, without the direct

influence of the leverage multiplier.

Both ROTA measures reflect the profitability

trends discussed earlier (figure 14). ROTA averaged

nearly 6.3 percent for the study period while the EBIT

measure amounted to nearly 8 percent. ROTA measures were highest in the early 1980s. Interest expense

Figure I 4- Return On Total Assets for the Largest Dairy Cooperatives, 1980-95

Percent

10

Return On Total Assets

(EBIT)

Return On Total Assets

2

0 ’

I I I I I I I I I I I I I I I

1980 82 84 86 88 90 92 94 95

13
and taxes caused an average differential of 1.7 percent

between EBIT and after-tax measures. The differential

widened to 2.2 percent in 1984, reflecting the high

interest expense of the period. The difference declined

slowly to 1.8 percent for several years.

In the late 198Os, operating profitability improved

as both ROTA measures approached levels seen in the

early 1980s. However, extreme variability in milk and

milk product prices in the early 1990s caused performance to tumble. ROTA dropped to the study low in

1991. Operations recovered slowly between 1992 and

1995. ROTA reached 6.3 percent and the EBIT measured above 7.7 percent, almost the study average.

However, returns on total assets in the 1990s were

below levels seen earlier in the study period.

Operating Performance

These ratios concern how much profit or net

income is made on sales. The profit margin ratio was

determined both before and after taxes but only the

after-tax ratio is discussed. Pretax margins are shown

in an appendix table.

Profit margin (net income divided by sales) averaged

1.6 percent of sales. Profit margins were at their highest

in the late 1980s (figure 15). High returns on investment

in the early 1980s reflect the influence of the higher financial leverage multipliers of the period. In 1988 and 1989,

profits were higher than the average, slightly above 2

percent. But, operating losses in the early 1990s caused

profits to plummet. However, profit margins later

improved to reach the study average by 1995.

Operating margins (operating income divided by

sales) averaged nearly 1.7 percent for the study period.

In the mid-1980s, operating margins closely matched

profit margin ratios. But differences began to show in

the late 1980s. By the 199Os, operating margins averaged 1.5 percent of sales compared with the 1.3 average profit margin.

Gross margins averaged 9.9 percent of sales, hitting highs in the late 1980s and 1990. Notably, gross

margins were at some of the highest levels in the early

1990s when dairy cooperatives reported some of their

biggest operating losses. In 1990 and 1991, operating

margins followed gross margin declines. But, in the

mid-1990s, operating margins continued to improve

while gross margins generally stabilized as cooperatives cut operating costs. While cost-cutting efforts

helped operations improve, asset use continued to

frustrate progress.

Asset Use

These ratios reflect the use of assets. Total asset

turnover (sales divided by total assets) is the most

comprehensive asset management measure and a

prime factor along with profit margin in determining

return on total assets. The all-encompassing indicator

Figure is- Margin Performance Ratios for the Largest Dairy Cooperatives, 1980-95

Percent

Gross Margin to Sales

Operating Margin to Sales

Net Income to Sales

0’ ’

I I I I I I I I I I I I I I I

1980 82 84 86 88 90 92 94 95

14
of sales-to-assets may mask underuse of specific assets,

so more focused turnover ratios are also included to

provide a look other key indicators of asset use.

Total asset turnover declined from a study high of

5.5 times in 1981 to 4.4 by 1986 and remained significantly low through the 1980s. Turnover rates gained little

momentum, averaging 4.5 times between 1992-95. Slow

asset turnover continued to inhibit ROTA and ROI.

Lagging sales growth and continued fixed asset

additions curbed fixed asset turnover in the 1980s. The

turnover rate declined from 20 in 1980 to 14.2 in 1989

(figure 16). Some recovery was evident in the 1990s as

sales growth outpaced additions to PP&E. The

turnover of 16.3 during the closing 4 years of the study

barely exceeded the study average of 16.2 but it was

better than the 14.6 average for 1988-91.

Although inventory turnover averaged 45.7 times

per year, rates of the mid-1980s were higher than the

slower turnovers during the early 1990s (figure 17).

Inventory turnover rates were highest through the

198Os, averaging 49.5 through 1988. The slowdown

continued through 1993 to 35.2 before improving modestly in the closing years of the study. Manufacturing

of higher-value dairy products that are held as inventory for longer periods of time (aging cheese, for example) is partially responsible for the slower inventory

turnover rates. Nonetheless, these slower rates contribute to the overall asset turnover situation.

The accounts receivable turnover rate averaged a

fairly consistent 14.8 turns per year. The highest of 15.9

occurred in 1990. The turnover rate slowed down in

the 1990s but the average 14.6 for the final 4 years of

the study is only slightly less than the study average.

Highly variable cash accounts resulted in erratic

cash turnover rates throughout the study period. Endof-the-year balance sheets typically carry low cash

accounts. While erratic turnover rates are not surprising, they make it difficult for meaningful analysis. The

ratios are in the appendix.

The slowdowns in fixed asset and inventory

turnover contribute to the slump in total asset

turnover. And, although fixed asset turnover shows

limited signs of improving, slow inventory turnover

appears to be a constant challenge.

Capitalization and Solvency

These ratios gauge financial balance and ability to

meet debt obligations with annual operating income.

The times-interest-earned (TIE) ratio measures the

funds available to pay interest expense (net income

plus interest expense) compared with the current

annual interest expense. When profits are high and/or

interest expenses low, the ratio will be relatively high,

indicating the ability to meet additional debt-related

expenses. However, if term debt and/or interest

Figure 16- Fixed Asset Turnover Rates for the Largest Dairy Cooperatives, 1980-95

Times

25

1980 82 84 86 88 90 92 94 95

15
expenses are high while profitability is low, the ratio The TIE ratio for the largest dairy cooperatives

will be low, indicating potential difficulty in meeting shows almost cyclic variation (figure 18). The largest

financial obligations. dairy cooperatives seemed to move through several

Figure 17- Inventory Turnover Rates for the Largest Dairy Cooperatives, 1980-95

Times

60 1

1960 62 84 86 88 90 92 94 95

Figure I& Times Interest Earned Turnover Rates for the Largest Dairy Cooperatives, 1980-95

Times

14

12

8

6

1980 82 84 86 88 90 92 94 95

16
feast-to-famine phases. Obviously, the TIE average of 8

does not portray the wide variation nor financial challenges experienced during the 16-year period.

Between 1981 and 1984, additions to debt and skyrocketing interest rates coupled with lackluster profits

dropped the TIE. With debt restructuring, growth in

equity financing and lower interest rates as well as

healthier incomes, the TIE measure improved through

the balance of the decade. But, financial challenges of

the early 1990s caused the TIE to again plummet.

Although a recovery appeared to be underway in 1993

and 1994, the changes among the largest dairy group

in 1995 further clouded the issue.

The debt-to-equity ratio measures the annual balance of long-term financing. The ratio averaged 0.37-

in declining from 0.44 in 1982 to 0.27 in 1994 (figure

19). Improvements were largely driven by healthy

increases in equity financing and prudent use of longterm debt. The shift to more equity financing is reflected in both the equity-to- and debt-to-assets ratios.

The equity-to-assets ratios increased rapidly from

34.4 percent in 1980 to 40.4 percent in 1984. But, during

the next decade, the ratio improved very slowly to a

high of 42.5 percent by 1994 before dropping to 39.9

percent in 1995 due to change in study participants.

Equity averaged nearly 40.2 percent of total assets. The

growth in equity financing coincided with the the

dairy industry’s evolution to a more market driven

and risk-based environment.

On the other hand, the debt-to-assets ratio was significantly less, averaging 12.1 percent. Yet, like the

equity ratio, debt-to-assets rose in the early 198Os,

reaching a high of 13.9 percent in 1982. It declined to

11.8 percent of assets in 1985, just below the study

average. For 8 years, term debt as a percent of assets

changed little, until 1994 when it fell to the low of 9.8

percent. Overall, the debt-to-asset ratio reflects prudent use of debt capital throughout the study period.

Apparently, asset additions were largely financed

more by equity than by debt.

The total liabilities-to-assets ratio declined from

the 1980 high of 65.6 percent to 59.6 percent in 1984.

During the next 10 years, the ratio nestled around 58

percent of assets, with little variation as the percentage

of both term debt and current liabilities stabilized. The

ratio bottomed out at 57.5 percent in 1994 before rising

to 60 percent in 1995 following the change in the cast

of characters. The variations were primarily driven by

the changes in current liabilities.

The capitalization and solvency ratios indicate

improved strength in member financing and resilience

in long-term solvency despite profitability challenges

of the study period. While the larger dairy cooperaFigure w-Term Debt to Equity Ratios for the Largest Dairy Cooperatives, 1980-95

Dollar debt per dollar equity

0.5 ,

0.4

0.3

0.2

0.1

0

1980 82 84 86 88 90 92 94 95

17
tives appear strong for the long run, an examination of

short-term liquidity suggests more immediate challenges.

Liquidity

These ratios gauge the ability to meet current debt

obligations. It is possible to be profitable and yet be

unable to meet the current financial obligations

because assets cannot generate cash flow needed to

meet current financial demands. Four ratios provide a

look at the quality of assets and indicate prospects for

short-term liquidity: inventory turnover, acid test,

quick ratio and current ratio.

This inventory turnover ratio is calculated differently than the “sales to inventory” ratio discussed earlier. The liquidity measure is based on “cost of goods

sold divided by the average of the current and previous year’s inventory.” Regardless of the calculation

method, the message remains the same. Inventory

turnover slowed through the 1980s with only slight

improvement in the first half of the 1990s (figure 20).

The slowdown should concern dairy cooperative management.

Commonly used liquidity ratios can be seen in figure 21. The acid test ratio gauges the ability to meet

current obligations primarily with cash. This ratio

averaged 0.26 per year. Dairy cooperatives had higher

ratios in the second half of the 198Os, but declined into

the early 1990s. The higher measures in the mid-1980s

occurred when cash occupied a larger share of the balance sheet and current liabilities were at study lows. In

the 199Os, cash’s share of the balance sheet declined

slightly. Increased liabilities caused the acid ratio to

slide to near study lows, indicating a possible liquidity

problem, depending on the quality of other current

assets.

In the quick ratio, accounts receivable are added

back to cash, resulting in a significant increase in liquidity during the first half of the study period. From

1982 to 1989, dairy cooperatives carried a quick ratio of

around 1, indicating the ability to maintain short-term

solvency. However, in the 1990s the ratio fell below 1

and continued to decline. A drop in receivables as a

percent of total assets coupled with the cash decline

contributed to the decline. True value of the measure

depends on the quality of the receivables and these

details are beyond the scope of this study.

The current ratio considers all the current asset

components. The ratio for largest dairy cooperatives

averaged 1.4 and never dipped below the 1.2 measure

of 1980. It increased quickly to 1.44 by 1982 when current liabilities declined faster than current assets. It

rose to 1.5 in 1986 but then declined in the 1990s following receivables and inventories.

When quick and current ratio trends are considered together, it becomes apparent that inventory

Figure 20- Comparison of Inventory Turnover Ratios for the Largest Dairy Cooperatives, 1980-95

Times

7 0

6 0

Sales to Inventory

Inventory Turnover

301 ’

I I I I I I I I I I I I I I I

1980 82 a4 86 88 90 92 94 95

18
turnover is critical to maintaining short-term liquidity.

The perceived decline in cash as a percent of total

assets in the 1990s makes an improvement in inventory turnover all the more crucial. And, although this

study could not address the quality of receivables, the

aging of these accounts may be critical to meeting current obligations.

Figure 21- Selected Liquidity Ratios for the Largest Dairy Cooperatives, 1980-95

Turnover rate

1.6

0.8

0.6

0.4

0.2

0

Current Ratio

Quick Ratio

Acid Test Ratio

I I I I I I I I I I I I I I I I

1980 82 84 86 88 90 92 94 95

Figure 22- Net Income Per CWT for the Largest Dairy Cooperatives, 1980-95

Dollars per CWT Milk marketed (billion pounds)

0.7 3.5

0.6 3

0.5 2.5

0.4 2

0.3 1.5

0.2 1

0.1 0.5

0 0

1980 82 84 86 88 90 92 94 95

19
CWT Ratios income and “sales-per-cwt of milk handled” to

These ratios were used to measure performance on increase. For inter-cooperative comparisons, other

a “per-hund red-weight basis” (per cwt). Dairy cooper- items of interest would include total assets-per-cwt

ative management, directors and members want net marketed and historical equity and debt-per-cwt

Figure 23- Sales Per CWT for the Largest Dairy Cooperatives, 1980-95

Dollar sales per C WT Milk marketed (billion pounds)

23

22

21

20

19

18

17

16

Sales Per CWT

1980 82 84 86 88 90 92 94 95

3.5

3

2.5

2

1.5

1

0.5

0

Figure 24- Selected Balance Sheet Items Per CWT for the Largest Dairy Cooperatives, 1980-95

Dollar sales per C WT Milk marketed (billion pounds)

8 4

7 3.5

6 3

5 2.5

4 2

1 -o.5

0 ’

I I I I I I I I I I I I I I

’ 0

1980 82 84 86 88 90 92 94 95

Billion Pounds of Milk

Total Assets Per CWT

Total Equity Per CWT

Term Debt Per CWT

20
trends. The ultimate value of the cwt measures

depends on the share of sales, revenues and assets

directly traceable to the volume of market milk versus

non-dairy-related activities. As with all financial

ratios, a strict interpretation or reliance on ratios could

be misleading. Analysts should use ratios in conjunction with other information to create a more wholesome financial performance picture of cooperative

operations.

Data to develop the cwt measures were not available prior to 1986. And, data depicting the annual

trends in milk marketed by cooperatives (in billion

pounds) is shown on each chart for reference. Milk

marketed through the largest dairy cooperatives

increased in all years but 1992, when the number of

participants dropped from 29 to 27.

Net income per cwt peaked in 1988 at $0.46 (figure

22). The measure dropped dramatically in the early

1990s when profits plunged and some cooperatives

reported major losses. Although net income per cwt

improved near the end of the study, it failed to reach

levels of the late 1980s.

Dollar sales per cwt increased substantially in the

late 198Os, reaching a high of $22.21 in 1990 (figure 23).

In the early 199Os, sales per cwt recovered quickly following the plunge in 1991. However, they dropped

below the study average, $20.55 per cwt, in 1994 and

1995. The increase in milk sales was not as rapid as the

growth in milk volume marketed through the cooperatives.

Equity-per-cwt averaged $2.48. The study low

occurred in 1986 at $2.25 and peaked a decade later at

$2.66 in 1995 (figure 24). However, if the 1995 measure

is disregarded because of the noted change in study

participants, the high would have occurred in 1989 at

$2.61. The declines in the early 1990s would then have

been more notable as the ratio slumped to $2.41 in

1992. The equity-per-cwt measures for 1993 and 1994

improved to $2.42 and $2.49, respectively-close to the

average.

The term-debt-per-cwt ratio was substantially

lower than the equity measure but demonstrated similar stability. The ratio increased from $0.61 in 1986 to

$0.77 in 1990, but then declined significantly to $0.48

by 1994. In 1995, the change in cooperative participants propelled the measure to $0.70.

The total assets measure averaged $5.24 per cwt,

growing rapidly from $4.87 in 1986 to $5.75 in 1989

and 1990. The measure declined quickly to $5.03 per

cwt in 1992 as asset additions slowed compared with

increased milk marketed through cooperatives.

Between 1992 and 1994 the measure showed little

change. Asset growth matched the growth in milk

marketed. In 1995, the measure jumped to $5.66 per

cwt, following the change in study participants.

The per-cwt ratios provide mixed signals. The net

income-per-cwt measure shows signs of sluggish

recovery following the 1991 low. However, the salesper-cwt ratio is declining in the face of the growing

volume of milk marketed. The equity-per-cwt measures are relatively stable but show some signs of

growth with market risk. Prior to 1995, the debt-percwt measure was declining, an indication of additional

market risk as cooperatives shift to more member

financing in lieu of outside debt capital. After the 1990

slump, the assets-per-cwt measure seemed to have stabilized before rising in 1995.

21
Appendix

Data Limitations

Like other businesses, cooperatives publish annual

financial reports and follow generally accepted

accounting principles and practices. However, internal

accounting philosophies differ between cooperatives

and affect the recording and reporting of financial data.

Consequently, some line item details were consolidated

into broader accounting categories to make the financial measurements more useful and meaningful.

The lack of detailed financial data and of awareness concerning individual cooperative accounting

policies constrained the analysis of the operating statement more than the balance sheet analysis. For

instance, on the operating statement, some cooperatives account for partial or total processing costs in

“costs of goods sold” or “cost of sales.” Others show

them as “operating expenses.” Different accounting

philosophies also hampered the administrative and

sales expense analysis.

On the balance sheet side, discussion of pooling

and related pool liabilities was limited by two factors.

Some cooperatives carry pool liabilities on monthly

statements through most of the operating year but

close the pools at year-end reporting. Consequently, no

pool liabilities are shown on the year-end statement.

Other cooperatives merged pool, redemption and

patronage into one “amounts due members” accounting category. The impact of these various accounting

practices on the balance sheet analysis must be considered in the comparisons. Although the data was segregated when possible, caution should be exercised in a

narrow interpretation of the results.

Another reporting matter complicated the analyses. Fiscal year-end operating dates for the various

cooperatives do not necessarily coincide on Dec. 31.

Cooperatives have different dates for closing the operating year. So, some data used in the annual analysis

covers more than a specific calendar year. However,

annual data used in this study reflects the results of

operations for the greater portion of any given year.

The overlaps had little if any effect on overall results.

Although seasonal fluctuations occur within the

dairy industry, the data adequately portrays the financial positions of the cooperatives in a specific year of

the study Development of the consolidated balance

sheet and income statement and calculation of key

financial ratios based on the statements from individual cooperatives provide for useful comparisons by

type of dairy cooperative and overall financial trends.

Methods of Analysis

Placing financial statements in common sizes is a

method of analysis that expresses each line item as a percent of the total. Balance sheet elements are expressed as

a percent of total assets and items on an operating statement are shown as a percent of total sales.

Sizing creates a commonality for the line items in

the financial data, facilitating comparison between

years and minimizing distortions that could be caused

by the largest cooperatives. It has several advantages.

First, it allows comparisons over time even though the

number of cooperatives included in the database

varies slightly from year to year. Second, common-sizing makes it easier for individual dairy cooperatives to

compare financial statements and performance in any

given year and over the time period.

Statement Item Definitions

Financial data presented in this research report

came from the balance sheets and income statements

contained in the annual reports of the dairy cooperatives that rank among the largest of all farmer cooperatives. To provide consistency and consolidate some

balance sheet and income statement details, the line

items were condensed into fewer, more broadly

defined categories without limiting the usefulness of

the information.

Balance Sheet

Other current assets: Any current asset not included

in cash and market securities, accounts receivable, and

inventories. This usually includes pre-paid expenses

and other items.

Investments: Investments in the Banks for

Cooperatives, other cooperatives, other enterprises

and “other” types such as notes receivable.

Other fixed assets: Any fixed asset not included in

investments, and WE. .

Short-term debt: Sources include Banks for

Cooperatives, commercial banks, bonds and notes, etc. ’

issued by cooperatives, commercial paper and the

Commodity Credit Corporation and other governmental sources and non-financial entities.

Other current liabilities: Trade accounts payable,

amounts due members in cash patronage refunds, cash

22
dividends, equity redemption, and unpaid milk payments and any other current liabilities not defined

within the annual reports.

Long-term debt: Sources include the Banks for

Cooperatives, bonds and notes issued by cooperatives,

commercial banks, insurance companies, industrial

development bonds, capital lease obligations, other

nonfinancial entities, the Commodity Credit

Corporation and other governmental resources and

other sources not defined within the annual reports.

Equity: Includes preferred stock, common stock, equity certificates and credits, unallocated capital and

minority interests.

Income Statement

Marketing sales: Derived from dairy operations of

either raw bulk milk, manufactured or processed dairy

products. May include some marketing of insignificant

non-dairy items.

Other operating revenues: Consists of mainly unidentified farm supply sales and service income, but also

other operating revenue not specified in farm supply

or marketing sales.

Other income (expenses): Consists of interest income,

non-operating income, other expenses not defined in

the annual report and patronage refunds received from

the Banks for Cooperatives and other sources.

Tax provision: Includes current, deferred and other

taxes.

Extra-ordinary items: Contains losses, loss carryforward and other accounting changes.

Financial Ratio Terms

Short-Term Liquidity Ratios

Current ratio: Total current assets divided by total

current liabilities. Indicates the amount of current

assets available to meet current liabilities. The cooperative is liquid if the ratio is greater than 1. Higher

numbers representing greater liquidity.

Quick ratio: Same as the current ratio except that

inventories are subtracted from current assets.

Depending on the liquidity of inventories, ratios less

than 1 may indicate potential problems in meeting current liabilities.

Acid test ratio: Same as the quick ratio except that

accounts receivable are also subtracted from current

assets. Ratios less than 1 are common. Low ratios may

indicate potential problems in meeting current liabilities depending on the aging and receivables turnover.

Inventory turnover: Cost of goods sold divided by

average inventory, Measures the average rate of speed

with which inventories move through the cooperative

and depends on the mix of bargaining, manufacturing

and processing.

Long-Term Solvency Ratios

Long-term debt to total assets: Long-term debt divided by total assets measures long-term creditors’ share

of the balance sheet.

Total liabilities to total assets: Total liabilities divided

by total assets measures how much of total assets are

financed by long- and short-term creditors.

Equity to total assets: Equity divided by total assets

indicates the degree of financing by members/patrons.

Equity per hundredweight: Equity divided by total

annual volume (in cwt) milk marketed measures member equity investment per equivalent volume basis.

Total assets per cwt.: Total assets divided by total

annual volume (cwt) of milk marketed measures total

assets investment per equivalent volume basis.

Leverage multiplier ratio: Total assets divided by

total member equity plays a role in determining the

return on investment and also gauges the financial risk

to members. The higher the leverage multiplier ratio

the higher the financing from outside sources.

Times interest earned: Earnings before interest and

taxes divided by interest gauges the ability to service

debt finance charges.

Asset Use Ratios

The degree to which assets are used is measured

by the asset turnover ratios. Asset use is measured by

the amount of sales per assets. The basic turnover rate

23
of assets is sales to total assets, which is broken down

into the components of total assets to gain further

insight into the use of specific assets.

Sales to cash: Total sales divided by cash and market

securities indicates the relationship between sales and

the cash level needed to meet liquidity and day-to-day

transactions. A high rate may indicate a cash shortage

while a low rate may indicate holding idle and unnecessary cash balances.

Sales to accounts receivable: Total sales divided by

accounts receivable indicates how much of annual

sales rely on credit. A high turnover rate may indicate

cash flow shortages or collection problems dependent

on aging of receivables.

Sales to inventories: Total sales divided by year-end

inventories indicates how well raw products, supplies,

and finished products are managed. Higher numbers

are preferable.

Sales to fixed assets: Total sales divided by fixed

assets gauges the use of fixed assets.

Sales to total assets: Total sales divided by total assets

is often called the total asset turnover and reflects asset

use.

Operating Performance Ratios

These ratios measure the results of operations.

Gross margin ratio: Gross margin (sales less cost of

sales) divided by total sales indicates how well production costs are managed and the adequacy of pricing policies.

Operating margins to sales: Net margins before interest, taxes and other income or expenses divided by

sales measures earning ability on the cost of doing

business.

Pre-tax margin to sales: Net margin before tax divided by sales reflects pre-tax profits per dollar of sales. It

also indicates operating efficiency and the ability to

withstand operating adversity.

Return-on-Investment Ratios

These ratios indicate the cooperative’s success in

providing a financial return on members’ investment.

In a dairy cooperative, however, profits may be lower

if management decides to pay higher milk prices, premiums, etc. Measuring returns on investment before

and after interest and taxes provides a means to gauge

the impact of interest and taxes on operations.

Return on total assets (EBIT): Net margin (earnings

before interest expense and taxes) divided by total

assets reflects the profitability of assets employed

before interest expense and taxes are deducted from

net margin.

Return on total assets: Net margin (after interest

expense and taxes) divided by total assets reflects the

profitability of assets employed after interest and taxes

are deducted.

Return on equity (EBIT): Net margin (earnings before

interest expense and taxes) divided by equity measures profitability relative to members’ investment

before interest expense and taxes are deducted.

Return on equity: Net margin (after interest expense

and taxes) divided by equity measures profitability relative to members’ investment after interest expense

and taxes are deducted.

Net margin to sales: Net margin after taxes divided

by sales reflects the earnings of the cooperative after

accounting for taxes.

24
Appendix Tables

25
Appendix Table I- Common-size balance sheet for major dairy cooperatives, 1980-l 995

1980 1981 1982 1983 1984 1985

Number of Cooperatives

1986 1987

24 26 26 27 28 29 30 30

Percent

Assets

Current Assets

Cash and market securities 5.09

Accounts receivable 39.69

Inventories 17.68

Other current assets 0.75

Total current assets 63.21

Investments 5.46

Property, plant, and equipment 28.84

Other assets 2.49

Total Assets 100.00

Liabilities and equity

Current Liabilities

Current portion of long-term debt 2.85

Short-term debt 2.90

Total short-term debt 5.75

Trade accounts payable 15.65

Amounts due members 26.71

Other current liabilities 4.09

Total current liabilities 52.21

Long-term debt 15.60

Other long-term liabilities 0.15

Total liabilities 67.95

Minority Interests 0.01

Equity

Preferred stock 1.35

Common stock 0.04

Allocated equity 28.50

Unallocated equity 2.14

Total equity 32.04

Total liabilities and equity 100.00

5.16 6.02 5.45 7.25 6.63 8.64 8.34

40.23 36.26 38.00 35.93 35.03 34.08 33.30

16.64 17.35 16.60 15.63 17.48 15.15 16.20

0.66 0.58 0.63 0.66 0.79 1.74 0.88

62.68 60.21 60.68 59.47 59.95 59.60 58.72

5.96 7.15 6.64 6.62 5.90 5.95 6.48

29.28 30.33 30.08 31.37 32.36 32.25 32.51

2.08 2.30 2.60 2.54 1.79 2.19 2.29

100.00 100.00 100.00 100.00 100.00 100.00 100.00

2.68 1.61 1.55 1.73 1.62 2.01 1.90

3.78 4.32 5.47 5.82 5.32 5.38 4.62

6.46 5.93 7.03 7.55 6.94 7.39 6.51

15.16 14.97 15.15 14.81 14.67 14.61 15.00

25.48 23.23 21.54 20.76 20.25 20.39 19.62

3.96 3.46 4.22 3.71 3.55 3.81 3.6

51.06 47.59 47.94 46.84 45.42 46.2 44.74

16.66 17.47 16.59 15.41 15.92 14.36 16.52

0.19 0.16 0.24 0.39 0.47 0.69 0.75

67.91 65.23 64.77 62.64 61.81 61.25 62.01

0.00 0.00 0.00 0.00 0.00 0.00 0.00

1.21 1.57 1.75 1.8 1.77 1.73 1.62

0.03 0.03 0.03 0.02 0.02 0.02 0.02

28.64 30.52 31.13 32.70 33.19 33.38 32.80

2.22 2.67 2.32 2.84 3.21 3.62 3.55

32.09 34.77 35.23 37.36 38.19 38.75 37.99

100.00 100.00 100.00 100.00 100.00 100.00 100.00

26
Appendix Table I (continued)- Common-size balance sheet for major dairy cooperatives, 1980-l 995

1988 1989 1990 1991 1992

Number of Cooperatives

1993 1994 1995

30 29 29 29 27 27 28 27

Percent

Assets

Current Assets

Cash and market securities

Accounts receivable

Inventories

Other current assets

Total current assets

Investments

Property, plant, and equipment

Other assets

Total Assets

8.64 7.50 5.67 5.65 6.32 6.84 6.59 6.07

32.82 33.38 31.10 30.97 32.47 32.80 33.22 32.54

16.05 16.96 19.53 17.71 17.36 18.06 17.46 16.32

0.96 1.03 1.15 1.42 1.15 1.04 1.67 1.11

58.47 58.87 57.44 55.74 57.30 58.74 58.94 56.04

6.08 6.50 7.24 8.21 7.29 7.10 8.59 10.49

33.36 32.71 33.27 33.87 33.58 32.15 30.00 30.26

2.09 1.92 2.05 2.17 1.83 2.01 2.47 3.22

100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00

Liabilities and equity

Current Liabilities

Current portion of long-term debt 1.58

Short-term debt 4.96

Total short-term debt 6.54

Trade accounts payable 13.87

Amounts due members 20.36

Other current liabilities 4.03

Total current liabilities 44.81

Long-term debt 15.69

Other long-term liabilities 0.84

Total liabilities 61.34

Minority Interests 0.00

Equity

Preferred stock 1.68

Common stock 0.02

Allocated equity 33.16

Unallocated equity 3.80

Total equity 38.66

Total liabilities and equity 100.00

1.34 1.81 1.36 1.54 1.68 1.88 1.34

4.88 6.88 4.47 4.03 4.22 5.67 4.85

6.22 8.69 5.83 5.57 5.90 7.55 6.19

13.68 14.33 13.85 15.40 15.79 17.29 16.28

20.66 18.03 19.09 19.97 20.09 18.73 17.36

4.39 3.73 4.08 4.10 4.22 5.61 6.34

44.94 44.79 42.84 45.04 46.00 49.17 46.17

16.44 17.00 17.50 16.25 14.39 11.04 14.25

0.82 1.18 0.91 0.92 0.67 1.51 1.40

62.21 62.97 81.25 62.21 61.06 61.72 61.81

0.00 0.09 0.09 0.04 0.04 0.01 0.12

1.67 1.69 1.83 1.85 1.85 1.85 1.73

0.01 0.00 0.00 0.00 0.00 0.00 0.00

32.07 32.42 33.86 32.84 32.75 32.59 29.96

4.04 2.83 2.97 3.06 4.30 3.83 6.38

37.79 36.94 38.66 37.76 38.90 38.27 38.06

100.00 100.00 100.00 100.00 100.00 100.00 100.00
appendix Table 2- Consolidated balance sheets for major dairy cooperatives, 1980-l 995

1980 1981 1982 1983 1984 1985 1986 1987

Number of Cooperatives

24 26 26 27 28 29 30 30

Assets

Current Assets

Cash and market securities

Accounts receivable

Inventories

Other current assets

Total current assets

Investments

Property, plant, and equipment

Other assets

Total Assets

80,011 97,659 126,978 123,094 162,184 158,493 223,739 234,370

623,408 761,919 764,992 857,867 803,455 837,151 883,121 935,792

277,710 315,040 366,028 374,782 349,448 417,792 392,499 455,426

11,839 12,481 12,313 14,312 14,841 18,987 44,969 24,719

992,968 1,187,099 1,270,311 1,370,055 1,329,928 1,432,423 1,544,328 1,650,307

85,838 112,881 150,940 149,912 148,037 141,044 154,278 182,128

453,013 554,473 639,863 679,249 701,489 773,252 835,578 913,721

39,041 39,331 48,562 58,613 56,755 42,759 56,771 64,389

1,570,860 1,893,784 2,109,676 2,257,829 2,236,209 2,389,478 2,590,955 2,810,545

Liabilities and equity

Current Liabilities

Current portion of long-term debt 44,753 50,659 33,990 35,081

Short-term debt 45,555 71,621 91,178 123,603

Total short-term debt 90,308 122,280 125,168 158,684

Trade accounts payable 245,863 287,090 315,866 342,000

‘Amounts due members 419,619 482,508 489,986 486,363

Other current liabilities 64,299 75,069 72,964 95,368

Total current liabilities 820,089 966,947 1,003,984 1,082,415

Long-term debt 245,053 315,497 368,646 374,648

Other long-term liabilities 2,320 3,566 3,433 5,427

Total liabilities 1,067,462 1,286,OlO 1,376,063 1,462,490

Minority Interests 138 0 0 0

Equity

Preferred stock 21,195 22,831 33,047 39,597

Common stock 649 638 559 566

Allocated equity 447,773 542,323 643,772 702,838

Unallocated equity 33,643 41,982 56,235 52,338

Total equity 503,260 607,774 733,613 795,339

Total liabilities and equity 1,570,860 1,893,784 2,109,676 2,257,829

(thousands)

38,729 38,824 52,099 53,299

130,093 127,071 139,369 129,794

168,822 165,895 191,468 183,093

331,293 350,614 378,583 421,685

464,246 483,784 528,167 551,354

83,029 84,932 98,678 101,223

1,047,390 1,085,225 1 ,196,896 1,257,355

344,637 380,373 372,018 464,350

8,714 11,346 17,921 21,169

1,400,741 1,476,944 1,586,835 1,742,874

0 0 0 0

40,174 42,279 44,752 45,634

546 558 540 530

731,349 793,007 864,966 921,869

63,399 76,690 93,862 99,638

835,468 912,534 1,004,120 1,067,671

2,236,209 2,389,478 2,590,955 2,810,545

28
Appendix Table 2 (continued)- Consolidated balance sheets for major dairy cooperatives, 1980-l 995

1988 1989 1990 1991 1992 1993 1994 1995

Number of Cooperatives

30 29 29 29 27 27 26 27

Assets

Current Assets

Cash and market securities

Accounts receivable

Inventories

Other current assets

Total current assets

Investments

Property, plant, and equipment

Other assets

Total Assets

252,658 231,447 175,210 165,172 188,738 206,052 221,517 220,697

959,908 1,030,669 961,820 905,949 970,184 988,553 1,117,471 1,184,166

469,458 523,755 603,901 518,047 518,838 544,349 587,313 593,972

28,047 31,654 35,647 41,393 34,363 31,386 56,144 40,316

I,71 0,071 I,81 7,525 1,776,578 1,630,561 I,71 2,123 1,770,340 1,982,445 2,039,151

177,835 200,711 224,029 240,257 217,901 213,926 288,913 381,619

975,590 1,009,952 1,028,870 990,807 1,003,444 969,075 1,009,140 1,100,949

60,979 59,384 63,274 63,437 54,656 60,524 82,937 117,059

2,924,475 3,087,572 3,092,751 2,925,062 2,988,124 3,013,865 3,363,435 3,638,778

Liabilities and equity

Current Liabilities

Current portion of long-term debt 46,328 41,256

Short-term debt 145,050 150,729

Total short-term debt 191,378 191,985

Trade accounts payable 405,576 422,335

Amounts due members 595,541 637,857

Other current liabilities 117,999 135,504

Total current liabilities 1,310,494 1,387,681

Long-term debt 458,821 507,576

Other long-term liabilities 24,608 25,408

Total liabilities 1,793,923 1,920,665

Minority Interests 0 0

Equity

Preferred stock 49,058 51,514

Common stock 513 437

Allocated equity 969,901 990,266

Unallocated equity 111,080 124,690

Total equity 1,130,552 1,166,907

Total liabilities and equity 2,924,475 3,087,572

(thousands)

55,980 39,651 45,915 50,606 63,105 48,842

212,770 130,852 120,426 127,234 190,678 176,478

268,750 170,503 166,341 177,840 253,783 225,320

443,317 405,088 460,314 476,029 581,438 592,251

557,765 558,255 596,727 605,336 630,122 631,738

115,397 119,326 122,539 127,293 188,553 230,626

1,385,229 1,253,172 1,345,921 1,386,498 1,653,896 1,679,935

525,712 511,740 485,449 433,556 371 ,180 518,520

36,598 26,717 27,435 20,213 50,792 50,767

1,947,539 1,791,629 1,858,805 1,840,267 2,075,868 2,249,222

2,652 2,542 1,136 1,287 478 4,546

52,159 53,593 55,388 55,729 62,185 62,774

42 4 1 43 37 3 1 33

1,002,790 990,472 981,248 986,917 1,095,985 1,090,219

87,569 86,785 91,504 129,628 128,888 231,984

1 ,142,560 1 ,130,891 1,128,183 1,172,311 1,287,089 1,385,OlO

3,092,751 2,925,062 2,988,124 3,013,865 3,363,435 3,638,778

29
Appendix Table s- Consolidated inCOIIIS StStSIIISnt by percent total sales for major dairy cooperatives, 1980-l 995

1980 1981 1982 1983 1984

Number of Cooperatives

1985 1988 1987

24 28 28 27 28 29 30 30

Percent

Dairy marketing sales 98.57

Supply sales 0.58

Sales 99.13

Other operating revenues 0.87

Total sales 100.00

Cost of goods sold

Gross margin

Administration and selling expense

Operating expense

Operating margin

Interest expense

Other income (expense)

Net margin from operations

Tax provision

Net margin after taxes

Extra-ordinary income (expense)

Net margin

from continuing operations

(Loss) Gain

from discontinued operations

Net margins

Distribution of Net margins

(before taxes):

Cash

Noncash

Stock Dividends

Other

Unallocated

Taxes

Net margins distributed:

Net margins before losses

Net losses

Net margins after losses

92.08

7.94

3.94

2.75

1.25

0.33

0.10

1.02

0.04

0.99

0.01

98.44 98.58 98.62 98.49 98.52 98.56 98.61

0.87 0.60 0.57 0.63 0.82 0.62 0.66

99.10 99.18 99.20 99.12 99.34 99.18 99.26

0.90 0.82 0.80 0.88 0.66 0.82 0.74

100.00 100.00 100.00 100.00 100.00 100.00 100.00

92.20 92.06 92.06 91.85 91.93 91.23 91.71

7.80 7.94 7.94 8.15 8.07 8.77 8.29

3.87 4.12 4.08 4.09 4.10 4.38 4.26

2.68 2.58 2.75 2.92 2.72 3.08 2.76

1.25 1.24 1.10 1.14 1.25 1.32 1.27

0.36 0.38 0.37 0.42 0.36 0.34 0.31

0.12 0.18 0.18 0.17 0.19 0.19 0.21

1.01 1.04 0.91 0.90 1.08 1.17 1.17

0.05 0.04 0.04 0.03 0.06 0.09 0.08

0.96 0.99 0.87 0.86 1.02 1.08 1.09

0.00 -0.02 -0.02 0.04 0.00 0.02 0.00

1.00 0.96 0.98 0.85 0.90 1.02 1.10 1.09

-0.08 0.00 -0.01 -0.05 -0.04 0.00 0.01 0.02

0.94 0.96 0.97 0.80 0.86 1.03 1.11 1.11

0.98 1.01 1.02 0.84 0.89 1.09 1.20 1.19

0.25 0.25 0.23 0.25 0.24 0.27 0.35 0.32

0.48 0.51 0.50 0.48 0.39 0.53 0.57 0.61

0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.01

0.01 0.01 0.01 0.02 0.02 0.02 0.01 -0.03

0.20 0.19 0.23 0.05 0.20 0.21 0.18 0.20

0.04 0.05 0.04 0.04 0.03 0.06 0.09 0.08

0.98 1.01 1.02 0.84 0.89 1.09 1.20 1.19 _

0.98 0.96 0.98 0.88 0.88 1.03 1.13 1.15

-0.02 0.00 -0.01 -0.09 -0.02 0.00 -0.02 -0.04

0.94 0.96 0.97 0.79 0.86 1.03 1.11 1.11

30
Appendix Table 3 (cont.)- Consolidated income Statement by percent total sales for major dairy co-ops, 1980-l 995

1988 1989 1990 1991 1992 1993 1994 1995

Number of Cooperatives

30 29 29 29 27 27 26 27

Percent

Dairy marketing sales 98.37

Supply sales 0.88

Sales 99.25

Other operating revenues 0.75

Total sales 100.00

Cost of goods sold

Gross margin

Administration and selling expense

Operating expense

Operating margin

Interest expense

Other income (expense)

Net margin from operations

Tax provision

Net margin after taxes

Extra-ordinary income (expense)

Net margin

from continuing operations

(Loss) Gain

from discontinued operations

Net margins

Distribution of Net margins

(before taxes):

Cash

Noncash

Stock Dividends

Other

Unallocated

Taxes

Net margins distributed:

Net margins before losses

Net losses

Net margins after losses

91.34

8.66

4.50

2.80

1.36

0.32

0.24

1.28

0.08

1.20

0.00

98.65 98.26 98.17 98.41 98.20 98.53 98.34

0.62 0.99 1.06 0.88 1.14 0.86 0.98

99.27 99.25 99.23 99.29 99.34 99.39 99.32

0.73 0.75 0.77 0.71 0.66 0.61 0.68

100.00 100.00 100.00 100.00 100.00 100.00 100.00

91.58 92.05 91.50 91.80 91.40 91.64 92.16

8.42 7.95 8.50 8.20 8.60 8.36 7.84

4.26 4.61 4.66 4.53 4.36 4.31 3.80

2.89 2.59 2.92 2.78 3.06 2.89 2.72

1.27 0.75 0.92 0.89 1.17 1.16 1.32

0.34 0.38 0.39 0.27 0.29 0.26 0.32

0.34 0.39 0.49 0.25 0.28 0.26 0.20

1.27 0.76 1 .Ol 0.87 1.16 1.16 1.21

0.08 0.06 0.09 0.09 0.10 0.10 0.14

1.19 0.70 0.92 0.79 1.06 1.06 1.07

0.01 -0.23 -0.35 -0.13 -0.04 -0.09 0.00

1.20 1.20 0.47 0.57 0.66 1.02

0.00

1.20

0.00

1.20

0.00

0.47

0.00

0.57

0.00

0.66

-0.02

1 .oo

1.28 1.28 0.53 0.66 0.74 1.10

0.36 0.42 0.26 0.26 0.32 0.38

0.66 0.64 0.41 0.24 0.34 0.43

0.01 0.01 0.01 0.01 0.01 0.01

0.03 0.01 0.00 0.00 0.03 0.01

0.14 0.11 -0.21 0.06 -0.04 0.18

0.08 0.08 0.06 0.09 0.09 0.10

1.28 1.28 0.53 0.66 0.74 1.10

1.20 1.20 0.75 0.74 0.84 1.01

lo.01 0.00 -0.29 -0.18 -0.18 -0.01

1.20 1.20 0.47 0.57 0.66 1 .oo

0.97

-0.01

0.97

1.07

0.34

0.45

0.01

0.03

0.15

0.10

1.07

1.00

-0.03

0.97

1.07

-0.01

1.06

1.20

0.45

0.33

0.01

0.00

0.28

0.14

1.20

1.02

-0.01

1.01

31
Appendix Table 4- Consolidated income Statement totals for major dairy COOperatiVeS, 1980-l 995 1

i 980 1981 i 982 i 983 i 984 i 985 1988 1987 I

Number of cooperatives

24 26 26 27 28 29 30 30

Thousands

Dairy marketing sales

Supply sales

Total sales

Ctheroperating revenues

Total revenues

Costofgoods sold

Gross margin

Administration

andsellingexpense

Operating expense

Operating margin

Interest expense

Ctherincome(expense)

Net margin from operations

Tax provision

Net margin after taxes

Extra-ordinary income (expense)

Net margin

from continuing operations

(Loss)Gain

from discontinued operations

Net margins

Distribution of Net margins

(before taxes):

Cash

Noncash

Stock Dividends

Other

Unallocated

Taxes

Net margins distributed:

Net margins before losses

Net losses

Netmarginsafterlosses

8,807,103 10,471,440 11,102,384 11,758,601 11,336,291 11,381,517 11,662,991 12,739,279

49,913 70,757 67,740 68,498 72,700 94,907 73,587 84,905

8,857,016 10,542,197 11,170,124 11,827,099 11,408,991 11,476,424 11,736,57812,824,184

77,832 95,448 91,856 95,521 101,031 76,565 97,073 95,304

8,934,848 10,637,645 11,261,980 11,922,620 11,510,022 11,552,989 11,833$X1 12,919,488

8,225,313 9,807,809 10367,430 10,975,975

709,535 829,836 894,550 946,645

10,572,313 10,621,047 10,795,53711,647,980

937,709 931,942 1,038,114 I,071508

351,726 412,160 464,075 486,870 470,388 473,287 517,946 550,421

245,704 284,970 290,700 328,414 335,995 314,302 364,057 356,489

112,105 132,706 139,775 131,361 131,326 144,353 156,111 164,598

29,442 38,136 43,061 43,692 48,254 41,022 40,399 40,105

8,562 12,881 20,191 20,891 20,054 21,646 23,068 26,947

91,225 107,451 116,905 108,560 103,126 124,977 138,780 151,440

3,177 4,904 4,933 4,911 3,990 7,183 10,796 10,930

88,048 102,547 111,972 103649 99,136 117,794 127,984 140,510

1,220 -326 -1,770 -1,845 5,001 272 2,138 202

89,268 102,221 110,202 101,804 104,137 118,066 130,122 140,712

-5,039 -190 -621 -6,169 -5,162 428 1,609 2,473

84,229 102,031 109,581 95,635 98,975 118,494 131,731 143,185

87,406 106,935 114,514 100,546 102,965 125,677 142,527 154,115

22,194 26,533 25,721 29,341 27,116 30,834 41,052 41,101

42,827 54,448 56,798 57,508 45,455 61,376 67,723 79,088

347 318 288 310 332 466 641 694

659 643 1,250 1,967 2,566 2,008 1,461 -3,363

18,202 20,089 25,524 6,509 23,506 23,810 20,854 25,665

3,177 4,904 4,933 4,911 3,990 7,183 10,796 10,930 .

87,406 106,935 114,514 100,546 102,965 125,677 142,527 154,115

85,695 102,340 110,281 105,014 101,546 118,494 134,248 148,879

-1,466 -309 -700 -10,240 -2,859 0 -2,517 -5,694

84,229 102,031 109,581 94,774 98,687 118,494 131,731 143,185

32
Appendix Table 4 (continued)- Consolidated income statement totals for major dairy COOperatiVeS, 1980-l 995

1988 1989 1990 1991 1992

Number of cooperatives

1993 1994 1995

30 29 29 29 27 27 26 27

Dairy marketing sales

Supply sales

Total sales

Other operating revenues

Total revenues

cost of goods sold

Gross margin

Administration

and selling expense

Operating expense

Operating margin

Interest expense

Other income (expense)

Net margin from operations

Tax provision

Net margin after taxes

Extra-ordinary income (expense)

Net margin

from continuing operations

(Loss) Gain

from discontinued operations

Net margins

Distribution of Net margins

(before taxes):

Cash

Noncash

Stock Dividends

Other

Unallocated

Taxes

Net margins distributed:

Net margins before losses

Net losses

Net margins after losses

Thousands

13,214,409 13,703,470 14,559,889 13340,027

118,366 85,722 147,106 144,125

13332,775 13,789,192 14,706,995 13,484,152

100,881 101,378 111,204 104,270

?3,433,656 13,890,570 14,818,199 13,588,422

12,270,938 12,720,573 13,639,878 12,433,691

13,823,461 13,955,676 14444,543 15,374,718

123,212 162,049 125,869 153,559

13,946,673 14,117,725 14,570,412 15,528,277

99,803 93,290 89,558 106,290

14,046,476 14,211,015 14,659,970 15634,567

12,894,874 12,989,315 13,433,687 14,408,946

1,162,718 1 ,169,997 1 ,178,321 1,154,731 1,151,602 1,221,700 1226,283 1,225,621

605,078 591,633 682,623 632,643 636,553 620,196 631,339 593,851

375,570 401,299 384,404 397,196 389,902 435,293 424,349 425,123

182,070 177,065 111,294 124,892 125,147 186,211 170,595 206,647

42,666 47,694 56,852 53,495 38,208 40,979 38,339 49,622

31,919 47,184 57,977 65,905 35,585 39,632 38,400 32,016

171,323 176,555 112,619 137,302 122,524 164,864 170,656 189,041

10,386 11,016 9,296 12,804 12,041 13,702 14,726 22,404

160,937 165,539 103,323 124,498 110,483 151,162 155,930 166,637

495 918 -34,166 -47,418 -17,907 -5,998 -13,091 -1

161,432 166,457 69,157 77,080

-424 -25 0 0

161,008 166,432 69,157 77,080

92,576 145,164 142,839 166,636

0 -2,798 -1,073 -1,034

92,576 142,366 141,766 165,602

171,564 177,523 78,611 89,884 104,617 156,068 156,492 188,006

48,881 58,950 38,157 35,413 45,621 54,296 50,425 70,645

88,639 89,227 61,097 32,285 47,205 61,123 65,359 51,037

1,106 1,181 1,164 1,223 1,049 1,016 1,014 992

3,387 2,046 0 449 4,799 889 3,694 -604

19,165 15,103 -31,103 7,710 -6,098 24,882 21,274 43,532

10,386 11,016 9,296 12,804 12,041 13,862 14,726 22,404

171,564 177,523 78,611 89,884 104,617 156,068 156,492 188,006

161,681 166,775 111,837 100,904 117,627 143,435 146,648 159,919

-673 -343 -42,680 -23,824 -25,051 -1,069 -4,882 -1,799

161,008 166,432 69,157 77,080 92,576 142,366 141,766 158,120

33
Appendix Table S- Consolidated financial ratios for largest dairy COOperStiVeS, 1980-I 995

1980 1981 1982 1983 1984 1985

Number of cooperatives

24 26 26 27 28 29

1986 1987

30 30

Shot-t-term liquidity ratios:

Inventory turnover

Acid test 0.19 0.16 0.29

Quick ratio 0.91 0.93 1.05

Current ratio 1.22 1.24 1.44

Selected CWT ratios:

Net Income per cwt.

Sales per cwt.

Total Equity per cwt.

Total Assets per cwt.

Term Debt per cwt.

Billion pounds of milk

Return-on-Investment ratios:

Return on allocated equity

Return on equity

Return on equity (EBIT)

Return on total assets

Return on total assets (EBIT)

25.33 24.64 20.08

22.20 21.17 17.16

27.74 27.13 23.09

8.06 7.58 7.42

9.62 9.41 9.29

Financial leverage ratio: 3.45 3.28 3.01

Operating performance ratios:

Net income to sales

Pretax income to sales

Operating income to sales

Gross margin to sales

Asset utilization ratios:

Sales to total assets

Sales to fixed assets

Sales to inventory

Sales to accounts receivable

Sales to cash

1.70 1.56 1.81

1.75 1.61 1.89

1.81 1.69 1.80

8.93 8.36 8.90

5.44 5.51 5.24

20.05 18.65 17.64

46.86 53.94 47.24

14.73 14.49 15.77

159.52 131.56 159.64

Capitalization and solvency ratios:

Times interest earned

Long-term debt to equity

11.42 13.44 8.40

0.42 0.42 0.44

Equity to total assets 34.42 35.05 38.68

Total liabilities to total assets 65.58 64.95 61.32

Long-term debt to total assets 11.57 12.28 13.95

1 EBIT-Earnings before interest and taxes are deducted.

N/A 62.01 47.22

Percent

18.71 15.78

16.01 15.27

19.75 21.79

7.01 5.89

8.48 8.11

Times

2.69 2.90

Percent

1.80 1.62

1.85 1.66

1.79 1.65

9.02 9.97

Times

5.07 4.93

17.32 16.28

49.03 50.49

14.05 15.62

129.24 114.42

Times

5.02 3.55

0.36 0.39

Percent

38.92 40.44

61.08 59.56

13.55 12.74

Times

45.04 43.45

0.20 0.30

0.99 1.05

1.36 1.44

18.90 18.67 19.14

16.18 15.59 15.46

21.54 20.58 19.83

6.76 6.41 6.69

8.63 8.24 8.47

2.80 2.74 2.78

1.82 1.78 1.88

1.89 1.89 1.98

1.80 1.79 1.85

9.79 10.58 10.43

4.69 4.36 4.41

15.81 14.66 14.90

46.91 51.42 50.38

13.73 14.52 15.65

137.10 77.05 128.79

5.91 7.91 8.22

0.37 0.38 0.39

40.67 41.10 41.07

59.33 58.90 58.93

11.80 12.08 12.55

46.42 46.36 47.75

0.27 0.41

1.02 1.11

1.46 1.49

0.38

1.07

1.45

0.39 0.41

18.67 19.79

2.25 2.36

4.87 5.17

0.61 0.68

2.47 2.51

34
Appendix Table 5 (continued)- Consolidated financial ratios for largest dairy cooperatives, 1980-l 995

Year 1988 1989 1990 1991 1992 1993 1994 1995

Number of cooperatives

Number of cooperatives 30 29 29 29 27 27 26 27

Return-on-Investment ratios:

Return on allocated equity

Return on equity

Return on equity (EBIT)

Return on total assets

Return on total assets (EBIT)

Financial leverage ratio: 2.71 2.72 2.73

Operating performance ratios:

Net income to sales

Pretax income to sales

Operating income to sales

Gross margin to sales

Asset utilization ratios:

Sales to total assets

Sales to fixed assets

Sales to inventory

Sales to accounts receivable

Sales to cash

Capitalization and solvency ratios:

Times interest earned

Long-term debt to equity

Equity to total assets 41.86 41.27 41.15

Total liabilities to total assets 58.14 58.73 58.85

Long-term debt to total assets 11.58 12.05 12.16

Short-term liquidity ratios:

Inventory turnover 46.15 43.59 38.70

Acid test 0.39 0.32 0.23

Quick ratio 1.09 1 .Ol 0.89

Current ratio 1.45 1.41 1.39

Selected CWT ratios:

Net Income per cwt.

Sales per cwt.

Total Equity per cwt.

Total Assets per cwt.

Term Debt per cwt.

Billion pounds of milk

0.46 0.44 0.32 0.27 0.29 0.41 0.35 0.40

20.37 20.93 22.21 20.17 21.06 21.40 20.46 20.11

2.52 2.61 2.58 2.49 2.41 2.42 2.49 2.60

5.43 5.75 5.75 5.42 5.03 5.18 5.07 5.66

0.66 0.73 0.77 0.66 0.62 0.61 0.48 0.69

2.55 2.62 2.77 2.95 2.90 3.19 3.38 3.43

20.33 21.77 14.42

16.51 18.22 11.31

20.35 21.95 16.19

7.22 7.54 4.86

8.76 9.04 6.59

2.02 2.08 1.18

2.10 2.17 1.23

2.00 1.88 1.44

11.01 11.70 10.82

4.40 4.30 4.51

14.22 14.18 15.07

49.52 46.76 41.54

14.41 14.26 15.87

94.79 158.12 206.38

10.51 11.07 4.39

0.35 0.37 0.36

Percent

8.25 14.18

5.82 il.37

10.92 14.70

2.83 4.67

4.56 5.94

Times

2.68 2.67

Percent

0.62 1.11

0.69 1.18

1.05 1.27

9.88 9.47

Times

4.47 4.62

14.91 16.49

44.37 36.72

15.40 14.62

206.10 184.48

Times

5.65 6.31

0.35 0.33

Percent

41.90 41.53

58.10 58.47

12.42 11.81

Times

33.49 37.45

0.19 0.19

0.87 0.93

1.36 1.39

16.10 15.84 19.44

13.63 13.75 17.00

17.84 17.61 20.66

5.53 5.89 6.29

7.23 7.50 7.73

2.60 2.57 2.74

1.31 1.35 1.57

1.38 1.43 1.68

1.44 1.52 1.80

10.14 9.42 9.58

4.63 4.57 4.34

16.11 15.46 16.84

35.25 41.07 40.36

15.06 14.67 13.89

139.54 167.31 176.03

5.69 7.55 12.72

0.31 0.27 0.33

41.98 42.53 39.93

58.06 57.47 60.07

11.69 9.83 11.60

35.74 36.89 37.54

0.23 0.18 0.16

0.94 0.90 0.85

1.44 1.34 1.29

1 EBIT-Earnings before interestandtaxes are deducted.

35
U.S. Department of Agriculture

Rural Business-Cooperative Service

Stop 3250

Washington, D.C. 20250-3250

Rural Business-Cooperative Service (RBS) provides research,

management, and educational assistance to cooperatives to

strengthen the economic position of farmers and other rural

residents. It works directly with cooperative leaders and

Federal and State agencies to improve organization,

leadership, and operation of cooperatives and to give guidance

to further development.

The cooperative segment of RBS (1) helps farmers and other

rural residents develop cooperatives to obtain supplies and

services at lower cost and to get better prices for products they

sell; (2) advises rural residents on developing existing

resources through cooperative action to enhance rural living;

(3) helps cooperatives improve services and operating

efficiency; (4) informs members, directors, employees, and the

public on how cooperatives work and benefit their members

and their communities; and (5) encourages international

cooperative programs. RBS also publishes research and

educational materials and issues Rural Cooperatives magazine.

The U.S. Department of Agriculture (USDA) prohibits

discrimination in all its programs and activities on the basis of

race, color, national origin, gender, religion, age, disability,

political beliefs, sexual orientation, and marital or family

status. (Not all prohibited bases apply to all programs.)

Persons with disabilities who require alternative means for

communication of program information (braille, large print,

audiotape, etc.) should contact USDA’s TARGET Center at

(202) 720-2600 (voice and TDD).

To file a complaint of discrimination, write USDA, Director,

Office of Civil Rights, Room 326-W, Whitten Building, 14th and

Independence Avenue, SW, Washington, D.C. 20250-9410 or

call (202) 720-5964 (voice or TDD). USDA is an equal

opportunity provider and employer.