<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
November 30, 1993 Number 2-67985
FARMLAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Kansas 44-0209330
(State of Incorporation) (I.R.S. Employer
Identification No.)
3315 North Oak Trafficway, Kansas City, Missouri
(Address of principal executive offices)
64116
(Zip Code)
816-459-6000
(Registrant's telephone number, including area code)
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
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
November 30 August 31
1993 1993
(Amounts in Thousands)
<S> <C> <C>
CURRENT ASSETS
Accounts receivable....................................................$ 345,319 $ 320,980
Inventories (note 2)................................................... 553,658 496,690
Prepaid expenses....................................................... 15,204 4,610
Other current assets................................................... 114,023 93,120
TOTAL CURRENT ASSETS.....................................................$1,028,204 $ 915,400
INVESTMENTS AND LONG-TERM RECEIVABLES....................................$ 181,466 $ 183,312
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, at cost.................................$1,173,298 $1,154,343
Less accumulated depreciation and amortization......................... 667,016 649,965
NET PROPERTY, PLANT AND EQUIPMENT........................................$ 506,282 $ 504,378
OTHER ASSETS.............................................................$ 118,449 $ 116,891
TOTAL ASSETS.............................................................$1,834,401 $1,719,981
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
November 30 August 31
1993 1993
(Amounts in Thousands)
<S> <C> <C>
CURRENT LIABILITIES
Accounts and notes payable...................................$ 584,999 $ 504,497
Current maturities of long-term debt......................... 24,575 31,947
Other current liabilities.................................... 159,344 118,437
TOTAL CURRENT LIABILITIES......................................$ 768,918 $ 654,881
LONG-TERM DEBT (excluding current maturities)..................$ 473,134 $ 485,861
DEFERRED INCOME TAXES (note 1).................................$ 2,169 $ 2,169
MINORITY OWNERS' EQUITY IN SUBSIDIARIES........................$ 17,038 $ 15,363
INCOME BEFORE INCOME TAXES, PATRONAGE
REFUNDS AND APPROPRIATION FOR EARNED SURPLUS (note 1)........$ 11,494 $ -0-
CAPITAL SHARES AND EQUITIES
Common shares, $25 par value - Authorized 50,000,000 shares..$ 379,953 $ 379,996
Other equities............................................... 181,695 181,711
TOTAL CAPITAL SHARES AND EQUITIES..............................$ 561,648 $ 561,707
TOTAL LIABILITIES AND EQUITIES.................................$1,834,401 $1,719,981
</TABLE>
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
November 30 November 30
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Sales............................................................$1,473,992 $ 952,903
Cost of sales.................................................... 1,383,764 893,736
Gross Income.....................................................$ 90,228 $ 59,167
Selling, general & administrative expenses.......................$ 65,905 $ 57,258
Other income (deductions):
Interest expense...............................................$ (13,133) $ (7,969)
Operations of joint ventures................................... (4,067) (2,417)
Other, net..................................................... 2,930 1,209
Total Other Income (Deductions)..............................$ (14,270) $ (9,177)
Income (loss) before income taxes, minority owners'
interest and patronage refunds.................................$ 10,053 $ (7,268)
Minority owners' interest in net loss of subsidiaries............$ 1,441 $ -0-
Income (loss) before income taxes and patronage refunds (note 1).$ 11,494 $ (7,268)
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
November 30 November 30
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Income (loss) before income taxes and patronage refunds.......$ 11,494 $ (7,268)
Adjustments to reconcile income before income taxes and
patronage refunds to net cash provided by (used in) operating activities:
Depreciation and amortization.............................. 16,625 12,925
Other, net................................................. 2,451 668
Changes in assets and liabilities:
Accounts receivable...................................... (15,518) (12,555)
Inventories.............................................. (56,782) (92,484)
Other assets............................................. (51,809) (9,218)
Accounts payable......................................... 29,795 (8,114)
Advances on product purchases............................ 28,461 25,516
Accrued interest and other liabilities................... 8,589 (11,503)
Net cash used in operating activities...........................$ (26,694) $(102,033)
Cash flows from investing activities:
Advances to borrowers by finance companies....................$ -0- $(153,083)
Collections from borrowers by finance companies............... -0- 138,212
Proceeds from disposal of investments and notes receivable.... 2,829 869
Acquisition of investments and notes receivable............... (10,038) (6,646)
Acquisition of a business..................................... (2,223) -0-
Capital expenditures.......................................... (21,407) (22,942)
Other......................................................... 8,504 958
Net cash used in investing activities...........................$ (22,335) $ (42,632)
Cash flows from financing activities:
Net increase of demand loan certificates......................$ 7,999 $ 2,012
Proceeds from bank loans and notes payable.................... 256,530 393,951
Payments on bank loans and notes payable...................... (295,803) (318,206)
Proceeds from issuance of subordinated debt certificates...... 14,472 24,807
Payments for redemption of subordinated debt certificates..... (3,857) (7,274)
Increase of checks and drafts outstanding..................... 40,063 45,121
Payments for redemption of equities........................... (16) (13,363)
Payments of patronage refunds and dividends................... -0- (17,450)
Other......................................................... 1,268 328
Net cash provided by financing activities.......................$ 20,656 $ 109,926
Net decrease in cash and cash equivalents.......................$ (28,373) $ (34,739)
Cash and cash equivalents at beginning of period................ 28,373 34,739
Cash and cash equivalents at end of period......................$ -0- $ -0-
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
</TABLE>
<TABLE>
<CAPTION>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Three Months Ended
November 30 November 30
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Acquisition of a business:
Fair value of net assets acquired.............................$ 3,745 $ -0-
Minority owners' investment................................... (1,522) -0-
Cash paid.....................................................$ 2,223 $ -0-
</TABLE>
[FN]
See accompanying notes to condensed consolidated financial statements
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) Interim Financial Statements
The information included in these condensed consolidated
financial statements reflects all adjustments (consisting only of
normal recurring accruals) which, in the opinion of management,
are necessary for a fair statement of the results for the interim
periods presented. Certain reclassifications have been made to
the consolidated balance sheet of the prior year to conform with
the current year presentation.
In accordance with the bylaws of Farmland Industries, Inc.
("Farmland") and its cooperative subsidiaries, patronage refunds
are apportioned and distributed or patronage losses are
apportioned at the end of each fiscal year. As this
apportionment is determined only at the end of each fiscal year
and since the provision for income taxes, dividends, and the
resultant amount of such cooperative associations' net income
(loss) transferred to surplus are dependent upon the
determination of the amount of the patronage refund or patronage
loss, Farmland Industries, Inc. and subsidiaries ("the Company")
has historically made no provisions for income taxes or patronage
refunds in its interim financial statements. Therefore, the
amount of interim income before income taxes and patronage
refunds has been reflected as a separate item in the accompanying
November 30, 1993 condensed consolidated balance sheet.
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
(2) Inventories
Major components of inventories at November 30, 1993, and
August 31, 1993, are as follows:
<TABLE>
<CAPTION>
November 30 August 31
1993 1993
(Amounts in Thousands)
<S> <C> <C>
Finished and in-process products................$ 312,945 $ 285,947
Grain........................................... 118,747 91,990
Beef............................................ 27,301 27,754
Materials....................................... 45,364 43,857
Supplies........................................ 39,715 41,388
$ 544,072 $ 490,936
LIFO adjustment................................. 9,586 5,754
$ 553,658 $ 496,690
</TABLE>
All inventories, other than grain, supplies and certain beef
and petroleum inventories, are valued at the lower of first-in,
first-out (FIFO) cost or market. The Company follows a policy of
hedging its grain commodity transactions. Grain inventories are
valued at market adjusted for net unrealized gains or losses on
open commodity contracts. Supplies are valued at cost. Crude
oil, refined petroleum products, beef and beef by-products are
valued at the lower of last-in, first-out (LIFO) cost or market.
In applying the lower of cost or market valuation method in the
case of petroleum LIFO inventory, the general practice is
modified to conform to the integral view of interim financial
statements. Accordingly, a seasonal market value decline below
cost of LIFO inventories, at an interim date, which is reasonably
expected to be restored by year-end, is not recognized in interim
results of operations since no loss is expected to be incurred in
the annual period. At November 30, 1993, the carrying value of
petroleum inventories stated under the LIFO method was
$94,573,000. This exceeded the market value of such inventory by
$17,232,000. However, based on historical prices of energy
products and seasonal market price variations, the market value
decline below cost is expected to be a temporary seasonal price
fluctuation.
Had the lower of first-in, first-out (FIFO) cost or market
been used to value these petroleum products, inventories at
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
November 30, 1993 would have been lower by $9,586,000. The LIFO
valuation method had the effect of increasing income before
income taxes and patronage refunds for the three months ended
November 30, 1993 and 1992 by $3,832,000 and $2,699,000,
respectively.
The carrying value of beef inventories stated under the LIFO
method was $27,301,000 at November 30, 1993. The LIFO method of
accounting for beef inventories had no effect on the carrying
value of inventories or on the income reported for the three
months ended November 30, 1993, because market value of these
inventories was lower than LIFO or FIFO cost.
(3) Contingent Liabilities
On July 28, 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 $237,200,000 for tax reporting
purposes. During 1983, and prior to the sale of the Terra stock,
Farmland received certain distributions from Terra totaling
$24,800,000. For tax purposes, Farmland claimed intercorporate
dividends-received deductions for the entire amount of such
distributions.
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 $70,775,000. The asserted deficiencies
relate primarily to the Company's tax treatment of the sale of
the Terra stock and the distributions received from Terra prior
to the sale. The IRS asserts that Farmland incorrectly treated
the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset, and that, as
a nonexempt cooperative, Farmland was not entitled to an
intercorporate dividends-received deduction in respect of the
1983 distribution by Terra. It further asserts that Farmland
incorrectly characterized gains for tax purposes aggregating
approximately $14,600,000, and a loss of approximately
$2,300,000, from the disposition 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. A
trial date has not yet been set.
If the IRS ultimately prevails on all of the adjustments
asserted in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating
approximately $85,800,000 plus accumulating statutory interest
thereon (through November 30, 1993, of approximately
$135,000,000). In addition, such adjustments 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
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -
(Continued)
income taxes for that year by approximately $5,000,000 plus
applicable statutory interest thereon.
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. Farmland
believes that it has meritorious positions with respect to all of
these claims and will continue to vigorously pursue their
favorable resolution through the pending litigation.
In the opinion of Bryan Cave, Farmland's special tax
counsel, it is more likely than not that the courts will
ultimately conclude that (i) Farmland's treatment of the Terra
sale gain was substantially, if not entirely, correct; and (ii)
Farmland properly claimed a dividends-received deduction in
respect of the 1983 distributions which it received from Terra
prior to the sale of the Terra stock. Counsel has further
advised, however, that none of the issues involved in these
disputes is free from doubt, and that there can be no assurance
that the courts will ultimately rule in favor of Farmland on any
of these issues.
Should the IRS ultimately prevail on all of its asserted
claims, all claimed federal and state income taxes as well as
accrued interest would become immediately due and payable, and
would be charged to current operations. In such case, the
Company would be required to renegotiate agreements with its
banks to maintain compliance with various requirements of such
agreements, including working capital and funded indebtedness
provisions. However, no assurance can be given that such
renegotiation would be successful. Alternatives could include
other financing arrangements or the possible sale of assets.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
Farmland Industries, Inc. ("Farmland") is a regional farm
supply and marketing cooperative. Farmland and subsidiaries
(the"Company") conducts business primarily in two operating
areas. 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.
Cooperative farm supply operations consists of three product
divisions--petroleum, fertilizer and agricultural chemicals, and
feed. Products of the petroleum division are principally 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 fertilizer and agricultural chemicals
<PAGE>
division are nitrogen, phosphate and potash fertilizers and a
complete line of insecticides, herbicides and mixed chemicals.
Feed division products include swine, beef, poultry, mineral and
specialty feeds, feed ingredients and animal health products.
The Company distributes farm supply products at wholesale. Its
customers are primarily local farm cooperative associations which
are members and owners of Farmland. These local cooperatives
distribute products primarily to farmers and ranchers who utilize
the products in the production of farm crops and livestock.
Cooperative marketing operations include the storage and
marketing of grain, processing pork and beef, and marketing fresh
pork, processed pork, fresh beef and boxed beef. Hogs and grain
are supplied to the Company primarily by members. Cattle are
purchased from producers in the proximity of beef plants at
Liberal and Dodge City, Kansas. The Company has made arrangements
to allow beef producers to become members and supply cattle to
the Company on a patronage basis.
Geographically, the Company's markets are mid-western states
which comprise the corn belt and the wheat belt.
A substantial portion of the Company's supply and marketing
products are produced in facilities owned by the Company or
operated by the Company under long-term lease arrangements. No
material part of the business of any segment of the Company is
dependent on a single customer or a few customers.
The Company's revenues 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
direct imports or exports. In addition, global variables which
affect supply, demand and price of crude oil and refined fuels
impact the Company's petroleum operations. Management cannot
determine the extent to which future operations of the Company
may be impacted by these factors. 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.
Financial Condition, Liquidity and Capital Resources
The Company maintains two primary sources for debt capital:
a continuous public offering of its debt securities and bank
lines of credit, primarily with the National Bank for
Cooperatives ("CoBank").
The Company's debt securities are offered through a
wholly-owned broker/dealer subsidiary on a best-efforts basis.
The types of securities offered include certificates payable on
demand and five-, ten- and twenty-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 this public
offering 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 three months ended
<PAGE>
November 30, 1993, the outstanding balance of demand loan and
subordinated debt certificates increased $18.6 million.
The Company's credit lines with CoBank provide a source of
long-term and short-term funds and provide support for letters of
credit issued by the bank on behalf of Farmland. Under these
lines, a commodity loan is available to finance grain
inventories, seasonal loans are available for financing
inventories and operations, and term loans are available for
facility additions. The agreements with CoBank are reviewed
and/or revised at least annually. The next date scheduled for
review of the agreements is February 15, 1994.
At November 30, 1993, the maximum borrowings available to
Farmland under existing lines of credit with CoBank totaled
$508.9 million, of which $176.5 million was borrowed, and $55.1
million was being utilized for support of letters of credit
issued on behalf of Farmland by CoBank. The agreements with
CoBank stipulate that by February 15, 1994, the maximum credit
available from CoBank to the Company shall be reduced to an
amount not in excess of CoBank's then applicable lending limit to
a single borrower. At November 30, 1993, the Company's lines of
credit with CoBank exceeded the bank's normal lending limit to a
single borrower by approximately $33.9 million.
Farmland's loan agreements with CoBank contain provisions
which require the Company to maintain consolidated working
capital of not less than $150 million and to maintain
consolidated net worth of not less than $425 million. In
addition, the agreements require the Company to maintain funded
indebtedness and senior funded indebtedness of not more than 52%
and 43% of capitalization, respectively. All computations are
based on consolidated financial data adjusted to exclude
nonrecourse subsidiaries (any subsidiary for which Farmland is
not directly or indirectly liable for any of such subsidiary's
indebtedness). Computed in accordance with the loan agreements,
at November 30, 1993, working capital was $205.8 million, net
worth was $574.0 million and funded indebtedness and senior
funded indebtedness were 43.6% and 18.3% of capitalization,
respectively.
Farmland also has credit facilities with various commercial
banks. At November 30, 1993, Farmland's available credit from
commercial banks under committed and uncommitted arrangements was
$215.0 million and $30.0 million, respectively. At November 30,
1993, borrowings under these committed and uncommitted credit
facilities were $149.0 million and $10.0 million, respectively.
In addition, $18.7 million was used to support letters of credit
issued by such banks on Farmland's behalf. Financial covenants
of these arrangements are not more restrictive than Farmland's
credit lines with CoBank.
Management considers these arrangements for debt capital to
be adequate for the Company's present operating and capital
plans. However, alternative financing arrangements are
continuously evaluated.
<PAGE>
Leveraged leasing has been utilized to finance railcars, and
a substantial portion of nitrogen fertilizer production
equipment. Under the most restrictive covenants of its leases,
the Company has agreed to maintain working capital of at least
$75 million, consolidated funded indebtedness not greater than
65% of consolidated capitalization, and consolidated senior
funded indebtedness not greater than 50% of consolidated
capitalization.
Major uses of cash during the three months ended November
30, 1993 include $39.3 million for a net reduction in bank
borrowings, $26.7 million in operations, $21.4 million for
capital expenditures and $10.0 million for acquisition of
investments. These funds were provided from a $40.1 million
increase in checks and drafts outstanding, an $18.6 million
increase of the outstanding balance of demand loan certificates
and subordinated debt certificates, and $28.4 million was
provided from the 1993 year end cash balance.
The Internal Revenue Service issued a statutory notice to
Farmland asserting significant deficiencies in federal income
taxes and statutory interest thereon. Farmland filed a petition
in the United States Tax Court contesting the asserted
deficiencies in their entirety. See note 3 of the notes to the
condensed consolidated financial statements.
Results of Operations
Operating results for any quarter are not necessarily
indicative of the results expected for the full year. The
principal businesses of Farmland are highly seasonal. The
majority of sales of farm supply products occurs in the spring
months, the highest revenues in grain marketing historically
occur during the summer months and summer is the lowest sales
period for pork marketing. In view of the seasonality of the
Company's businesses, it must be emphasized that the results of
the three months ended November 30, 1993 should not be annualized
to project a full year's results.
Three Months Ended November 30, 1993 Compared with Three Months
Ended November 30, 1992
Sales
Sales for the three months ended November 30, 1993 increased
$521.1 million or 54.7% compared with the corresponding period of
the prior year. The increase includes $438.3 million higher
sales of agricultural output products (grain, beef and pork) and
$82.3 million higher sales of agricultural input products
(fertilizer and chemicals, petroleum and feed).
All output product groups reported higher sales. Beef
operations with sales of $295.3 million in the three months ended
November 30, 1993, were not acquired until April 1993. Grain
sales increased $76.5 million principally due to higher unit
<PAGE>
sales and prices of corn and milo. Sales of pork products
increased $66.5 million mostly because of products from a pork
processing plant acquired in February 1993 generated sales of
approximately $45.0 million in the three months ended November
30, 1993.
Input products sales increased primarily because sales of
the fertilizer and agricultural chemicals and feed increased
$52.8 million and $22.2 million, respectively. Fertilizer sales
increased approximately $58.0 million due to 32% higher unit
sales at slightly higher prices. Fertilizer unit sales increased
in the three months ended November 30, 1993, mostly because
weather conditions in that period were more favorable for fall
farming activities than in the corresponding period of the prior
year which was extremely wet. Feed sales increased primarily
because of higher formula feed and feed ingredients unit sales
and because of higher feed ingredients prices.
Operating Profit
Income before income taxes and patronage refunds for the
three months ended November 30, 1993 increased $18.8 million
compared with the corresponding period of the prior year. This
increase includes a $17.8 million increase in operating profits
in the petroleum business segment. Operating profit in the
petroleum business segment increased primarily because production
at the Coffeyville, Kansas refinery was suspended for scheduled
maintenance in September of the prior year and because unit
margins on diesel fuels with low levels of sulfur (required by
the Environmental Protection Agency for diesel fuel sold after
September 30, 1993) have been higher than the unit margins on
diesel fuels sold in the corresponding period of the prior year.
These margins were significantly higher immediately after the
crossover to the low level sulfur fuels. Operating profits of
the fertilizer and agricultural chemicals, grain and other
business segments increased $4.2 million, $3.4 million and $3.0
million, respectively. Results in the fertilizer business
segment increased due to higher unit sales and higher selling
prices. These improvements were partly offset by $4.4 million
lower operating profits in the food marketing business segment
and by $5.1 million higher interest expense.
Selling, general and administrative expenses increased $8.6
million in the three months ended November 30, 1993 compared with
the corresponding period of the prior year. The increase
includes costs of $2.4 million in beef operations which were not
acquired until April 1993 and $6.1 million higher costs
associated with pork processing and marketing operations. These
costs increases account for the decrease in operating profit of
the food marketing business segment discussed above.
Recent Accounting Pronouncements
In the first quarter of 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS)
106, "Employers' Accounting for Postretirement Benefits Other
<PAGE>
Than Pensions." Under SFAS 106, the expected costs of providing
such benefits are accrued during the active service period of the
employee rather than accounting for such costs on a pay-as-you-go
(cash) basis. The effect of implementation of SFAS 106,
including amortization (over 20 years) of previously unrecognized
costs related to the service period already rendered (the
transition obligation) was insignificant.
In the first quarter of 1993, the Company adopted the
provisions of Statement of Financial Accounting Standards (SFAS)
109, "Accounting for Income Taxes." Under SFAS 109, deferred tax
assets and liabilities are determined based upon the tax effect
of differences between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the
year in which the differences are expected to reverse. SFAS 109
generally allows recognition of deferred tax assets if future
realization of the tax benefit is more likely than not. The
effect of implementation of SFAS 109 at September 1, 1993 was
insignificant.
Temporary differences which gave rise to significant
portions of the deferred tax assets and liabilities as of
September 1, 1993, as adjusted for the adoption of SFAS 109, are
as follows:
<TABLE>
<CAPTION>
Temporary Differences
Asset (Liability)
As Adjusted
September 1, 1993
(Amounts in Thousands)
<S> <C>
Depreciation..................................$ (49,639)
Safe harbor lease rentals..................... 23,211
Provision for loss on proposed sale of assets. 26,177
Unfunded pension expense...................... (49,218)
Compensation benefits......................... 15,605
Reserve for bad debts......................... 9,105
Inventory valuation........................... 8,346
Maintenance accrual........................... 7,591
Other, net.................................... 13,488
$ 4,666
</TABLE>
Total deferred tax assets and (liabilities) at November 30,
1993 were $43,869,000 and ($42,003,000), respectively. There is
no valuation allowance provided under SFAS 109.
Statement of Financial Accounting Standards No. 112,
"Employer's Accounting for Postemployment Benefits", was issued
by the FASB in November 1992 and is effective for fiscal years
beginning after December 15, 1993 (the Company's 1995 fiscal
<PAGE>
year). Statement 112 establishes standards of accounting and
reporting for the estimated cost of benefits provided to former
or inactive employees. Management expects that the adoption of
Statement 112 will not have a significant impact on the Company's
consolidated financial statements.
Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities," was issued by the Financial Accounting Standards
Board ("FASB") in May 1993 and is effective for fiscal years
beginning after December 15, 1993 (the Company's 1995 fiscal
year). Statement 115 expands the use of fair value accounting
and the reporting for certain investments in debt and equity
securities. Management expects the adoption of Statement 115
will not have a significant impact on the Company's consolidated
financial statements.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibits listed below are filed as part of Form 10-Q for
quarter ended November 30, 1993.
None
(b) No reports on Form 8-K were filed during the quarter ended
November 30, 1993.
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT
OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED HEREUNTO DULY AUTHORIZED.
FARMLAND INDUSTRIES, INC.
(Registrant)
BY: /S/ JOHN F. BERARDI
John F. Berardi
Executive Vice President
and Chief Financial Officer
Date: January 13, 1994
