SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-60372
FARMLAND INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 44-0209330
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation
or Organization)
3315 North Farmland Trafficway, Kansas City, Missouri 64116-0005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 816-459-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
Farmland Industries, Inc. is a cooperative. Its voting stock can only be held
by its members. No public market for voting stock of Farmland Industries, Inc.
is established and it is unlikely, in the foreseeable future, that a public
market for such voting stock will develop.
Documents incorporated by reference: None
PART 1
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing
cooperative headquartered in Kansas City, Missouri that is primarily owned by
its members and operates on a cooperative basis. Founded originally in 1929,
Farmland has grown from revenues of $310,000 during its first year of operation
to over $7.2 billion during 1995. Members are entitled to receive patronage
refunds distributed by Farmland from its member-sourced annual net earnings.
Unless the context otherwise requires, the term "member" herein means (i) any
voting member, (ii) any associate member, or (iii) any other person with which
Farmland is a party to a currently effective patronage refund agreement (a
"patron"). See "Business - Patronage Refunds and Distribution of Net Earnings".
Farmland was formally incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Farmland Trafficway, Kansas City, Missouri
64116 (telephone 816-459-6000). Unless the context requires otherwise,
(i) "Farmland" or the "Company" herein refers to Farmland Industries, Inc.
and its consolidated subsidiaries, (ii) all references herein to "year" or
"years" are to fiscal years ended August 31, and (iii) all references herein
to "tons" are to United States short tons.
MEMBERSHIP
Membership requirements are determined by Farmland's Articles of
Incorporation and the Board of Directors of Farmland (the ''Board of
Directors'').
VOTING MEMBERS
As of August 31, 1995, Farmland's requirements for voting membership were
as follows: (1) Voting membership is limited to (a) farmers' and ranchers'
cooperative associations which have purchased farm supplies from or provided
grain to Farmland during Farmland's two most recently completed years, and (b)
producers of hogs and cattle or associations of such producers which have
provided hogs or cattle to Farmland during Farmland's two most recent years. (2)
Voting members must maintain a minimum investment of $1,000 in par value of
Farmland common stock. (3) A cooperative must have open membership (an open
membership cooperative is open to anyone i.e. non-discriminatory) limit voting
to agricultural producers and conduct a majority of its business with voting
producers.
ASSOCIATE MEMBERS
Farmland's associate members have all the rights of membership except that
they do not have voting rights.
As of August 31, 1995, Farmland's requirements for associate membership
were: Associate members must maintain a minimum investment of $1,000 in par
value of Farmland associate member common stock and meet any one of the
following four criteria: (a) be a person meeting the requirements for voting
membership; (b) be a non-cooperative business entity owned 100%, directly or
indirectly, by Farmland or Farmland's members or associate members; (c) be an
association, other than one owned 100% by Farmland or Farmland's voting members
or associate members, which conducts business on a cooperative basis and has a
minimum of 25 active members; and (d) be a hog and/or cattle feeding business
which derives a majority of earned income from such feeding business and agrees
to provide Farmland with the information it needs to pay patronage refunds
from its hog and/or cattle marketing operations to members or other associate
members that are eligible to receive such refunds.
As of August 31, 1995, Farmland's membership, associate membership and
patrons eligible for patronage refunds consisted of approximately 1,800
cooperative associations of farmers and ranchers and 11,500 pork or beef
producers or associations of such producers. See ''Business - Patronage Refunds
and Distribution of Net Earnings''.
In the event the Board of Directors of Farmland shall determine that any
holder of the common stock or associate member common stock of Farmland does not
meet the qualifications as may be established by the Board of Directors for
holders thereof, such person shall have no rights or privileges on account of
such common stock to vote for director(s) or to vote on the management or
affairs of Farmland, and Farmland shall have the right, at its option, (a) to
purchase such common stock at its book or par value, whichever is less, as
determined by the Board of Directors of Farmland, or (b) in exchange for such
common stock or associate member common stock to issue or record on the books of
Farmland capital credits in an equivalent amount. On the failure of any holder,
following any demand by Farmland therefor, to deliver the certificate or
certificates evidencing any common stock or associate member common stock,
Farmland may cancel the same on its books and issue or record on the books of
Farmland an equivalent amount of capital credits in lieu thereof.
BUSINESS
GENERAL
The Company is one of the largest cooperatives in the United States in
terms of revenues. In 1995, Farmland had exports to approximately 72 countries,
and derived 47% of its grain revenues from export sales. Substantially all of
the Company's foreign grain sales are paid in U.S. Dollars.
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal product
divisions - petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum refining
and a complete line of car, truck and tractor tires, batteries and accessories.
Principal products of the crop production division are nitrogen-, phosphate- and
potash-based fertilizers, and, through the Company's ownership in the WILFARM
(a 50%-owned venture formed in 1995)("WILFARM"), a complete line of
insecticides, herbicides and mixed chemicals. Principal products of the feed
division include swine, dairy, pet, beef, poultry, mineral and specialty feeds,
feed ingredients and supplements, animal health products and livestock services.
Over 50% of the Company's farm supply products sold in 1995 was produced in
plants owned by the Company or operated by the Company under long-term lease
arrangements. Approximately 64% of the Company's farm supply products sold in
1995 were sold at wholesale to farm cooperative associations which are members
of Farmland. These farm cooperatives distribute products primarily to farmers
and ranchers in states which comprise the corn belt and the wheat belt and who
utilize the products in the production of farm crops and livestock.
On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain. In December 1995,
the Company plans to commence processing wheat into gluten for use primarily in
the commercial baking and pet food industries and starch for numerous industrial
purposes. In 1995, approximately 68% of the hogs processed and 49% of the grain
marketed were supplied to the Company by its members. Substantially all of the
Company's pork and beef products sold in 1995 were processed in plants owned by
the Company.
No material part of the business of any segment of the Company is dependent
on a single customer or a few customers. Financial information about the
Company's industry segments is presented in Note 12 of the Notes to Consolidated
Financial Statements included herein.
The Company competes for market share with numerous participants with
various levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
competitors include major oil companies, independent refiners, other
cooperatives and product brokers. Competitors in the crop production industry
include global producers of nitrogen and phosphate fertilizers (some of which
are cooperatives) and product importers and brokers. The feed, pork and beef
industries are comprised of a large variety of competitive participants.
PETROLEUM
MARKETING
The principal product of this business segment is refined fuels.
Approximately 66% of refined fuels product sales in 1995 resulted from
transactions with Farmland's members. The balance of the Company's refined
fuels product sales were principally through retailing chains in urban areas.
Other petroleum products include lube oil, grease, by-products of petroleum
refining and a complete line of car, truck and tractor tires, batteries and
accessories. Sales of petroleum products as a percent of the Company's
consolidated sales for 1993, 1994 and 1995 were 19%, 13% and 12%, respectively.
Competitive methods in the petroleum industry include service, product
quality and pricing. However, in refined fuel markets, price competition is
most dominant. Many participants in the industry engage in one or more of the
industry's processes (oil production and transportation, refining, wholesale
distribution and retailing). The Company participates in the industry primarily
as a midcontinent refiner and as a wholesale distributor of petroleum products.
PRODUCTION
The Company owns refineries at Coffeyville, Kansas and at Phillipsburg,
Kansas. The refinery at Phillipsburg, Kansas is closed. A loading terminal
located at the refinery remains in operation. The carrying value of this
refinery at August 31, 1995 was approximately $1.6 million. The Company is
evaluating alternative uses for this facility and cannot at this time determine
the extent of losses, if any, related to the closure of the refinery, but such
losses are expected not to be significant.
Production volume for 1993, 1994 and 1995 is as follows:
Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per Year
Location 1993 1994 1995
(barrels)
Coffeyville, Kansas . . . . . . 53,000 64,211 66,965
The Coffeyville refinery produced 20 million barrels of motor fuels and
heating fuels in 1993, 25 million barrels in 1994, and 26 million barrels in
1995. Approximately 67% of petroleum product sales in 1995 represented products
produced at this location.
Management terminated negotiations with a potential purchaser of the
Coffeyville refinery in 1994 when final sale terms were determined not to be in
the Company's best interest. See Note 17 of the Notes to Consolidated Financial
Statements included herein. In July 1994, the Company acquired a mothballed
refinery in Texas which is being reassembled at the Coffeyville refinery site.
When reassembly is complete in 1996, crude oil processing capacity is expected
to increase.
RAW MATERIALS
Farmland's refinery at Coffeyville, Kansas is designed to process high
quality crude oil with low sulfur content ("sweet crude"). Competition for
sweet crude and declining production in proximity of the refinery has increased
its cost of raw material relative to such cost for coastal refineries with the
capacity for processing and access to lower quality crude grades. The Company's
pipeline/trucking gathering system collects approximately 27% of its crude oil
supplies from producers near its refineries. Additional supplies are acquired
from diversified sources. Modifications to the Coffeyville refinery to increase
its capability to process efficiently crude oil streams containing greater
amounts of lower quality crude are continuing.
Crude oil is purchased approximately 45 to 60 days in advance of the time
the related refined products are to be marketed. Certain of these advance crude
oil purchase transactions, as well as fixed price refined products advance sales
contracts, are hedged utilizing petroleum futures contracts.
During periods of volatile crude oil price changes or in extremely short
crude supply conditions, the Company's petroleum operations could be affected to
a greater extent than petroleum operations of more vertically integrated
competitors with crude oil supplies available from owned producing reserves. In
past periods of relatively severe crude oil shortages, various governmental
regulations such as price controls and mandatory crude oil allocating programs
have been implemented to spread the adversity among all industry participants.
There can be no assurance as to what, if any, government action would be taken
if a crude oil shortage were to develop.
CROP PRODUCTION
MARKETING
The Company's crop production business segment includes nitrogen-,
phosphate-, and potash-based fertilizer products ("plant nutrients") and,
through the Company's ownership in the WILFARM joint venture, a complete line of
crop protection products such as insecticides, herbicides and mixed chemicals.
Sales of the crop production business segment as a percent of consolidated sales
for 1993, 1994 and 1995 were 19%, 17% and 16%, respectively.
Competition in the plant nutrient industry is dominated by price
considerations. However, during the spring and fall plant nutrient application
seasons, farming activities intensify and delivery service capacity is a
significant competitive factor. Therefore, the Company maintains a significant
capital investment in distribution assets and a seasonal investment in inventory
to support its manufacturing operations. The Company has plant nutrient custom
dry blending, liquid mixing, storage and distribution facilities at 33 locations
throughout its trade territory.
The Company's sales of crop production products are primarily at wholesale
to local cooperative associations (members and customers of the Company). In
view of this member/customer relationship, management believes that, with
respect to such customers, the Company has a slight competitive advantage.
Domestic competition, mainly from other regional cooperatives and
integrated crop production companies, is intense due to customers' sophisticated
buying tendencies and production strategies that focus on costs and service.
Also, foreign competition exists from producers of crop production products
manufactured in countries with lower cost natural gas supplies (the principal
raw material in nitrogen-based fertilizer products). In certain cases, foreign
producers of fertilizer for export to the United States may be subsidized by
their respective governments.
PRODUCTION
The Company manufactures nitrogen-based crop production products. Based
on total production capacity, the Company is one of the largest producers of
anhydrous ammonia fertilizer in the United States. The Company owns and
produces nitrogen-based products at four anhydrous ammonia plants and operates
three anhydrous ammonia plants under long-term lease arrangements.
The Company owns and produces phosphate-based products at one plant and
has 50% ownership interest in two ventures which produce phosphate-based
products.
Nitrogen fertilizer production information for 1993, 1994 and 1995 is as
follows:
Actual Annual Production
Anhydrous Ammonia
Plant Location 1993 1994 1995
(tons)
Lawrence, Kansas . . . . . . . . . . . . 375,000 443,000 430,000
Dodge City, Kansas . . . . . . . . . . . 241,000 257,000 276,000
Fort Dodge, Iowa . . . . . . . . . . . . 232,000 256,000 258,000
Beatrice, Nebraska . . . . . . . . . . . 243,000 277,000 281,000
Enid, Oklahoma (2 plants)(A) . . . . . . 969,000 985,000 998,000
Pollock, Louisiana(A) . . . . . . . . . . 490,000 526,000 497,000
<FN>
(a) Leased plants
Natural gas is the major raw material used in production of synthetic
anhydrous ammonia. Synthetic anhydrous ammonia is the basic component of other
commercially produced nitrogen-based crop production products including urea,
ammonium nitrate, urea ammonium nitrate solutions and other products. The
Company produces such value-added nitrogen-based products at four plants.
Production of such value-added products from anhydrous ammonia for 1993, 1994
and 1995 is as follows:
Actual Annual Production
Plant Location 1993 1994 1995
(tons)
Lawrence, Kansas . . . . . . . . . . . . 661,000 654,000 719,000
Enid, Oklahoma . . . . . . . . . . . . . 473,000 433,000 473,000
Dodge City, Kansas . . . . . . . . . . . 205,000 163,000 202,000
Beatrice, Nebraska . . . . . . . . . . . 166,000 162,000 165,000
Ammonia also is used to react with phosphoric acid to produce phosphoric
acid products such as liquid mixed fertilizer, diammonium phosphate and
monoammonium phosphate.
The Company owns a phosphate chemical plant located in Joplin, Missouri and
land in Florida which contains an estimated 40 million tons of phosphate rock.
The Joplin plant produces ammonium phosphate which is combined in varying ratios
with muriate of potash to produce 12 different fertilizer grade products. In
addition, feed grade phosphate (dicalcium phosphate) is produced at this
facility.
Production at the Joplin plant for 1993, 1994 and 1995 is as follows:
Actual Annual Production
1993 1994 1995
(tons)
Ammonium Phosphate . . . . . . . . . . . 72,000 75,000 64,000
Feed Grade Phosphate . . . . . . . . . . 141,000 157,000 159,000
The Company and Norsk Hydro a.s. own a joint venture, Farmland Hydro, L.P.
("Hydro"), which is a manufacturer of phosphate fertilizer products for
distribution to international markets. Hydro operates a phosphate plant at
Green Bay, Florida and owns phosphate rock reserves located in Hardee County,
Florida which contain an estimated 40 million tons of phosphate rock. The
Company provides management and administrative services and Norsk Hydro a.s.
provides marketing services to Hydro. The joint venture's plant produces
phosphoric acid products such as super acid, diammonium phosphate and
monoammonium phosphate. Annual production in tons of such products for 1993,
1994 and 1995 was 1,216,000, 1,437,000 and 1,471,000, respectively. The
phosphate rock required to operate the joint venture's plant is presently
purchased from outside suppliers and adequate supplies of sulfur are available
from several producers.
Plans for development of the phosphate reserves owned by the Company and
Hydro have not been established in view of the availability of adequate supplies
of phosphate rock from alternative sources.
The Company and J.R. Simplot Company own a joint venture, SF Phosphates
Limited Company, which operates a phosphate mine located in Vernal, Utah, a
phosphate chemical plant located in Rock Springs, Wyoming and a 96-mile pipeline
connecting the mine to the plant. The plant produces monoammonium phosphate and
super acid with annual production in tons for 1993, 1994 and 1995 of 440,000,
465,000 and 451,000, respectively. Under the joint venture agreement, the
Company and J.R. Simplot Company purchase the production of the joint venture in
proportion to their ownership.
The Company and Mississippi Chemical Company have entered into a letter of
intent to form a joint venture to develop, construct and operate a 1,850 metric
ton per day ammonia production facility at the Brighton Industrial Site, at
LaBrea in the Republic of Trinidad and Tobago. The partners expect the plant to
be funded by a combination of nonrecourse project financing and equity. The
Company expects to fund its equity position in the project (estimated to amount
to approximately $67.0 million) from currently available sources of capital.
Although production start up is expected early in 1998, there can be no
assurance that production will commence at such time. Also, the recent change
in the composition of the national government of the Republic of Trinidad and
Tobago could delay the project; however, this is not expected.
RAW MATERIALS
Natural gas, the largest single component of nitrogen-based fertilizer
production, is purchased directly from natural gas producers. Natural gas
purchase contracts are generally market sensitive and contract prices change as
the market price for natural gas changes. The Company's management believes
that the flexible pricing attributes of its gas supply contracts, without
relinquishing rights to long-term supplies, are essential to its competitive
position. In addition, the Company has a hedging program which utilizes natural
gas futures and options to reduce risks of market price volatility.
Natural gas is delivered to the Company's facilities under pipeline
transportation service agreements which have been negotiated with each plant's
delivering pipeline. Natural gas delivery to the plants could be curtailed
under regulations of the Federal Energy Regulatory Commission if the pipeline's
capacity were required to serve priority users such as residences, hospitals and
schools. In such case, production could be curtailed. No significant
production has been lost because of curtailments in transportation, and no such
curtailment is anticipated.
FEED
Products in the Company's feed line include swine, beef, poultry, dairy,
pet, mineral and specialty feeds, feed ingredients and supplements, animal
health products and livestock services.
This business segment's sales were approximately 10%, 8% and 6% of
consolidated sales for the years 1993, 1994 and 1995, respectively.
Approximately 51% of the feed business segment's sales in 1995 was attributable
to products manufactured in the Company's feed mills. The Company operates feed
mixing plants at 19 locations throughout its territory, an animal protein and
premix plant located in Eagle Grove, Iowa, a premix plant in Marion, Ohio and a
pet food plant in Muncie, Kansas. A new dairy feed mill is under construction
in Artesia, New Mexico.
Feed production is as follows:
Actual Annual Production
1993 1994 1995
(tons)
22 feed mills (combined) . . . . . . . . 1,030,000 1,118,000 1,112,000
In addition, the Company's feed operations include placement of Company-
owned feeder pigs with individuals who have contractual arrangements with the
Company to feed pigs on a fee basis until weight gain is finished. During 1993,
1994 and 1995, approximately 113,000 pigs, 250,000 pigs and 298,000 pigs,
respectively, were finished under this program. The majority of the finished
pigs were sold to a 99%-owned subsidiary, Farmland Foods, Inc. ("Foods"), for
processing.
The Company owns less than a 50% interest in Alliance Farm Cooperative
Association (formerly Yuma Feeder Pig Limited Liability Company) which operates
swine farrowing facilities.
The Company operates a facility for production of quality swine breeding
stock. These animals are placed with farrowers under contractual arrangements.
In addition, the Company purchases swine breeding stock for placement with such
farrowers.
The Company conducts research in genetic selection, breeding, animal health
and nutrition at its research facility in Bonner Springs, Kansas. Through local
cooperative associations of farmers and ranchers, the Company participates in
livestock and hog services designed to produce lean, feed-efficient animals and
help livestock producers select feed formulations which maximize weight gain.
FOOD PROCESSING AND MARKETING
PORK
PROCESSING
The Company's pork processing and marketing operations are conducted
through Foods which operates eight food processing facilities. Meat processing
facilities at Springfield, Massachusetts, Carey, Ohio, and New Riegel, Ohio
produce Italian-style specialty meats and ham products. A facility at Wichita,
Kansas processes pork into fresh sausage, and pork, beef and chicken into hot
dogs, dry sausage and other luncheon meats. A facility in Denison, Iowa and one
in Crete, Nebraska function as pork abattoirs and have additional capabilities
for processing pork into bacon, ham and smoked meats. An additional facility at
Monmouth, Illinois was purchased February 1993. These facilities also process
fresh pork into primal cuts for additional processing into fabricated meats
which are sold to commercial users and to retail grocery chains, as well as
case-ready and label-branded cuts for retail distribution. The eighth plant
located in Carroll, Iowa is primarily a packaging facility for canned or cook-
in-bag products. A facility at San Leandro, California was closed on September
1, 1993.
Production for 1993, 1994 and 1995 is as follows:
Actual Weekly Production
1993 1994 1995
(pounds)
Crete, Nebraska . . . . . . . . .2,800,000 2,800,000 3,100,000
Denison, Iowa . . . . . . . . . .2,600,000 2,700,000 2,800,000
Wichita, Kansas . . . . . . . . .1,500,000 1,900,000 2,200,000
Monmouth, Illinois(A) . . . . . .1,400,000 1,400,000 1,900,000
Carroll, Iowa . . . . . . . . . .1,200,000 1,100,000 1,400,000
Springfield, Massachusetts . . . 650,000 750,000 725,000
Carey/Riegel, Ohio . . . . . . . 225,000 275,000 425,000
San Leandro, California(B) . . . 250,000 -0- -0-
<FN>
(A) Acquired February 1993
(B) Closed September 1, 1993
Actual Weekly Head Slaughtered
1993 1994 1995
Crete, Nebraska . . . . . . . . . . . 45,000 46,000 46,000
Denison, Iowa . . . . . . . . . . . . 37,000 40,000 41,000
Monmouth, Illinois . . . . . . . . . . 25,000 27,000 33,000
MARKETING
Products marketed include fresh pork, fabricated pork, smoked meats, ham,
bacon, fresh sausage, dry sausage, hot dogs, and packing house by-products.
These products are marketed under the Farmland, Maple River, Marco Polo,
Carando, Regal and other brand names. Product distribution is through national
and regional retail food chains, food service accounts, distributors and
international marketing activities.
Pork marketing is a highly competitive industry with many suppliers of live
hogs, fresh pork and processed pork products. Other meat products such as beef,
poultry and fish also compete directly with pork products. Competitive methods
in this segment include price, product quality, product differentiation and
customer service.
BEEF
PROCESSING
The Company's beef processing and marketing operations are conducted
through National Beef Packing Company, L.P. ("NBPC"), which was formed in April
1993, and at August 31, 1995, was 68%-owned by Farmland (such ownership having
increased thereafter to approximately 76%). The processing facilities for these
beef operations are located in Liberal, Kansas and Dodge City, Kansas. These
facilities function as beef abattoirs and have capabilities for processing fresh
beef into primal cuts for additional processing into fabricated or boxed beef.
During 1994 and 1995, the two plants slaughtered 1.7 million and 1.9 million
cattle, respectively.
MARKETING
Products in the Company's beef processing and marketing operations include
fresh beef, boxed beef and packing house by-products. Product distribution is
through national and regional retail and food service customers under the
Farmland Black Angus Beef and other brand names. There is also a limited amount
of international product distribution.
Beef marketing is a highly competitive industry with many suppliers of live
cattle, fresh beef and processed beef. Other meat products such as pork,
poultry and fish also compete directly with beef products. Competitive methods
in this industry include price, product quality and customer service.
GRAIN MARKETING
The Company markets wheat, milo, corn, soybeans, barley and oats, with
wheat constituting the majority of the marketing business. The Company
purchases grain from members and nonmembers located in the Midwestern part of
the United States. Once the grain is purchased, the Company assumes all risks
related to selling such grain. Since grain is a commodity, pricing of grain in
the United States is principally conducted through bids based on the commodity
futures markets.
The Company is exposed to risk of loss in the market value of its grain
inventory and fixed price purchase contracts if grain market prices decrease,
and is exposed to loss on its fixed price sales contracts if grain market prices
increase. To reduce the price change risk associated with holding positions in
grain, the Company takes opposite and offsetting positions by entering into
grain commodity futures contracts. Such contracts have terms of up to one year.
The Company's strategy is to maintain hedged positions on as close to 100% of
its position in grain as is possible. During 1994 and 1995, the Company
maintained hedges on approximately 95.3% and 97.9%, respectively, of its grain
positions. Based on total assets at the beginning and end of 1995, the average
market value of grain positions not hedged during the year amounted to less than
1% of the Company's average total assets. While hedging activities reduce the
risk of loss from changing market values of grain, such activities also limit
the gain potential which otherwise could result from changes in market prices of
grain.
In 1995, approximately 47% of grain revenues were from export sales or
sales to domestic customers for export. The five largest purchasers during 1995
in terms of total revenues from grain operations, were China (15%), Mexico (7%),
Israel (6%), Egypt (6%), and Jordan (2%). In 1993 and 1994, export sales or
sales to domestic customers for export accounted for approximately 60% and 37%,
respectively, of consolidated grain revenues. A majority of the grain export
sales are under price subsidies or credit arrangements guaranteed by the United
States government, primarily through programs administered by the United States
Department of Agriculture ("USDA"). Export-related sales are subject to
international political upheavals and changes in other countries' trade policies
which are not within the control of the United States or the Company. Foreign
sales of grain generally are paid in U.S. Dollars.
As of November 1995, Heartland Wheat Growers, L.P. (79%-owned by Farmland
and 21%-owned by five cooperative members of Farmland) has completed
construction and is in final start-up testing of a wheat processing plant
located in Russell, Kansas. The plant will have capacity to process 4.2 million
bushels of wheat annually and produce gluten for use primarily in the commercial
baking and pet food industries and starch for numerous industrial purposes.
TRADIGRAIN
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain"). Tradigrain imports, exports and ships all major grains from the
major producing countries to final consumers which are either governmental
entities, private companies or other major grain companies.
Tradigrain's purchases of grain are made on a cash basis against
presentation of documents. Its sales of grain are mostly done against confirmed
letters of credit at sight or on 180/360 days deferred basis. For purposes of
the Company's Consolidated Financial Statements, on Tradigrain transactions, the
Company recognizes as revenues net margin on grain traded rather than the value
of the commodities involved in the trades.
PROPERTY
The Company owns or leases 30 inland elevators and one export elevator with
a total capacity of approximately 177,045,000 bushels of grain. The location,
type, number and aggregate capacity in bushels of the elevators at August 31,
1995 are as follows:
LOCATION AGGREGATE
TYPE NUMBER CAPACITY
Amarillo, Texas . . . . . Inland 1 3,226,000
Black, Texas . . . . . . . Inland 1 1,418,000
Commerce City, Colorado . Inland 1 3,234,000
Darrouzett, Texas . . . . Inland 1 1,277,000
Enid, Oklahoma . . . . . . Inland 4 50,300,000
Fairfax, Kansas . . . . . Inland 1 10,047,000
Galveston, Texas . . . . . Export 1 3,253,000
Hutchinson, Kansas . . . . Inland 3 25,268,000
Idaho and Utah . . . . . . Inland 11 9,825,000
Lincoln, Nebraska . . . . Inland 1 5,099,000
Omaha, Nebraska . . . . . Inland 2 4,266,000
Saginaw, Texas . . . . . . Inland 2 37,274,000
Topeka, Kansas . . . . . . Inland 1 12,055,000
Wichita, Kansas . . . . . Inland 1 10,503,000
RESEARCH
The Company operates a research and development farm near Bonner Springs,
Kansas where many aspects of animal nutrition are studied. The research is
directed toward improving the nutrition and feeding practices of livestock and
pets.
Expenditures related to Company-sponsored product and process improvements
amounted to $3.3 million, $2.7 million and $2.3 million for the years ended
1993, 1994 and 1995, respectively.
CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES
In 1995, the Company made capital expenditures of $124.7 million. These
expenditures related principally to the ongoing expansion of the Coffeyville,
Kansas refinery to a production level of 90,000 barrels per day. In addition,
NBPC's facility in Liberal, Kansas was undergoing major expansion as was Foods'
pork processing facility in Crete, Nebraska. Expenditures of the crop
production division included upgrading several existing facilities to improve
gas efficiencies and expanding urea ammonium nutrient ("UAN") facilities in
Lawrence, Kansas and at several storage terminals. As of August 31, 1995, the
Company was also constructing a wheat processing plant in Russell, Kansas.
The Company plans expenditures for capital additions, improvements and
investments in ventures of approximately $379.4 million during the years 1996
and 1997 as described in the following paragraphs. Of this amount, the Company
plans expenditures of $315.1 million for capital additions and improvements and
$64.3 million for investments in ventures.
Capital expenditures and investments planned for the crop production
business segment total $150.3 million and include: an investment in a venture
organized to construct and operate an anhydrous ammonia plant in The Republic
of Trinidad and Tobago and expenditures for operating efficiencies,
environmental and safety issues and for operating necessities or betterments.
Capital expenditures and investments planned for the feed business segment
total $11.9 million and include an additional investment in a venture with
Alliance Farms and expenditures for feed mill and livestock production
efficiencies, operating necessities and replacements.
Capital expenditures and investments planned for the petroleum business
segment total $94.9 million and are to complete the expansion of daily crude oil
processing capacity at the Coffeyville, Kansas refinery to 90,000 barrels per
day and for operating necessities, increased operating efficiency and for
environmental and safety issues.
Capital expenditures and investments of approximately $85.3 million are
planned for the food processing and marketing business segment. These
expenditures include an expansion of NBPC's facility at Liberal, Kansas, the
Crete, Nebraska and Wichita, Kansas plants and operational improvement and
replacements.
Capital expenditures and investments of approximately $6.7 million planned
for the grain business segment are mainly for expansion and replacements.
Capital expenditures and investments of $30.3 million are planned for the
other operations and corporate groups. These expenditures include upgrades of
management information services. The remaining expenditures are planned for
operating necessities and improvements.
The Company intends to fund its capital program with cash from operations
or through borrowings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials as the Company uses hazardous
substances and generates hazardous wastes in the ordinary course of its
manufacturing process. The Company recognizes liabilities related to remediation
of contaminated properties when the related costs are probable and can be
reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. Such liabilities include estimates
of the Company's share of costs attributable to potentially responsible parties
(''PRPs'') which are insolvent or otherwise unable to pay. All liabilities are
monitored and adjusted regularly as new facts or changes in law or technology
occur.
The Company wholly or jointly owns or operates 56 manufacturing properties
and has potential responsibility for environmental conditions at a number of
former manufacturing facilities and at waste disposal facilities operated by
third parties. The Company is investigating or remediating contamination at 24
properties. The Company has also been identified as a PRP under the federal
Comprehensive Environmental Response, Compensation, and Liability Act
(''CERCLA'') at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five such
sites. Such laws may impose joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property, and companies that generated, disposed of, or arranged
for the disposal of hazardous substance found at the property. During 1994 and
1995, the Company paid approximately $1.4 million and $3.2 million,
respectively, for environmental investigation and remediation.
The Company currently is aware of probable obligations for environmental
matters at 32 properties. As of August 31, 1995, the Company has made an
environmental accrual of $18.5 million. The Company periodically reviews and, as
appropriate, revises its environmental accruals. Based on current information
and regulatory requirements, the Company believes that the accruals established
for environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management also is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this paragraph
may exceed the liabilities which, in the opinion of management, are probable and
which costs are reasonably estimable at August 31, 1995. In the opinion of
management, it is reasonably possible for such costs to be approximately an
additional $19.8 million.
Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the
Company has five closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being conducted
at these locations and the Company does not plan to terminate such operations in
the foreseeable future. Therefore, the Company has not accrued these
environmental exit costs. The Company accrues these liabilities when plans for
termination of plant operations have been made. Such closure and post-closure
costs are estimated to be $5.8 million at August 31, 1995 (and is in addition to
the $19.8 million discussed in the prior paragraph).
The Company is currently involved in three administrative proceedings
brought by Region VII of the Environmental Protection Agency (''EPA'') with
respect to alleged violations under the Clean Air Act, the Emergency Planning
and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The
Company is currently negotiating with the EPA concerning these matters and
believes that such negotiations may result in compromise settlements, including
the possible implementation of a Supplemental Environmental Project in
connection with the Clean Air Act proceeding. Absent such settlements, the
Company intends to contest the EPA's allegations. Accordingly, no provision has
been made in the Company's financial statements for these proposed penalties.
See "Legal Proceedings".
Protection of the environment requires the Company to incur expenditures
for equipment or processes, which expenditures may impact the Company's future
net income. However, the Company does not anticipate that its competitive
position will be adversely affected by such expenditures or by laws and
regulations enacted to protect the environment. Environmental expenditures are
capitalized when such expenditures provide future economic benefits. In 1994 and
1995, the Company had capital expenditures of approximately $2.6 million and
$4.7 million, respectively, to prevent future discharges into the environment.
The majority of such expenditures was for improvements at the Coffeyville
refinery. Management believes the Company currently is in substantial compliance
with existing environmental rules and regulations.
GOVERNMENT REGULATION
The Company's business is conducted within a legal environment created by
numerous federal, state and local laws which have been enacted to protect the
public's interest by promoting fair trade practices, safety, health and welfare.
The Company's operating procedures conform to the intent of these laws and
management believes that the Company currently is in compliance with all such
laws, the violation of which could have a material adverse effect on the
Company.
Certain policies may be implemented from time to time by the USDA, the
Department of Energy or other governmental agencies which may impact the demands
of farmers and ranchers for the Company's products or which may impact the
methods by which certain of the Company's operations are conducted. Such
policies may impact the Company's farm supply and marketing operations.
Management is not aware of any newly implemented or pending policies having
a significant impact or which may have a significant impact on operations of the
Company.
EMPLOYEE RELATIONS
At August 31, 1995, the Company had approximately 12,700 employees.
Approximately 43% of the Company's employees were represented by unions having
national affiliations. The Company's relationship with employees is considered
to be generally satisfactory. No labor strikes or work stoppages within the last
three fiscal years have had a materially adverse effect on the Company's
operating results. Current labor contracts expire on various dates through May
1998. There are no wage re-openers in any of the collective bargaining
agreements.
PATRONAGE REFUNDS AND DISTRIBUTION OF NET EARNINGS
For purposes of this section, (1) annual earnings for 1994 and earlier
years means earnings before income taxes determined in accordance with federal
income tax law, and (2) annual earnings for 1995 and after means earnings before
income taxes determined in accordance with generally accepted accounting
principles.
Farmland operates on a cooperative basis. In accordance with its bylaws,
Farmland returns the member-sourced portion of its annual net earnings to its
members as a patronage refund. Each member's portion of the annual patronage
refund is determined by the quantity or value of business transacted by the
member with Farmland during the year for which the patronage is paid in
comparison with Farmland's total member-sourced earnings for such year in the
patronage allocation unit for which the patronage is paid.
Generally, a portion of the annual patronage refund is returned in cash and
for the balance of the patronage refund (the "non-cash portion") the members
receive Farmland common shares associate member common shares or capital credits
(the equity type received is determined by the membership status). The non-cash
portion of the patronage refund, also referred to herein as "allocated equity
portion", is determined annually by the Board of Directors. The annual
patronage refund is returned to members as soon as practical after the end of
each fiscal year. The Internal Revenue Code of 1986, as amended, allows a
cooperative to deduct from its taxable income the total amount of the patronage
refunds returned, provided that not less than 20% of the total patronage refund
returned is cash. The bylaws of Farmland provide that the Board of Directors
has complete discretion with respect to the handling and ultimate disposition
of any member-sourced losses.
For the years ended 1993, 1994 and 1995, Farmland returned the following
patronage refunds:
Cash or Cash
Equivalent Portion Non-Cash Portion Total Patronage
of Patronage Refunds of Patronage Refunds Refunds
(Amounts in thousands)
1993 . . . . $ -0- $ -0- $ -0-
1994 . . . . $ 26,552 $ 44,032 $ 70,584
1995 . . . . $ 33,038 $ 61,356 $ 94,394
Nonpatronage income or loss (income or loss from activities not directly
related to the cooperative marketing or purchasing activities of Farmland) is
subject to income taxes computed on the same basis as such taxes are computed on
the income or loss of other corporations.
ALLOCATED EQUITY REDEMPTION PLANS
The Allocated Equity Redemption Plans described below, namely the Base
Capital Plan (as defined below), the estate settlement plan and the special
allocated equity redemption plans (collectively, the "Plans") may be changed
at any time or from time to time at the sole and absolute discretion of the
Board of Directors. The Plans are also not binding upon the Board of
Directors or the Company, and the Board of Directors reserves the right
to redeem, or not redeem, any equities of the Company without regard
to whether such action or inaction is in compliance with the Plans.
The factors which may be considered by the Board of Directors in determining
when, and under what circumstances, the Company may redeem equities include,
but are not limited to, the terms of the Company's Base Capital Plan,
income and other tax considerations, the Company's results of
operations, financial position, cash flow, capital requirements, long-term
financial planning needs and other relevant considerations. By retaining
discretion to determine the amount, timing and ordering of any equity
redemptions, the Board of Directors believes that it can continue to assure that
the best interests of the Company and thus of its members will be protected.
BASE CAPITAL PLAN
For the purposes of acquiring and maintaining adequate capital to finance
the business of the Company, the Board of Directors has established a base
capital plan ("Base Capital Plan").
The Base Capital Plan provides a mechanism for determining the Company's
total capital requirements and each voting member's and associate member's share
thereof (the base capital requirement). As part of the Base Capital Plan, the
Board of Directors may, in its discretion, provide for redemption of Farmland
common stock or associate member common stock held by voting members or
associate members whose holdings of common shares or associate member shares
exceed the voting members' or associate members' base capital requirement. The
Base Capital Plan provides a mechanism under which the cash portion of the
patronage refund payable to voting members or associate members will depend upon
the degree to which such voting members or associate members meet their base
capital requirements.
ESTATE SETTLEMENT PLAN
The estate settlement plan provides that in the event of the death of an
individual (a natural person) allocated equity holder, the allocated equity
holdings of the deceased will be redeemed at par value with the exception
allocated equity which was purchased and held by the deceased for less than five
years. This provision is subject to a limitation of $1.0 million in any one
fiscal year without further authorization by the Board of Directors.
SPECIAL ALLOCATED EQUITY REDEMPTION PLANS
From time to time, the Company has redeemed portions of its outstanding
allocated equity under various special allocated equity redemption plans.
Each such plan has been designed to return cash to members or former
members of Farmland or Foods by redeeming certain types of outstanding allocated
equity. The order in which each type of allocated equity is redeemed is
determined by the Board of Directors. Except for preferred stock sold through a
public offering in 1984, substantially all the redemptions under these plans
were for allocated equities originally issued as the non-cash portion of the
Company's patronage refunds. See "Patronage Refunds and Distribution of Net
Earnings".
Special allocated equity redemption plans are designed to provide a
systematic method for redemption of outstanding allocated equity which is not
subject to redemption through other Plans, such as the Base Capital Plan or the
estate settlement plan.
As of August 31, 1995, provisions of the current special allocated equity
redemption plan include:
1. No special redemption will be made if the redemption may result in a
violation of covenants in loan agreements and similar instruments; and
2. The targeted amount for special redemptions is a percentage of
consolidated net income (member and nonmember). The percentage is
determined based on the ratio of Funded Indebtedness to Capitalization
(as defined in the special allocated equity redemption plan) before
the special redemption but after giving effect to the distribution of
cash and redemptions under the Base Capital Plan. Calculation for
special redemptions is as follows:
Total Special Allocated Equity
Funded Indebtedness as Redemption
as a Percent of as a Percent of
Capitalization Consolidated Net Income
> 50 % None
48 - 50 % 2.5 %
45 - 47 % 5.0 %
40 - 44 % 7.5 %
< 40 % 10.0 %
The targeted amount may be prorated between these levels.
3. The priority for redeeming equities under the Special Allocated Equity
Redemption Plans is at the sole discretion of the Board of Directors
of Farmland.
Presented below are the amounts of allocated equity approved for redemption
by the Board of Directors under the Base Capital Plan, the estate settlement
plan and the special allocated equity redemption plans for each of the years in
the five-year period ended 1995. The amounts approved for redemptions were paid
in cash in the fiscal year following approval.
Base Capital Estate Special Equity
Plan Settlement Plan Redemption Plans Total Plan
Redemptions Redemptions Redemptions Redemptions
(AMOUNTS IN THOUSANDS)
1991 2,300 4 5,351 7,655
1992 6,707 234 6,755 13,696
1993 -0- 127 12 139
1994 8,740 126 4,108 12,974
1995 14,159 128 13,451 27,738
ITEM 3. LEGAL PROCEEDINGS
In the opinion of Robert B. Terry, Vice President and General Counsel of
Farmland, there is no litigation existing or pending against Farmland or any of
its subsidiaries that, based on the amounts involved or the defenses available
to the Company, would have a material adverse effect on the financial position
of the Company except for the pending tax litigation relating to Terra
Resources, Inc. ("Terra"), a former subsidiary of the Company, as explained in
Note 7 of the Notes to Consolidated Financial Statements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition, Liquidity and Capital Resources."
In accordance with the Securities and Exchange Commission's Regulation S-K,
the Company reports that it is currently involved in the following
administrative proceedings in which violations of environmental laws are
alleged and civil penalties in excess of $100,000 are sought.
1. COFFEYVILLE CERCLA/EPCRA FINE. On August 10, 1993, Region VII of the
U.S. Environmental Protection Agency (the "EPA") issued against the Company an
administrative complaint seeking $350,000 in civil penalties for alleged
violations of notification requirements under the Comprehensive Environmental
Response, Compensation and Liability Act and the Emergency Planning and
Community Right to Know Act. The Company has been negotiating with the EPA
concerning this matter, but no resolution has been reached to date.
2. COFFEYVILLE RCRA DOCKET NO. VII-94-H-0018. On August 2, 1994, Region
VII of the EPA issued against the Company an administrative complaint seeking
$1.4 million in civil penalties for alleged violations of the Resource
Conservation and Recovery Act (RCRA) and of regulations issued thereunder. The
Company has been negotiating with the EPA concerning this matter, but no
resolution has been reached to date.
3. COFFEYVILLE CLEAN AIR ACT CIVIL PENALTY. On March 22, 1995, the U.S.
Department of Justice ("DOJ") notified the Company of its intent to bring suit
against the Company for alleged violations of the Clean Air Act. During July
1995, the Company was notified that, if suit is filed, the Government will seek
civil penalties totaling $1.6 million. The Company has been negotiating with
the DOJ and EPA concerning this matter but no resolution has been reached to
date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public market for the common stock, associate
member common stock and capital credits of Farmland. In view of the following,
it is unlikely in the foreseeable future that a public market for these equities
will develop:
1) the common stock, associate member common stock and capital credits
are nondividend bearing;
2) the right of any holder of common stock, associate member common
stock and capital credits to receive patronage refunds (including
any cash patronage refunds) from Farmland is dependent on the holder
being a voting member, an associate member or a patron. See
"Business and Properties - The Company";
3) the amount of patronage refunds (including any cash patronage
refunds) a holder, eligible to receive patronage refunds, may
receive is dependent on the net income of Farmland which is
attributable to the quantity or value of business such holder
transacts with Farmland and the amount by which a holder's
investment in Farmland varies from such holder's base capital
requirement. See "Business and Properties - Business - Patronage
Refunds and Distribution of Net Earnings"; and
4) Farmland intends to redeem its equities only in accordance with
provisions of the Plans which provisions are determined by the
Farmland Board of Directors at its sole discretion. See "Business
and Properties - Equity Redemption Plans".
At August 31, 1995, there are approximately 2,939 holders of common shares,
696 holders of associate member shares, and 11,937 holders of capital credits
based upon the number of recordholders.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of the end of and for
each of the years in the five-year period ended August 31, 1995 are derived from
the Consolidated Financial Statements of the Company, which Consolidated
Financial Statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Consolidated Financial Statements as of
August 31, 1994 and 1995 and for each of the years in the three-year period
ended August 31, 1995 (the "Consolidated Financial Statements"), and the
independent auditors' report thereon, are included elsewhere herein. The
information set forth below should be read in conjunction with information
appearing elsewhere herein: "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the Consolidated Financial Statements and
related notes, and the independent auditors' report which contains an
explanatory paragraph concerning income tax adjustments proposed by the IRS
relating to Terra.
Year Ended August 31
1991 1992 1993 1994 1995
(Amounts in Thousands except ratios)
SUMMARY OF OPERATIONS:(1)(2)
Net Sales . . . . . . . . . . $ 3,638,072 $ 3,429,307 $ 4,722,940 $ 6,677,933 $ 7,256,869
Operating Profit of Industry
Segments . . . . . . . . . . 156,765 160,912 86,579 154,799 293,381
Interest Expense . . . . . . . 36,951 27,965 36,764 51,485 53,862
Income (Loss) From
Continuing Operations . . . 42,693 61,046 (30,400) 73,876 162,799
Net Income (Loss) . . . . . . . $ 42,693 $ 62,313 $ (30,400) $ 73,876 $ 162,799
DISTRIBUTION OF NET INCOME (LOSS):
Patronage Refunds:
Allocated Equity . . . . . . $ 17,837 $ 1,038 $ 1,155 $ 44,032 $ 61,356
Cash and Cash Equivalents . 12,571 17,918 495 26,580 33,061
Earned Surplus and Other
Equities . . . . . . . . . . 12,285 43,357 (32,050) 3,264 68,382
$ 42,693 $ 62,313 $ (30,400) $ 73,876 $ 162,799
BALANCE SHEETS:
Working Capital . . . . . . . . $ 122,124 $ 208,629 $ 260,519 $ 290,704 $ 319,513
Property, Plant and Equipment,
Net . . . . . . . . . . 490,712 446,002 504,378 501,290 592,145
Total Assets . . . . . . . . . 1,369,231 1,526,392 1,719,981 1,926,631 2,185,943
Long-Term Debt (excluding
current maturities) . . . . 291,192 322,377 485,861 517,806 506,033
Capital Shares and Equities . . 497,364 588,129 561,707 585,013 687,287
<FN>
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition, Liquidity and Capital
Resources" for a discussion of the pending income tax litigation relating
to Terra, a former subsidiary of the Company.
(2) Acquisitions and Dispositions:
(a) During 1994, the Company acquired 79% of the common stock of National
Carriers, Inc. ("NCI") for a cash purchase price of $4.4 million.
NCI is a trucking company located in Liberal, Kansas. NCI provides
substantially all the trucking service needs of National Beef Packing
Company, L.P. ("NBPC"), a limited partnership. See Note 2 of the
Notes to Consolidated Financial Statements included herein.
(b) In December 1993, the Company acquired all the common stock of
seven international grain trading companies (collectively referred
to as "Tradigrain"). The purchase price for Tradigrain ($31.4
million) was paid in cash. See Note 2 of the Notes to
Consolidated Financial Statements included herein.
(c) During 1993, Farmland acquired a 58% interest in NBPC (having
increased to 68% on March 31, 1995 and, subsequent to August 31,
1995, such interest having increased to approximately 76%).
Effective April 15, 1993, NBPC acquired Idle Wild Foods, Inc.'s
beef packing plant and feedlot located in Liberal, Kansas. See
Note 2 of the Notes to Consolidated Financial Statements
included herein.
(d) On August 30, 1993, The Cooperative Finance Association ("CFA")
purchased 10,113,000 shares of its voting common stock from Farmland
as part of a recapitalization plan which established CFA as an
independent finance association for its members. As a result of CFA's
stock purchase and amendments to CFA's bylaws, Farmland did not have
voting control of CFA at August 31, 1993 and, therefore, did not
include CFA in its consolidated balance sheet at August 31, 1993.
Farmland's remaining investment in CFA is being accounted for by the
cost method.
(e) The following unaudited financial information for the year ended
August 31, 1993 presents pro forma results of operations of the
Company as if the disposition of CFA and the acquisition of NBPC had
occurred at the beginning of the period presented. The pro forma
financial information includes adjustments for amortization of
goodwill, additional depreciation expense, and increased interest
expense both on recourse and nonrecourse debt assumed in the
acquisitions. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred
had the Company been a single entity which excluded CFA and included
NBPC for the full year 1993. See Note 2 of the Notes to Consolidated
Financial Statements included herein.
August 31
1993
Unaudited
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . $ 5,357,867
Income (Loss) Before
Extraordinary Item . . . . . . . (44,040)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its debt securities (the
"continuous debt program") and bank lines of credit.
The Company's debt securities issued under the continuous debt program
generally are offered on a best-efforts basis through the Company's wholly owned
broker-dealer subsidiary, Farmland Securities Company, and through American
Heartland Investments, Inc. (which is not affiliated with Farmland), and also
may be offered by selected unaffiliated broker-dealers. The types of securities
offered in the continuous debt program include certificates payable on demand
and five- and ten-year subordinated debt certificates. The total amount of such
debt outstanding and the flow of funds to, or from, the Company as a result of
the continuous debt program are influenced by the rate of interest which
Farmland establishes for each type of debt certificate offered and by options of
Farmland to call for redemption certain of its outstanding debt certificates.
During the year ended August 31, 1995, the outstanding balance of demand
certificates decreased by $9.6 million and the outstanding balance of
subordinated debt certificates increased by $19.9 million.
Farmland has a $650.0 million Credit Agreement. The Credit Agreement
provides short-term credit of up to $450.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $200.0 million. At
August 31, 1995, short-term borrowings under the Credit Agreement were $250.8
million, revolving term borrowings were $85.0 million and $35.8 million was
being utilized to support letters of credit issued on behalf of Farmland by
participating banks.
Farmland pays commitment fees under the Credit Agreement of 1/10 of 1%
annually on the unused portion of the short-term commitment and 1/4 of 1%
annually on the unused portion of the revolving term commitment. In addition,
Farmland must maintain consolidated working capital of not less than $150.0
million, consolidated net worth of not less than $475.0 million and funded
indebtedness and senior funded indebtedness of not more than 52% and 43% of
Combined Total Capitalization (as defined in the Credit Agreement),
respectively. All computations are based on consolidated financial data adjusted
to exclude nonrecourse subsidiaries (as defined in the Credit Agreement). At
August 31, 1995, Farmland was in compliance with all covenants under the Credit
Agreement. The Company and the bank participants annually renew the short-term
commitments of the Credit Agreement. The next renewal date is in May
1996. Management expects that the short-term commitment will be renewed;
however, at such annual renewal date, any bank participant may choose not to
renew its portion of the short-term commitment. The revolving term loan
facility will expire in May 1997.
The Company maintains other borrowing arrangements with banks and
financial institutions. Under such agreements, at August 31, 1995, $47.2 million
was borrowed. Financial covenants of these arrangements generally are not more
restrictive than under the Credit Agreement.
The Company also has filed a registration statement with the Securities
and Exchange Commission to issue $200.0 million of debt. No such securities
have been issued by the Company. If issued, such debt would be unsecured and
non-subordinated obligations of the Company and would rank on parity in right of
payment with all other unsecured and non-subordinated indebtedness of the
Company.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operating and capital plans. However,
alternative financing arrangements are continuously evaluated.
NBPC maintains borrowing agreements with a group of banks which provide
financing support for its beef packing operations. Such borrowings are
nonrecourse to Farmland or Farmland's other affiliates. At August 31, 1995,
$90.0 million was available under this facility of which $32.0 million was
borrowed and $1.0 million was utilized to support letters of credit. In
addition, NBPC has incurred certain long-term borrowings from Farmland. NBPC has
pledged certain assets to Farmland and such group of banks to support its
borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. Obligations of Tradigrain under these
loan agreements are nonrecourse to Farmland or Farmland's other affiliates. At
August 31, 1995, such borrowings totaled $70.3 million.
Leveraged leasing has been utilized to finance railcars and a substantial
portion of the Company's fertilizer production equipment. Under the most
restrictive covenants of its leases, the Company has agreed to maintain working
capital of at least $75.0 million, Consolidated Funded Debt of not greater than
65% of Consolidated Capitalization and Senior Funded Debt of not greater than
50% of Consolidated Capitalization (all as defined in the most restrictive
lease).
As a cooperative, Farmland's member-sourced net earnings (i.e., income
from business done with or for members) are distributed to its voting members,
associate members and patrons in the form of common equity, capital credits or
cash. For this purpose, net income or loss was determined in accordance with the
requirements of federal income tax law up to 1994 and is determined in
accordance with generally accepted accounting principles in 1995 and after.
Other income is treated as "nonmember-sourced income". Nonmember-sourced income
is subject to income tax and after-tax earnings are transferred to earned
surplus. Under Farmland's bylaws, the member-sourced income is distributed to
members as patronage refunds unless the earned surplus account, at the end of
that year, is lower than 30% of the sum of the prior year-end balance of
outstanding shares, associate member shares, capital credits, nonmember capital
and patronage refunds for reinvestment. In such cases, member-sourced income is
reduced by the lesser of 15% or an amount required to increase the earned
surplus account to the required 30%. The amount by which the member-sourced
income is so reduced is treated as nonmember-sourced income. The member-sourced
income remaining is distributed to members as patronage refunds. For the years
1993, 1994 and 1995, the earned surplus account exceeded the required amount by
$3.8 million, $2.3 million and $62.8 million, respectively.
Generally, a portion of the patronage refund is distributed in cash and
the allocated equity portion is distributed in common stock, associate member
common stock or capital credits (depending on the membership status of
the recipient), or the Board of Directors may determine to distribute
the allocated equity portion in any other form or forms of equities. The
allocated equity portion of the patronage refund is determined annually by the
Board of Directors, but the allocated equity portion of the patronage refund is
not deductible for federal income tax purposes when it is issued unless at least
20% of the amount of the patronage refund is paid in cash. The allocated equity
portion of the patronage refund is a source of funds from operations which is
retained for use in the business and increases Farmland's equity base. Common
stock and associate member common stock may be redeemed by cash payments from
Farmland to holders thereof who participate in Farmland's base capital plan.
Capital credits and other equities of Farmland and Foods may be redeemed under
other equity redemption plans. The base capital plan and other equity
redemption plans are described under "Business - Equity Redemption Plans"
included herein.
Cash provided by operating activities totaled $44.7 million in 1995
compared with $106.0 million in 1994. This decrease reflects the cash effect of
increased inventories and accounts receivable (principally in the output
business, and mostly the grain business).
Other major sources of cash include $42.5 million from disposition of
investments and collections on long-term notes receivable, $37.1 million from an
increase in checks and drafts outstanding which is attributable to the Company's
cash management systems, $10.3 million from investors in demand loan and
subordinated debt certificates and $9.2 million from bank loans and other notes.
Major uses of cash during 1995 include $124.7 million for capital
additions or improvements, $26.8 million for acquisition of investments and
notes receivable, $26.6 million for patronage refunds and dividends distributed
from 1994 earnings and $12.4 million for the redemption of allocated equities
under the Farmland base capital plan and special allocated equity redemption
plan.
In July 1983, Farmland sold the stock of Terra, a wholly owned subsidiary
engaged in oil and gas exploration and production operations, and exited its oil
and gas exploration and production activities. The gain from the sale of Terra
amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the IRS issued a statutory notice to Farmland asserting
deficiencies in federal income taxes (exclusive of statutory interest thereon)
in the aggregate amount of $70.8 million. The asserted deficiencies relate
primarily to the Company's tax treatment of a $237.2 million gain resulting from
its sale, in July 1983, of the stock of Terra and the IRS's contention that
Farmland incorrectly treated the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset. The statutory notice
further asserts that Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million, and a loss of approximately $2.3
million, from dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court on
September 14, 1995; reply briefs were submitted to the court on November 28,
1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $ 178.3 million,
before tax benefits of the interest deduction, through August 31, 1995), or
$264.1 million in the aggregate at August 31, 1995. In addition, such a
decision would affect the computation of Farmland's taxable income for its 1989
tax year and, as a result, could increase Farmland's federal and state income
taxes for that year by approximately $5.0 million plus applicable statutory
interest thereon. Finally, the additional federal and state income taxes and
accrued interest thereon, which would be owed based on an adverse decision,
would become immediately due and payable unless the Company appealed the
decision and posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision would be charged to
current operations and would have a material adverse effect on the Company and
may affect its ability to pay, when due, principal and interest on the Company's
indebtedness. In order to pay any such tax claim, the Company would have to
consider new financing arrangements, including the incurrence of indebtedness
and the sale of assets. Moreover, the Company would be required to renegotiate
the Credit Agreement with its bank lenders, as well as other existing financing
agreements with certain other parties, not only to permit such new financing
arrangements, but also to cure events of default under the Credit Agreement and
certain of such other existing financing agreements and to maintain compliance
with various requirements of the Credit Agreement and such other existing
financing agreements, including working capital and funded indebtedness
provisions, in order to avoid default thereunder. No assurance can be given
that such financing arrangements or such renegotiation would be successfully
concluded.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the above
described IRS claims. Farmland believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave, Farmland's special tax counsel, it is more
likely than not that the courts will ultimately conclude that Farmland's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of Farmland on any of these issues.
RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
The Company's revenues, margins and net income depend, to a large extent,
on conditions in agriculture and may be volatile due to factors beyond the
Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In addition,
various federal and state regulations to protect the environment encourage
farmers to reduce the use of fertilizers and other chemicals. Global variables
which affect supply, demand and price of crude oil, refined fuels, natural gas
and other commodities may impact the Company's operations. Historically,
changes in the costs of raw materials used in the manufacture of the Company's
finished products have not necessarily resulted in corresponding changes in the
prices at which such products have been sold by the Company. Management cannot
determine the extent to which these factors may impact future operations of the
Company. The Company's cash flow and net income may continue to be volatile as
conditions affecting agriculture and markets for the Company's products change.
The increase (decrease) in sales and operating income by business segment
in each of the years in the three-year period ended 1995, compared with the
respective prior year, is presented in the below table.
Management's discussion of industry segment sales, operating income or
loss and other factors affecting the Company's net income during 1993, 1994 and
1995 follows the table.
Change in Sales Change in Net Income
1993 1994 1995 1993 1994 1995
Compared Compared Compared Compared Compared Compared
with 1992 with 1993 with 1994 with 1992 with 1993 with 1994
(Amounts in Millions) (Amounts in Millions)
INCREASE (DECREASE) OF
BUSINESS SEGMENT -
SALES AND OPERATING
INCOME OR LOSS:
Petroleum . . . . . . . . . . $ (92) $ (32) $ 21 $ (13) $ 32 $ (35)
Crop Production . . . . . . . (13) 278 8 (60) 74 73
Feed . . . . . . . . . . . . 34 49 (60) (1) (4) (7)
Food Processing and Marketing 563 943 337 (8) 4 56
Grain Marketing . . . . . . . 798 674 279 1 (34) 52
Other . . . . . . . . . . . . 4 43 (6) 7 (4) -0-
$ 1,294 $ 1,955 $ 579 $ (74) $ 68 $ 139
CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease . . . . . . . . . . . . $ 9 $ (9) $ (14)
Other income and deductions (net) increase (decrease) . . . . . . . . . 7 14 (6)
Interest expense (increase) decrease . . . . . . . . . . . . . . . . . (9) (15) (2)
Equity in net income of investees increase (decrease) . . . . . . . . . (10) 23 11
Minority owners' interest in income
of subsidiaries (increase) decrease . . . . . . . . . . . . . . . . (1) 5 (14)
Provision for loss on disposition
of assets (increase) decrease . . . . . . . . . . . . . . . . . . . (29) 29 -0-
Income taxes (increase) decrease . . . . . . . . . . . . . . . . . . . 15 (11) (25)
Net income increase (decrease) . . . . . . . . . . . . . . . . . . . . $ (92) $ 104 $ 89
In computing the operating income or loss of a business segment, none of
the following have been added or deducted: corporate expenses (included in the
statements of operations as selling, general and administrative expenses),
which cannot practicably be identified or allocated to an industry segment,
interest expense, interest income, equity in net income (loss) of investees,
other income (deductions) and income taxes.
PETROLEUM
SALES
Sales of the petroleum business increased $21.3 million in 1995 compared
with 1994, or 2.5%. Sales of gasoline increased $42.1 million due to 9.6%
higher unit sales and 2.4% higher prices. Sales of distillates and propane
decreased $14.3 million and $3.0 million, respectively, and sales of other
petroleum products decreased $3.5 million. Unit sales of distillates and
propane decreased as a result of the mild winter and a wet spring.
Sales of petroleum products reflect a decrease of $31.9 million in 1994
compared with 1993 primarily due to lower prices of refined fuels and propane.
The effect of lower prices was to reduce reported sales by approximately $62.4
million. Part of this decrease was offset by the effect of a 6% increase in
refined fuels and propane unit sales.
Sales of the petroleum segment decreased $92.2 million in 1993 compared
with 1992, primarily a result of a 12% decrease in unit sales of refined fuels
(gasoline, diesel and distillates) and a 2% decline of the average selling price
thereof. Unit sales decreased principally because the Company sold its
investment in National Cooperative Refinery Association ("NCRA") in June 1992.
The refined fuels unit sales decrease in 1993 reduced sales by approximately
$92.2 million compared with 1992 and lower prices of refined fuels reduced sales
by $17.7 million. Sales of other products (principally asphalt and coke)
decreased $12.4 million. Propane sales increased approximately $30.1 million in
1993 due to a 27% increase in unit sales and 18% higher prices.
OPERATING INCOME
The petroleum business incurred an operating loss of $8.0 million in 1995
compared with operating income of $27.2 million in 1994. This was attributable
to increased crude oil costs (approximately 9%) without corresponding increases
in finished product selling prices.
Results from petroleum operations increased $31.7 million in 1994 compared
with 1993 primarily because unit margins on diesel fuels with low levels of
sulfur (required by the Environmental Protection Agency ("EPA") for diesel fuel
sold after September 30, 1993) were higher than the prior year. These margins,
which were significantly higher immediately after the crossover to the low
sulfur level diesel fuels, decreased to normal levels later in 1994. In
addition, margins on other refined fuels improved in 1994 compared with 1993
because the cost per barrel of crude oil decreased and because production at the
Coffeyville, Kansas refinery was substantially higher than in the prior year.
Operating income of the petroleum segment decreased $12.8 million in 1993
compared with 1992. The favorable effects of improved margins in propane and
lower marketing and administrative expenses were more than offset by the
unfavorable effects of lower income from distributing fuels produced by NCRA and
the write-down to market value of certain petroleum inventories.
CROP PRODUCTION
SALES
Sales of the crop production business increased $8.0 million in 1995
compared with 1994. Sales of plant nutrients increased $117.9 million due to
higher selling prices. Unit sales of plant nutrients decreased slightly from
the record level of 7.4 million tons set in 1994. Sales of crop protection
products reflect a decrease of $109.9 million as a result of placing the
Company's crop protection operations in a 50%-owned joint venture on January 1,
1995.
Crop production sales in 1994 increased $278.5 million compared with 1993
due to higher plant nutrient prices and unit sales. The average price per ton
of nutrient increased approximately 13.3% and unit sales increased approximately
1.1 million tons or 18%.
Sales of the crop production segment decreased $13.0 million in 1993
compared with 1992. Nitrogen fertilizer sales increased $54.1 million due to 8%
higher unit sales and because the average selling price increased 3%. Phosphate
fertilizer sales decreased $64.7 million. This decrease is primarily a result
of the sale of the Green Bay, Florida phosphate plant to a 50%-owned joint
venture. Subsequent to this sale (on November 15, 1991) export sales from the
Green Bay plant have not been reported in the Company's operations. In 1992,
the Company's sales included export sales from the Green Bay plant of $60.9
million.
OPERATING INCOME
Operating income of the crop production business increased $72.7 million in
1995 compared with 1994. In addition, the Company's share of the net income of
joint ventures engaged in phosphate manufacturing increased $4.6 million and the
Company's share of net income of WILFARM was $2.2 million. The increased
operating results from crop production operations was principally attributable
to the effect of higher selling price on unit margins and contributed
significantly to the Company's increased net income in 1995.
Operating income of the crop production business in 1994 increased $74.4
million compared with 1993. This increase resulted from higher unit sales and
unit margins. Unit margins in 1994 were approximately twice the level of 1993
which increased operating income in this segment approximately $66.8 million.
Unit sales increased over one million tons (18%) which increased operating
income by approximately $10.8 million. In addition, included in the statement
of operations in the caption, "Equity in income (loss) of investees", is $15.3
million in 1994 representing the Company's share of net income from fertilizer
joint ventures. This is an increase of $23.4 million compared with 1993.
Demand for plant nutrients in 1994 was stronger than in 1993 due to an increase
in the number of acres under cultivation, principally corn acreage (corn acreage
harvested was relatively low in 1993 due to wet weather and the resulting floods
in the Company's trade territory). In addition, demand for plant nutrients was
stimulated by favorable weather conditions during the fall and spring
application seasons. The increased demand for plant nutrients translated into
higher unit sales and margins and contributed significantly to the Company's
increased net income in 1994.
Operating income of the crop production segment decreased $60.3 million in
1993 compared with 1992, primarily because of a 29% higher natural gas cost (the
principal raw material consumed in producing nitrogen fertilizer) which was not
recovered through selling prices. Fertilizer margins decreased approximately
$43.2 million because of higher natural gas cost. In addition, phosphate
fertilizer margins decreased approximately $7.1 million because decreased
phosphate fertilizer selling prices more than offset decreased cost. In
addition, the Company's share of the net loss of fertilizer ventures (included
in the Company's Consolidated Statement of Operations in the caption "Equity in
net income (loss) of investees") was $8.1 million in 1993 compared with a loss
of $1.3 million in 1992.
FEED
SALES
Sales of the feed business decreased $60.1 million in 1995 compared with
1994. This decrease reflects lower unit sales in traditional markets for beef,
dairy and swine feed partly offset by increased commercial (bulk) feed sales.
Unit sales of dairy feed decreased because the number of dairy cattle on feed
programs in the Company's trade territory decreased in 1995. Beef and swine
feed unit sales decreased because the relatively low market prices available to
livestock producers encouraged such producers to reduce input costs wherever
possible and such efforts were aided by the mild winter during which pastures in
most of the Company's trade area remained open and provided suitable grazing for
beef cattle.
Sales of feed products increased $48.7 million in 1994 compared with 1993.
Unit sales of formula feed and feed ingredients each increased approximately 10%
which generated a $39.6 million increase in sales. The balance of the sales
increase resulted primarily from higher feed ingredient prices.
Sales of the feed segment increased $33.9 million in 1993 compared with
1992, primarily because of higher unit sales. Formula feed unit sales increased
approximately 9% which increased sales $20.3 million. Feed ingredients unit
sales increased approximately 12% which increased sales by $18.1 million. In
addition, sales of animal health products increased $2.0 million. Lower formula
feed selling prices partly offset the effect of higher unit sales.
OPERATING INCOME
Operating income of the feed business decreased $7.0 million in 1995
compared with 1994. This decease is attributable to decreased unit sales in
traditional markets with cooperatives combined with a net loss on sales to
commercial accounts.
Operating income of the feed business segment decreased $3.7 million in
1994 compared with 1993. Gross margins decreased approximately $.5 million
reflecting lower margins on feed ingredients and pet food of $.8 million and $.4
million, respectively, partly offset by $.7 million higher margins on animal
health products. In addition, feed sales, marketing and administration expenses
increased $3.2 million primarily due to higher commissions and other variable
compensation plans.
Operating income of the feed segment of $20.7 million in 1993 decreased
slightly compared with 1992. The decrease was due to the impact of lower
selling prices.
FOOD PROCESSING AND MARKETING
SALES
Sales of the food processing and marketing business increased $337.3
million in 1995 compared with 1994. Sales of beef increased $350.6 million.
Approximately $235.0 million of this increase resulted from NBPC's purchase of
assets from Hyplains Beef L.C. (formerly 50%-owned by Farmland). The balance of
the increased sales of beef resulted primarily from increased volume
(approximately 16%) at NBPC's plant. Sales of pork decreased $13.3 million
reflecting the net effect of lower wholesale pork prices, partly offset by
higher unit sales.
Sales of the food processing and marketing business increased $943.0
million in 1994 compared with 1993. Sales of beef increased $747.0 million
principally because NBPC has been included in the Company's 1994 results for the
full year. NBPC was acquired in April 1993. Pork sales increased
$195.9 million, due mostly to including operations of the Monmouth, Illinois
plant in the Company's results for a full year in 1994. This plant was acquired
in February 1993. In addition, sales of specialty meats of the Company's
Carando division increased $13.0 million.
Food processing and marketing sales increased $562.5 million in 1993
compared with 1992, primarily due to business acquisitions. In April 1993, the
Company and partners organized NBPC. Farmland acquired a 58% ownership interest
in NBPC (such interest having increased to 68% effective March 31, 1995 and,
subsequent to August 31, 1995, such interest having increased to 76%) which
acquired a beef packing plant and feedlot located in Liberal, Kansas. As a
result of this acquisition, the Company's sales included beef sales of $442.1
million in 1993. In February 1993, Foods purchased a pork processing plant
located at Monmouth, Illinois. As a result of this acquisition, sales of pork
products increased approximately $90.0 million. Sales of fabricated pork
products at the Company's other plants increased $17.0 million and sales of
specialty meats of the Carando division increased $8.3 million.
OPERATING INCOME
Operating income of the food processing and marketing business increased
$56.5 million in 1995 compared with 1994. This increase includes increased
operating income of $43.5 million in beef operations and $13.0 million in pork
operations. In addition, the Company's share of net income of Hyplains in 1995
(for the period prior to its acquisition by NBPC) increased $5.2 million
compared with 1994. These increases reflect increased unit margins (mostly a
result of lower cattle and hog market prices) and an increased number of cattle
and hogs processed.
Operating income in the food processing and marketing segment of $20.6
million in 1994 reflects an increase of $4.1 million compared with 1993. The
increase includes $13.0 million higher operating income of the pork business
partly offset by an $8.9 million decrease of operating income of the beef
business. Operating income from pork processing and marketing operations
increased primarily due to higher volume and higher margins on fresh pork,
branded pork, hams and specialty meats of the Carando division. Operating
income of the beef business decreased owing to weak consumer demands for beef
and industry price competition.
Operating income of the food processing and marketing segment decreased
$8.7 million in 1993 compared with 1992. The decrease is primarily due to a
4.6% increase in live hog costs. Margins on fabricated products and hams
increased $3.6 million and $4.4 million, respectively, and margins on beef
products (not included in the Company's operations in 1992) were $4.2 million.
These increases resulted from acquisitions which increased sales as discussed
above. However, these increases were more than offset by the effects of the
4.6% increase in live hog costs which could not be fully recovered through
increased wholesale prices of fresh and processed pork products and by higher
selling and administrative expenses.
GRAIN MARKETING
SALES AND OPERATING INCOME
Sales of grain increased $279.0 million in 1995 compared with 1994. This
increase resulted from higher grain prices and unit sales, primarily export
sales. Operating income of the grain business totaled $17.9 million in 1995
compared with a loss of $33.5 million in 1994. The increase in operating
results was attributable to approximately 59.0 million bushels higher export
volume by the North American grain division increased volume of international
grain brokered by Tradigrain and as a result of more favorable unit margins
which developed as market prices increased in response to decreased worldwide
production in 1995.
Grain sales increased $673.6 million in 1994 compared with 1993 primarily
due to the acquisition of Wells-Bowman Trading Company and from operating
elevators in Utah and Idaho which were leased to the Company in 1994.
The grain marketing business had an operating loss of $33.5 million in 1994
compared with near break-even operations in 1993. The operating loss in 1994
includes an operating loss of $14.4 million in the international operations of
Tradigrain and an operating loss of $19.1 million in the Company's grain
division. The loss in 1994 resulted primarily from negative unit margins on
international grain transactions and higher domestic operating expenses.
Grain operations which were acquired in July 1992 reported sales for the
full year in 1993 of $953.5 million. Sales for the two months ended August 31,
1992 were $155.2 million.
In 1993, operating income of the grain business was $.1 million compared
with a loss of $.7 million for the two months ended August 31, 1992. In 1993,
grain marketing operations were relocated to Kansas City from Enid, Oklahoma, an
export elevator at Houston, Texas was sold and certain duplicative
administrative costs were eliminated. As a result, cost reductions were
realized in 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $39.1
million in 1995 compared with 1994. Approximately $25.3 million of the increase
was directly connected to business segments (primarily the grain and pork
businesses) and has been included in the determination of the operating income
of business segments. The increase of general corporate expenses, not
identified to business segments ($13.8 million), reflects higher variable
compensation, pension and other employee costs and higher costs for legal
services.
SG&A increased $81.5 million in 1994 compared with 1993. However, as a
percent of sales, these expenses were slightly lower in 1994 than in 1993.
Approximately $17.6 million of the increase resulted from acquisition of
Tradigrain and NCI and from including NBPC in the Company's financial statements
for the full year in 1994. Approximately $29.0 million of the increase was in
pork marketing and processing and resulted primarily from including the
Monmouth, Illinois pork plant in the Company's operations for a full year, and
from higher sales of pork. Farm supply businesses and the grain marketing
business had higher SG&A of $13.1 million and $3.4 million, respectively. The
balance of the SG&A increase was primarily due to variable compensation plans.
These expenses decreased $12.3 million in 1993 compared with 1992 primarily
due to SG&A directly connected to business segments. Corporate, general and
administrative expenses, not identified to business segments (see Note 12 of the
Notes to Consolidated Financial Statements) decreased $9.3 million in 1993
compared with 1992.
OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense increased $2.4 million in 1995 compared with 1994,
reflecting a higher average interest rate (approximately 1/2% higher), partly
offset by a lower amount of average borrowings.
Interest expense reflects an increase of $14.7 million in 1994 compared
with 1993. The increase is primarily attributable to including the interest
costs of NBPC's beef operations in the Company's financial statements for a full
year in 1994, the acquisition of NCI and Tradigrain in May 1994 and by higher
interest rates.
Interest expense increased $8.8 million in 1993 compared with 1992 due to
an increase of the average level of borrowings, partly offset by lower interest
rates.
PROVISION FOR LOSS ON DISPOSITION OF ASSETS
At August 31, 1993, management was negotiating to sell the Company's
refinery at Coffeyville, Kansas. Based on the progress of negotiation and the
transactions contemplated, operations for 1993 included a $20.0 million
provision for loss on the sale of the refinery. Accordingly, the net carrying
value of property, plant and equipment was reduced by $20.0 million at August
31, 1993. The transactions contemplated were subject to certain conditions,
including negotiation of final agreements. During 1994, management determined
that final sale terms anticipated by the potential purchaser were not in the
Company's best interest. Accordingly, negotiations were terminated, and the
sale was not consummated.
In 1993, the Company entered discussions with a potential purchaser of a
dragline. Based on these discussions, the Company estimated a loss of $6.2
million from the sale. Accordingly, at August 31, 1993, the carrying value of
the dragline was written down by $6.2 million and a provision for this loss was
included in the Company's Consolidated Statement of Operations for the year then
ended. In 1994, this sale was consummated on terms substantially as expected.
At August 31, 1993, the carrying value of a pork processing plant at Iowa
Falls, Iowa was written down by $3.3 million to an estimated disposal value.
CAPITAL EXPENDITURES
See "Business - Capital Expenditures and Investments in Ventures" included
herein.
OTHER, NET
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding the
Defendants' insurance coverage obligations for environmental remediation costs.
In 1994 and 1995, the Company negotiated settlements with 20 and 2 insurance
companies, respectively, and, as part of the settlements, the Company provided
the Defendants with releases of various possible environmental obligations. As
a result of these settlements, the Company received cash payments of $13.6
million and $.3 million in 1994 and 1995, respectively, and has included such
amounts in the caption "Other income (deductions): Other, net" in the Company's
and Consolidated Statement of Operations for the year then ended. See Note 16
of the Notes to Consolidated Financial Statements included herein.
MATTERS INVOLVING THE ENVIRONMENT
See "Business - Matters Involving the Environment" included herein.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, ''Accounting for Certain
Investments in Debt and Equity Securities'' (''Statement 115''), which was
issued by the Financial Accounting Standards Board (''FASB'') in May 1993.
Statement 115 expands the use of fair value accounting and the reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. The effect of the Company's
implementation of Statement 115 at September 1, 1994 was insignificant.
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, ''Employer's Accounting for
Postemployment Benefits'' (''Statement 112''), which was issued by FASB in
November 1992. Statement 112 establishes standards of accounting and reporting
for the estimated cost of benefits provided to former or inactive employees. The
effect of the Company's implementation of Statement 112 at September 1, 1994 was
insignificant.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed of,"
was issued by the Financial Accounting Standards Board ("FASB") in March 1995
and is effective for fiscal years beginning after December 15, 1995 (the
Company's 1997 fiscal year). Statement 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangible, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. Management expects that
the adoption of Statement 121 will not have a significant impact on the
Company's Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . 30
Consolidated Balance Sheets,
August 31, 1994 and 1995 . . . . . . . . . . . . . . 31
Consolidated Statements of Operations
for each of the years in
the three-year period ended August 31, 1995 . . . . . 33
Consolidated Statements of Cash Flows for
each of the years in the three-year
period ended August 31, 1995 . . . . . . . . . . . . 34
Consolidated Statements of Capital Shares
and Equities for each of the years in
the three-year period ended August 31, 1995 . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . 37
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Farmland Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Farmland
Industries, Inc. and subsidiaries as of August 31, 1994 and 1995, and the
related consolidated statements of operations, cash flows and capital shares and
equities for each of the years in the three-year period ended August 31, 1995.
These Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Farmland Industries,
Inc. and subsidiaries as of August 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the Consolidated Financial Statements, the Internal
Revenue Service ("IRS") has examined the Company's tax returns for the years
ended August 31, 1983 and 1984, and has proposed certain adjustments. Should
the IRS ultimately prevail, the federal and state income taxes and statutory
interest thereon could be significant. Farmland believes it has meritorious
positions with respect to such claims and, based upon the opinion of special tax
counsel, management believes it is more likely than not that the courts will
ultimately conclude that Farmland's treatment of such items was substantially,
if not entirely, correct. The ultimate outcome of this matter can not presently
be determined. Therefore, no provision for such income taxes and interest has
been made in the accompanying Consolidated Financial Statements.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
October 20, 1995
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
August 31
1994 1995
(Amounts in Thousands)
Current Assets:
Cash and cash equivalents . . . . . . . . . . . $ 44,084 $ -0-
Accounts receivable - trade . . . . . . . . . . 360,560 446,232
Inventories (Note 3) . . . . . . . . . . . . . 572,660 772,528
Other current assets . . . . . . . . . . . . . 119,139 60,883
Total Current Assets . . . . . . . . . . . $ 1,096,443 $ 1,279,643
Investments and Long-Term Receivables
(Notes 4 and 14) . . . . . . . . . . . . . . . $ 189,601 $ 185,687
Property, Plant and Equipment (Notes 5 and 6):
Property, plant and equipment, at cost . . . . $ 1,202,159 $ 1,334,849
Less accumulated depreciation and amortization 700,869 742,704
Net Property, Plant and Equipment . . . . . . . $ 501,290 $ 592,145
Other Assets . . . . . . . . . . . . . . . . . . . $ 139,297 $ 128,468
Total Assets . . . . . . . . . . . . . . . . . . . $ 1.926,631 $ 2,185,943
<FN>
See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
August 31
1994 1995
(Amounts in Thousands)
Current Liabilities:
Demand loan certificates . . . . . . . . . . . . $ 23,158 $ 13,524
Short-term notes payable (Note 6) . . . . . . . 279,137 346,133
Current maturities of long-term debt (Note 6) . 27,840 42,394
Accounts payable - trade . . . . . . . . . . . . 246,181 245,905
Accrued payroll . . . . . . . . . . . . . . . . 52,816 50,337
Other current liabilities . . . . . . . . . . . 176,607 261,837
Total Current Liabilities . . . . . . . $ 805,739 $ 960,130
Long-Term Debt (excluding current
maturities) (Note 6) . . . . . . . . . . . . . . $ 517,806 $ 506,033
Deferred Income Taxes (Note 7) . . . . . . . . . . $ 6,340 $ 12,501
Minority Owners' Equity in Subsidiaries (Note 8) . $ 11,733 $ 19,992
Capital Shares and Equities (Note 9):
Preferred shares, $25 par value--Authorized
8,000,000 shares, 98,113 shares issued
and outstanding (148,069 shares in 1994) . . . $ 3,702 $ 2,453
Common shares, $25 par value -- Authorized
50,000,000 shares, 15,416,370 shares
issued and outstanding
(14,542,478 shares in 1994) . . . . . . . . . 363,562 385,409
Associate member common shares (nonvoting),
$25 par value -- Authorized 2,000,000
shares, 445,323 shares issued and
outstanding (370,707 shares in 1994) . . . . . 9,268 11,133
Earned surplus and other equities . . . . . . . 208,481 288,292
Total Capital Shares and Equities . . . $ 585,013 $ 687,287
Contingent Liabilities and Commitments (Notes 6, 7 and 10)
Total Liabilities and Equities . . . . . . . . . . $ 1,926,631 $ 2,185,943
<FN>
See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
Sales . . . . . . . . . . . . . . $ 4,722,940 $ 6,677,933 $ 7,256,869
Cost of sales . . . . . . . . . . . . . 4,470,290 6,284,084 6,699,178
Gross income . . . . . . . . . . . . . $ 252,650 $ 393,849 $ 557,691
Selling, general and administrative
expenses . . . . . . . . . . . . . $ 223,792 $ 305,279$ 344,364
Other income (deductions):
Interest expense . . . . . . . . . $ (36,764) $ (51,485) $ (53,862)
Interest income . . . . . . . . . . 4,189 6,170 8,334
Other, net (Note 16) . . . . . . . 9,536 20,111 11,600
Provision for loss and disposition
of assets (Note 17) . . . . . . (29,430) -0- -0-
Total other income (deductions) . . . . $ (52,469) $ (25,204) $ (33,928)
Income (loss) before income
taxes and equity in net income
(loss) of investees and minority
owners' interest in
net (income) loss of subsidiaries . $ (23,611) $ 63,366 $ 179,399
Income tax (expense) benefit (Note 7) . 6,433 (4,890) (29,628)
Income (loss) before equity in net
income (loss) of
investees and minority
owners' interest in
net (income) loss of subsidiaries . $ (17,178) $ 58,476 $ 149,771
Equity in net income (loss) of
investees (Note 4) . . . . . . . . (12,394) 10,878 22,785
Minority owners' interest in net (income)
loss of subsidiaries (Note 8) . . . (828) 4,522 (9,757)
Net income (loss) . . . . . . . . . . $ (30,400) $ 73,876 $ 162,799
Distribution of net income (Note 9):
Patronage refunds:
Farm supply patrons . . . . . . $ -0- $ 59,685 $ 74,557
Pork marketing patrons . . . . -0- 10,927 16,087
Beef marketing patrons . . . . -0- -0- 2,488
Grain marketing patrons . . . . -0- -0- 1,285
The Cooperative Finance
Association's patrons . . . 1,650 -0- -0-
$ 1,650 $ 70,612 $ 94,417
Earned surplus and other equities
(Note 9) . . . . . . . . . . . . . (32,050) 3,264 68,382
$ (30,400) $ 73,876 $ 162,799
<FN>
See notes to Consolidated Financial Statements
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (30,400) $ 73,876 $ 162,799
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . 57,730 62,960 69,138
Provision for loss on disposition of assets . . . 29,430 -0- -0-
(Gain) loss on disposition of fixed assets . . . (385) (1,794) 1,882
Patronage refunds received in equities . . . . . (2,241) (2,171) (2,025)
Proceeds from redemption of patronage equities . 1,731 573 1,026
Equity in net (income) loss of investees . . . . 12,394 (10,878) (22,785)
Deferred income tax (benefit) expense . . . . . . (3,463) (5,034) 6,161
Minority owners' equity in
income (loss) of subsidiaries . . . . . . . 828 (4,522) 9,757
Other . . . . . . . . . . . . . . . . . . . 6,776 5,292 412
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable . . . . . . . . . . . . (92,024) (12,079) (70,413)
Inventories . . . . . . . . . . . . . . . . (65,402) (4,692) (186,570)
Other assets . . . . . . . . . . . . . . . . (30,154) (45,990) 38,889
Accounts payable . . . . . . . . . . . . . . 19,630 17,884 782
Other liabilities . . . . . . . . . . . . . (17,981) 32,617 35,684
Net cash provided by (used in) operating activities . . $ (113,531) $ 106,042 $ 44,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to borrowers by finance companies . . . . . . $ (624,618) $ -0- $ -0-
Collections from borrowers by finance companies . . . . 631,668 -0- -0-
Acquisition of businesses . . . . . . . . . . . . . . . (10,500) (35,790) -0-
Proceeds from disposal of investments and
notes receivable . . . . . . . . . . . . . . . . 12,115 34,577 42,530
Acquisition of investments and notes receivable . . . . (50,378) (22,117) (26,789)
Capital expenditures . . . . . . . . . . . . . . . . . (98,238) (69,776) (124,722)
Proceeds from sale of fixed assets . . . . . . . . . . 10,900 14,785 3,828
Distribution from joint venture, net . . . . . . . . . -0- -0- -0-
Proceeds from sale of assets to
joint venture partner . . . . . . . . . . . . . . -0- 2,310 -0-
Proceeds from disposition of subsidiary (Note 2) . . . 87,227 -0- -0-
Other . . . . . . . . . . . . . . . . . . . (2,140) 5,547 (1,628)
Net cash used in investing activities . . . . . . . . . $ (43,964) $ (70,464) $ (106,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease of demand loan certificates . . . . . . . $ (13,224) $ (6,702) $ (9,634)
Proceeds from bank loans and notes payable . . . . . . 916,799 888,088 522,916
Payments of bank loans and notes payable . . . . . . . (777,268) (924,731) (513,672)
Proceeds from issuance of subordinated
debt certificates . . . . . . . . . . . . . . . 72,423 57,636 46,715
Payments for redemption of subordinated
debt certificates . . . . . . . . . . . . . . . (16,490) (33,034) (26,866)
Checks and drafts outstanding . . . . . . . . . . . . . -0- 37,088
Payments for redemption of equities . . . . . . . . . . (13,505) (3,244) (12,431)
Payments of patronage refunds and dividends . . . . . . (17,946) -0- (26,648)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 340 2,120 492
Net cash provided by (used in) financing activities . . $ 151,129 $ (19,867) $ 17,960
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . $ (6,366) $ 15,711 $ (44,084)
Cash and cash equivalents at beginning of year . . . . 34,739 28,373 44,084
Cash and cash equivalents at end of year . . . . . . . $ 28,373 $ 44,084 $ -0-
SUPPLEMENTAL SCHEDULE OF CASH PAID
FOR INTEREST AND INCOME TAXES:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 41,136 $ 43,645 $ 49,885
Income taxes (net of refunds) . . . . . . . . . . . . . $ 1,479 $ 9,746 $ 30,006
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equities and minority owners' interest
called for redemption . . . . . . . . . . . . . . $ -0- $ 12,935 $ 27,738
Transfer of assets in exchange for
investment in joint ventures . . . . . . . . . . $ -0- $ 309 $ 2,061
Appropriation of current year's net income
as patronage refunds . . . . . . . . . . . . . . $ -0- $ 70,612 $ 94,417
Acquisition of businesses:
Fair value of net assets acquired . . . . . . . $ 114,519 $ 131,847 $ -0-
Goodwill . . . . . . . . . . . . . . . . . . . . 16,086 1,094 -0-
Minority owners' investment . . . . . . . . . . . (7,000) (843) -0-
Cash Paid . . . . . . . . . . . . . . . . . . . . (10,500) (35,790) -0-
Liabilities Assumed . . . . . . . . . . . . . . . . . . $ 113,105 $ 96,308 $ -0-
<FN>See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES
Years Ended August 31, 1993, 1994 and 1995
Earned Total
Associate Surplus Capital
Member And Shares
Preferred Common Common Other And
Shares Shares Shares Equities Equities
(Amounts in Thousands)
BALANCE AT AUGUST 31, 1992 . . . . . . . . . $ 3,713 $ 376,383 $ 8,176 $ 199,857 $ 588,129
Issue, redemption and cancellation of equities (5) 6,740 (49) (1,058) 5,628
Appropriation of current year's net loss . . -0- -0- -0- (30,400) (30,400)
Transfers to current liabilities . . . . . . -0- -0- -0- (1,650) (1,650)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (3,127) 69 3,058 -0-
BALANCE AT AUGUST 31, 1993 . . . . . . . . . $ 3,708 $ 379,996 $ 8,196 $ 169,807 $ 561,707
Issue, redemption and cancellation of equities -0- (355) 17 (3,397) (3,735)
Appropriation of current year's net income . -0- -0- -0- 73,876 73,876
Patronage refund payable in cash transferred
to current liabilities . . . . . . . . -0- -0- -0- (26,552) (26,552)
Base capital redemptions transferred
to current liabilities . . . . . . . . -0- (8,628) (112) -0- (8,740)
Other equity redemptions transferred
to current liabilities . . . . . . . . (6) (9) -0- (3,440) (3,455)
Transferred to liabilities . . . . . . . . . -0- -0- -0- (8,084) (8,084)
Dividends on preferred stock . . . . . . . . -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (7,442) 1,167 6,275 -0-
BALANCE AT AUGUST 31, 1994 . . . . . . . . . $ 3,702 $ 363,562 $ 9,268 $ 208,481 $ 585,013
Issue, redemption and cancellation of equities -0- (51) 332 (990) (709)
Appropriation of current year's net income . -0- -0- -0- 162,799 162,799
Patronage refund payable in cash transferred
to current liabilities . . . . . . . . -0- -0- -0- (33,061) (33,061)
Base capital redemptions transferred
to current liabilities . . . . . . . . -0- (13,939) (220) -0- (14,159)
Other equity redemptions transferred
to current liabilities . . . . . . . . (1,249) (30) -0- (11,477) (12,756)
Prior year patronage refund allocation . . . -0- 35,940 1,508 (37,284) 164
Dividends on preferred stock . . . . . . . . -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (73) 245 (172) -0-
BALANCE AT AUGUST 31, 1995 . . . . . . . . . $ 2,453 $ 385,409 $ 11,133 $ 288,292 $ 687,287
<FN>
See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Farmland Industries, Inc., a Kansas corporation, is organized and operated
as a cooperative and its mission is to be a producer-driven and profitable
agricultural supply to consumer foods cooperative system.
Principles of Consolidation -- The Consolidated Financial Statements
include the accounts of Farmland Industries, Inc. and all its majority-owned
subsidiaries ("Farmland" or the "Company", unless the context requires
otherwise). All significant intercompany accounts and transactions have been
eliminated. The Company's fiscal year ends August 31. Accordingly, all
references to "year" or "years" are to fiscal years ended August 31.
Cash and Cash Equivalents -- Investments with maturities of less than three
months are included in "Cash and cash equivalents."
Investments -- Investments in companies over which the Company exercises
significant influence (20% to 50% voting control) are accounted for by the
equity method. Other investments are stated at cost, less provision for
impairment (other than temporary impairment).
Accounts Receivable -- The Company uses the allowance method to account for
doubtful accounts and notes. Uncollectible accounts and notes receivable from
members are written off against the common shares held by members before such
uncollectible accounts are charged to operations.
Inventories -- Grain inventories are valued at market adjusted for net
unrealized gains or losses on open commodity contracts. Crude oil, refined
petroleum products, cattle and beef inventories are valued at the lower of
last-in, first-out cost or market. Other inventories are valued at the lower of
first-in, first-out cost or market. Supplies are valued at cost.
Property, Plant and Equipment -- Assets, including assets under capital
leases, are stated at cost. Depreciation and amortization are computed
principally using the straight-line method over the estimated useful lives of
the assets and the remaining terms of the capital leases, respectively.
Goodwill -- The excess of cost over the fair market value of assets of
businesses purchased is amortized on a straight-line basis over a period of 15
to 25 years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows. Goodwill is
reflected in the accompanying Consolidated Balance Sheets net of accumulated
amortization of $3.3 million and $6.9 million, respectively at August 31, 1994
and 1995.
Sales -- The Company's policy is to recognize sales at the time product is
shipped. Net margins on international grain merchandised, rather than the value
of such products, are included in net sales. The gross value of international
grain merchandised in 1994 and 1995 was $590.2 million and $1,552.4 million,
respectively.
Environmental Costs -- Liabilities related to remediation of contaminated
properties are recognized when the related costs are considered probable and can
be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs, and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. All liabilities are monitored and
adjusted regularly as new facts or changes in law or technology occur.
Environmental expenditures are capitalized when such costs provide future
economic benefits.
Federal Income Taxes -- Farmland is subject to income taxes on all income
not distributed to patrons as patronage refunds. Farmland files consolidated
federal and state income tax returns. Effective September 1, 1993, Farmland
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Farmland accounted for income taxes using the deferred method
under APB Opinion 11 for the year ended August 31, 1993.
Reclassification -- Certain prior-year amounts have been reclassified to
conform with the current year presentations.
(2) ACQUISITIONS AND DISPOSITIONS
During 1993, the Company and partners organized National Beef Packing
Company, L.P. ("NBPC"). Farmland retained a 58% ownership interest (having
increased to 68% effective March 31, 1995 and, subsequent to August 31, 1995,
such interest having increased to 76%) in NBPC by investing $10.5 million in
cash. On April 15, 1993, NBPC acquired the business of Idle Wild Foods, Inc.
("Idle Wild"), a beef packing plant and feedlot located in Liberal, Kansas.
NBPC acquired the assets by assuming liabilities of Idle Wild with a fair value
of approximately $130.6 million (including bank loans which are nonrecourse to
NBPC's partners). The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of NBPC have been included in the
Company's Consolidated Financial Statements from April 15, 1993. The
liabilities assumed over the fair value of the net identifiable assets acquired
has been recorded as goodwill.
To establish The Cooperative Finance Association ("CFA") as an independent
finance association for its members, on August 30, 1993 CFA purchased 10.1
million shares of its voting common stock from the Company for a purchase price
comprised of $1.5 million in cash, equities of Farmland Industries, Inc. (with a
par value of $2.4 million) held by CFA and a $6.2 million subordinated
promissory note payable to the Company bearing interest of 5.3%. In addition,
during 1993, CFA: 1) repaid its operating loan from the Company
($25.2 million); and, 2) purchased the lending operations and assets of Farmland
Financial Services Company for a cash payment of $60.5 million and a $2.1
million, 6.0% subordinated note payable to the Company. The Company repaid
$87.2 million of its borrowings from the National Bank for Cooperatives with the
proceeds received from CFA. As a result of CFA's stock purchase and amendments
to CFA's bylaws, The Company's voting control in CFA decreased to 25%.
Accordingly, effective August 31, 1993, CFA is not included in the consolidated
balance sheet of the Company.
The following unaudited financial information, for 1993, presents pro forma
results of operations of the Company as if the disposition of CFA and the
acquisitions of NBPC had occurred at the beginning of the period presented. The
pro forma financial information includes adjustments for amortization of
goodwill, additional depreciation expense and increased interest expense on debt
assumed in the acquisitions. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company been a single entity which excluded CFA and included NBPC for the full
year 1993.
August 31, 1993
(Unaudited)
(Amounts in Thousands)
Net sales . . . . . . . . . . . . . $ 5,357,867
Income (loss) before
extraordinary item . . . . . . . $ (44,040)
During 1994, the Company acquired approximately 79% of the common stock of
National Carriers, Inc. ("NCI") for a cash purchase price of $4.4 million. NCI
is a trucking company located in Liberal, Kansas. NCI provides substantially
all the trucking service needs of National Beef Packing Company, L.P. ("NBPC").
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain"). The purchase price for Tradigrain ($31.4 million) was paid in
cash.
The acquisitions of NCI and Tradigrain have been accounted for by the
purchase method of accounting and, accordingly, the operating results of each
enterprise have been included in the Company's Consolidated Financial Statements
from the respective dates of acquisition. The excess of the cash paid over the
fair value of the net assets acquired has been recorded as goodwill. The pro
forma effects of acquisitions of NCI and Tradigrain on the Consolidated
Financial Statements are not significant.
(3) INVENTORIES
Major components of inventories are as follows:
August 31
1994 1995
(Amounts in Thousands)
Grain . . . . . . . . . . . . . . . . . . $ 170,699 $ 312,202
Beef . . . . . . . . . . . . . . . . . . 21,116 30,179
Materials . . . . . . . . . . . . . . . . . 51,428 39,399
Supplies . . . . . . . . . . . . . . . . . 43,036 50,328
Finished and in-process products . . . . . 286,381 340,420
$ 572,660 $ 772,528
The carrying values of crude oil and refined petroleum inventories stated
under the lower of last-in, first-out ("LIFO") cost or market at August 31, 1994
and 1995 were $86.2 million and $82.6 million, respectively. If the lower of
first-in, first-out ("FIFO") cost or market had been used to value these
products, the carrying values of inventories at August 31, 1994 and 1995 would
have been lower by $4.1 million and $7.9 million, respectively.
The carrying values of beef inventories stated under LIFO at August 31,
1994 and 1995 were $21.1 million and $30.2 million, respectively. The LIFO
method of accounting for beef inventories had no effect on the carrying value of
inventories or on the results of operations reported in 1993, 1994 and 1995, as
market value of these inventories was lower than LIFO and approximated FIFO
cost.
(4) INVESTMENTS AND LONG-TERM RECEIVABLES
Investments and long-term receivables are as follows:
August 31
1994 1995
(Amounts in Thousands)
Investments accounted for by the equity method $ 52,478 $ 88,786
Investments in and advances to other cooperatives 42,744 47,320
National Bank for Cooperatives . . . . . . . . 28,786 26,999
Other investments and long-term receivables . . 16,638 18,363
Notes receivable from ventures, 20% to 50% owned 48,955 4,219
$ 189,601 $ 185,687
National Bank for Cooperatives ("CoBank") requires borrowers from the bank
to maintain an investment in stock of the bank. The amount of investment
required is based on the average amount borrowed from CoBank during the previous
five years. At August 31, 1994 and 1995, Farmland's investment in CoBank
approximated its requirement. This investment is pledged to secure borrowings
from CoBank. See Note 14.
Summarized financial information of investees accounted for by the equity
method is as follows:
August 31
1994 1995
(Amounts in Thousands)
Current Assets . . . . . . . . . . . . $ 105,981 $ 243,259
Long-Term Assets . . . . . . . . . . . 252,704 238,297
Total Assets . . . . . . . . . . . . $ 358,685 $ 481,556
Current Liabilities . . . . . . . . . . $ 111,077 $ 205,713
Long-Term Liabilities . . . . . . . . . 144,255 94,029
Total Liabilities . . . . . . . . . $ 255,332 $ 299,742
Net Assets . . . . . . . . . . . . . . $ 103,353 $ 181,814
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
Net sales . . . . . . . . . . . . . . . . . . . $ 601,194 $ 803,516 $ 1,212,592
Net income (loss) . . . . . . . . . . . . . . . $ (22,755) $ 24,285 $ 46,803
Farmland's equity in net income (loss) . . . . $ (12,394) $ 10,878 $ 22,785
The Company's investments accounted for by the equity method consist
principally of 50% equity interests in two phosphate fertilizer manufacturing
ventures (Farmland Hydro, L.P. and SF Phosphates Limited Company) and, through
March 31, 1995, a 50% interest in Hyplains Beef, L.C. (such interest being
contributed to NBPC in return for an additional 10% ownership interest by
the Company in NBPC).
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The cumulative effect of this change in the use of fair
value accounting and reporting for certain investments in debt and equity
securities was immaterial.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of cost for property, plant and equipment is as follows:
August 31
1994 1995
(Amounts in Thousands)
Land and improvements. . . .. . $ 42,261 $ 42,355
Buildings . . . . . . . . .. . . 224,767 245,460
Machinery and equipment . .. . . 716,683 765,383
Automotive equipment . . .. . . 65,986 67,124
Furniture and fixtures . .. . . 48,613 54,888
Capital leases . . . . . .. . . 50,956 49,241
Leasehold improvements . .. . . 15,085 21,763
Other . . . . . . . . . .. . . 7,045 7,124
Construction in progress .. . . 30,763 81,511
$ 1,202,159 $ 1,334,849
During 1993, 1994 and 1995, the Company capitalized construction period
interest of $1.6 million, $.4 million and $.7 million, respectively.
(6) BANK LOANS, SUBORDINATED DEBT CERTIFICATES AND NOTES PAYABLE
Bank loans, subordinated debt certificates and notes payable are as
follows:
August 31
1994 1995
(Amounts in Thousands)
Subordinated certificates of investment
and capital investment certificates
--6% to 9.5%, maturing 1996 through 2014 . . . $ 210,054 $ 225,132
Subordinated monthly interest certificates
--6.25% to 12%, maturing 1996 through 2014 . . 70,057 74,863
National Bank for Cooperatives
--6.22% to 9.2%, maturing 1996 through 2001 . . 74,278 68,444
Other bank notes--6.1% to 8.75%,
maturing 1996 through 2001 . . . . . . . . . . 117,813 88,054
Industrial revenue bonds--5.75% to 8%,
maturing 1996 through 2007 . . . . . . . . . . 25,055 21,750
Promissory notes--7% to 10%,
maturing 1996 through 2002 . . . . . . . . . . 18,684 14,794
Other--5% to 13% . . . . . . . . . . . . . . . . . 29,705 55,390
$ 545,646 $ 548,427
Less current maturities . . . . . . . . . . . . . . 27,840 42,394
$ 517,806 $ 506,033
The Company has a $650.0 million Credit Agreement. The Credit Agreement
provides short-term credit of up to $450.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $200.0 million. At
August 31, 1995, the Company had $250.8 million of short-term borrowings under
the Credit Agreement, $85.0 million of revolving term borrowings and $35.8
million was being utilized to support letters of credit issued on behalf of the
Company by participating banks.
The Company pays commitment fees under the Credit Agreement of 1/10 of 1%
annually on the unused portion of the short-term commitment and 1/4 of 1%
annually on the unused portion of the revolving term commitment. In addition,
the Company must maintain consolidated working capital of not less than $150.0
million, consolidated net worth of not less than $475.0 million and funded
indebtedness and senior funded indebtedness of not more than 52% and 43% of
Combined Total Capitalization (as defined in the Credit Agreement),
respectively. All computations are based on consolidated financial data adjusted
to exclude nonrecourse subsidiaries (as defined in the Credit Agreement). At
August 31, 1995, the Company was in compliance with all covenants under the
Credit Agreement. The short-term provisions of the Credit Agreement are reviewed
and/or renewed annually. The next review date is in May 1996. The revolving
term provisions of this agreement expire in May 1997.
The Company maintains other borrowing arrangements with banks and financial
institutions. At August 31, 1995, $47.2 million was borrowed under such
agreements. Financial covenants of these arrangements generally are not more
restrictive than under the Credit Agreement.
NBPC maintains a $90.0 million borrowing agreement with a group of banks
which provides financing support for its beef packing operations. Such
borrowings are nonrecourse to Farmland or Farmland's other affiliates. At
August 31, 1995, $32.0 million was borrowed under this agreement and $1.0
million was utilized to support letters of credit. In addition, NBPC has
incurred certain long-term borrowings from Farmland. NBPC has pledged certain
assets to Farmland and such group of banks to support its borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. At August 31, 1995, such short-term
borrowings totaled $70.3 million. Obligations of Tradigrain under these loan
agreements are nonrecourse to Farmland or Farmland's other affiliates.
Subordinated debt certificates have been issued under several different
indentures. The Company may redeem subordinated certificates of investments and
capital investment certificates in advance of scheduled maturities.
Additionally, the Company may redeem subordinated certificates of investments,
capital investment certificates and subordinated monthly interest certificates
upon death of the holder.
Outstanding subordinated debt certificates are subordinated to senior
indebtedness. At August 31, 1995, senior indebtedness included $441.7 million
for money borrowed, and additional financings (principally long-term operating
leases) require aggregate payments over 15 years of approximately
$115.7 million.
Under industrial revenue bonds and other agreements, property, plant and
equipment with a carrying value of $23.9 million have been pledged.
Bank loans, subordinated debt certificates and notes payable mature during
the fiscal years ending August 31 in the following amounts:
(Amounts in Thousands)
1996 . . . . . . . . . . . . . . . . . . $ 42,394
1997 . . . . . . . . . . . . . . . . . . 146,131
1998 . . . . . . . . . . . . . . . . . . 81,429
1999 . . . . . . . . . . . . . . . . . . 27,465
2000 . . . . . . . . . . . . . . . . . . 31,719
2001 and after . . . . . . . . . . . . . 219,289
$ 548,427
At August 31, 1994 and 1995, the Company had demand loan certificates and
short-term bank debt outstanding of $305.0 million (weighted average interest
rate of 5.1%) and $365.3 million (weighted average interest rate of 6.4%),
respectively.
(7) INCOME TAXES
A. TERRA RESOURCES, INC.
In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"),
a wholly owned subsidiary engaged in oil and gas exploration and production
operations, and exited its oil and gas exploration and production activities.
The gain from the sale of Terra amounted to $237.2 million for tax reporting
purposes.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of the
$237.2 million gain resulting from its sale, in July 1983, of the stock of Terra
and the IRS's contention that Farmland incorrectly treated the Terra sale gain
as income against which certain patronage-sourced operating losses could be
offset. The statutory notice further asserts that Farmland incorrectly
characterized for tax purposes gains aggregating approximately $14.6 million,
and a loss of approximately $2.3 million, from dispositions of certain other
assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court on
September 14 1995; reply briefs are due in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $178.3 million,
before tax benefits of the interest deduction, through August 31, 1995), or
$264.1 million in the aggregate at August 31, 1995. In addition, such a
decision would affect the computation of Farmland's taxable income for its 1989
tax year and, as a result, could increase Farmland's federal and state income
taxes for that year by approximately $5.0 million plus applicable statutory
interest thereon. Finally, the additional federal and state income taxes and
accrued interest thereon, which would be owed based on an adverse decision,
would become immediately due and payable unless the Company appealed the
decision and posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision would be charged to
current operations and would have a material adverse effect on the Company and
may affect its ability to pay, when due, principal and interest on the Company's
indebtedness. In order to pay any such tax claim, the Company would have to
consider new financing arrangements, including the incurrence of indebtedness
and the sale of assets. Moreover, the Company would be required to renegotiate
the Credit Agreement with its bank lenders, as well as other existing financing
agreements with certain other parties, not only to permit such new financing
arrangements, but also to cure events of default under the Credit Agreement and
certain of such other existing financing agreements and to maintain compliance
with various requirements of the Credit Agreement and such other existing
financing agreements, including working capital and funded indebtedness
provisions, in order to avoid default thereunder. No assurance can be given
that such financing arrangements or such renegotiation would be successfully
concluded.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. The Company believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave, the Company's special tax counsel, it is more
likely than not that the courts will ultimately conclude that the Company's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of the Company on any of these issues.
B. OTHER INCOME TAX MATTERS
Income tax expense (benefit) attributable to income from continuing
operations is comprised of the following:
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
Federal:
Current . . . . . . . . . . $ (2,502) $ 10,076 $ 18,533
Deferred . . . . . . . . . (2,944) (3,217) 4,255
$ (5,446) $ 6,859 $ 22,788
State:
Current . . . . . . . . . . $ (468) $ 1,965 $ 3,356
Deferred . . . . . . . . . (519) (755) 665
$ (987) $ 1,210 $ 4,021
Foreign:
Current . . . . . . . . . . $ -0- $ (2,117) $ 1,578
Deferred . . . . . . . . . -0- (1,062) 1,241
$ -0- $ (3,179) $ 2,819
$ (6,433) $ 4,890 $ 29,628
Income (loss) before income tax expense from foreign sources amounted to
($14.3 million) and $19.3 million for 1994 and 1995, respectively.
Income tax expense (benefit) attributable to income from continuing
operations differs from the "expected" income tax expense (benefit) using
statutory rate of 35% (34% for 1993), as follows:
Year Ended August 31
1993 1994 1995
Computed "expected" income tax expense (benefit)
on income (loss) before income taxes . . . . . .(34.0) % 35.0 % 35.0 %
Increase (reduction) in income tax expense (benefit)
attributable to:
Patronage refunds . . . . . . . . . . . . . . . . (4.0) (33.3) (18.3)
Patronage-sourced items for
which no benefit is available . . . . . . . 26.5 -0- -0-
State income tax expense (benefit) net of
federal income tax effect . . . . . . . . . (2.2) 1.1 2.2
Benefit associated with exempt income of
foreign sales corporation . . . . . . . . . (1.4) -0- -0-
Other, net . . . . . . . . . . . . . . . . . . . (2.7) 3.8 (2.4)
Income tax expense (benefit) . . . . . . . . . . . . .(17.8) % 6.6 % 16.5 %
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at August 31, 1994
and 1995 are as follows:
August 31
1994 1995
(Amounts in Thousands)
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation . $ 20,242 $ 26,009
Prepaid pension cost . . . . . . . . . 21,124 19,807
Other . . . . . . . . . . . . . . . . . 14,021 15,065
Total gross deferred liabilities . . $ 55,387 $ 60,881
Deferred tax assets:
Safe harbor leases . . . . . . . . . . $ 5,391 $ 5,096
Accrued expenses . . . . . . . . . . . 27,017 29,394
Accounts receivable, principally due to
allowance for doubtful accounts . . 4,394 2,300
Other . . . . . . . . . . . . . . . . . 12,245 11,590
Total gross deferred assets . . . . $ 49,047 $ 48,380
Net deferred tax liability . . . . . . . . $ 6,340 $ 12,501
A valuation allowance for deferred tax assets was not necessary at August
31, 1994 or 1995.
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended August 31,
1994 and 1995 are as follows:
August 31
1994 1995
(Amounts in Thousands)
Deferred tax expense (benefit) . . . . . . . . . . . . . . $ (8,044) $ 6,161
Charge in lieu of taxes resulting from initial recognition
of acquired tax benefits that are allocated to reduce
goodwill related to the acquired entity . . . . . . . 3,010 -0-
$ (5,034) $ 6,161
Deferred income taxes for the year ended August 31, 1993 result from timing
differences in the recognition of income and expenses for financial reporting
and income tax reporting purposes. The sources of these timing differences and
their tax effect are as follows:
Year Ended
1993
(Amounts in Thousands)
Depreciation . . . . . . . . . . . . . . . $ 473
Safe harbor lease rentals . . . . . . . . . (378)
Provision for loss on proposed
sale of assets . . . . . . . . . . . . (3,454)
Unfunded pension expense . . . . . . . . . (355)
Other, net . . . . . . . . . . . . . . . . 251
$ (3,463)
The tax benefit for the year ended August 31, 1993 resulted from the
carryback of nonpatronage-sourced losses to reduce the amount of federal and
state income taxes paid during prior years.
During the year ended August 31, 1994, Farmland utilized nonmember-sourced
loss carryforwards amounting to $7.5 million to reduce goodwill for financial
reporting purposes by $3.0 million. No such carryforwards were available at
August 31, 1995. At August 31, 1994, the Company had alternative minimum tax
credit carryforwards of approximately $7.0 million which were utilized during
1995.
(8) MINORITY OWNERS' EQUITY IN SUBSIDIARIES
A summary of the equity of subsidiaries owned by others is as follows:
August 31
1994 1995
(Amounts in Thousands)
National Beef Packing Company, L.P. and G.P. . . $ 2,925 $ 12,473
Farmland Foods, Inc. . . . . . . . . . . . . . . 5,618 4,682
Heartland Wheat Growers, L.P. and G.P. . . . . . 2,100 2,295
Other subsidiaries . . . . . . . . . . . . . . . 1,090 542
$ 11,733 $ 19,992
(9) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES
A summary of preferred stock is as follows:
August 31
1994 1995
(Amounts in Thousands)
Preferred shares, $25 par value - Authorized 8,000,000 shares:
6% - 608 shares issued and outstanding
(608 shares in 1994) . . . . . . . . . . . . . . . . . . . . . . $ 15 $ 15
5-1/2% - 2,436 shares issued and outstanding
(2,592 shares in 1994) . . . . . . . . . . . . . . . . . . . . . 65 61
Series F - 95,069 shares issued and outstanding
(144,869 shares in 1994) . . . . . . . . . . . . . . . . . . . . 3,622 2,377
$ 3,702 $ 2,453
The 5-1/2% and 6% preferred stocks have preferential liquidation rights
over the Series F nondividend bearing preferred stock. Dividends on the 5-1/2%
and 6% preferred stock are cumulative if declared by the Farmland Board of
Directors and only to the extent earned each year. Upon liquidation, holders of
all preferred stock are entitled to the par value thereof and, with respect to
the 5-1/2% and 6% preferred stock, any declared or unpaid earned dividends.
A summary of earned surplus and other equities is as follows:
August 31
1994 1995
(Amounts in Thousands)
Earned surplus . . . . . . . . . . . . . . . . $ 130,250 $ 197,666
Patronage refund payable in equities . . . . . 44,032 61,356
Nonmember capital . . . . . . . . . . . . . . . 103 -0-
Capital credits . . . . . . . . . . . . . . . . 32,547 27,645
Additional paid-in surplus . . . . . . . . . . 1,603 1,603
Currency translation adjustment . . . . . . . . (54) 22
$ 208,481 $ 288,292
In accordance with the bylaws of Farmland, the member-sourced portion of
its net income or loss and the resulting patronage refund payable to members and
patrons are determined annually.
Farmland maintains a base capital plan. The plan's objectives are as
follows: 1) to achieve proportionality between the dollar amount of business a
member or associate member of Farmland ("Participant") transacts with Farmland
and the equity of Farmland which the Participant should hold (hereinafter
referred to as the Participants' "Base Capital Requirement"); and, 2) provide a
method for the Board of Directors, in its discretion, to redeem equities held by
a Participant when the Participant's allocated equity exceeds the Participant's
Base Capital Requirement. This plan provides that the relationship between the
Participant's allocated equity and the Participant's Base Capital Requirement
shall influence the cash portion of any patronage refund paid to the
Participant.
The Base Capital Requirement shall be determined annually by the Farmland
Board of Directors at its sole discretion. At August 31, 1994 and 1995, common
stock and associate member common stock with an aggregate par value of $8.7
million and $14.2 million, respectively, were approved for redemption by the
Board of Directors under the base capital plan and such amounts have been
included in "Other current liabilities" in the Consolidated Balance Sheet at
August 31, 1994 and 1995, respectively.
Farmland maintains an estate settlement plan for redemption of equities
held by estates of deceased individuals (except equities purchased and held less
than five years) and special allocated equity redemption plans to redeem
equities of holders who do not participate in the Farmland base capital plan.
Under these plans, the Board of Directors, in its discretion, may redeem
equities based on certain factors, including the financial position and
consolidated net income of the Company. A priority for redeeming equities under
these plans has been established.
At August 31, 1994 and 1995, certain equities of Farmland with a face
amount of $3.5 million and $12.8 million, respectively, and capital equity fund
certificates held by certain members of Farmland Foods, Inc. in the amount of
$.7 million and $.8 million, respectively, have been approved by the Board of
Directors for redemption under the estate settlement and special allocated
equity redemption plans and such amounts have been included in "Other current
liabilities" in the Consolidated Balance Sheet at August 31, 1994 and 1995.
Capital credits are issued: 1) for payment of patronage refunds to patrons
who do not satisfy requirements for membership or associate membership; and,
2) upon conversion of common stock or associate member common stock held by
persons who do not meet qualifications for membership or associate membership in
Farmland.
Additional paid-in surplus results from members donating Farmland equity to
Farmland.
None of the aforementioned equities are held by or for the account of
Farmland or in any sinking or other special fund of Farmland and none have been
pledged by Farmland.
(10) CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various equipment and real properties under long-term
operating leases. For 1993, 1994 and 1995, rental expenses totaled $41.1
million, $41.8 million and $44.6 million, respectively. Rental expense is
reduced for mileage credits received on leased railroad cars ($1.9 million in
1993, $1.9 million in 1994 and $1.8 million in 1995).
The leases have various remaining terms ranging from one year to fifteen
years. Some leases are renewable, at the Company's option, for additional
periods. The minimum required payments for these leases during the fiscal years
ending August 31 are as follows:
(Amounts in Thousands)
1996 . . . . . . . . . . . $ 48,126
1997 . . . . . . . . . . . 44,302
1998 . . . . . . . . . . . 35,493
1999 . . . . . . . . . . . 27,529
2000 . . . . . . . . . . . 22,313
2001 and after . . . . . . 86,391
. . . . . . . . . . . . . $ 264,154
The Company is involved in various lawsuits incidental to the businesses.
In the opinion of management, the ultimate resolution of these litigation issues
will not have a material adverse effect on the Company's Consolidated Financial
Statements.
The Company has been designated by the Environmental Protection Agency as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), at various National
Priority List ("NPL") sites. In addition, the Company is aware of possible
obligations associated with environmental matters at other sites, including
sites where no claim or assessment has been made. The Company's accrued
liability for probable and reasonably determinable obligations for resolution of
environmental matters at NPL and other sites was $7.2 million and $18.5 million
at August 31, 1994 and 1995, respectively.
The ultimate costs of resolving environmental matters are not quantifiable
because many such matters are in preliminary stages and the timing and extent of
actions which governmental authorities may ultimately require are unknown. It
is possible that the costs of such resolution may be greater than the
liabilities which, in the opinion of management, are probable and reasonably
determinable at August 31, 1995. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $19.8 million.
Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the
Company has five closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being conducted
at these locations and the Company does not plan to terminate such operations in
the foreseeable future. Therefore, the Company has not accrued these
environmental exit costs. The Company accrues these liabilities when plans for
termination of plant operations have been made. Such closure and post-closure
costs are estimated to be $5.8 million at August 31, 1995 (and is in addition to
the $19.8 million discussed in the prior paragraph).
The Cooperative Finance Association has loans receivable from customers
engaged in pork production operations and from cooperative associations which
are guaranteed by the Company. At August 31, 1995, such guarantees amounted to
$8.7 million.
Farmland has issued letters of credit totaling $15.5 million to support
nonrecourse borrowing arrangements of subsidiaries.
(11) EMPLOYEE BENEFIT PLANS
The Farmland Industries, Inc. Employee Retirement Plan ("the Plan") is a
defined benefit plan covering substantially all employees of the Company who
meet minimum age and length-of-service requirements. Benefits payable under the
Plan are based on years of service and the employee's average compensation
during the highest four of the employee's last ten years of employment.
The assets of the Plan are maintained in a trust fund. The majority of the
Plan's assets are invested in common stocks, corporate bonds, United States
Government securities and short-term investment funds.
The Company's funding policy is to make the maximum annual contribution to
the Plan's trust fund that can be deducted for federal income tax purposes. The
Company charges pension cost as accrued based on actuarial valuation of the
Plan.
Components of the Company's pension cost are as follows:
August 31
1993 1994 1995
(Amounts in Thousands)
Service cost - benefits earned during the period . . . $ 7,449 $ 8,663 $ 10,336
Interest cost on projected benefit obligation . . . . 12,134 15,292 16,707
Actual return on Plan assets . . . . . . . . . . . . . (15,842) (10,949) (27,422)
Net amortization and deferral . . . . . . . . . . . . (374) (7,860) 8,677
Pension expense . . . . . . . . . . . . . . . . . . $ 3,367 $ 5,146 $ 8,298
The discount rate and the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations were 8.5% and 5.0% at August 31, 1993, and 8.0% and 4.5% at both
August 31, 1994 and 1995. At August 31, 1993, 1994 and 1995, the expected
long-term rate of return on assets was 8.5%.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheet at August 31, 1994 and
1995. Such prepaid pension cost is based on the Plan's funded status as of May
31, 1994 and 1995.
August 31
1994 1995
(Amounts in Thousands)
Actuarial present value of benefit obligations:
Vested benefits . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,648 $ 170,105
Nonvested benefits . . . . . . . . . . . . . . . . . . . . . . . . 9,163 11,584
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . $ 157,811 $ 181,689
Increase in benefits due to future compensation increases . . . . . 53,533 56,353
Projected benefit obligation . . . . . . . . . . . . . . . . . . . $ 211,344 $ 238,042
Estimated fair value of Plan assets . . . . . . . . . . . . . . . . 226,681 259,262
Plan assets in excess of projected benefit obligation . . . . . . . $ 15,337 $ 21,220
Unrecognized net loss from past experience different
from that assumed and effects of changes
in assumptions . . . . . . . . . . . . . . . . . . . . . . . . 37,332 27,750
Unrecognized net transition asset being
recognized over 10 years . . . . . . . . . . . . . . . . . . . (933) -0-
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . 1,308 1,089
Prepaid pension cost at end of year . . . . . . . . . . . . . . . . . . . $ 53,044 $ 50,059
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employer's Accounting for Postemployment
Benefits." The cumulative effect of this change in accounting for the estimated
cost of benefits provided to former or inactive employees was immaterial. Prior
years' financial statements have not been restated to apply the provisions of
Statement 112.
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", and the effect was insignificant.
(12) INDUSTRY SEGMENT INFORMATION
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal product
divisions - petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum refining
and a complete line of car, truck and tractor tires, batteries and accessories.
Principal products of the crop production division are nitrogen, phosphate and
potash fertilizers, and, through the Company's ownership in the WILFARM joint
venture, a complete line of insecticides, herbicides and mixed chemicals.
Principal products of the feed division include swine, dairy, pet, beef,
poultry, mineral and specialty feeds, feed ingredients and supplements, animal
health products and livestock services.
On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain.
Other operations include farm supply stores and services such as computer
services, accounting, financial, management and transportation.
The operating income (loss) of each industry segment includes the revenue
generated on transactions involving products within that industry segment less
identifiable and allocated expenses. In computing operating income (loss) of
industry segments, none of the following items have been added or deducted:
interest expense, interest income, other income (deductions), or corporate
expenses (included in the statements of operations as selling, general and
administrative expenses), which cannot practicably be identified or allocated by
industry segment, equity in net income (loss) of investees, and income taxes
Corporate assets include cash, investments in other cooperatives, the Company's
corporate headquarters and certain other assets.
Following is a summary of industry segment information as of and for the
years ended August 31, 1993, 1994 and 1995. Export sales to unaffiliated
customers from U.S. operations for the years ended August 31, 1993, 1994 and
1995 were $690.2 million, $842.5 million and $1,287.8 million, respectively.
Unallocated
Cooperative Corporate
Cooperative Farm Supply Marketing and Items and
Crop Processing Other Inter-Segment
Petroleum Production Feed Foods Grain Operations Eliminations Consolidated
(Amounts in Thousands)
1993
Sales to unaffiliated customers $887,389 $ 884,811 $479,205 $1,412,634 $ 953,521 $105,380 $ -0- $4,722,940
Transfers between segments 5,591 7,970 2,330 3,496 -0- -0- (19,387) -0-
Total sales and transfers $892,980 $ 892,781 $481,535 $1,416,130 $ 953,521 $105,380 $(19,387) $4,722,940
Operating income (loss) of
industry segments . . . $ (4,602) $ 51,654 $ 20,676 $ 16,485 $ 104 $ 2,262 $ 86,579
Equity in net income (loss)
of investees (Note 4) . $ 2 $ (8,223) $ (35) $ (3,306) $ -0- $ (832) $ (12,394)
Provision for loss on disposition
of assets (Note 17) . . (20,022) (6,155) -0- (3,253) -0- -0- (29,430)
General corporate expenses (57,721)
Other corporate income . 13,725
Interest expense . . . . (36,764)
Minority interest . . . . (828)
Income tax benefit . . . 6,433
Net (loss) . . . . . . . $ (30,400)
Identifiable assets at
August 31, 1993 . . . . $308,731 $ 324,956 $ 94,948 $ 391,152 $ 254,734 $ 35,986 $1,410,507
Investment in and advances to
investees . . . . . . . $ 526 $ 72,166 $ 1,572 $ 18,686 $ -0- $ 3,553 $ 1,606 $ 98,109
Corporate assets . . . . 211,365
Total assets . . . . . . $1,719,981
Provision for depreciation and
amortization . . . . . $ 13,546 $ 13,843 $ 4,487 $ 10,807 $ 2,637 $ 3,369 $ 9,041 $ 57,730
Capital expenditures (including
$48.4 million of capital assets
of business acquired) . $ 35,629 $ 17,972 $ 6,590 $ 73,561 $ 1,894 $ 3,613 $ 7,341 $ 146,600
1994
Sales to unaffiliated customers $855,479 $1,163,357 $527,864 $2,355,599 $1,627,156 $148,478 $ -0- $6,677,933
Transfers between segments 4,843 9,513 2,072 3,007 -0- 19,467 (38,902) -0-
Total sales and transfers $860,322 $1,172,870 $529,936 $2,358,606 $1,627,156 $167,945 $(38,902) $6,677,933
Operating income (loss) of
industry segments . . . $ 27,172 $ 126,047 $ 17,019 $ 20,608 $ (33,637) $ (2,410) $ 154,799
Equity in net income (loss)
of investees (Note 4) . $ (41) $ 15,466 $ 155 $ (4,404) $ -0- $ (298) $ 10,878
General corporate expenses (66,229)
Other corporate income . 26,281
Interest expense . . . . (51,485)
Minority interest . . . . 4,522
Income tax expense . . . (4,890)
Net income . . . . . . . $ 73,876
Identifiable assets at
August 31, 1994 . . . . $306,366 $ 357,178 $ 92,767 $ 395,159 $ 341,367 $ 62,301 $1,555,138
Investment in and advances to
investees . . . . . . . $ 746 $ 76,439 $ 1,761 $ 13,927 $ -0- $ 8,560 $ 101,433
Corporate assets . . . . 270,060
Total assets . . . . . . $1,926,631
Provision for depreciation and
amortization . . . . . $ 9,911 $ 14,700 $ 3,815 $ 16,776 $ 4,011 $ 7,982 $ 5,765 $ 62,960
Capital expenditures (including
$16.9 million of capital assets
of businesses acquired) $ 14,399 $ 14,136 $ 4,508 $ 19,040 $ 6,256 $ 26,051 $ 2,274 $ 86,664
1995
Sales to unaffiliated customers $876,776 $1,171,389 $467,695 $2,692,892 $1,906,191 $141,926 $ -0- $7,256,869
Transfers between segments 2,877 6,547 940 3,100 -0- 29,100 (42,564) -0-
Total sales and transfers $879,653 $1,177,936 $468,635 $2,695,992 $1,906,191 $171,026 $(42,564) $7,256,869
Operating income (loss) of
industry segments . . . $ (8,029) $ 198,720 $ 10,061 $ 77,060 $ 17,942 $ (2,373) $ 293,381
Equity in net income (loss)
of investees (Note 4) . $ 168 $ 22,096 $ 130 $ 823 $ 688 $ (1,120) $ 22,785
General corporate expenses (80,054)
Other corporate income . 19,934
Interest expense . . . . (53,862)
Minority interest . . . . (9,757)
Income tax expense . . . (29,628)
Net income . . . . . . . $ 162,799
Identifiable assets at
August 31, 1995 . . . . $313,478 $ 410,979 $ 93,438 $ 491,257 $ 525,032 $ 59,108 $1,893,292
Investment in and advances to
investees . . . . . . . $ 953 $ 80,805 $ 1,497 $ 325 $ 120 $ 9,305 $ 93,005
Corporate assets . . . . 199,646
Total assets . . . . . . $2,185,943
Provision for depreciation and
amortization . . . . . $ 9,858 $ 15,530 $ 4,319 $ 21,891 $ 5,156 $ 5,308 $ 7,076 $ 69,138
Capital expenditures . . $ 27,638 $ 23,845 $ 5,766 $ 32,219 $ 905 $ 7,504 $ 26,845 $ 124,722
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company extends credit to its customers on terms no more favorable than
standard terms of the industries it serves. A substantial portion of the
Company's receivables are concentrated in the agricultural industry.
Collections on these receivables may be dependent upon economic returns from
farm crop and livestock production. The Company's credit risks are continually
reviewed and management believes that adequate provisions have been made for
doubtful accounts.
The Company maintains investments in and advances to cooperatives,
cooperative banks and joint ventures from which it purchases products or
services. A substantial portion of the business of these investees is dependent
upon the agribusiness economic sector. See Note 4.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
Estimates of fair values are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could affect the estimates. Except as
follows, the fair market value of the Company's financial instruments
approximates the carrying value:
August 31, 1994 August 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(Amounts in Thousands)
FINANCIAL ASSETS:
Investments and long-term receivables:
Notes receivable from investees,
20% to 50% owned . . . . . . . $ 48,955 $ 45,414 $ 4,519 $ 4,047
National Bank for Cooperatives . 28,786 **** 26,999 ****
Other cooperatives:
Equities . . . . . . . . . . 28,214 **** 27,720 ****
Notes receivable . . . . . . 14,530 13,385 19,600 17,327
FINANCIAL LIABILITIES:
Long-term debt:
Subordinated certificates of investment,
capital investment certificates and
subordinated monthly
interest certificates . . . . . $ (280,111) $ (284,523) $ (299,994) $ (304,450)
<FN>
****Investments in National Bank for Cooperatives and other cooperatives'
equities which have been purchased are carried at cost and equities received as
patronage refunds are carried at par value, less provisions for other than
temporary impairment. The Company believes it is not practicable to estimate
the fair value of these equities because there is no established market for
these equities and estimated future cash flows, which are largely dependent on
the future redemptions policy of each cooperative, are not determinable.
The estimated fair value of notes receivable has been determined by
discounting future cash flows using a market interest rate.
The estimated fair value of the subordinated debt certificates was
calculated using the discount rate for subordinated debt certificates with
similar maturities currently offered for sale.
(15) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in Farmland Hydro, L.P. and SF Phosphates
Limited Company. Both ventures are manufacturers and distributors of phosphate
products. During 1993, 1994 and 1995, the Company purchased $66.5 million,
$83.1 million and $106.2 million, respectively, of product from these ventures.
Accounts payable includes $1.4 million and $4.8 million due to these ventures at
August 31, 1994 and 1995, respectively. The Company also has notes receivable
from these ventures in the amount of $29.6 million and $6.6 million at August
31, 1994 and 1995, respectively.
(16) OTHER INCOME
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding the
Defendants' insurance coverage obligations for environmental remediation costs.
The Company negotiated settlements with 20 and 2 insurance companies in 1994
and 1995, respectively. As part of the settlements, the Company provided the
Defendants with releases of various possible environmental obligations. As a
result of these settlements, the Company received cash payments in 1994 and 1995
of $13.6 million and $.3 million, respectively, and included such amounts in the
caption "Other income" in the Consolidated Statement of Operations for the years
then ended.
(17) PROVISION FOR LOSS ON DISPOSITION OF ASSETS
At August 31, 1993, management was negotiating to sell the Company's
refinery at Coffeyville, Kansas. Based on the progress of negotiation and the
transactions contemplated, operations for the year ended August 31, 1993
included a $20.0 million for loss on the sale of the refinery. Accordingly, the
net carrying value of property, plant and equipment was reduced by $20.0 million
in the consolidated balance sheets at August 31, 1993. The transactions
contemplated were subject to certain conditions, including negotiation of final
agreements. During 1994, management determined that final sale terms
anticipated by the potential purchaser were not in the Company's best interest.
Accordingly, negotiations were terminated and the sale was not consummated.
In 1993, the Company entered discussions with a potential purchaser of a
dragline. Based on these discussions, the Company estimated a loss of $6.2
million from the sale. Accordingly, at August 31, 1993, the carrying value of
the dragline was written down by $6.2 million and a provision for this loss was
included in the Company's consolidated statement of operations for the year then
ended. In 1994, this sale was consummated on terms substantially as expected.
At August 31, 1993, the carrying value of a pork processing plant at Iowa
Falls, Iowa was written down by $3.3 million to an estimated disposal value.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreement on any matter of accounting principles or practices or
financial statement disclosure was reported.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of Farmland are as follows:
Total
Expiration Years of
Age as of of Service
August 31 Positions Present as
, Held With Term as Board
Name 1995 Farmland Director Member Business Experience During Last Five Years
Albert J. Shivley 52 Chairman 1995 11 General Manager--American Pride Co-op
of the Association, Brighton, Colorado, a local
Board cooperative association of farmers and ranchers.
H. D. Cleberg 56 President 1997 5 Mr. Cleberg has been with Farmland since 1968.
and Chief He was named as president-elect in February 1991
Executive and became President in April 1991. From
Officer September 1990 to January 1991 he served as
Senior Vice President and Chief Operating
Officer, Agricultural Group. From April 1989 to
August 1990 he served as Executive Vice
President, Operations.
Otis H. Molz 64 Vice 1997 12 Producer--Deerfield, Kansas. Mr. Molz has served
Chairman as Chairman of the Board of the National Bank for
and Vice Cooperatives since January 1993. He served as
President Chairman of the Board of Directors of Farmland
Industries, Inc. from December 1991 to December
1992. He served as First Vice President of the
National Bank for Cooperatives from January 1990
to January of 1993. He was Second Vice Chairman
from January 1, 1989 to January 1, 1990.
Lyman Adams, Jr. 44 1995 3 General Manager--Cooperative Grain and Supply,
Hillsboro, Kansas, a local cooperative
association of farmers and ranchers.
Ronald J. Amundson 51 1997 7 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association of
farmers and ranchers.
Baxter Ankerstjerne 59 1996 5 Producer--Peterson, Iowa. Since December 1988
Mr. Ankerstjerne has served as Chairman of the
Board of Directors of Farmers Cooperative,
Association, Marathon, Iowa, a local cooperative
association of farmers and ranchers.
Jody Bezner 54 1997 4 Producer--Texline, Texas.
Richard L. Detten 61 1996 8 Producer--Ponca City, Oklahoma.
Steven Erdman 45 1995 3 Producer--Bayard, Nebraska.
Warren Gerdes 47 1995 2 General Manager--Farmers Cooperative Elevator
Company, Buffalo Lake, Minnesota, a local
cooperative association of farmers and ranchers.
Ben Griffith 46 1995 6 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.
Gail D. Hall 53 1997 7 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local cooperative
association of farmers and ranchers.
Jerome Heuertz 54 1997 1 General Manager--Farm Service Cooperative,
Council Bluffs, Iowa, a local cooperative
association of farmers and ranchers.
Barry Jensen 50 1996 5 Producer--White River, South Dakota.
Mr. Jensen currently serves as a Director,
and was President from May 1989 to May 1993, of
Farmers Co-op Oil Association, Winner, South
Dakota, a local cooperative association of
farmers and ranchers.
Greg Pfenning 46 1997 3 Producer--Hobart, Oklahoma. Director of Hobart &
Roosevelt Cooperative, a local cooperative
association of farmers and ranchers.
Vonn Richardson 62 1996 8 Producer--Plains, Kansas. President of The
Plains Equity Exchange and Cooperative Union,
Plains, Kansas, a local cooperative association
of farmers and ranchers.
Monte Romohr 42 1996 5 Producer--Gresham, Nebraska. From March 1988,
to March 1991, Mr. Romohr served as President
of Farmers Co-op Business Association, Shelby,
Nebraska, a local cooperative association of
farmers and ranchers.
Joe Royster 43 1996 2 General Manager--Dacoma Farmers Cooperative,
Inc., Dacoma, Oklahoma, a local cooperative
association of farmers and ranchers.
Paul Ruedinger 65 1995 12 Producer--Van Dyne, Wisconsin.
Raymond J. Schmitz 64 1996 8 Producer--Baileyville, Kansas
Theodore J. Wehrbein 50 1995 9 Producer--Plattsmouth, Nebraska. Past Director
of Nehawka Farmers Cooperative Company, Nehawka,
Nebraska, a local cooperative association of
farmers and ranchers.
Robert Zinkula 65 1996 5 Producer--Mount Vernon, Iowa. Secretary and
Treasurer of Linn Cooperative Oil Company,
Marion, Iowa, a local cooperative association of
farmers and ranchers.
Directors are elected for a term of three years by the shareholders of
Farmland at its annual meeting. The expiration dates for such three-year terms
are sequenced so that about one-third of Farmland's Board of Directors is
elected each year. H. D. Cleberg is serving as director-at-large; the remaining
twenty-one directors were elected from nine geographically defined districts in
Farmland's territory. The executive committee consists of Ronald Amundson, Ben
Griffith, Otis Molz, Monte Romohr, Albert Shivley and H. D. Cleberg. With the
exception of H.D. Cleberg, President and Chief Executive Officer, members of the
executive committee serve as chairman of standing committees of the Board of
Directors as follows: Ronald Amundson, corporate responsibility committee; Ben
Griffith, audit committee; Otis Molz, compensation committee; Monte Romohr,
finance committee; and Albert Shivley, nominating committee.
The executive officers of Farmland are:
Age as of
August 31,
Name 1995 Principal Occupation and Other Positions
J. F. Berardi 52 Executive Vice President and Chief Financial Officer - Mr. Berardi
joined Farmland March 1992 to serve in his present position.
Mr. Berardi served as Executive Vice President and Treasurer of
Harcourt Brace Jovanovich, Inc., a diversified Fortune 200 company,
and was a member of its Board of Directors from 1988 until 1990.
H. D. Cleberg 56 President and Chief Executive Officer - Mr. Cleberg has been with
Farmland since 1968. He was appointed to his present position
effective April 1991. From September 1990 to March 1991 he served as
Senior Vice President and Chief Operating Officer. From April 1989
to August 1990 he served as Executive Vice President, Operations.
Prior to April 1989 he held several executive management positions
with Farmland.
S. P. Dees 52 Executive Vice President, Business Development - Mr. Dees joined
Farmland in 1984, serving as Vice President and General Counsel, Law
and Administration. He was appointed to his present position in
September 1995. From September 1993 to September 1995 he served as
Executive Vice President, Farmland and Director General of Farmland
Industrias, S.A. de C.V. From October 1990 to September 1993 he
served as Executive Vice President, Administrative Group and General
Counsel.
G. E. Evans 51 Group Vice President, Meat and Livestock Businesses - Mr. Evans has been
with Farmland since 1971. He was appointed to his present position
in September 1995. From January 1992 to September 1995 he served as
Senior Vice President, Agricultural Production Marketing/Processing.
From April 1991 to January 1992 he served as Senior Vice President,
Agricultural Inputs. He served as Executive Vice President,
Agricultural Marketing from October 1990 to March 1991.
R. W. Honse 52 Group Vice President, Ag Input Businesses - Mr. Honse has been with
Farmland since 1983. He was appointed to his present position in
September 1995. From January 1992 to September 1995, he served as
Executive Vice President, Agricultural Inputs Operations. From
October 1990 to January 1992 he served as Executive Vice President,
Agricultural Operations.
A. H. Lewis 48 Group Vice President, Grain and Grain Processing Businesses - Mr. Lewis
joined Farmland August 1994 to serve as Vice President, Grain
Marketing. He was appointed to his current position in September
1995. From 1985 to 1994, Mr. Lewis worked for CONAGRA as the
President, Klein-Berger Companies in San Francisco, California.
B. L. Sanders 54 Vice President and Corporate Secretary - Dr. Sanders has been with
Farmland since 1968. He was appointed to his present position in
September 1991. From April 1990 to September 1991 he served as Vice
President, Strategic Planning and Development. From October 1987 to
March 1990 he served as Vice President, Planning.
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation awarded to, earned
by, or paid to the Chief Executive Officer and the Company's next four most
highly compensated executive officers for services rendered to the Company in
all capacities during 1993, 1994 and 1995.
Annual Compensation
Employee
Variable
Name and Year Ending Compensation Other Annual
Principal Position August 31 Salary Plan Compensation
H. D. Cleberg, . . . . . . . . . . 1993 $ 433,506
President and . . . . . . . . . . 1994 $ 439,728 $ 338,481
Chief Executive Officer 1995 $ 456,218 $ 346,944
G. E. Evans, . . . . . . . . . . 1993 $ 278,304
Group Vice President, 1994 $ 278,304 $ 217,761
Meat and Livestock 1995 $ 283,988 $ 217,761
Businesses
R. W. Honse, . . . . . . . . . . 1993 $ 231,964
Group Vice President, 1994 $ 251,532 $ 205,206
Ag Input Businesses 1995 $ 280,248 $ 210,337
J. F. Berardi, . . . . . . . . . . 1993 $ 206,016
Executive Vice President 1994 $ 216,252 $ 146,576
and Chief Financial Officer 1995 $ 226,914 $ 150,241
S. P. Dees, . . . . . . . . . . 1993 $ 205,366
Executive Vice President, 1994 $ 205,066 $ 119,093 $ 124,138(a)
Business Development 1995 $ 211,000 $ 122,070 $ 127,878(a)
<FN>
(a) Mr. Dees received a differential remuneration and reimbursements in 1994
and 1995 for taxes in connection with foreign assignments.
An Annual Employee Variable Compensation Plan, a Management Long-Term
Incentive Plan, and an Executive Deferred Compensation Plan have been
established by the Company to meet the competitive salary programs of other
companies, and to provide a method of compensation which is based on the
Company's performance.
Under the Company's Annual Employee Variable Compensation Plan, all regular
salaried employees total compensation is based on a combination of base and
variable pay. The variable compensation payment is dependent upon the
employee's position, the performance of the Company for the fiscal year or other
performance criteria of the individual's operating unit. Variable compensation
is awarded only in years that the Company achieves a performance level, approved
each year by the Board of Directors. The Company intends for its total cash
compensation (base plus variable) to be competitive, recognizing that in the
event the Company fails to achieve a predetermined threshold level of
performance, the base pay alone will place the employees well under market
rates. This system of variable compensation allows the Company to keep its
fixed costs (base salaries) lower, and only increase payroll costs consistent
with the Company's ability to pay. Amounts accrued under this plan for the
years ended August 31, 1993, 1994 and 1995 amounted to $ -0-, $17.8 million and
$35.5 million, respectively. Distributions under this plan are made annually
after the close of each fiscal year.
Information as to awards made in 1995 under the Company's Management
Long-Term Incentive Plan, which awards relate to the three year period 1995 to
1997, is set forth below.
Estimated Future Payouts Under Non-Stock Price-Based
Plans
(A) (B) (C) mounts in Thousands)
Performance or
Other Period
Number of Until
Shares, Units or Maturation or (D) (E) (F)
Name Other Rights (1) Payout Threshold Target (2) Maximum (2)
H. D. Cleberg 1995 - 1997 $ 234
G. E. Evans 1995 - 1997 $ 117
R. W. Honse 1995 - 1997 $ 117
J. F. Berardi 1995 - 1997 $ 83
S. P. Dees 1995 - 1997 $ 83
<FN>
(1) Rights in the incentive pool are expressed as a minimum percentage of
the total pool. See discussion contained below herein.
(2) Not applicable as payouts are based on a percentage of aggregate
income; the plan does not specify a target or maximum payment.
See discussion contained below herein.
Under the Management Long-Term Incentive Plan, the Company's executive
management employees are paid cash incentive amounts determined by a formula
which takes into account the level of management and the aggregate income of
the Company over a three year period. The Management Long-Term Incentive Plan
provides for three year performance and reward cycles and, in general,
participants must be active employees of the Company at the end of the cycle
in order to receive payment of the award with respect to such cycle. Periods
currently covered by the Management Long-Term Incentive Plan are: 1994
through 1996 ("1996 Plan"); 1995 through 1997 ("1997 Plan"); and, 1996
through 1998 ("1998 Plan"). The income threshold ("Threshold") for the
three year period of the 1996 Plan, the 1997 Plan and the 1998 Plan is
$192,810,000, $235,043,000 and $393,481,000, respectively. For each plan, if
the aggregate income is less than the Threshold or if the sum of the cash
returned to members during the 1996 Plan, the 1997 Plan and the 1998 Plan, as
patronage refunds, redemptions under the base capital plan, estate settlement
plans and special allocated equity redemption plans is less than $65,030,000,
$61,938,000 and $90,000,000, respectively, subject to the following sentence,
no payment will occur with respect to such plan. The Board of Directors of
the Company may, in its sole discretion, amend or discontinue the Management
Long-Term Incentive Plan, adjust or cancel any awards otherwise payable
thereunder should the Company incur a loss in the final year of any
performance cycle or impact the goals and rewards of the plan by approving
for inclusion or exclusion in the calculation of performance results, the
financial results of extraordinary events occurring during the cycle. Subject
to the preceding sentence, if aggregate income equals or exceeds the Threshold
and the cash returned to members equals or exceeds the specified amounts,
then 2.5%, .83% and .83% of aggregate income for the 1996 Plan, the 1997 Plan
and the 1998 Plan, respectively, is allocated to an incentive pool for each
such plan from which awards to management will be paid. Of the amount,
if any, allocated to the incentive pools for the 1996 Plan, the 1997 Plan and
the 1998 Plan, Messrs. Cleberg, Evans, Honse, Berardi, and Dees, will
receive at least 12%, 6%, 6%, 4.25%, and 4.25%, respectively, absent a
significant change in their status, in which event such percentages may be
adjusted.
The Company's Executive Deferred Compensation Plan permits executive
employees to defer part of their salary and/or part or all of their bonus
compensation. The amount to be deferred and the period for deferral is
specified by an election made semi-annually. Payments of deferred amounts shall
begin at the earlier of the end of the specified deferral period, retirement,
disability or death. The employee's deferred account balance is credited
annually with interest at the highest rate of interest paid by the Company on
any subordinated debt certificate sold during the year. Payment of an
employee's account balance shall, at the employee's election, be a lump sum or
in ten annual installments. Amounts deferred pursuant to the plan for the
accounts of the named individuals during the fiscal years 1993, 1994 and 1995
are included in the cash compensation table.
The Company established the Farmland Industries, Inc. Employee Retirement
Plan ("Plan") in 1986 for all employees whose customary employment is at the
rate of at least 1,000 hours per year. Participation in the Plan is optional
prior to age 34, but mandatory thereafter. Approximately 6,400 active and 6,630
inactive employees were participants in the Plan on August 31, 1995. The Plan
is funded by employer and employee contributions to provide lifetime retirement
income at normal retirement age 65, or a reduced income beginning as early as
age 55. The Plan also contains provisions for death and disability benefits.
The Plan has been determined qualified under the Internal Revenue Code. The
Plan is administered by a committee appointed by the Board of Directors of
Farmland, and all funds of the Plan are held by a bank trustee in accordance
with the terms of the trust agreement. It is the present intent to continue
this plan indefinitely. The Company's funding policy is to make the maximum
annual contributions to the Plan's trust fund that can be deducted for federal
income tax purposes. Company contributions made to the Plan for the years ended
August 31, 1993, 1994 and 1995 were $ -0-, $2.9 million and $5.3 million,
respectively.
Payments to participants in the Plan are based upon length of participation
and compensation reported to the Plan for the four highest of the last ten years
of employment. Compensation for this purpose includes base salary and
compensation earned under the Company's Annual Employee Variable Compensation
Plan discussed above. However, at the present time, the maximum compensation
(per participant) which may be covered by a qualified pension plan is limited to
$150,000 annually and the maximum retirement benefit which may be paid by such
plan is limited to $120,000 annually by the Tax Equity and Fiscal Responsibility
Act (TEFRA).
The Company established the Farmland Industries, Inc. Supplemental
Executive Retirement Plan ("SERP") effective January 1, 1994. The SERP is
intended to supplement the retirement income of executive participants in the
Farmland Industries, Inc. Employee Retirement Plan whose retirement benefit
would otherwise be reduced because of the limitation of the Internal Revenue
Code on the amount of salary which can be included in the computation of
retirement income ($150,000) or the amount of retirement benefit which may be
paid by a qualified retirement plan ($120,000).
The Company's Board of Directors has appointed an Administrative Committee
to administer the SERP. To fund the SERP, the Company purchased cash value life
insurance polices on the lives of plan participants. The Company owns these
insurance policies and has the sole right to name policy beneficiaries. The
total SERP premiums charged to operations for the eight months ended August 31,
1994 and for the year ended August 31, 1995 were $.4 million and $.6 million,
respectively.
The Company's obligation to pay supplemental retirement benefits under the
SERP is limited to the aggregate cash value of the life insurance policies
designated by the Administrative Committee as policies of the SERP. If the
benefits under the plan for a year would exceed the total cash value of the
policies, each participant's payment will be reduced.
The following table sets forth, for compensation levels up to $150,000, the
estimated annual benefits payable at age 65 for members of the Retirement Plan,
which benefits are not reduced by virtue of Social Security payments. The
following table also sets forth, for compensation levels exceeding $150,000, the
combined estimated annual benefits payable under the Retirement Plan and SERP
for each of the first 10 years following retirement (no SERP payouts are to be
made after 10 years) assuming: retirement occurs after age 55; the employer's
portion of the benefit lost (due to TEFRA limitations) by the employee is 85%;
the employee lives for 10 years after retirement; and, the aggregate payments
under the SERP are less than the cash value of life insurance policies
designated (see above) as SERP policies.
Remuneration Years of Service
Salaries 15 20 25 30
$ 100,000. .. $ 26,250 $ 35,000 $ 43,750 $ 52,500
125,000. .. 32,812 43,750 54,687 65,625
150,000. .. 39,375 52,500 65,625 78,750
200,000. .. 46,813 62,417 78,021 93,625
250,000. .. 54,250 72,333 90,417 108,500
300,000. .. 61,688 82,250 102,813 123,375
350,000. .. 69,125 92,167 115,209 138,250
400,000. .. 76,563 102,083 127,604 153,125
450,000. .. 84,000 112,000 140,000 168,000
500,000. .. 91,437 121,917 152,396 182,875
600,000. .. 106,313 141,750 177,188 212,626
700,000. .. 121,188 161,584 201,980 242,376
800,000. .. 136,063 181,417 226,771 272,126
900,000. .. 150,938 201,251 251,564 301,876
1,000,000. .. 165,813 221,083 276,355 331,626
The following table sets forth the credited years of service for the
executive officers of the Company at August 31, 1995.
Name Years of Creditable Service
H. D. Cleberg . . . . . . . . . . . . 30
G. E. Evans . . . . . . . . . . . . . 21
R. W. Honse . . . . . . . . . . . . . 21
J. F. Berardi . . . . . . . . . . . . 2
S. P. Dees . . . . . . . . . . . . . . 10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons, none of whom, except as indicated below, is either
currently or formerly an officer or employee of the Company or any of its
subsidiaries, served as members of the Company's compensation committee
during 1995: Messrs. Jody Bezner, Warren Gerdes, Gail Hall, Greg Pfenning and
Otis Molz. Mr. Molz was Chairman of the Board of the Company from
December 1991 to December 1992. No executive officer of the Company (i)
served as a member of a compensation committee (or other board committee
performing equivalent functions or, in the absence of such committee, the
entire board of directors) of another entity, one of whose executive officers
served on the compensation committee of the Company, (ii) served as a director
of another entity, one of whose executive officers served on the compensation
committee of the Company, or (iii) served as a member of a compensation
committee (or other board committee performing equivalent functions or, in the
absence of such committee, the entire board of directors) of another entity,
one of whose executive officers served as a director of the Company.
COMPENSATION OF DIRECTORS
Directors' compensation consists of payment of three hundred dollars
($300.00) per day of attendance at the Board of Directors or committee
meetings, plus reimbursement of necessary expenses incurred in connection
with their official duties.
CERTAIN TRANSACTIONS
The Company transacts business in the ordinary course with its directors
and with its local cooperative members with which the directors are associated
on terms no more favorable than those available to its other local cooperative
members.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person owns of record or is known to own beneficially more than five
percent of Farmland's equity securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company transacts business in the ordinary course with its directors
and with its local cooperative members with which the directors are associated
on terms no more favorable than those available to its other local cooperative
members.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Listing of Financial Statements Financial Statement Schedules and Exhibits
(1) FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets, August 31, 1994 and 1995
Consolidated Statements of Operations for each of the years
in the three-year period ended August 31, 1995
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended August 31, 1995
Consolidated Statements of Capital Shares and Equities for
each of the years in the three-year period ended August 31,
1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as the required information is inapplicable
or the information is presented in the Consolidated Financial
Statements or related notes.
(3) EXHIBITS
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 1, 1994.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES:
4.(i)A Trust Indenture dated November 20, 1981, as amended January 4,
1982, including specimen of Demand Loan Certificates.
(Incorporated by Reference - Form S-1, No.2-75071, effective
January 7, 1982)
4.(i)B Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 10-year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form S-1,
No. 2-94400, effective December 31, 1984)
4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 10-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated December 3,
1991)
4.(i)C Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 5-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated December 3,
1991)
4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985
and November 20, 1985, including specimen of 10-year Subordinated
Monthly Income Capital Investment Certificates. (Incorporated by
Reference - Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)E Trust Indenture dated November 11, 1985 including specimen of the
5-year Subordinated Monthly Income Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 33-1970,
effective December 31, 1985)
4.(ii)A Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 20-year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form
S-1, No. 2-94400, effective December 31, 1984)
4.(ii)A(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 20-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated
December 3, 1991)
4.(ii)B Credit Agreement among Farmland Industries, Inc., as Borrower,
ABN Amro Bank N.V., The Bank of Nova Scotia, Boatmen's First
National Bank of Kansas City, The Chase Manhattan Bank, N.A.,
Commerce Bank of Kansas City, N.A., NBD Bank, N.A., as Banks
and The National Bank for Cooperatives, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", New York
Branch, as Banks and as Co-Agents, dated May 19, 1994, (the
"Syndicated Credit Facility"). (Incorporated by Reference -
Form 10-Q filed July 14, 1994)
4.(ii)B(1) List identifying contents of all omitted schedules
referenced in and not filed with, the Syndicated
Credit Facility, dated May 19, 1994. (Incorporated by
Reference - Form 10-Q, filed July 14, 1994)
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First
National Bank of Chicago, not individually but solely as
Trustee for AT&T Commercial Finance Corporation, The Boatmen's
National Bank of St. Louis, Firstier Bank, N.A. and Norwest
Bank Minnesota, National Association and Farmland Industries,
Inc. in the amount of $73,153,000. (Incorporated by Reference -
Form SE, filed December 3, 1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National
Bank of Commerce as Trustee for General Electric Credit
Corporation as Beneficiary and Farmland Industries, Inc. in the
amount of $51,909,257.90. (Incorporated by Reference - Form
S-1, No.2-60372, effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Annual Employee Variable Compensation Plan (September 1,
1995- August 31, 1996)
10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1995)
10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement
Plan (Effective January 1, 1994)
21. Subsidiaries of the Registrant
Farmland Foods, Inc., a 99%-owned subsidiary, was incorporated
under the laws of the State of Kansas. Farmland Foods, Inc.
has been included in the Consolidated Financial Statements
filed in this registration.
Farmland Insurance Agency, a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri.
Farmland Insurance Agency has been included in the
Consolidated Financial Statements filed in this registration.
Farmers Chemical Company, a wholly-owned subsidiary, was
incorporated under the laws of the State of Kansas. Farmers
Chemical Company has been included in the Consolidated
Financial Statements filed in this registration.
Farmland Securities Company, a wholly-owned subsidiary, was
incorporated under the laws of the State of Delaware.
Farmland Securities Company has been included in the
Consolidated Financial Statements filed in this registration.
Cooperative Service Company, a wholly-owned subsidiary, was
incorporated under the laws of the State of Nebraska.
Cooperative Service Company has been included in the
Consolidated Financial Statements filed in this registration.
Double Circle Farm Supply Company, a wholly-owned subsidiary,
was incorporated under the laws of the State of Nevada.
Double Circle Farm Supply Company has been included in the
Consolidated Financial Statements filed in this registration.
National Beef Packing Company, L.P., a 58%-owned subsidiary
(68%-owned effective March 31, 1995), was formed under the laws
of the State of Delaware. National Beef Packing Company has
been included in the Consolidated Financial Statements filed
in this registration.
NBPCo, L.L.C., a wholly-owned subsidiary, was formed under the
laws of the State of Kansas. NBPCo has been included in the
Consolidated Financial Statements filed in this registration.
Farmland Financial Services Company, a wholly-owned subsidiary,
was incorporated under the laws of the State of Kansas.
Farmland Financial Services Company has been included in the
Consolidated Financial Statements filed in this registration.
Farmland Transportation, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri. Farmland
Transportation, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Environmental and Safety Services, Inc., a wholly-owned
subsidiary, was incorporated under the laws of the State of
Missouri. Environmental and Safety Services, Inc. has been
filed in the Consolidated Financial Statements included in
this registration.
Penterra, Inc., a 81%-owned subsidiary, was incorporated under
the laws of the State of Kansas. Penterra, Inc. has been
included in the Consolidated Financial Statements filed in
this registration.
Farmland Industries, Ltd., a wholly-owned subsidiary, was
incorporated under the laws of the United States Virgin Islands.
Farmland Industries, Ltd. has been included in the Consolidated
Financial Statements filed in this registration.
Heartland Data Services, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Kansas. Heartland
Data Services, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Equity Country, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Delaware.
Equity Country, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Equity Export Oil and Gas Company, Inc., a wholly-owned
subsidiary, was incorporated under the laws of the State of
Oklahoma. Equity Export Oil and Gas Company, Inc. has been
included in the Consolidated Financial Statements filed
in this registration.
Ceres Realty Corporation, a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri.
Ceres Realty Corporation has been included in the Consolidated
Financial Statements filed in this registration.
Heartland Wheat Growers, L.P., a 79%-owned subsidiary, was
formed under the laws of the State of Kansas. Heartland Wheat
Growers has been included in the Consolidated Financial
Statements filed in this registration.
Heartland Wheat Growers, Inc., a 79%-owned subsidiary, was
incorporated under the laws of the State of Kansas. Heartland
Wheat Growers has been included in the Consolidated Financial
Statements filed in this registration.
Farmland Industrias S.A. de C.V., a wholly-owned subsidiary,
was formed under the laws of Mexico. Farmland Industrias has
been included in the Consolidated Financial Statements filed
in this registration.
National Carriers, Inc., a 79%-owned subsidiary, was
incorporated under the laws of the State of Kansas. National
Carriers has been included in the Consolidated Financial
Statements filed in this registration.
Supreme Land, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Kansas.
Supreme Land has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Tennessee.
Tradigrain, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under
the laws of Switzerland. Tradigrain S.A. of Switzerland
has been included in the Consolidated Financial Statements
filed in this registration.
Tradigrain Shipping S.A., a wholly-owned subsidiary, was
formed under the laws of Switzerland. Tradigrain Shipping
S.A. has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under
the laws of France. Tradigrain S.A. of France has been included
in the Consolidated Financial Statements filed in this
registration.
Tradigrain GmbH, a wholly-owned subsidiary, was formed under
the laws of Germany. Tradigrain GmbH has been included in the
Consolidated Financial Statements filed in this registration.
Tradigrain LTD., a wholly-owned subsidiary, was formed under
the laws of Great Britain. Tradigrain LTD. has been included
in the Consolidated Financial Statements filed in this
registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the
laws of Argentina. Tradigrain S.A. of Argentina has been
included in the Consolidated Financial Statements filed in this
registration.
24. Power of Attorney
27. Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FARMLAND
INDUSTRIES, INC. HAS DULY CAUSED THIS FORM 10-K TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF KANSAS CITY, STATE OF
MISSOURI ON NOVEMBER 28, 1995.
FARMLAND INDUSTRIES, INC.
BY JOHN F. BERARDI
John F. Berardi
Executive Vice President and
Chief Financial Officer
BY ROBERT B. TERRY
Robert B. Terry
Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS FORM 10-K
HAS BEEN SIGNED FOR THE FOLLOWING PERSONS ON THE DATE INDICATED PURSUANT TO
VALID POWER OF ATTORNEY EXECUTED ON OCTOBER 25, 1995.
Signature Title Date
ALBERT J. SHIVLEY Chairman of Board, November 28, 1995
Albert J. Shivley Director
H. D. CLEBERG President, Chief Executive November 28, 1995
H. D. Cleberg Officer and Director
(Principal Executive Officer)
OTIS H. MOLZ Vice Chairman of Board November 28, 1995
Otis H. Molz Vice President and Director
LYMAN ADAMS, JR. Director November 28, 1995
Lyman Adams, Jr.
RONALD J. AMUNDSON Director November 28, 1995
Ronald J. Amundson
BAXTER ANKERSTJERNE Director November 28, 1995
Baxter Ankerstjerne
JODY BEZNER Director November 28, 1995
Jody Bezner
RICHARD L. DETTEN Director November 28, 1995
Richard L. Detten
STEVEN ERDMAN Director November 28, 1995
Steven Erdman
WARREN GERDES Director November 28, 1995
Warren Gerdes
BEN GRIFFITH Director November 28, 1995
Ben Griffith
GAIL D. HALL Director November 28, 1995
Gail D. Hall
JEROME HEUERTZ Director November 28, 1995
Jerome Heuertz
BARRY JENSEN Director November 28, 1995
Barry Jensen
GREG PFENNING Director November 28, 1995
Greg Pfenning
VONN RICHARDSON Director November 28, 1995
Vonn Richardson
MONTE ROMOHR Director November 28, 1995
Monte Romohr
JOE ROYSTER Director November 28, 1995
Joe Royster
PAUL RUEDINGER Director November 28, 1995
Paul Ruedinger
RAYMOND J. SCHMITZ Director November 28, 1995
Raymond J. Schmitz
THEODORE J. WEHRBEIN Director November 28, 1995
Theodore J. Wehrbein
ROBERT ZINKULA Director November 28, 1995
Robert Zinkula