<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
{X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 1993
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 of RS Employer Identification No.)
of incorporation or organization)
3315 N. Oak 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 (~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
<PAGE>
PART I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Farmland Industries, Inc. ("Farmland") is a regional farm
supply and marketing cooperative. Farmland is owned by its
members and only its members are eligible to vote for directors
or for the management or affairs of Farmland. Members are
entitled to receive patronage refunds distributed by Farmland
from its member-sourced annual net income. See "Business and
Properties -Patronage Refunds and Distribution of Net Income."
Farmland was incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Oak Trafficway, Kansas City,
Missouri 64116 (telephone 816-459-6000). Unless otherwise noted,
references to years are to fiscal years ended August 31.
Membership
Farmland's membership includes voting members and associate
members. At August 31, 1993, Farmland's membership consisted of
1,557 cooperative associations of farmers and ranchers and 1,565
pork producers or associations of pork producers.
Voting Members
Membership requirements are determined by the Farmland Board
of Directors. The current policy requirements are: 1) 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) Members must
maintain a minimum investment of $1,000 in par value of
Farmland's common stock. 3) Cooperatives must limit voting to
agricultural producers and conduct a majority of their business
with voting producers.
Associate Members
Associate membership requirements in Farmland are as
follows: 1) Any person meeting the requirements for membership
can be an associate member. 2) Associate members must maintain a
minimum investment of $1,000 in par value of Farmland's associate
member common stock. 3) Associations other than those owned
100% by members, associate members or Farmland must conduct
business on a cooperative basis. 4) Hog and/or cattle feeding
businesses must derive a majority of earned income from such
feeding business and agree to provide the information Farmland
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.
<PAGE>
Associate members have all the rights of membership except
that they do not have the right to vote at a meeting of the
shareholders.
BUSINESS
General
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--fertilizer and agricultural chemicals, petroleum and
feed. Principal products of the fertilizer and agricultural
chemicals division are nitrogen, phosphate and potash fertilizers
and a complete line of insecticides, herbicides and mixed
chemicals. 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. Feed division products include swine, beef,
poultry, mineral and specialty feeds, feed ingredients and animal
health products.
Geographically, the Company's markets are mid-western states
which comprise the corn belt and the wheat belt. The Company
distributes products at wholesale. Its customers are primarily
local farm cooperative associations who 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 the 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 (similar to the arrangement with
pork producers).
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. Information
regarding the Company's property and its business is presented
below. Financial information about the Company's industry
segments is presented in note 12 of the notes to consolidated
financial statements.
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
<PAGE>
companies, independent refiners, other cooperatives and product
brokers. The fertilizer and agricultural chemicals industry
competitors include global producers of nitrogen and phosphate
fertilizers (some of which are cooperatives) and product
importers and brokers. The feed industry is comprised of an
infinite variety of competitive participants. Approximately 60%
of the Company's supply product sales are manufactured by the
Company. See "Cooperative Farm Supply Business--Petroleum,
Fertilizer and Agricultural Chemicals and Feed" for information
regarding the Company's manufacturing properties by business
segment.
COOPERATIVE FARM SUPPLY BUSINESS
Petroleum
Marketing
The principal product of this business segment is refined
fuels. Approximately 69% of refined product sales in 1993
resulted from transactions with Farmland's members. The balance
of the Company's refined product sales were principally through
retailing chains in urban areas. Based on total volume of
refined fuels withdrawn at terminal storage facilities along
pipelines which serve most of the Company's trade territory, the
Company estimates its market share in rural markets is
approximately 8%. 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, 1992 and 1991, respectively, were 19%, 29% and
33%, 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 market 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 a refinery at Coffeyville, Kansas and at
Phillipsburg, Kansas. Prior to June 30, 1992 the Company owned
approximately 30% of the National Cooperative Refinery
Association ("NCRA"). NCRA operates a refinery at McPherson,
Kansas with a daily production capacity of 70,000 barrels. As a
30% owner, Farmland was required to purchase 30% of the
production of this refinery. During 1992, Farmland sold its
ownership interest in NCRA. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Results of Operations - Petroleum - Sales."
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The refinery at Phillipsburg, Kansas operated through
December 1991, primarily to produce asphalt for sale under a
contract. On December 31, 1991, this refinery closed. A loading
terminal located at the refinery remains in operation. The
carrying value of this refinery at August 31, 1993 was
approximately $3,305,000. The Company is evaluating alternative
uses for this facility and cannot at this time determine the
extent of any losses related to the closure of the refinery, but
does not expect such losses to be significant. Sales associated
with products of the Phillipsburg refinery amounted to
approximately $20,900,000 in 1992 and approximately $72,000,000
in 1991. During the four months of 1992 in which it operated,
the total barrels processed by the refinery was 871,000.
Refinery capacity at August 31, 1993 and production volume
for 1993, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
Average Daily Production
Based on 365 Days per Year
Estimated (barrels)
Daily Capacity
Location August 31, 1993 1993 1992 1991
<S> <C> <C> <C> <C>
Coffeyville 56,500 barrels of 53,000 57,000 51,000
crude oil
(as certified by the
Department of Energy)
Phillipsburg 26,400 barrels of N/A N/A 8,000
crude oil per day
</TABLE>
The Coffeyville refinery produced 20 million barrels of
motor fuels and heating fuels in 1993, 23 million barrels in
1992, and 21 million barrels in 1991. Approximately 77% of
petroleum product sales in 1993 represented products produced at
this location.
As a result of regulations by the Environmental Protection
Agency, sulfur levels must be reduced in diesel fuels sold after
September 30, 1993. To comply with these regulations, the
Company has planned capital improvements of approximately
$44,000,000 of which $31,451,000 has been expended at August 31,
1993.
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 gathering system collects approximately 25% to
30% of its crude oil supplies from producers near its refineries.
Additional supplies are acquired from diversified sources.
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Modifications to the Coffeyville refinery which increase its
capability to efficiently process crude oil streams containing
greater amounts of lower quality crude are continuing. The
Company has entered negotiations with a potential purchaser of
this refinery. See note 16 of the notes to consolidated
financial statements.
Crude oil is purchased approximately 45 to 60 days in
advance of the time the related refined products are marketed.
Prior to March 1, 1991, hedging procedures were utilized to
reduce certain risks of holding inventory. On March 1, 1991, the
Company suspended its practice of hedging its petroleum
inventories. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of
Operations - Petroleum - Operating Profit." The hedging of fixed
crude oil advance purchase contracts and fixed price refined
products advance sales contracts has been continued.
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 in
the event a crude oil shortage developed.
Fertilizer and Agricultural Chemicals
Marketing
Products of the Company's fertilizer and agricultural
chemicals division include nitrogen-, phosphate- and potash-based
fertilizers, and a complete line of insecticides, herbicides and
mixed chemicals. Sales of this business segment as a percent of
consolidated sales for 1993, 1992 and 1991 were 19%, 26% and 29%,
respectively.
Competition in the fertilizer industry is dominated by price
considerations. The industry's participants include many
domestic producers with substantial manufacturing capacity
including other cooperatives, major petroleum companies with
chemical divisions, and integrated chemical companies. In
addition, there are a number of import brokers with access to
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 U.S. may be subsidized by their governments.
In addition to price competition, demand for fertilizer is
seasonal. During periods of peak demand, product distribution
and rapid delivery service are significant competitive factors.
Therefore, a significant seasonal investment in inventory and
capital investment in storage and distribution facilities is
<PAGE>
required to support manufacturing operations. The Company
maintains fertilizer custom blending, storage and distribution
facilities at 15 locations throughout its trade territory. The
Company's sales of fertilizer and agricultural chemicals are
primarily at wholesale to local cooperative associations (the
members, owners and customers of Farmland). In view of this
supplier/customer relationship, management believes that, with
respect to such customers, the Company has a slight competitive
advantage.
Production
The Company is a manufacturer of nitrogen and phosphate
fertilizer products. Based on total production capacity, the
Company is one of the largest producers of anhydrous ammonia
fertilizer in the U.S. Nitrogen-based fertilizers are produced
at four anhydrous ammonia plants, four urea ammonium nitrate
plants, and two urea plants which the Company owns and operates.
Three other anhydrous ammonia plants are operated by the Company
under long-term lease arrangements. Phosphate fertilizers are
produced in one plant which is owned and operated by the Company
and in two plants owned by ventures in which the Company has a
50% ownership interest. In addition, several custom dry
blending and liquid fertilizer mixing facilities are operated on
sites located throughout the Company's trade territory.
Nitrogen fertilizer production information is as follows:
<TABLE>
<CAPTION>
Estimated Annual Capacity
Anhydrous Ammonia
August 31, 1993 Actual Annual Production
Plant Location (based on 345 days per year)** Anhydrous Ammonia
(tons) 1993 1992 1991
(tons)
<S> <C> <C> <C> <C>
Lawrence 450,000 375,000 450,000 367,000
Dodge City 259,000 241,000 254,000 259,000
Fort Dodge 242,000 232,000 240,000 231,000
Beatrice 250,000 243,000 250,000 245,000
Enid (2 plants)* 1,017,000 969,000 1,017,000 1,001,000
Pollock* 500,000 490,000 501,000 501,000
* Indicates leased plants
** The capacities in the table above represent current instant
capacity which has increased due to efficiency and capacity
improvements.
<PAGE>
</TABLE>
Synthetic anhydrous ammonia is the basic component of all
commercially produced nitrogen fertilizers. Nitrogen fertilizer
is a necessary plant nutrient to supply the protein building
blocks for all life forms. More than 95% of the world's
synthetic anhydrous ammonia is produced using natural gas as the
major raw material.
Natural gas containing more than 90% methane is reformed in
a high temperature catalytic process to produce hydrogen and
carbon oxides. The process uses high temperature steam as part
of the reaction. Modern processes utilize high pressure
reforming to reduce the overall energy required in the process.
The hot gases from the reformer are introduced into a catalytic
chamber where air has been compressed and injected into the
stream. In this vessel, the oxygen from the air is consumed
completing the methane reformation and further oxidation of the
carbon oxides toward carbon dioxide. The hot mixture is used to
generate steam for the process and for motive power of the more
than 25,000 horse power of compression required to move the gases
through the process to the ammonia synthesis reactor. The carbon
oxides are further reacted with steam to produce carbon dioxide.
The resulting mixture of carbon dioxide, hydrogen, and nitrogen
is refined in the carbon dioxide removal system.
With the carbon dioxide removed, the gas stream containing
three parts of hydrogen and one part of nitrogen is further
refined by converting any residual carbon oxides to methane and
compressed to synthesis pressure of approximately 2,000 psi. The
synthesis reactor is a recycle operation which converts
approximately 10% of the reactants per pass through the reactor.
The resulting anhydrous ammonia is removed by refrigeration.
With the ammonia removed, the gases are recompressed for another
pass through the synthesis reactor. The ammonia from the process
is stored in refrigerated containers at atmospheric pressure or
under pressure at ambient temperatures.
The ammonia is usable as a nitrogen fertilizer directly
injected into soils or can be a raw material for the production
of other forms of nitrogen fertilizer. Ammonia contains 82%
nitrogen by weight.
The most available form of commercial fertilizer produced
from ammonia raw materials is urea. Urea is produced by the
reaction of ammonia with carbon dioxide. The reaction takes
place at high pressure and is removed from the reaction mixture
as an intermediate which decomposes to urea and ammonia. The
urea is concentrated in evaporators and either prilled or
granulated for use as a 46% form of nitrogen fertilizer. Urea is
also used as a blend stock in the production of urea ammonium
nitrate solutions containing 28-32% nitrogen.
Ammonia as a raw material can be oxidized with air in a
catalytic bed to produce nitric acid which is further reacted
with more ammonia to produce ammonium nitrate. Ammonium nitrate
is concentrated through evaporation and prilled or granulated to
produce a solid product containing 34% nitrogen by weight. The
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ammonium nitrate is also a blend stock for the urea ammonium
nitrate solutions already mentioned.
Ammonia as the raw material is used in a reactor with
phosphoric acid to produce monoammonium and diammonium
phosphates. These products contain 11% or 18% nitrogen by
weight.
Production of urea, ammonium nitrate, urea ammonium nitrate
solutions, and other nitrogen fertilizer products from anhydrous
ammonia (as a raw material) for 1993, 1992 and 1991 is as
follows:
Actual Annual Production
Location 1993 1992 1991
(tons)
Lawrence 661,000 691,000 640,000
Enid 473,000 452,000 389,000
Dodge City 241,000 217,000 218,000
Beatrice 166,000 177,000 184,000
Prior to November 15, 1991, the Company owned and operated a
phosphate chemical plant located in Green Bay, Florida.
Effective November 15, 1991, Farmland and Norsk Hydro a.s.
("Hydro") formed Farmland Hydro, Limited Partnership ("Farmland
Hydro, L.P.") to manufacture phosphate fertilizer products for
distribution to international markets. Pursuant to the
agreements, Farmland sold a 50% interest in its Green Bay,
Florida phosphate fertilizer plant and certain phosphate rock
reserves located in Hardee County, Florida to Hydro for an amount
approximately equal to Farmland's carrying value in those assets.
Subsequent to this sale, Farmland and Hydro each contributed
their respective interests in the assets to Farmland Hydro, L.P.
for a 50%-ownership interest in this partnership. Farmland
provides management and administrative services to the joint
venture and Hydro provides marketing services under a marketing
agreement with Farmland Hydro, L.P. The Company's sales of
products of the Green Bay assets amounted to approximately
$65,137,000 during the two and one-half months prior to November
15, 1991 and $211,000,000 in fiscal year 1991. The plant
produces phosphoric acid products (super acid, diammonium
phosphate and monoammonium phosphate) with annual phosphoric acid
production capacity of 752,000 tons.
The phosphate rock required to operate the phosphate plant
at Green Bay, Florida is presently purchased from outside
suppliers and adequate supplies of sulfur are available at the
plant from several producers. Farmland owns land in Florida
which contains an estimated 40 million tons of phosphate rock.
In addition, Farmland Hydro, L.P. owns land in Florida which
contains an estimated 40 million tons of phosphate rock. Plans
for development of these reserves have not been established in
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view of the availability of adequate supplies of phosphate rock
from alternative sources.
Farmland and J.R. Simplot Company ("Simplot") formed a joint
venture to own and operate 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 venture completed a purchase of these assets in April 1992.
The plant produces monoammonium phosphate (MAP) and super acid
(P2O5) with annual production capacities of 275,000 and 145,000
tons, respectively. Under the venture agreement, Farmland and
Simplot purchase the production of the venture in proportion to
their ownership.
As a result of arrangements with Hydro and Simplot, the
Company increased its ownership interest in phosphate production
facilities located in its trade territory and reduced its
ownership interest in phosphate production facilities located in
Florida.
<TABLE>
The Company owns a phosphate chemical plant located in
Joplin, Missouri. Production capacity at August 31, 1993 and
production for 1993, 1992 and 1991 at this plant are as follows:
<CAPTION>
Actual Annual Production
Estimated Annual Capacity
Location August 31, 1993 1993 1992 1991
(tons)
<S> <C> <C> <C> <C>
Joplin 150,000 tons of 72,000 88,000 96,000
ammonium phosphate
160,000 tons of 141,000 129,000 119,000
feed grade phosphate
</TABLE>
The plant at Joplin, Missouri produces fertilizer by
reacting anhydrous ammonia with phosphoric acid and sulfuric acid
in a reactor pipe. The reaction produces ammonium phosphate and
ammonium sulfate which are combined in varying ratios with
muriate of potash to produce 13 different fertilizer grades. The
ingredients are granulated in a drum granulator, dried and
screened before transfer to product storage. Other minor
nutrients, such as zinc, iron or manganese, can be added to
formulations if desired.
Feed grade phosphate is produced in a granulation process
using a blunger (a dual shaft mixer) to mix, granulate and
promote reaction of the limestone and phosphoric acid raw
<PAGE>
materials. Granulated material passes from the blunger to a
dryer and is finally screened before it is transferred to
storage. The mixing and drying process is continuous. Granules
continue to recycle through this process until obtaining proper
size and then pass to storage. Two feed grade products are
produced - monocalcium phosphate and dicalcium phosphate.
Raw Materials
Natural gas, the largest single component of nitrogen
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. During 1993, natural gas prices increased
substantially and had an adverse impact on the Company's
operating results. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Fertilizer and
Agricultural Chemicals - Operating Profit." The Company
initiated a hedging program utilizing natural gas futures and
options to reduce risks of market price volatility.
Natural gas is delivered to the Company's facilities under
pipeline transportation delivery contracts which have been
negotiated with each plant's delivering pipeline. Transportation
delivery contracts, for the most part, are interruptible as
defined by the Federal Energy Regulatory Commission. No
significant nitrogen production has been lost, and none is
anticipated, because of curtailments in transportation.
Feed
Products in the Company's feed line include swine, beef,
poultry, dairy, mineral and specialty feeds, feed ingredients,
and animal health products.
<TABLE>
Sales of products of this business segment were
approximately 10%, 13% and 13% of consolidated sales for the
years 1993, 1992 and 1991, respectively. Approximately 46% of
the Company's feed sales in 1993 was produced 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 and a pet food plant in
Muncie, Kansas.
<PAGE>
Feed production is as follows:
Actual Annual Production
Estimated Annual Capacity
Location August 31, 1993 1993 1992 1991
(tons) (tons)
22 feed mills (combined) 1,580,000 1,030,000 954,000 921,000
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, 1992 and 1991,
approximately 113,000 pigs, 46,300 pigs and 48,000 pigs,
respectively, were finished under this program. The finished
pigs were sold to Farmland Foods, Inc. ("Foods") for processing.
The Company and Yuma Farmers Mill and Mercantile, a local
cooperative association, formed a joint venture for finishing
feeder pigs at Yuma, Colorado. The venture constructed a
farrowing facility which was completed in February 1993. This
facility increased finishing capacity to approximately 130,000
head annually. The Company owns a 72% interest in this venture
operation.
During 1992, the Company began leasing 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 services. 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.
COOPERATIVE PROCESSING AND MARKETING BUSINESS AND PROPERTIES
Pork Processing and Marketing
Production
The Company's food processing and marketing operations are
conducted through a 99%-owned subsidiary, Foods. Foods operates
eight food processing facilities. Meat processing facilities at
Springfield, Massachusetts, Carey, Ohio, and New Riegel, Ohio
<PAGE>
were purchased by Foods on April 1, 1991. Italian-style
specialty meats are produced at the Springfield facility and ham
products are processed at the two Ohio facilities. A facility at
Wichita, Kansas processes pork into fresh sausage, and pork and
beef into hot dogs, dry sausage and other luncheon meats. A
facility at San Leandro, California was closed on September 1,
1993. 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 on February 15,
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 previously closed
pork processing plant at Iowa Falls, Iowa is currently held for
sale.
Plant capacities at August 31, 1993 and production for 1993,
1992 and 1991 are as follows:
Average Weekly Production
Estimated Weekly Capacity
Location August 31, 1993 1993 1992 1991
(pounds) (pounds)
Wichita 1,100,000 1,514,000 1,618,000 1,315,000
on a one-shift basis
San Leandro** 300,000 243,000 269,000 297,000
on a one-shift basis
Carroll 692,000 1,204,000*1,131,000* 835,000*
on a one-shift basis
* All ham products were produced on 2 shifts during 1993,
1992 and 1991.
** Closed September 1, 1993
Average Weekly Production
Estimated Weekly Capacity
Location August 31, 1993 1993 1992 1991
Denison 37,500 head slaughtered 37,000 39,000 38,000
on a one-shift basis
Crete 45,000 head slaughtered 45,000 47,000 42,000
on a one-shift basis
The plant located at Springfield, Massachusetts has an
annual capacity on a one-shift basis of 400,000 pounds per week.
Average weekly production in 1993 was 666,000 pounds compared to
560,000 pounds during 1992.
The plants located at Carey, Ohio and New Riegel, Ohio
de-bone and process ham products. Annual capacity of the two
plants on a one-shift basis is 260,000 pounds per week. Average
weekly production during 1993 was 231,000 pounds compared with
220,000 pounds during 1992.
The plant located at Monmouth, Illinois has an estimated
weekly capacity of 26,000 head slaughtered on a one-shift basis.
Average weekly production during the 28 weeks of Company
operation during 1993 was 25,000 head.
Marketing
The Company's pork marketing operations include meat
processing, primarily pork, and 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 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 and Marketing
Production
The Company's beef processing and marketing operations are
conducted through two ventures. National Beef Packing Company,
L.P., formed in April 1993, is located in Liberal, Kansas and is
58%-owned by Farmland. Hyplains Beef, L.C., formed in July 1992,
is located in Dodge City, Kansas and is 50%-owned by Farmland.
These facilities function as beef abattoirs and have capabilities
for processing fresh beef into primal cuts for additional
processing into fabricated or boxed beef. As of August 31, 1993,
the two plants had an estimated daily capacity of 7,000 cattle
and had operated during the year at 92% of capacity.
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. There is also a
limited amount of international product distribution.
<PAGE>
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
Effective June 30, 1992, the Company acquired substantially
all the business and assets of Union Equity Co-Operative Exchange
("Union Equity"). The Company conducts the grain marketing and
storage operations, previously conducted by Union Equity, using
the Union Equity name.
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, associate
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.
In 1993, approximately 60% of grain revenues have been from
export sales. The five largest purchases in terms of total
revenues from grain operations were Mexico (9%), Jordan (7%),
India (6%), China (6%) and Egypt (4%). In 1992 and 1991, export
sales or sales to domestic customers for export accounted for
approximately 55% and 61%, respectively, of Union Equity's
consolidated revenues. The Commonwealth of Independent States,
formerly the Soviet Union ("Commonwealth States"), Mexico, China
and Israel had historically represented Union Equity's largest
foreign markets, but such may have varied from year to year.
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"). If the United States
limits its credit guarantees or subsidies to foreign countries or
otherwise limits grain sales to foreign countries, such would
have a material adverse effect on operations. Since a
substantial amount of grain revenues are related to the export
markets, 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 are required to be paid in
U.S. Dollars.
Storage of Grain
By law or regulations, the Company is required to accept for
storage in its grain elevators grain suitable for storage owned
by others. The Company's charges for storage, loading, and
unloading, and inspection of grain are based on tariffs
established by the Company, within guidelines set forth by the
USDA.
<PAGE>
Storage revenue accounted for approximately one percent (1%)
of the Company's grain revenues in 1993 and 1992. Storage
revenues in recent years have declined in part due to changes in
farm policies of the United States from encouraging farmers to
grow more product and, as a result, forcing farmers to store more
grain, to encouraging farmers to grow only that which could be
sold by planting less acres. It has become the United States
Government's policy to subsidize grain sales to foreign countries
rather than to support grain prices and pay for storage.
Seasonal and Business Fluctuations
Grain purchases are typically the greatest during the third
and fourth quarters of each calendar year, resulting in
substantial working capital requirements in order to carry
increased inventories of grain during such periods. As grain
inventories are sold, working capital requirements are reduced.
The Company purchases a majority of its grain from its members,
associate members, and other grain companies (not directly from
grain producers).
Property
The Company owns or leases fifteen (15) inland terminal
elevators and one (1) export elevator with a total licensed
capacity of approximately 157,883,000 bushels of grain. The
location, type, number and aggregate licensed capacity in bushels
of the elevators at August 31, 1993 are as follows:
Aggregate
Location Type Number Capacity
Commerce City, Colorado Inland 1 3,234,000
Fairfax, Kansas Inland 1 10,047,000
Hutchinson, Kansas Inland 3 25,268,000
Topeka, Kansas Inland 1 12,055,000
Wichita, Kansas Inland 1 10,503,000
Lincoln, Nebraska Inland 1 5,099,000
Omaha, Nebraska Inland 1 850,000
Enid, Oklahoma Inland 4 50,300,000
Saginaw, Texas Inland 2 37,274,000
Galveston, Texas Export 1 3,253,000
The reduction in storage of grain has resulted in
substantial under-utilization of the Company's elevators.
Several of the above elevators are substantially under-utilized.
Six (6) of these elevators were closed at the date Farmland
purchased Union Equity and have remained closed through August
31, 1993. The six (6) elevators that were closed have an
aggregate licensed bushel capacity of 58,030,000 bushels and
<PAGE>
include two elevators at Hutchinson, Kansas; one at Wichita,
Kansas; two at Enid, Oklahoma; and one at Saginaw, Texas. The
elevator at Commerce City, Colorado has been leased to another
operator.
In May 1993, the Company sold an export elevator at Deer
Park, Texas. The export elevator had a licensed aggregate
capacity of 8,583,000 bushels.
RETAIL AND SERVICES OPERATIONS
The Company operates eight retail farm supply stores in
rural areas which are not serviced by local cooperative members
of Farmland. The stores serve as distribution points for farm
supply products and provide farm services such as custom blending
and delivery of fertilizer, custom animal feed blending and grain
storage.
Beginning in 1988, the Company's operations were extended to
include retail marketing operations. Retailing activities
include distribution of petroleum products through Company
operated convenience food and fuel stores using the Ampride name.
At August 31, 1992, Farmland owned and operated six stores.
Based on the operations of these stores, the Company decided to
terminate its Ampride operations. At August 31, 1993, two
Ampride stores remain in operation.
Prior to August 31, 1993, the Company's operations included
financial services of two finance companies: The Cooperative
Finance Association, Inc. ("CFA") and Farmland Financial Services
Company ("FFSC"). CFA provides inventory, operating and facility
loans, primarily to local cooperative members of Farmland and
FFSC provides a credit source for agricultural producers. At
August 30, 1993 Farmland reduced its ownership interest in CFA to
49%. In addition, CFA purchased the assets and operations of
FFSC. CFA has proposed a recapitalization plan which limits the
voting rights of any owner (including Farmland) to 20% or less
regardless of the number of voting shares held. Accordingly, CFA
is not a subsidiary of Farmland at August 31, 1993 and Farmland
is no longer engaged in commercial lending operations.
PATRONAGE REFUNDS AND DISTRIBUTION OF NET INCOME
For purposes of this section, annual net income means net
income of Farmland determined in accordance with federal income
tax regulations. For this purpose, the term "member," means any
member, associate member or any other person with which Farmland
is a party to a currently effective patronage refund agreement.
Farmland operates on a cooperative basis. As a cooperative,
Farmland distributes to its members (its owners and customers)
all or part of its annual net income. Such distributions are
referred to as patronage refunds. The total amount of patronage
refunds distributed to members is the sum of the amounts of
annual net income of Farmland's separate patronage refund
allocation units which is identified to transactions with
members. Each member's portion of the patronage refund is the
amount of the total patronage refund identified to transactions
<PAGE>
with the member. The amount of patronage refunds payable for any
year may be reduced, but not below zero: 1) to the extent of
member-sourced loss carryforwards from transactions with members
during previous years; and, 2) if immediately after such
patronage refund distribution the balance of consolidated
retained earnings (defined for this purpose as the sum of earned
surplus and unallocated equity) would be less than 30% of the sum
of the prior year-end balance of common stock and associate
member common stock, capital credits, nonmember capital, and
patronage refunds for reinvestment (the portion of the patronage
refund payable in common stock, associate member common stock, or
other forms of equity credits, if any, which the Board of
Directors may have approved as a form for payment of patronage
refunds). In such case, patronage refunds shall be reduced by
the lesser of 15% or an amount necessary to increase the balance
of the retained earnings account to the required 30%. The amount
by which the patronage refund is so reduced is treated as if
generated from transactions with patrons not eligible to receive
patronage refunds and is subject to income taxes.
The Internal Revenue Code allows a cooperative to deduct
from its otherwise taxable income the total amount of the
patronage refunds distributed, provided at least 20% of the total
patronage refund is distributed in cash.
Net income generated by Farmland on transactions with
patrons not eligible to receive patronage refunds and extraneous
income (income from sources unrelated to the type of transactions
conducted by the cooperative with its members) is subject to
income taxes computed on the same basis as such tax is computed
on the income of other taxable corporations.
Farmland's annual patronage refund, and each members'
portion thereof, is distributed to members as soon as practical
after the end of each fiscal year. For the year ended August 31,
1993, Farmland incurred a loss and no patronage refund was paid.
Generally, a portion of the patronage refund is paid in cash
and the balance (the "invested portion") is paid with Farmland
common stock, associate member common stock or capital credits.
The invested portion of the patronage refund is determined
annually by Farmland's Board of Directors.
Farmland has established a base capital. The objective of
the base capital plan is to achieve an equitable relationship
between the dollar amount of business a member or associate
member of Farmland (a "Participant") transacts with Farmland and
the par value of Farmland equity which the Participant should
hold (the Participant's "Base Capital Requirement"). This plan:
1) provides that the relationship between the actual investment
in Farmland equity and the Base Capital Requirement of a
Participant shall influence the cash portion of any patronage
refund paid to the Participant, and;
2) provides a method for redemption by Farmland of its equities
held by a Participant who has an investment in Farmland
<PAGE>
equity which exceeds the Participant's Base Capital
Requirement.
The Base Capital Requirement of the base capital plan shall
be determined annually by the Farmland Board of Directors.
The Farmland patronage refund for 1992 was $17.4 million and
was paid 100% in cash. Additional cash payments of $6.7 million
were made under the base capital plan for redemption of equities
held by Participants.
In 1991, the Board of Directors determined that $14.4
million (an amount equal to 50% of Farmland's 1991 patronage
refund) would be distributed in cash to Participants and patrons
entitled to receive patronage refunds. Of such cash amount,
$12.1 million represented payment of the cash portion of the 1991
patronage refunds payable and $2.3 million was distributed to
redeem equities of Participants whose investment in Farmland
exceeded their Base Capital Requirement. The reinvested portion
of the Farmland 1991 patronage refund was $16.7 million.
Farmland's patronage refunds distributed in cash and equity
from patronage-sourced income of the years ended 1993, 1992 and
1991 are as follows:
Cash Portion Invested Portion Total Patronage
of Patronage Refund of Patronage Refund Refund
(Amounts in thousands)
1993 $ -0- $ -0- $ -0-
1992 $ 17,449 $ -0- $ 17,449
1991 $ 12,101 $ 16,740 $ 28,841
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a discussion of the
reasons for changes in income before income taxes and
extraordinary item for 1992, 1991 and 1990.
Foods is a marketing cooperative which distributes patronage
refunds to Farmland based on its annual net income multiplied by
the percentage that Foods' purchases of meat from Farmland is to
its total meat purchases. The refund Foods pays Farmland becomes
part of Farmland's income and is distributed as part of
Farmland's patronage refund payments as previously discussed.
In 1993 and 1992, Foods distributed a patronage refund of
$2.5 million and $3.7 million, respectively, to Farmland. Foods
had a patronage loss in 1990 that was retained and then applied
to offset patronage refunds otherwise payable from its 1991
annual net income.
Under the Bylaws of Farmland, its Board of Directors has
complete discretion with respect to the handling and ultimate
disposition of any member-sourced portion of losses. The Board
<PAGE>
of Directors may, among other things, (1) determine that such
losses shall be retained and recovered through offset against net
income of subsequent years; or (2) may at any time determine to
apply such losses to its members by offsetting such apportioned
losses against, and cancellation of, patronage equities (common
stock, associate member common stock, or other forms of equity
credits) which, in prior years, had been distributed as the
invested portion of patronage refunds. The 1993 net loss
attributable to transactions with members will be carried forward
and available to reduce net member-sourced income in future
years.
OTHER MATTERS
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.
During 1992, the Company commenced research related to
production of tilapia in a climate-controlled environment, and
research related to commercialization of a wheat processing plant
to produce wheat gluten as a replacement source for raw material
used in certain consumer products. Research activities related
to production of tilapia indicate that further study is
necessary. Accordingly, this research activity is continuing.
Study in the wheat gluten processing is being continued.
However, technology for an economically viable plant has been
developed. Farmland has proposed formation of a joint venture
with local cooperatives to build a wheat processing plant in
Russell, Kansas that will process approximately 4.25 million
bushels of wheat a year.
Expenditures related to Company-sponsored product and
process improvements amounted to $3,303,000, $3,338,000 and
$3,269,000 for the years ended 1993, 1992 and 1991, respectively.
Capital Expenditures
The Company plans capital expenditures of approximately
$152.5 million during its two fiscal years ending August 31, 1994
and 1995.
Capital expenditures of approximately $55.8 million are
planned for the fertilizer and agricultural chemicals business
segment. A new urea ammonium nitrate ("UAN") facility is planned
at the Fort Dodge, Iowa anhydrous ammonia plant. The new
facility is expected to cost approximately $25.0 million of which
$15.0 million is to be expended in fiscal 1995. This facility
will upgrade anhydrous ammonia to produce approximately 115,000
tons of UAN per year. A UAN plant at the Lawrence, Kansas
facility is being expanded. This expansion will cost
approximately $11.1 million of which an estimated $2.9 million
will be expended in fiscal 1994 to complete the project. This
expansion will increase UAN capacity by approximately 128,000
tons per year. In addition, capital expenditures of $27.9
<PAGE>
million are planned for operating efficiency improvements,
necessities and replacements, and $10.0 million for environmental
and safety issues, predominantly at nitrogen fertilizer plants.
Capital expenditures in the feed business segment are
estimated to be $14.4 million and include $11.5 million at the
feed mills and $2.9 million at livestock production facilities.
These expenditures are for increased efficiencies, operating
necessities and replacements.
Based on discussions with a potential purchaser of the
Company's refinery at Coffeyville, Kansas (see note 16 of the
notes to consolidated financial statements), capital expenditures
in the petroleum business segment are expected to be $2.6
million. These expenditures are primarily for environmental
modifications.
Capital expenditures of approximately $30.8 million are
planned in the food marketing business segment. Capacity at the
Wichita, Kansas processed meat plant is to be expanded at an
estimated cost of $1.5 million. The remaining expenditures are
mostly for operational improvements and replacements.
Heartland Wheat Growers, L.P. (a partnership between the
Company and local cooperatives) located in Russell, Kansas, was
formed for the purpose of constructing and operating a wheat
processing facility to produce wheat gluten, wheat starch and
derivative products and to market and distribute such products.
The Company has a seventy-seven and one-half percent (77.5%)
interest in the partnership. The Company's planned investment to
finance construction of the wheat gluten plant amounts to
approximately $23.4 million.
The Company intends to fund its capital program with cash
from operations or from its primary sources of debt capital. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations--Financial Condition, Liquidity and Capital
Resources."
Matters Involving the Environment
The Company's farm supply manufacturing and distribution
operations and its food processing and marketing operations are
presently, and will continue to be, affected to some extent by
federal, state and local regulations regarding the environment.
Protection of the environment will require expenditures by the
Company for equipment or processes and such 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. Management
believes the Company is currently in substantial compliance with
existing environmental rules and regulations.
The Company has been designated as a potentially responsible
party ("PRP") at eight sites currently listed on the U.S.
Environmental Protection Agency's National Priority List ("NPL").
The Company has completely resolved its financial responsibility
<PAGE>
at one site and its responsibilities at four other sites appear
to be de minimis or inconsequential. With respect to these NPL
sites and other locations at which the Company is aware that it
may have responsibility for investigation and remediation,
appropriate accruals have been made in the consolidated financial
statements.
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 is currently in
compliance with all such laws the violation of which could have a
material effect on the Company.
Certain policies may be implemented from time to time by the
U.S. Department of Agriculture, the Department of Energy, or by
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, 1993, the Company had approximately 14,100
employees. Approximately 31% 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 September 1996. There
are no wage re-openers in any of the collective bargaining
agreements.
Recent Accounting Pronouncements
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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, which if
determined adversely, would have a material adverse effect on the
financial position of the Company, and with respect to income tax
matters as explained in note 7 of the notes to consolidated
financial statements, he has no knowledge which would result in a
different conclusion than the opinion of special tax counsel to
<PAGE>
the Company which is cited in note 7 of the notes to consolidated
financial statements.
The Company is involved in two environmental regulatory
matters with the government involving significant potential
monetary sanctions as follows:
1) "The Company is party to an administrative enforcement action
brought by the U.S. Environmental Protection Agency ("EPA")
which alleges technical, non-willful violations of the
Resource Conservation and Recovery Act, as amended, at its
Coffeyville, Kansas refinery. This action has been
tentatively settled based on payment of a civil fine in the
approximate amount of $180,000.
2) The Company is also a party to an administrative enforcement
action brought by the EPA which alleges violations of the
Emergency Planning and Community Right-to-Know Act and the
release reporting requirements of the Comprehensive
Environmental Response, Compensation, and Liability Act, as
amended, at its Coffeyville, Kansas refinery. This action,
which is in its preliminary stages, involves alleged
violations of release reporting requirements and seeks a
civil fine in the amount of $350,000."
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 whether the holder is an eligible member or
associate member of Farmland or is a party to a currently
effective patronage refund agreement with Farmland;
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
<PAGE>
investment in Farmland varies from such holder's Base Capital
Requirement;
4) Farmland intends to redeem its common stock and associate
member common stock only in accordance with provisions of its
base capital plan which provisions are determined annually by
the Farmland Board of Directors at its sole discretion; and
5) Farmland intends to redeem capital credits only when and in
the amounts the Farmland Board of Directors determines at its
sole discretion.
A market for Farmland common stock, associate member common
stock and capital credits may develop among members or associate
members of Farmland but it is unlikely that brokers or dealers
will become involved in such resales.
There are approximately 2,867 holders of common stock, 255
holders of associate member common Stock, and 10,078 holders of
capital credits based upon the number of recordholders.
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
</TABLE>
<TABLE>
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, 1993 are derived from the consolidated financial
statements of the Company, which consolidated financial
statements have been audited by KPMG Peat Marwick, independent
certified public accountants. The consolidated financial
statements as of August 31, 1993 and 1992 and for each of the
years in the three-year period ended August 31, 1993, and the
report thereon, are included elsewhere in this Form 10-K. The
information set forth below should be read in conjunction with
information included elsewhere in this Form 10-K: 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 Internal Revenue Service on the gain on sale of and
certain distributions by Terra Resources, Inc.
<CAPTION>
Year Ended August 31
1993 1992 1991 1990 1989
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Summary of Operations: (3)(4)(5)
Net Sales..........................................$4,722,940 $3,429,307 $3,638,072 $3,377,603 $2,975,240
Interest Expense (net of
interest capitalized).............................$ 36,764 $ 27,965 $ 36,951 $ 30,090 $ 27,364
Income (Loss) Before Income Taxes
and extraordinary item (1)(2).....................$ (36,833) $ 70,504 $ 50,166 $ 58,184 $ 110,472
Net income (Loss) (1)(2)...........................$ (30,400) $ 62,313 $ 42,693 $ 48,580 $ 99,164
Distribution of Net Income:
Patronage Refunds:
Equity Reinvestments.......................... $ 1,155 $ 1,038 $ 17,837 $ 24,403 $ 40,764
Cash or Equivalent............................ 495 17,918 12,571 8,800 14,477
Allocation to Minority Owners.................... -0- -0- -0- -0- 1,711
Earned Surplus and Other Equities................ (32,050) 43,357 12,285 15,377 42,212
$ (30,400) $ 62,313 $ 42,693 $ 48,580 $ 99,164
Balance Sheets:
Working Capital....................................$ 260,519 $ 208,629 $ 122,124 $ 121,518 $ 96,628
Property, Plant and Equipment, Net.................$ 504,378 $ 446,002 $ 490,712 $ 469,710 $ 411,469
Total Assets.......................................$1,719,981 $1,526,392 $1,369,231 $1,352,889 $1,182,401
Long-Term Debt.....................................$ 485,861 $ 322,377 $ 291,192 $ 273,071 $ 221,261
Capital Shares and Equities........................$ 561,707 $ 588,129 $ 497,364 $ 476,011 $ 458,543
</TABLE>
<PAGE>
(1) On 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 October 31, 1993, of
approximately $133,500,000). 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 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
<PAGE>
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.
(2) During the year ended August 31, 1991, the Company changed
its method for inventory pricing of certain petroleum
inventories from the first-in, first out (FIFO) method
previously used to the last-in, first out (LIFO) method
because the LIFO method better matches current costs with
current revenues. Pro forma effects of retroactive
application of the LIFO method are not determinable.
(3) Effective June 30, 1992, the Company acquired the grain
marketing assets of Union Equity. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" and note 2 of the notes to consolidated financial
statements.
(4) During 1993, Farmland obtained a 58% interest in NBPC, a
limited liability company. Effective April 15, 1993, NBPC
acquired Idle Wild Food's beef packing plant and feed lot
located in Liberal, Kansas. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and
note 2 of the notes to consolidated financial statements.
(5) At August 30, 1993, Farmland reduced its ownership interest
in CFA to 49%. In addition, CFA purchased the assets and
operations of FFSC. CFA has proposed a recapitalization plan
which limits the voting rights of any owner (including
Farmland) to 20% or less regardless of the number of voting
shares held. Accordingly, CFA is not a subsidiary of Farmland
at August 31, 1993 and Farmland is no longer engaged in
commercial lending operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 is 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 1993, the outstanding
balance of demand loan and subordinated debt certificates
increased $42.7 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, 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 August 31, 1993, the maximum borrowings available to
Farmland under existing lines of credit with CoBank totaled
$508.9 million, of which seasonal and term borrowings were $156.7
million and $66.1 million, respectively, and $86.8 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
August 31, 1993, the Company's lines of credit with CoBank
exceeded the bank's normal lending limit to a single borrower by
approximately $133,600,000.
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). At August 31, 1993, working capital was $210.7
million, net worth was $561.3 million and funded indebtedness and
<PAGE>
senior funded indebtedness were 45.1% and 21.1% of
capitalization, respectively.
Farmland also has credit facilities with various commercial
banks. At August 31, 1993, Farmland's available credit from
commercial banks under committed and uncommitted arrangements was
$215.0 million and $30.0 million, respectively. Borrowings under
these committed and uncommitted credit facilities were $131.3
million and $10.0 million, respectively, at August 31, 1993. In
addition, $18.2 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.
Leveraged leasing has been utilized to finance data
processing equipment, 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.
As a cooperative, Farmland's annual net income or loss
determined in accordance with currently effective income tax
regulations is identified to transactions with members eligible
to receive patronage refunds ("member-sourced income") or to
transactions with parties not entitled to receive patronage
refunds ("nonmember-sourced income"). The annual
nonmember-sourced income or loss is adjusted for the amount of
applicable income tax expense or benefit thereon and the amount
remaining is transferred to retained earnings. The
member-sourced income is distributed to members as patronage
refunds unless the sum of the earned surplus and unallocated
equity accounts, after such distribution, would be lower than 30%
of the sum of the prior year-end balance of outstanding common,
associate member stock, capital credits, nonmember capital and
patronage refunds for reinvestment. In such cases,
member-sourced income shall be reduced by the lesser of 15% or an
amount required to increase the sum of the earned surplus and
unallocated equity accounts 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 ended
August 31, 1993, 1992 and 1991, the retained earnings account
exceeded the required amount by $3.9 million, $49.5 million and
$9.6 million, respectively. In 1993, Farmland incurred a
member-sourced loss of approximately $8,155,000 which is
available to offset future member-sourced income.
Generally a portion of the patronage refund is distributed
in cash and the balance (the "invested portion") is distributed
in common stock, associate member common stock, or capital
<PAGE>
credits (depending on the membership status of the recipient), or
the Board of Directors may determine to distribute the invested
portion in any other form or forms of equities. The invested
portion of the patronage refund is determined annually by the
Board of Directors but such invested portion shall not, for any
year, exceed 80% of the total patronage refunds. The invested
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. Subsequently, common stock and
associate member common stock representing the invested portion
of patronage refunds may be redeemed by cash payments from
Farmland to holders thereof who participate in Farmland's base
capital plan as explained under the heading "Patronage Refunds
and Distribution of Net Income."
Major sources of cash during 1993 include $139.5 million
from a net increase in bank loans and notes payable, $87.2
million from the disposition of a subsidiary, $55.9 million from
a net increase in subordinated debt certificates and $12.1
million from the disposition of investments. Major uses of cash
during 1993 were $113.5 million from operations, $98.2 million
for capital additions and improvements, $50.4 million for
acquisition of investments, $17.9 million for dividends and
patronage refunds distributed from income of the 1992 fiscal
year, $13.5 million for redemption of equities, and $13.2 million
for redemption of demand loan certificates.
As a result of regulations by the Environmental Protection
Agency, sulfur levels must be reduced in diesel fuels sold after
September 30, 1993. To comply with these regulations, the
Company has committed to approximately $44.0 million of
improvements to the Coffeyville refinery. As of August 31, 1993,
approximately $31.5 million has been spent.
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
<PAGE>
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 October 31, 1993, of approximately
$133,500,000). 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
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 thereon 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.
<PAGE>
RESULTS OF OPERATIONS
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.
<TABLE>
The increase (decrease) in sales and operating profit by
business segment in each of the years in the three-year period
ended August 31, 1993, compared with the prior year is presented
in the table below. Management's discussion of business segment
sales, operating profit or loss and other factors affecting the
Company's income before income taxes and extraordinary item
during 1993, 1992 and 1991 follows.
<CAPTION>
Income Before Income Taxes and
Sales-Increase (Decrease) Extraordinary Item-Increase (Decrease)
1993 1992 1991 1993 1992 1991
Compared Compared Compared Compared Compared Compared
with 1992 with 1991 with 1991 with 1992 with 1991 with 1990
(Amounts in Millions) (Amounts in Millions)
<S> <C> <C> <C> <C> <C> <C>
Sales and Operating Profit
of Business Segments:
Petroleum..................$ (92) $ (210) $ 63 $ (13) $ 19 $ (66)
Fertilizer and
Agricultural Chemicals.... (13) (138) 70 (52) (16) 39
Feed....................... 34 (21) 2 (1) (3) 1
Food Marketing and Processing 563 21 117 (9) 14 9
Grain Marketing............ 798 155 * 1 (1) *
Retail, Services and Other. 4 (16) 8 3 (1) 2
$1,294 $ (209) $ 260 $ (71) $ 12 $ (15)
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Corporate Expenses and Other:
General corporate expenses (increase) decrease $ 6 $ 5 $ (1)
Other income and deductions (net) increase (decrease) 6 (5) 14
Interest expense (increase) decrease (9) 9 (5)
Share of net (losses) of ventures (10) (1) (1)
Provision for (loss) on disposition of assets 29) -0- -0-
Income before income taxes and extraordinary item $ (107) $ 20 $ (8)
* Grain marketing operations were acquired in 1992
</TABLE>
In computing the operating profit (loss) of a business
segment, none of the following have been added or deducted:
corporate, general and administrative expenses which cannot
practicably be identified or allocated to a business segment,
interest expense, equity in income (loss) of investees, and
miscellaneous income or deductions.
Petroleum
Sales
Sales of the petroleum segment decreased $92.2 million in
1993 compared with 1992, primarily a result of 12% lower unit
sales of refined fuels (gasoline, diesel and distillates) and a
2% decline of the average selling price. Unit sales decreased
mostly because the Company sold its investment in National
Cooperative Refinery Association ("NCRA") in June 1992. In
connection with that divestiture, the Company reduced its
participation in the distribution of more than one billion
gallons of products produced at NCRA's refinery. The refined
fuels unit sales decrease reduced sales in 1993 by approximately
$92.2 million compared with 1992 and lower prices reduced sales
by $17.7 million. In addition, sales of other products
(principally asphalt and coke) decreased $12.4 million. Propane
sales increased approximately $30.1 million in 1993 due to 27%
higher unit sales and 18% higher prices.
In 1992, sales of petroleum products declined $209.7 million
compared with 1991. This decrease resulted primarily because the
average price and unit sales of refined products (gasoline,
distillate and diesel) were lower in 1992 than in the prior year
by 16% and 19%, respectively. The price and unit sales declines
reduced sales of these products by approximately $154.2 million
and $37.3 million, respectively. In addition, propane prices in
1992 averaged approximately 82% of the prior year's level, which
reduced sales by approximately $13.5 million.
On December 31, 1991, Farmland closed its refinery at
Phillipsburg, Kansas. A loading terminal located at the refinery
remains in operation. Sales associated with products of the
Phillipsburg refinery amounted to approximately $20,900,000 in
1992 and $72,000,000 in 1991.
Sales of petroleum products increased in 1991 compared with
1990 due to higher prices. Unit sales in 1991 were 7% lower than
in 1990. Average unit prices for diesel, gasoline and distillate
rose 14%, 15% and 17%, respectively, in 1991 and the average
price of propane increased 19%. The effect of higher prices was
<PAGE>
to increase sales for 1991 by $141.7 million. The effect of the
lower unit sales reduced sales for 1991 by $76.5 million.
Operating Profit
Operating profit of the petroleum segment decreased $13.2
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
impact of lower income from distributing fuels produced by NCRA
and the write-down to market value of certain petroleum
inventories.
Operating profit of the petroleum segment was $5.8 million
in 1992 compared with a $13.0 million loss in 1991. Most of this
improvement resulted from elimination in 1992 of losses
experienced in 1991 on petroleum futures contracts. The Company
changed its hedging practice in March 1991.
The petroleum segment had an operating loss of $13.0 million
in 1991 compared with an operating profit of $53.3 million in
1990. The decrease resulted primarily from volatile world-wide
petroleum market prices and from transactions involving petroleum
futures contracts. By transacting in futures (hedging),
management expected to reduce certain risk of holding inventory.
Management expected that gains or losses from increases or
decreases in the market value of petroleum products held by the
Company as inventory would, for the most part, be offset by a
closely correlated but opposite change in the market value of its
futures contracts. Accordingly, a gain from an increase in the
market value of inventory would be partly offset by a loss on the
related futures position and visa versa. The net result of such
offsetting gains and losses was expected to insulate operating
profit from certain effects of market value variances. However,
in 1991, crude oil and refined fuels price changes were extremely
volatile due to the fear of crude oil supply interruptions and
shortages which rose from threats to peace in major oil producing
nations. Under such conditions, the assumed correlation between
market value changes of futures contracts and inventory was not
as expected and the risk of holding petroleum inventory was not
reduced as expected. The Company changed its practice of hedging
petroleum inventories on March 1, 1991. Transactions involving
petroleum futures contracts are principally utilized to hedge its
fixed price advanced purchase contracts and fixed price advance
sales contracts.
During the year ended August 31, 1991, the Company changed
its method for inventory pricing of petroleum inventories from
the first-in, first-out (FIFO) used previously to the last-in,
first-out (LIFO) method. Pro forma effects of retroactive
application of the LIFO method are not determinable. The effect
of the change was to reduce the operating loss of the petroleum
segment and increase the Company's income before income taxes for
the year ended August 31, 1991 by $3.6 million.
<PAGE>
Fertilizer and Agricultural Chemicals
Sales
Sales of the fertilizer and agricultural chemicals 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 $67.1 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.
The fertilizer and agricultural chemicals segment's sales
declined $137.7 million in 1992 compared with 1991.
Substantially all of this decrease resulted from lower unit sales
and prices for phosphate fertilizers. The Company reported 30%
lower phosphate unit sales in 1992 which reduced sales
approximately $117.3 million. This decrease resulted principally
from the sale on November 15, 1992 of the Green Bay, Florida
phosphate plant to a 50%-owned joint venture. In addition, sales
of phosphate fertilizer decreased approximately $18.2 million,
because the average price was 7% lower. Sales of turf and garden
products were approximately $2.9 million lower.
Sales of fertilizer and agricultural chemicals in 1991 were
$70.3 million higher than in 1990. This increase was a result of
9% higher fertilizer prices and unit sales. The price and unit
sales increase generated higher sales of $79.7 million and $62.4
million, respectively. Sales of other chemical products were
$77.8 million lower in 1991 than in 1990. This sales change was
principally an effect of repositioning the Company in the
distribution chain. In years prior to 1991, the Company
functioned as a wholesale distributor for certain manufacturers
of chemical products. In this capacity, the value of products
sold was recorded as the Company's sales. In 1991, the Company
expanded the portion of its chemical business conducted as a
commissioned agent for manufacturers. As a commission agent,
only commissions received by the Company for arranging sales
transactions are recorded as revenues (but not the value of the
products sold).
Operating Profit
Operating profit of the fertilizer and agricultural
chemicals segment decreased $52.4 million in 1993 compared with
1992, primarily because of 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
gas cost. In addition, phosphate fertilizer margins decreased
approximately $7.1 million because decreased phosphate fertilizer
selling prices more than offset decreased cost.
<PAGE>
The Company owns a 50%-interest in two phosphate fertilizer
joint ventures. Farmland Hydro L.P., a venture in Florida,
primarily serves export markets. SF Phosphate Limited Company
operates a phosphate mine in Utah and a chemical plant in
Wyoming. The income or loss of these entities is not a component
of the Company's operating profit. The Company's share of the
net loss of these ventures has been included in the Company's
statement of operations in the caption, "Equity in loss of
investees." During 1993, the Company's share of the net loss of
these ventures was $8.2 million compared with a loss of $1.3
million in 1992.
The fertilizer and agricultural chemicals segment's
operating profit of $101.4 million decreased $16.1 million in
1992 compared with 1991. The decrease resulted primarily from
lower phosphate fertilizer selling prices and from realignment of
the Company's phosphate fertilizer production operations into two
50%-owned ventures - Farmland Hydro, L.P. and SF Phosphate
Limited Company. See "Business and Properties - Cooperative
Farm Supply Business - Fertilizer and Agricultural Chemicals."
Operating profit of the fertilizer and agricultural
chemicals segment of $117.5 million in 1991 exceeded the prior
year by $38.6 million. Approximately $30.3 million of this
increase was a result of higher unit margins. Unit margins
increased because the average selling price per ton increased by
approximately 8.6% while the average unit cost rose approximately
5.7%. Increased fertilizer unit sales of approximately 9%
generated additional operating profit of about $8.0 million and
operating profit from distribution of other chemical products
improved by $1.6 million.
Feed
Sales
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
$18.0 million. In addition, sales of animal health products
increased $2.5 million. Lower formula feed selling prices partly
offset the effect of higher unit sales.
The feed segment's sales for 1992 decreased $20.9 million
compared with the prior year, principally because of a 22%
decline of feed ingredients unit sales. Unit sales decreased
because sales efforts were directed from feed ingredient products
with near break-even margins to products with higher margins.
Feed ingredient sales were reduced by approximately $41.7 million
because of the unit sales decline. However, feed ingredient
prices increased an average of 8% which increased sales by
approximately $11.2 million and formula feed sales increased $6.8
million, principally due to higher unit sales.
<PAGE>
Sales of the feed segment in 1991 exceeded the prior year by
$1.9 million. The increase was primarily $3.9 million higher
sales of animal health products and $2.1 million lower sales of
formulated feeds and feed ingredients.
Operating Profit
Operating profit of the feed segment decreased slightly in
1993 compared with 1992 due to the impact of lower selling prices
on unit margins.
Operating profit of the feed segment for 1992 of $20.2
million fell $2.9 million from the prior year. The decline
resulted from $1.3 million lower patronage refund income on
purchases from other cooperatives and from $2.2 million higher
expenses partly offset by $.4 million higher gross margins.
Operating profit of the feed segment of $23.1 million in
1991 increased $1.0 million compared with 1990. The increase was
primarily attributable to $1.9 million higher operating profit
from feed ingredients reduced by lower operating profit from
animal health products and formula feeds of $.6 million and $.3
million, respectively.
Food Processing and Marketing
Sales
Food marketing sales increased $562.5 million in 1993
compared with 1992, primarily due to business acquisitions. In
April 1993, the Company and partners organized National Beef
Packing Company, L.P. ("NBPC"). Farmland retained a 58%
ownership interest in NBPC 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, a 99%-owned
subsidiary, 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.
Sales of the food marketing segment in 1992 increased $21.1
million compared with 1991. Sales of specialty meats increased
$50.3 million primarily because these products were not included
in sales for 1991 prior to April 1, when the Company acquired
three specialty meats plants. Fresh and processed pork sales
were lower than in 1991 because the effect of lower wholesale
prices was greater than the effect of higher unit sales.
Sales of food products in 1991 exceeded the prior year by
$117.5 million. Approximately $58.0 million of this increase was
a result of a 10% expansion of unit sales of fabricated pork
products, hams, bacon and sausage, and $16.4 million was a result
of increased prices for these products. In addition, Foods
<PAGE>
acquired three specialty meats processing plants in April 1991.
Sales of specialty meats from these facilities were $25.9 million
in 1991. Specialty meats were not marketed by Foods prior to
acquisition of these plants. The balance of the food product
sales increase in 1991 was mostly due to higher unit sales of
primal pork cuts.
Operating Profit
Operating profit of the food marketing segment decreased
$8.7 million in 1993 compared with 1992. The decrease is
primarily due to 4.6% higher live hog cost. Margins on
fabricated products and hams increased $3.6 million and $4.4
million, respectively, and margins on beef products 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 4.6% higher cost of live
hogs which could not be fully recovered through increased
wholesale prices of fresh and processed pork products and by
higher selling and administrative expenses.
Operating profits of the food marketing segment for 1992
increased $13.8 million compared with 1991. The improvement
includes higher gross margins of approximately $26.8 million,
partially offset by approximately $13.4 million higher selling,
general and administrative expenses. The gross margin increase
includes $9.9 million higher margins on specialty meats
attributable to ownership of specialty meats plants during all of
1992, compared with only five months of 1991. Additional
improvements of gross margins resulted from a more favorable
spread between the costs of live hogs and wholesale pork prices,
from higher unit sales, and from a shift of sales to value-added
products with higher unit margins. Selling, general and
administrative expenses of this segment increased, primarily due
to expenses incurred in connection with the specialty meats
plants which were operated by the Company for only five months in
the prior year.
Operating profit of the food marketing segment in 1991
increased $9.3 million compared with 1990. This improvement
resulted from higher unit margins, primarily on hams and
processed sausage and from higher unit sales. In addition,
margins of $2.9 million were generated from sales of the
specialty meats which were added to this business segment in
April, 1991, when Foods acquired three specialty meat processing
plants. In the aggregate, gross margins of this business segment
were $15.4 million higher than in 1990. However, selling,
general and administrative expenses in 1991 were higher than in
1990 principally due to advertising campaigns and the additional
costs associated with the specialty meat plants acquired during
the year.
<PAGE>
Grain Marketing
Sales and Operating Profit
Grain operations, acquired in July 1992, reported sales for
the full year in 1993 of $953.5 million. Sales for two months
ended August 31, 1992 were $155.2 million.
In 1993, operating profit of the grain business was $.1
million compared with a loss of $.7 million in 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
assets costs were eliminated. As a result, cost reductions have
been realized in 1993.
Selling, General and Administrative Expenses
These expenses decreased $12.3 million in 1993 compared with
1992 primarily due to selling, general and administrative
expenses 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 $6.3 million in 1993 compared with 1992.
Corporate general and administrative expenses decreased
primarily because expenses in 1992 included charges of $2.7
million for environmental remediation at Commerce City, Colorado,
and $1.0 million higher provision for doubtful receivables, and
because costs in 1993 of selling the Company's debt securities
are being amortized over the related term of the debt. In 1992,
these costs were charged to operations as incurred.
In 1992, corporate general and administrative expenses not
identified to business segments decreased $5.2 million compared
with 1991. This decrease was mostly lower retirement plan costs,
reduced corporate advertising and reduced coverage and cost of
liability insurance. Corporate general and administrative
expenses in 1991 were about the same level as in 1990.
Interest Expense
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. Interest expense
decreased $8.9 million in 1992 compared with 1991. The decrease
results from lower borrowings and lower interest rates. Interest
expense increased $6.9 million in 1991 compared with 1990,
primarily because of higher borrowings, partly offset by lower
costs for borrowed funds.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company will adopt FASB Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" during the first
quarter of its 1994 fiscal year. Upon adoption, the cost for
<PAGE>
providing life insurance during an employee's retirement years
will be accrued during the active service period of the employee.
Previously unrecognized costs related to the service period
already rendered (the transition obligation) will be recognized
over 20 years. The annual cost of providing life insurance for
retired employees, determined following Statement 106, is
estimated to be $1,000,000.
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," was issued by the FASB in February
1992 and is effective for fiscal years beginning after December
15, 1992 (the Company's 1994 fiscal year). Statement 109
requires a change from the deferred method currently used by the
Company, to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets
and liabilities. The Company has determined that implementation
of Statement 109 in the first fiscal quarter of 1994 will not
have a significant impact on its consolidated financial
statements.
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
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.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Financial Statements
Independent Auditors' Report................................31
Consolidated Balance Sheets, August 31, 1993 and 1992.......32
Consolidated Statements of Operations for each of the years in
the three-year period ended August 31, 1993................34
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended August 31, 1993...............35
Consolidated Statements of Capital Shares and Equities for each
of the years in the three-year period ended August 31, 1993.37
Notes to Consolidated Financial Statements...............38
Financial Statement Schedules
Farmland Industries, Inc. and Subsidiaries for
each of the years in the three-year period ended August 31,
1993:
V--Property, Plant and Equipment.........................70
VI--Accumulated Depreciation and Amortization of..........73
Property, Plant and Equipment
IX--Short-term Borrowings.................................76
X--Supplementary Income Statement Information............76
All other schedules are omitted as the required
information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.
<PAGE>
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, 1993
and 1992, 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, 1993. In connection
with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and
financial statement schedules are the responsibility of the
Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial
statement schedules 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, 1993 and 1992, and the results of their operations and
their cash flows for each of the years in the three-year period
ended August 31, 1993, in conformity with generally accepted
accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the
basic consolidated financial statements taken as a whole, present
fairly, in all material respects, the information set forth
therein.
As discussed in note 7 to the consolidated financial statements,
the Internal Revenue Service (IRS) has examined the Company's tax
returns for the years ended August 31, 1984 and 1983, 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.
<PAGE>
KPMG PEAT MARWICK
Kansas City, Missouri
October 29, 1993
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents.....................................$ 28,373 $ 34,739
Accounts receivable--trade.................................... 320,980 192,165
Finance companies' notes receivable (notes 2 and 4)........... -0- 127,843
Inventories (note 3).......................................... 496,690 408,599
Other current assets.......................................... 69,357 36,976
Total Current Assets.................................. $ 915,400 $ 800,322
Investments and Long-Term Receivables (notes 4 and 6)...........$ 183,312 $ 140,301
Finance Companies' Notes Receivable (notes 2 and 4).............$ -0- $ 36,385
Property, Plant and Equipment (notes 5 and 6):
Property, plant and equipment, at cost........................$1,154,343 $1,036,439
Less accumulated depreciation and amortization................ 649,965 590,437
Net Property, Plant and Equipment..................... $ 504,378 $ 446,002
Other Assets....................................................$ 116,891 $ 103,382
Total Assets.......................................... $1,719,981 $1,526,392
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Demand loan certificates..............................................$ 29,860 $ 43,084
Short-term notes payable.............................................. 256,655 184,843
Current maturities of long-term debt (note 6)......................... 31,947 40,434
Accounts payable--trade............................................... 217,982 176,295
Other current liabilities............................................. 118,437 147,037
Total Current Liabilities..................................... $ 654,881 $ 591,693
Long-Term Debt (excluding current maturities) (note 6)..................$ 485,861 $ 322,377
Deferred Income Taxes...................................................$ 2,169 $ 5,632
Minority Owners' Equity in Subsidiaries (note 8)........................$ 15,363 $ 18,561
Capital Shares and Equities (note 9):
Preferred shares, $25 par value--Authorized 8,000,000 shares,
148,325 shares issued and outstanding (148,535 shares in 1992).......$ 3,708 $ 3,713
Common shares, $25 par value -- Authorized 50,000,000 shares,
15,199,833 shares issued and outstanding (15,055,334 shares in 1992). 379,996 376,383
Associate member common shares (nonvoting), $25 par value --
Authorized 2,000,000 shares, 327,828 shares issued and
outstanding (327,024 shares in 1992)................................. 8,196 8,176
Earned surplus and other equities..................................... 169,807 199,857
Total Capital Shares and Equities.............................. .$ 561,707 $ 588,129
Contingent Liabilities and Commitments (notes 4, 6, 7, 10 and 11)
Total Liabilities and Equities................................ $1,719,981 $1,526,392
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended August 31
1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
Sales....................................................................$ 4,722,940 $ 3,429,307 $ 3,638,072
Cost of Sales............................................................$ 4,470,290 $ 3,099,316 $ 3,346,722
Gross Income.............................................................$ 252,650 $ 329,991 $ 291,350
Selling, General and Administrative Expenses.............................$ 223,792 $ 236,065 $ 214,906
Other Income (Deductions):
Interest expense.......................................................$ (36,764) $ (27,965) $ (36,951)
Interest income........................................................ 4,189 2,667 2,694
Equity in losses of investees (note 4)................................. (12,394) (2,341) (856)
Provision for loss on disposition of assets (note 16).................. (29,430) -0- -0-
Other, net............................................................. 9,536 4,217 8,835
$ (64,863) $ (23,422) $ (26,278)
Income (loss) before income taxes, minority owners'
interest and extraordinary item........................................$ (36,005) $ 70,504 $ 50,166
Income tax benefit (expense) (note 7).................................... 6,433 (9,458) (7,473)
Minority owners' interest in income of subsidiaries...................... (828) -0- -0-
Income (loss) before extraordinary item..................................$ (30,400) $ 61,046 $ 42,693
Extraordinary item - Utilization of loss carryforward (note 7)........... -0- 1,267 -0-
Net income (loss)...................................................$ (30,400) $ 62,313 $ 42,693
Distribution of net income (note 9):
Patronage refunds:
Farm supply patrons....................................................$ -0- $ 16,229 $ 28,841
Pork marketing patrons................................................. -0- 1,245 -0-
The Cooperative Finance Association's patrons.......................... 1,650 1,482 1,567
$ 1,650 $ 18,956 $ 30,408
Earned surplus and other equities...................................... (32,050) 43,357 12,285
<PAGE>
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPITON>
Year Ended August 31
1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).......................................................$ (30,400) $ 62,313 $ 42,693
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization......................................... 57,730 50,784 55,733
Provision for loss on disposition of assets........................... 29,430 -0- -0-
Provision for environmental matters................................... -0- 3,150 1,750
Loss (gain) on disposition of fixed assets............................ (385) (1,181) 2,484
Patronage refunds received in equities................................ (2,241) (2,320) (15,007)
Proceeds from redemption of patronage equities........................ 1,731 7,727 6,613
Equity in losses of investees......................................... 12,394 2,341 856
Unfunded pension expense.............................................. 3,367 1,287 4,923
Other................................................................. 774 1,456 (5,360)
Changes in assets and liabilities (exclusive of
assets and liabilities of businesses acquired):
Accounts receivable............................................... (92,024) 9,095 10,317
Inventories....................................................... (65,402) (27,483) 19,859
Other assets...................................................... (30,154) 11,490 24,304
Accounts payable.................................................. 19,630 (48,425) (3,221)
Other liabilities................................................. (17,981) 10,367 (10,974)
Net cash provided by (used in) operating activities.......................$(113,531) $ 80,601 $ 134,970
Cash flows from investing activities:
Advances to borrowers by finance companies..............................$(624,618) $(733,403) $(491,482)
Collections from borrowers by finance companies......................... 631,668 685,383 446,547
Acquisition of businesses............................................... (10,500) -0- (31,575)
Proceeds from disposal of investments and notes receivable.............. 12,115 71,582 13,515
Acquisition of investments and notes receivable......................... (50,378) (58,979) (2,493)
Capital expenditures.................................................... (98,238) (79,954) (69,964)
Proceeds from sale of assets to joint venture partner................... -0- 62,104 -0-
Distributions from joint venture, net................................... -0- 29,324 -0-
Proceeds from disposition of subsidiary (note 2)........................ 87,227 -0- -0-
Other................................................................... 8,760 8,191 6,170
Net cash used in investing activities.....................................$ (43,964) $ (15,752) $(129,282)
</TABLE>
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Year Ended August 31
1993 1992 1991
(Amounts in Thousands)
Cash flows from financing activities: <C> <C> <C>
Net decrease of demand loan certificates................................$ (13,224) $ (13,712) $ 12,628
Proceeds from bank loans and notes payable.............................. 916,799 669,608 424,371
Payments of bank loans and notes payable................................ (777,268) (711,101) (434,889)
Proceeds from issuance of subordinated debt certificates................ 72,423 57,780 47,678
Payments for redemption of subordinated debt certificates............... (16,490) (22,557) (38,060)
Payments for redemption of equities..................................... (13,505) (8,046) (20,322)
Payments of patronage refunds and dividends............................. (17,946) (12,204) (9,507)
Other................................................................... 340 (3,853) 4
Net cash provided by (used in) financing activities.......................$ 151,129 $ (44,085) $ (18,097)
Net increase (decrease) in cash and cash equivalents......................$ (6,366) $ 20,764 $ (12,409)
Cash and cash equivalents at beginning of year............................ 34,739 13,975 26,384
Cash and cash equivalents at end of year..................................$ 28,373 $ 34,739 $ 13,975
CASH PAID FOR INTEREST AND INCOME TAXES:
Interest..................................................................$ 41,136 $ 35,626 $ 43,497
Income taxes (net of refunds).............................................$ 1,479 $ 12,181 $ 5,197
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Equities called for redemption............................................$ -0- $ 13,365 $ 7,671
Transfer of assets in exchange for
investment in joint venture (note 4)....................................$ -0- $ 63,911 $ -0-
Issuance of Farmland equities to minority owners of Foods.................$ -0- $ 16,680 $ -0-
Appropriation of current year's net income as patronage refunds...........$ -0- $ 18,956 $ 30,408
Acquisition of businesses:
Fair value of net assets acquired.......................................$ 1,414 $ 30,321 $ 27,661
Goodwill................................................................ 16,086 20,976 3,914
Minority owners' investment............................................. (7,000) -0- -0-
<PAGE>
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES
<CAPTION>
Years Ended August 31, 1993, 1992 and 1991
Earned Total
Associate Surplus Capital
Member And Shares
Preferred Common Common Other And
Shares Shares Shares Equities Equities
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at August 31, 1990.......................$ 3,737 $ 315,691 $ 7,218 $ 149,365 $476,011
Issue, redemption and cancellation of equities... (4) 14 -0- -0- 10
Appropriation of current year's net income......... -0- -0- -0- 42,693 42,693
Transfers to current liabilities.................. -0- (7,665) (6) (12,571) (20,242)
Transfers to minority owners' equity............... -0- -0- -0- (1,097) (1,097)
Dividends on preferred stock...................... -0- -0- -0- (7) (7)
Distribution to farm supply patrons in
common and associate member common shares........ -0- 22,293 992 (23,289) (4)
Exchange of common and associate member
common stock and other equities.................. -0- 313 (524) 211 -0-
Balance at August 31, 1991........................$ 3,733 $ 330,646 $ 7,680 $ 155,305 $497,364
Issue, redemption and cancellation of equities.... (20) 44,297 (15) 13 44,275
Appropriation of current year's net income.......... -0- -0- -0- 62,313 62,313
Transfers to current liabilities................... -0- (12,045) (6) (19,329) (31,380)
Transfers from minority owners' equity.............. -0- 5,570 -0- 10,072 15,642
Dividends on preferred stock....................... -0- -0- -0- (5) (5)
Distribution to farm supply patrons in common stock,
associate member common stock and other equities.. -0- 15,807 873 (16,760) (80)
Exchange of common stock, associate member
common stock and other equities................... -0- (7,892) (356) 8,248 -0-
Balance at August 31, 1992........................$ 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
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Farmland is organized and operated as a cooperative and is
intended to be a producer-driven and profitable ag supply to
consumer foods cooperative system.
Principles of Consolidation --The consolidated financial
statements include the accounts of Farmland Industries, Inc.
("Farmland") and all its majority-owned subsidiaries (the
"Company"). All significant intercompany accounts and
transactions have been eliminated. Certain previously reported
amounts have been reclassified to conform to the 1993
presentation.
Investments --Investments in cooperatives are stated at cost
plus the par value of equity certificates received as payment of
patronage refunds less such equity certificates redeemed.
Investments in companies owned 20% to 50% by Farmland are
accounted for by the equity method. All other investments are
stated at cost.
Accounts Receivable --The Company uses the allowance method
to account for uncollectible accounts and notes. Uncollectible
accounts and notes receivable from members are reduced by offsets
against the common stock of Farmland held by members prior to
charging uncollectible accounts 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. Supplies are valued at cost. All other
inventories are valued at the lower of first-in, first-out cost
or market. To the extent practical, the Company hedges certain
inventories, advance sales and purchase contracts with fixed
prices and anticipated purchases of raw materials.
Property, Plant and Equipment --Assets are stated at cost
and depreciated principally on a straight-line basis over the
estimated useful life of the individual asset (3 to 40 years).
Leasehold improvements are amortized on a straight-line basis
over the terms of the individual leases (15 to 21 years). Upon
disposition of these assets any resulting gain or loss is
included in income. Major repairs and maintenance costs are
capitalized. Normal repairs and maintenance costs are charged to
operations.
Research and Development Costs --Total research and
development costs for the Company for the years ended August 31,
1993, 1992 and 1991 were $3,303,000, $3,338,000 and $3,269,000,
respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Goodwill --The excess of cost over net assets of businesses
purchased is being amortized on a straight-line basis over a
period of 25 to 40 years.
Federal Income Taxes --Farmland and its cooperative
subsidiaries are subject to income taxes on all income not
distributed to patrons as patronage refunds. Farmland and all
its subsidiaries, except Farmland Foods, Inc. ("Foods") and
National Beef Packing Company, L.P. ("NBPC") file consolidated
federal and state income tax returns.
Cash and Cash Equivalents --Investments with maturities of
less than three months are included in "Cash and cash
equivalents."
(2) Acquisitions and Dispositions
During 1993, Farmland and partners organized NBPC, a limited
partnership. Farmland retained a 58% ownership interest in NBPC
by investing $10,500,000 in cash. NBPC's purpose is to carry on
the business of Idle Wild Foods, Inc. ("Idle Wild"). On
April 15, 1993, NBPC acquired Idle Wild's beef packing plant and
feedlot located in Liberal, Kansas. NBPC acquired these assets
by assuming liabilities of Idle Wild with a fair market value of
approximately $130,605,000, 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 ($16,086,000) has been recorded as goodwill and
is being amortized on a straight-line basis over 25 years.
Effective June 30, 1992, Farmland acquired substantially all
the business and assets of Union Equity Co-Operative Exchange
("Union Equity") in exchange for 2,051,880 shares of Farmland
common stock with a par value of $51,297,000 and Farmland's
assumption of substantially all of Union Equity's liabilities.
The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Union Equity have been
included in the Company's consolidated financial statements from
June 30, 1992. The excess of the purchase price over the fair
value of the net identifiable assets acquired ($20,976,000) has
been recorded as goodwill and is being amortized on a
straight-line basis over 25 years.
To establish The Cooperative Finance Association ("CFA") as
an independent finance association for its members, CFA purchased
10,113,000 shares of its voting common stock held by Farmland for
a purchase price comprised of $1,541,000 in cash, equities of
Farmland (with a par value of $2,406,000) held by CFA and a
$6,166,000 subordinated promissory note payable to Farmland
bearing interest of 5.3%. In addition, CFA: 1) purchased the
lending operations and notes receivable of Farmland Financial
Services Company ("FFSC"), a wholly-owned subsidiary of Farmland.
The purchase price approximated the face amount of FFSC's notes
receivable and consisted of $60,505,000 in cash and a $2,128,000
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
6% subordinated promissory note payable; 2) repaid its operating
loan to Farmland ($25,181,000); and, 3) proposed a
recapitalization plan which limits the voting rights of any owner
(including Farmland) to 20% or less regardless of the number of
voting shares held. Farmland repaid $87,227,000 of its
borrowings from National Bank for Cooperatives ("CoBank") with
proceeds received from CFA. As a result of CFA's purchase of its
stock, Farmland's voting percentage in CFA was reduced to 49%.
Accordingly, CFA is not included in the consolidated balance
sheet of the Company as of August 31, 1993.
The following unaudited financial information, for the years
ended August 31, 1993 and 1992, presents pro forma results of
operations of the Company as if the disposition of CFA and the
acquisitions of Union Equity and NBPC had occurred at the
beginning of each 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 Union Equity and NBPC for
the full years 1993 and 1992.
August 31 (Unaudited)
1993 1992
(Amounts in Thousands)
Net sales............................... $5,357,867 $5,441,303
Income (loss) before extraordinary item..$ (44,040) $ 47,225
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(3) Inventories
Major components of inventories are as follows:
August 31
1993 1992
(Amounts in Thousands)
Grain.................................$ 91,990 $ 67,459
Beef.................................. 27,754 -0-
Materials............................. 43,857 42,702
Supplies.............................. 41,388 38,445
Finished and in-process products...... 285,947 258,358
$490,936 $406,964
LIFO adjustment....................... 5,754 1,635
$496,690 $408,599
Earnings for the year ended August 31, 1993 have been
reduced by $8,346,000 to recognize the write-down of certain
crude oil and refined petroleum inventories to market.
Inventories, for these products, stated under the last-in,
first-out (LIFO) method at August 31, 1993 and 1992, were
$84,088,000 and $92,094,000, respectively. Had the lower of
first-in, first-out (FIFO) cost or market been used to value
these products, inventories at August 31, 1993 and 1992 would
have been lower by $5,754,000 and $1,635,000, respectively. The
LIFO valuation method had the effect of increasing income before
income taxes and patronage refunds by $4,119,000 in 1993,
reducing such income by $1,953,000 in 1992 and increasing such
income by $3,588,000 in 1991. Liquidation of prior year
inventory layers in 1992 and 1991 reduced income before income
taxes and patronage refunds in these years by $3,302,000 and
$4,177,000, respectively.
The carrying value of beef inventories stated under the LIFO
method was $27,754,000 at August 31, 1993. The LIFO method of
accounting for beef inventories had no effect on the carrying
value of inventories or on the loss reported in 1993, because
market value of these inventories was lower than LIFO or FIFO
cost.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(4) Investments and Long-Term Receivables
<TABLE>
The investments and long-term receivables are as follows:
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Notes receivable from ventures, 20% to 50% owned...... .$ 60,204 $ 33,801
Investments accounted for by the equity method......... 37,456 45,644
National Bank for Cooperatives (CoBank)................ 31,824 31,646
Investments in and advances to other cooperatives...... 37,690 10,776
Other investments and long-term receivables............ 16,138 18,434
$183,312 $140,301
</TABLE>
The Company's investments accounted for by the equity method
consist principally of 50% equity interests in Farmland Hydro
L.P., SF Phosphates Limited Company and Hyplains Beef L.C.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Summarized financial information of investees accounted for
by the equity method is as follows:
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Current Assets..................$ 66,532 $ 64,899
Long-Term Assets................ 223,937 194,155
Total Assets $290,469 $259,054
Current liabilities.............$ 79,224 $ 60,422
Long-Term Liabilities........... 141,991 118,207
Total Liabilities $221,215 $178,629
Net Assets......................$ 69,254 $ 80,425
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31
1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
Net sales...................$601,194 $218,913 $ 9,843
Net loss....................$(22,755) $ (5,046) $ (2,581)
Farmland's equity in loss...$(12,394) $ (2,341) $ (856)
</TABLE>
On November 15, 1991, Farmland and Norsk Hydro a.s.
("Hydro") formed a joint venture company, Farmland Hydro, to
manufacture phosphate fertilizer products for distribution to
international markets. As part of the joint venture agreement,
Farmland sold a 50% interest in its Green Bay, Florida phosphate
fertilizer plant and certain phosphate rock reserves located in
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Hardee County, Florida to Hydro for an amount approximately equal
to Farmland's carrying value of the assets. Subsequently,
Farmland and Hydro contributed the assets to the joint venture.
Farmland operates the plant under a management agreement with the
joint venture and Hydro provides international marketing
services. See note 15 of the notes to consolidated financial
statements.
Farmland and J. R. Simplot formed a joint venture (SF
Phosphates, Limited Company) to operate a phosphate mine located
in Vernal, Utah, a fertilizer plant located in Rock Springs,
Wyoming, and a 96-mile pipeline that connects the mine with the
fertilizer plant. The purchase of the mine, plant and pipeline
from Chevron Corporation was completed in April 1992.
Prior to August 31, 1993, CFA was a 99%-owned finance
subsidiary of the Company. CFA provides specialized financial
services for Farmland's local cooperative members. CFA operates
on a fiscal year ending August 31. For the years ended August 31,
1993, 1992 and 1991, interest income of CFA amounting to
$7,614,000, $7,840,000 and $7,382,000, respectively, has been
included in sales and interest expense of $5,498,000, $6,248,000
and $5,202,000, respectively, has been included in cost of sales
in the accompanying consolidated statements of operations. A
condensed balance sheet of CFA as of August 31, 1992 and
condensed statements of operations for the period ended August
30, 1993 and the years ended August 31, 1992 and 1991 are shown
below. See note 2 of the notes to consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
THE COOPERATIVE FINANCE ASSOCIATION, INC.
CONDENSED BALANCE SHEET
<CAPTION>
ASSETS
August 31
1992
(Amounts in Thousands)
<S> <C>
Cash.........................................$ 389
Notes Receivable..............................102,602
Investment in National Bank for Cooperatives.. 3,471
Investment in Farmland........................ 1,689
Other......................................... 80
Total Assets..........................$108,231
LIABILITIES AND EQUITIES
Notes and long-term debt payable to banks....$ 3,131
Notes payable to Farmland.................... 69,167
Other........................................ 1,940
Total Liabilities.....................$ 74,238
Capital Shares and Equities:
Farmland and subsidiaries..................$ 22,653
Other patrons.............................. 11,340
Total Capital Shares and Equities.......$ 33,993
Total Liabilities and Equities........$108,231
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
THE COOPERATIVE FINANCE ASSOCIATION, INC.
CONDENSED STATEMENTS OF OPERATIONS
<CAPTION>
Year Ended August 31
1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
Total income..........................................$ 7,742 $ 8,818 $ 8,275
Total expenses........................................ 5,077 6,423 5,829
Income before income taxes and patronage refunds......$ 2,665 $ 2,395 $ 2,446
Income taxes.......................................... 600 430 402
Net income before patronage refunds...................$ 2,065 $ 1,965 $ 2,044
Patronage refunds..................................... 1,732 1,645 1,746
Applied to earned surplus.............................$ 333 $ 320 $ 298
</TABLE>
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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(5) Property, Plant and Equipment
A summary of cost for property, plant and equipment is as
follows:
August 31
1993 1992
(Amounts in Thousands)
Land and improvements.................$ 11,825 $ 11,437
Site improvements..................... 26,878 15,308
Buildings............................. 215,420 193,215
Machinery and equipment............... 655,117 593,014
Furniture and fixtures................ 45,405 37,850
Automotive equipment.................. 51,179 46,324
Mining properties..................... 26,786 26,569
Fertilizer properties................. 48,695 48,695
Construction in progress.............. 57,242 53,812
Leasehold improvements................ 15,796 10,215
Total.......................$1,154,343 $1,036,439
Mining properties represent phosphate rock reserves and
construction and development costs of a mine in Hardee County,
Florida and the surrounding area. The Company has deferred the
development of this phosphate mine. See note 4 of the notes to
consolidated financial statements.
For the years ended August 31, 1993, 1992 and 1991, the
Company capitalized construction period interest of $1,611,000,
$330,000 and $328,000, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(6) Bank Loans, Subordinated Debt Certificates and Notes Payable
<TABLE>
Bank loans, subordinated debt certificates and notes payable
are as follows:
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
CoBank--4.08% to 9.2%, maturing 1994 through 2001...................$ 66,098 $ 95,750
Other bank notes--3.7% to 6.25%, maturing 1996 through 2001......... 138,244 -0-
Subordinated certificates of investment and capital investment
certificates--7.25% to 10.5%, maturing 1994 through 2018.......... 192,857 147,977
Subordinated monthly interest certificates
--7.25% to 12%, maturing 1994 through 2018......................... 62,913 51,829
Industrial revenue bonds--5.75% to 9.25%, maturing 1994 through 2007. 27,880 28,770
Promissory notes--7% to 10%, maturing 1994 through 2001.............. 13,805 15,689
Other--5% to 13%..................................................... 16,011 22,796
$517,808 $362,811
Less current maturities...............................................31,947 40,434
$485,861 $322,377
</TABLE>
The Company maintains various credit agreements with CoBank
that allow the Company to borrow under terms as the Company and
CoBank mutually agree upon. These facilities provide for both
seasonal and term borrowings. At August 31, 1993, total credit
lines available were approximately $508,900,000. Seasonal and
term borrowings under these agreements at August 31, 1993 were
$156,650,000 and $66,098,000, respectively, and $86,819,000 was
used to support 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.
Under loan agreements with CoBank, the Company has pledged
its investment in CoBank stock carried at $31,824,000. Under
industrial revenue bonds and lease agreements, property, plant
and equipment with a carrying value of $31,394,000 has been
pledged. Under bank loan agreements of NBPC, all of its assets
(carried at $152,745,000) are pledged to support its borrowings.
Such borrowings of NBPC are nonrecourse to its partners.
Farmland's loan agreements with CoBank contain provisions
which require the Company to maintain consolidated working
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
capital of not less than $150,000,000 and to maintain
consolidated net worth of not less than $425,000,000. 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). As computed under provisions of the agreement, at
August 31, 1993, working capital was $210,744,000, net worth was
$561,303,000, funded indebtedness was 45.14%, and senior funded
indebtedness was 21.10% of capitalization.
Borrowers from CoBank are required to maintain an investment
in CoBank stock based on the average amount borrowed from CoBank
during the previous five years. At August 31, 1993, the
Company's investment in CoBank approximated the requirement.
Farmland has credit facilities with various commercial
banks. At August 31, 1993, Farmland had $215,000,000 of
available credit from commercial banks under committed
arrangements and $30,000,000 of credit available under
uncommitted arrangements. Borrowings at August 31, 1993 under
these committed and uncommitted credit facilities were
$131,300,000 and $10,000,000, respectively. In addition,
$18,237,000 was used at August 31, 1993 to support letters of
credit issued by such banks on Farmland's behalf. Covenants of
these arrangements are not more restrictive than Farmland's
credit lines with CoBank.
Subordinated debt certificates have been issued under
several different indentures and therefore the terms of such
securities are not identical. Farmland may redeem subordinated
certificates of investments and capital investment certificates
in advance of scheduled maturities. Farmland will redeem
subordinated certificates of investments, capital investment
certificates and subordinated monthly interest certificates upon
death of the holder. Holders of certificates of investment and
capital investment certificates have the right to exchange such
securities after a minimum holding period for similar securities.
The outstanding subordinated debt certificates are subordinated
to senior indebtedness. At August 31, 1993, senior indebtedness
included $449,454,000 for money borrowed, and other instruments
(principally long-term operating leases) which provide for
aggregate payments over ten years of approximately $116,250,000.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Bank loans, subordinated debt certificates and notes payable
mature during the fiscal years ending August 31 in the following
amounts:
(Amounts in Thousands)
1994.......................................$ 31,947
1995....................................... 33,794
1996....................................... 94,075
1997....................................... 51,997
1998....................................... 73,643
1999 and after............................. 232,352
$517,808
(7) Income Taxes
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 October 31, 1993, of approximately
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
$133,500,000). 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
income taxes for that year by approximately $5,000,000 plus
applicable statutory interest thereon.
No provision has been made in the consolidated financial
statements for federal or state income taxes (or interest
thereon) in respect of the IRS claims described above. Farmland
believes that it has meritorious positions with respect to all of
these claims and will continue to vigorously pursue their
favorable resolution through the pending litigation.
In the opinion of Bryan Cave, Farmland's special tax
counsel, it is more likely than not that the courts will
ultimately conclude that (i) Farmland's treatment of the Terra
sale gain was substantially, if not entirely, correct; and (ii)
Farmland properly claimed a dividends-received deduction in
respect of the 1983 distributions which it received from Terra
prior to the sale of the Terra stock. Counsel has further
advised, however, that none of the issues involved in these
disputes is free from doubt, and that there can be no assurance
that the courts will ultimately rule in favor of Farmland on any
of these issues.
Should the IRS ultimately prevail on all of its asserted
claims, all claimed federal and state income taxes as well as
accrued interest would become immediately due and payable, and
would be charged to current operations. In such case, the
Company would be required to renegotiate agreements with its
banks to maintain compliance with various requirements of such
agreements, including working capital and funded indebtedness
provisions. However, no assurance can be given that such
renegotiation would be successful. Alternatives could include
other financing arrangements or the possible sale of assets.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Income tax expense (benefit) is comprised of the following:
Year Ended August 31
1993 1992 1991
(Amounts in Thousands)
Federal:
Current..................$ (2,502) $ 6,600 $ 6,644
Deferred................. (2,944) 1,490 (205)
$ (5,446) $ 8,090 $ 6,439
State:
Current..................$ (468) $ 1,106 $ 1,064
Deferred................... (519) 262 (30)
$ (987) $ 1,368 $ 1,034
$ (6,433) $ 9,458 $ 7,473
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Income tax expense (benefit) differs from the "expected"
income tax expense (benefit) using statutory rate of 34%, as
follows:
<CAPTION>
Year Ended August 31
1993 1992 1991
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit) on
income (loss) before income taxes................ (34.0)% 34.0% 34.0%
Increase (reduction) in income tax expense (benefit)
attributable to:
Patronage refunds................................ (4.0) (9.2) (20.7)
Utilization of member-sourced losses............. -0- (11.4) (.1)
Patronage-sourced items for which no benefit (expense)
is available (provided)......................... 26.5 -0- -0-
State income tax expense (benefit) net of
federal income tax effect....................... (2.2) 1.2 1.4
Benefit associated with exempt income of
foreign sales corporation....................... (1.4) (1.5) -0-
Other, net....................................... (2.7) .3 .3
Income tax expense (benefit)....................... (17.8)% 13.4% 14.9%
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Deferred income taxes result from timing differences in the
recognition of nonmember-sourced income and expenses for
financial reporting and income tax reporting purposes. The
sources of these timing differences and their tax effect are as
follows:
<CAPTION>
August 31
1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
Depreciation........................................$ 473 $ 1,562 $ 3,352
Safe harbor lease rentals........................... (378) (478) (869)
Closed petroleum futures contracts.................. -0- 61 (2,394)
Provision for loss on proposed sale of assets....... (3,454) -0- -0-
Unfunded pension expense............................ (355) (129) (892)
Reinstatement of deferred income taxes previously
offset by net operating loss carryforwards
for financial reporting purposes................... -0- 1,294 -0-
Other, net.......................................... 251 (558) 568
$ (3,463) $ 1,752 $ (235)
</TABLE>
The current tax benefit for the year ended August 31, 1993
results 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, 1992, all of Foods'
nonmember-sourced loss carryforwards were utilized and deferred
income taxes amounting to $1,294,000 were reinstated. During the
year ended August 31, 1992, Farmland utilized nonmember-sourced
loss carryforwards amounting to $3,168,000 to reduce income tax
expense for financial reporting purposes by $1,267,000.
Utilization of these loss carryforwards has been presented as an
extraordinary item in the accompanying consolidated statement of
operations for the year ended August 31, 1992.
In connection with the acquisition of Union Equity, Farmland
acquired member-sourced and nonmember-sourced loss carryforwards
from Union Equity amounting to approximately $18,600,000 and
$10,600,000, respectively. For the year ended August 31, 1992,
Farmland was able to utilize member-sourced and nonmember-sourced
loss carryforwards amounting to $18,600,000 and $2,800,000,
respectively. The benefit of the utilization of the
nonmember-sourced loss carryforward amounting to $1,134,000 has
been recorded as a reduction of goodwill in the accompanying
consolidated balance sheet as of August 31, 1992. See note 2 of
the notes to consolidated financial statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
At August 31, 1993, Farmland has nonmember-sourced loss
carryforwards amounting to approximately $7,597,000, which expire
in 2006 and 2007. At August 31, 1993, Farmland and its
consolidated subsidiaries have alternative minimum tax credit
carryforwards of approximately $2,502,000.
At August 31, 1993, Farmland has patronage-sourced loss
carryforwards available to offset future patronage-sourced income
of $8,155,000 which expire in 2008.
Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," was issued by the FASB in February
1992 and is effective for fiscal years beginning after December
15, 1992 (the Company's 1994 fiscal year). Statement 109
requires a change from the deferred method currently used by the
Company, to the asset and liability method of accounting for
income taxes. Under the asset and liability method, deferred
income taxes are recognized for the tax consequences of
"temporary differences" by applying enacted statutory tax rates
applicable to future years to differences between the financial
statement carrying amounts and the tax basis of existing assets
and liabilities. The Company has determined that implementation
of Statement 109 in the first fiscal quarter of 1994 will not
have a significant impact on its consolidated financial
statements.
(8) Minority Owners' Equity in Subsidiaries
<TABLE>
Minority owners' equity in subsidiaries represents other
owners' interest in common stock and patronage refund equities of
majority-owned subsidiaries of Farmland. A summary of minority
owners' equity in subsidiaries is as follows:
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Farmland Foods, Inc. ........................$ 6,401 $ 6,419
National Beef Packing Company, L.P........... 7,865 -0-
The Cooperative Finance Association, Inc..... -0- 11,340
Others....................................... 1,097 802
$ 15,363 $ 18,561
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
During the year ended August 31, 1993, Farmland reduced its
voting interest in CFA to 49%. See note 2 of the notes to
consolidated financial statements.
(9) Preferred Stock, Earned Surplus and Other Equities
<TABLE>
(A) A summary of preferred stock is as follows:
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Preferred shares, $25 par value-Authorized 8,000,000 shares:
6% - 624 shares issued and outstanding (652 shares in 1992).......... $ 15 $ 16
5-1/2% - 2,832 shares issued and outstanding (3,000 shares in 1992).. 71 75
Series F - 144,869 shares issued and outstanding
(144,883 shares in 1992)............................................ 3,622 3,622
$ 3,708 $ 3,713
</TABLE>
The 5-1/2% and 6% preferred stocks have preferential
liquidation rights over the Series F preferred stock. Dividends
on the 5-1/2% and 6% preferred stock are cumulative only to the
extent earned each year. Series F preferred stock is nondividend
bearing. 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.
(B) A summary of earned surplus and other equities is as
follows:
August 31
1993 1992
(Amounts in Thousands)
Earned surplus................$123,974 $136,175
Nonmember capital.......... .. 104 104
Capital credits............... 38,105 35,765
Unallocated equity............ 6,021 25,877
Additional paid-in surplus.... 1,603 1,936
$169,807 $199,857
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Nonmember capital represents patronage refunds distributed
in the form of book credits.
Capital credits are issued: 1) for payment of the portion
of patronage refunds distributed in equity to patrons who do not
satisfy requirements for membership or associate membership; and,
2) upon conversion of an equal par value amount of common stock
or associate member common stock held by persons who no longer
meet qualifications for membership or associate membership in
Farmland. During the year ended August 31, 1992, Farmland issued
$11,110,000 of capital credits to owners of Foods in exchange for
an equivalent par value of their ownership of Foods common stock
and capital equity fund certificates.
Unallocated equity represents the cumulative difference
between the amount of member-sourced income determined for
financial reporting purposes and the amount of member-sourced
income for income tax reporting purposes. The difference in the
two income amounts results principally from differences in timing
between book expense and tax deductions.
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.
The bylaws of Farmland provide that the patronage refund
payable for any year be reduced if immediately after the payment
of such patronage refund, the amount of retained earnings
(defined for this purpose as the sum of earned surplus and
unallocated equity) would be less than 30% of the previous
year-end balance of members' equity accounts (defined for this
purpose as the sum of common stock, associate member common
stock, capital credits, nonmember capital and patronage refunds
payable in equities). The reduction of patronage refunds would
be the lesser of 15% or the amount required to increase the
balance of the retained earnings account to the required 30%. As
of August 31, 1993, 1992 and 1991, retained earnings exceeded the
required amount by approximately $3,874,000, $49,451,000 and
$9,623,000, respectively.
Farmland established a base capital plan in 1991. The
plan's objective is to achieve proportionality between the dollar
amount of business a member or associate member of Farmland
("Participant") transacts with Farmland and the par value of
Farmland equity which the Participant should hold (hereinafter
referred to as the Participants' "Base Capital Requirement").
This plan: 1) provides that the relationship between the par
value of a Participant's actual investment in Farmland equity and
the Participant's Base Capital Requirement shall influence the
cash portion of any patronage refund paid to the Participant;
and, 2) provides a method for redemption by Farmland of its
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
equities held by a Participant when the par value of the
Participant's investment exceeds his Base Capital Requirement.
The Base Capital Requirement shall be determined annually by
the Farmland Board of Directors at its sole discretion. No
patronage refunds were paid by Farmland for 1993.
(10) Contingent Liabilities and Commitments
The Company leases various equipment and real properties
under long-term operating leases. For the years ended August 31,
1993, 1992 and 1991, rental expenses totaled $41,104,000,
$43,300,000 and $43,029,000, respectively. Rental expense is
reduced for mileage credits received on leased railroad cars
($1,939,000 in 1993, $663,000 in 1992 and $1,773,000 in 1991).
The leases have various remaining terms ranging from over
one year to 16 years. Some leases are renewable, at Farmland's
option, for additional periods. The minimum amount Farmland must
pay for these leases during the fiscal years ending August 31 are
as follows:
(Amounts in Thousands)
1994....................................$ 38,673
1995.................................... 29,370
1996.................................... 23,532
1997.................................... 21,603
1998.................................... 17,528
1999 and after.......................... 67,881
$198,587
Farmland and its subsidiaries are 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 certain throughput agreements, take-or-pay
agreements, minimum quantity agreements, and minimum charge
agreements for various raw material supplies and services through
1996. The Company's minimum obligations under such agreements
are: $2,548,000 in 1994; $1,248,000 in 1995; and $924,000 in
1996.
As a result of regulations by the Environmental Protection
Agency, sulfur levels must be reduced in diesel fuels sold after
September 30, 1993. To comply with these regulations, the
Company has committed to approximately $44,000,000 of
improvements to the Coffeyville refinery. As of August 31, 1993,
approximately $31,451,000 has been spent.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(11) Employee Benefit Plans
The Farmland Industries, Inc. Employee Retirement Plan ("the
Plan") is a defined benefit plan covering substantially all
employees of Farmland and its subsidiaries 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 Company's funding policy is to make the maximum annual
contribution that can be deducted for federal income tax
purposes. Contributions are intended to provide not only for
benefits attributed to service to date but also for those
expected to be earned in the future.
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. Plan assets at August 31, 1993 and
1992 included Farmland subordinated debt certificates and
Farmland demand loan certificates totalling $280,000 and
$5,832,000, respectively.
In connection with Farmland's acquisition of Union Equity,
Union Equity's defined benefit plan's assets and actuarial
liabilities were transferred to Farmland's retirement plan.
<TABLE>
Components of the Company's pension cost are as follows:
<CAPTION>
August 31
1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period...........$ 7,449 $ 6,519 $ 6,717
Interest cost on projected benefit obligation.............. 12,134 11,332 9,927
Actual return on Plan assets............................... (15,842) (20,591) (20,163)
Net amortization and deferral.............................. (374) 4,027 6,042
Change in plan benefits-from extending full retirement
benefits to employees obtaining age 58 by December 31, 1991
and accepting the program before September 30, 1991....... -0- -0- 2,400
Pension expense.........................................$ 3,367 $ 1,287 $ 4,923
</TABLE>
The discount rate and the rate of increase in future
compensation levels used in determining the actuarial present
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
value of the projected benefit obligations at August 31, 1993
were 8.5% and 5%, respectively (9% and 5% at August 31, 1992 and
1991, respectively). The expected long-term rates of return on
assets at August 31, 1993, 1992 and 1991 were 8.5%, 9% and 9.5%,
respectively.
<TABLE>
The following table sets forth the Plan's funded status and
amounts recognized in the Company's balance sheet at August 31,
1993 and 1992. Such prepaid pension cost is based on the Plan's
funded status as of May 31, 1993 and 1992.
<CAPTION>
August 31
1993 1992
(Amounts in Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits................................................$123,061 $110,002
Nonvested benefits............................................. 7,102 4,440
Accumulated benefit obligation.................................$130,163 $114,442
Increase in benefits due to future compensation increases...... 51,633 41,313
Projected benefit obligation...................................$181,796 $155,755
Estimated fair value of Plan assets............................ 212,647 198,173
Plan assets in excess of projected benefit obligation..........$ 30,851 $ 42,418
Unrecognized net loss from past experience different
from that assumed and effects of changes in assumptions.......... 21,754 14,117
Unrecognized net transition asset being recognized over 10 years.(1,866) (2,799)
Unrecognized prior service cost.................................. 2,590 2,960
Prepaid pension cost at end of year............................$ 53,329 $ 56,696
</TABLE>
The Company provides life insurance benefits for retired
employees through an insurance company. Any employee hired
before January 1, 1988 who reaches normal retirement age while
working for the Company is eligible for the benefit. Annual
premiums for providing this employee benefit and for providing
group life insurance for active employees are based on payments
made by the insurance company during the year. Costs of life
insurance provided for retired employees are not separable from
costs of providing group life insurance for active employees.
The Company recognizes costs for providing life insurance for
retired and active employees by charging operations for the
annual insurance premium paid. For the years ended August 31,
1993, 1992 and 1991, such insurance premiums were $1,178,000,
$783,000 and $462,000, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
The Company will adopt FASB Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" during the first
quarter of its 1994 fiscal year. Upon adoption, the cost for
providing life insurance during an employee's retirement years
will be accrued during the active service period of the employee.
Previously unrecognized costs related to the service period
already rendered (the transition obligation) will be recognized
over 20 years. The annual cost of providing life insurance for
retired employees, determined following Statement 106, is
estimated to be $1,000,000.
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
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.
An Annual Employee Variable Compensation Plan, a Long-Term
Management 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 Variable Compensation Plan, all regular
salaried employees are eligible to receive an annual cash bonus
that is based on the employee's position, income before
extraordinary items of the Company, and income or other
performance criteria of the individual's operating unit. Amounts
accrued under this plan for the years ended August 31, 1993, 1992
and 1991 amounted to $-0-, $10,033,000 and $-0-, respectively.
Distributions under this plan are made annually after the close
of each fiscal year.
Under the Long-Term Management Incentive Plan, the Company's
executive management employees are paid cash bonus amounts
determined by a formula which takes into account the level of
management and the average annual net income of the Company over
a three-year period. The current Long-Term Management Incentive
Plan ends August 31, 1996. The Company's performance did not
reach a level where incentive was earned under the Long-Term
Management Incentive Plan that covered the three-year period
ended August 31, 1993. As a result, operations in 1993 were
credited by $2,463,000 to reverse provisions for management
incentive awards previously charged against operations in 1992
and 1991 ($1,171,000 and $1,292,000, respectively).
The Company's Executive Deferred Compensation Plan permits
certain 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
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
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. At August 31, 1993 and 1992, the Company's
obligations under this plan amounted to $8,240,000 and
$7,649,000, respectively.
(12) Industry Segment Information
The Company's business is conducted within three general
operating areas: cooperative farm supply operations, cooperative
marketing operations, and retail and service operations. As a
farm supply cooperative, the Company engages in manufacturing and
wholesale distribution of input products of agricultural
production. The Company's principal farm supply products are
petroleum, fertilizer and agricultural chemicals, and feed.
Petroleum products include gasoline, distillate, diesel
fuel, propane, lube oils, grease and automotive parts and
accessories. Products in the fertilizer and agricultural
chemicals area include nitrogen, phosphate and potash
fertilizers, herbicides, insecticides and other farm chemicals.
Feed products include a complete line of formulated feeds.
Supply products are sold primarily at wholesale to local farm
cooperatives.
Marketing operations include pork and beef processing,
marketing and the distribution of fresh meat products, ham,
bacon, sausage, deli meats, Italian specialty meats and boxed
beef, and the marketing and storage of grain. In 1993, export
sales of grain totaled $570,171,000.
The retail and service operations include convenience fuel
and food stores, farm supply stores, finance company operations
and services such as accounting, financial, management,
environmental and safety, and transportation. See note 2 of the
notes to consolidated financial statements.
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:
other income (deductions) or corporate expenses (included in the
accompanying statements of operations as selling, general and
administrative expenses), which cannot practicably be identified
or allocated by industry segment. Operating income (loss) of
industry segments for the years ended August 31, 1992 and 1991
have been restated for comparative purposes to include certain
costs which were not identified to business segments in 1992 and
1991 but which were identified to business segments in 1993.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
Corporate assets include cash, investments in other cooperatives,
the corporate headquarters of Farmland and certain other assets.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
Following is a summary of industry segment information as of
and for the years ended August 31, 1993, 1992 and 1991:
<CAPTION>
Cooperative Farm Supply Cooperative Unallocated
Marketing and Retail, Corporate
Fertilizer & Processing Services Items and
Agricultural and Inter-Segment
Petroleum Chemicals Feed Foods Grain Other Eliminations Consolidated
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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) $4,722,940
Operating income (loss)
of industry segments............$ (7,429) $ 48,981 $ 19,376 $ 16,485 $ 105 $ (458) $ 77,060
Equity in loss of investees (note 4) 2 $ (8,223) $ (35) $ (3,306) $ (832) $ (12,394)
Provision for loss on disposition
of assets (note 16)............. (20,022) (6,155) (3,253) (29,430)
General corporate expenses......... (48,201)
Other corporate income............... 13,724
Interest expense..................... (36,764)
Minority interest.................... (828)
Income (loss) before income taxes
and extraordinary item.............. $ (36,833)
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 - $ 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
$48,362,000 of capital assets
of business acquired)...........$ 35,629 $ 17,972 $ 6,590 $ 73,561 $ 1,894 $ 3,613 $ 7,341 $ 146,600
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Cooperative Farm Supply Cooperative Unallocated
Marketing and Retail Corporate
Fertilizer & Processing Services Items and
Agricultural and Inter-Segment
Petroleum Chemicals Feed Foods Grain Other Eliminations Consolidated
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1992
Sales to unaffiliated customers...$979,542 $897,820 $445,338 $850,103 $155,169 $101,335 $ -0- $3,429,307
Transfers between segments......... 5,727 9,744 2,531 4,064 -0- -0- (22,066) -0-
Total sales and transfers......$985,269 $907,564 $447,869 $854,167 $155,169 $101,335 $(22,066) $3,429,307
Operating income (loss)
of industry segments.............$ 5,758 $101,408 $ 20,204 $ 25,162 $ (726) $ (3,348) $ 148,458
Equity in loss of investees (note 4). (31) $ (1,362) $ 15 $ (963) $ (2,341)
General corporate expenses........... (54,528)
Other corporate income............... 6,880
Interest expense..................... (27,965)
Income before income taxes
and extraordinary item.............. $ 70,504
Identifiable assets at
August 31, 1992..................$289,021 $313,943 $ 76,300 $201,726 $173,376 $207,274 $1,261,640
Investment in and
advances to investees............$ 139 $ 66,899 $ 1,143 $ 6,004 $ 1,197 $ 4,408 $ 79,790
Corporate assets..................... 184,962
Total assets...................... $1,526,392
Provision for depreciation
and amortization.................$ 12,269 $ 14,888 $ 3,013 $ 9,051 $ 613 $ 4,513 $ 6,437 $ 50,784
Capital expenditures (including
$47,977,000 of capital assets
of business acquired)............$ 25,089 $ 17,119 $ 5,115 $ 14,862 $ 48,440 $ 11,141 $ 6,165 $ 127,931
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
<TABLE>
<CAPTION>
Cooperative Farm Supply Unallocated
Cooperative Retail, Corporate
Fertilizer & Food Services, Items and
Agricultural Marketing and and Inter-Segment
Petroleum Chemicals Feed Processing Other Eliminations Consolidated
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
1991
Sales to unaffiliated customers. $1,189,210 $1,035,532 $466,258 $828,964 $118,108 $ -0- $3,638,072
Transfers between segments...... 13,771 10,898 4,147 3,940 4,779 (37,535) -0-
Total sales and transfers.... $1,202,981 $1,046,430 $470,405 $832,904 $122,887 (37,535) $3,638,072
Operating income (loss)
of industry segments........... $ (12,963) $ 117,490 $ 23,095 $ 11,380 $ (2,854) $ 136,148
Equity in loss of investees (note 4) $ (15) $ (841) (856)
General corporate expenses...... (59,704)
Other corporate income.......... 11,529
Interest expense (note 6)....... (36,951)
Income before income taxes
and extraordinary item......... $ 50,166
Identifiable assets at
August 31, 1991................ $ 282,634 $ 442,271 $ 72,744 $192,582 $164,754 $1,154,985
Investment in and
advances to investees.......... $ 68,083 $ 85 $ 1,220 69,388
Corporate assets................ 144,858
Total assets................. $1,369,231
Provision for depreciation
and amortization............... $ 11,401 $ 22,214 $ 3,005 $ 7,788 $ 4,079 $ 7,246 $ 55,733
Capital expenditures (including
$14,156,000 of capital
assets of businesses acquired). $ 17,302 $ 26,548 $ 3,639 $ 25,083 $ 3,827 $ 7,721 $ 84,120
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(13) Significant Group Concentration of Credit Risk
Farmland extends credit to its customers on terms no more
favorable than standard terms of the industries it serves. A
substantial portion of Farmland'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 received
and management believes that adequate provisions have been made for
doubtful accounts.
Farmland 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 on the agribusiness
economic sector. See note 4 of the notes to consolidated financial
statements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(14) Disclosures About Fair Value of Financial Instruments
<TABLE>
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 its carrying
value:
<CAPTION>
August 31, 1993
Carrying Fair
Amount Value
<S> <C> <C>
Financial Assets:
Investment and long-term receivables:
Notes receivable from investees, 20% to 50% owned...............$ 60,204 $ 58,111
National Bank for Cooperatives.................................. 31,824 ****
Other cooperatives:
Equities......................................................... 22,877 ****
Notes receivable................................................. 14,813 13,408
Financial Liabilities:
Long-term debt:
Subordinated certificates of investment, capital investment
certificates and subordinated monthly interest certificates....$255,770 $287,168
</TABLE>
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.
**** Investments in CoBank and other cooperatives' equities
which have been purchased are carried at cost and securities
received as patronage refunds are carried at par value, less
provisions for permanent impairment. The Company believes it is
not practicable to estimate the fair value of these securities
because there is no established market for these securities and it
is inappropriate to estimate future cash flows which are largely
dependent on future patronage earnings of the cooperatives.
(15) Related Party Transactions
Farmland Hydro, L.P. and Hyplains Beef, L.C. (50% owned
investees) and National Beef Packing Company, L.P. (a 58% owned
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
consolidated limited partnership) have credit agreements with
various banks. Borrowings under these agreements are nonrecourse
to the Company. Cash distributions by these entities to their
owners are restricted by these credit agreements. In addition,
Farmland advances funds and provides management and administrative
services for these entities and, in certain instances, on terms
less advantageous to Farmland than transactions conducted in the
ordinary course of business. At August 31, 1993, Farmland's notes
receivable from these entities amounted to $38,368,000.
(16) Provision for Loss on Disposition of Assets
The Board of Directors authorized management to proceed with
negotiations to sell the Company's refinery at Coffeyville, Kansas.
Based on terms of the transaction contemplated, a $20,022,000
provision for loss on the sale of the refinery has been included in
the accompanying consolidated statement of operations for the year
ended August 31, 1993. Accordingly, at August 31, 1993, the net
carrying value of property, plant and equipment has been reduced by
$17,622,000, and a liability of $2,400,000 has been recorded for
completion of capital projects. The transaction is subject to
certain conditions including negotiation of final definitive
agreements.
The Company entered discussions with a potential purchaser of
a dragline. Based on these discussions, the Company estimates a
loss of $6,155,000 from the sale. Accordingly, at August 31, 1993,
the carrying value of the dragline has been written down by
$6,155,000 and a provision for this loss is included in the
Company's consolidated statement of operations for the year then
ended.
The carrying value of a pork processing plant at Iowa Falls,
Iowa was written down by $3,253,000 to an estimated disposal value.
<PAGE>
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.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of Farmland are as follows:
<TABLE>
<CAPTION>
Expiration Total Years
Age as of of Present of Service
August 31, Positions Held Term as as Board Business Experience
Name 1993 With Farmland Director Member During Last Five Years
<S> <C><C> <C> <C> <C>
Albert J. Shivley 50 Chairman of Board 1995 9 General Manager--American Pride Co-op
Association, Brighton, Colorado, a local cooperative
association of farmers and ranchers.
H. D. Cleberg 54 President and Chief 1994 3 Mr. Cleberg has been with Farmland since 1968.
Executive Officer He was named as president-elect in February 1991 and became
President in April 1991. From September 1990 to
Field Services and Operations Support.
Otis H. Molz 62 Vice Chairman 1994 5 Farmer--Deerfield, Kansas. Mr. Molz has served
and Vice President as Chairman of the Board of the National Bank
for Cooperatives since January 1993. He served
as Chairman of the Board of Directors of Farmland
for Cooperatives.
Lyman Adams 42 1995 1 Manager--Cooperative Grain and Supply,
Hillsboro, Kansas, a local cooperative association
of farmers and ranchers.
Ronald J. Amundson 49 1994 5 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association of
farmers and ranchers.
Baxter Ankerstjerne 57 1993 3 Farmer--Peterson, Iowa. Since December 1988
Mr. Ankerstjerne has served as Chairrman of
Jody Bezner 52 1994 2 Farmer--Texline, Texas.
Richard L. Detten 59 1993 6 Farmer--Ponca City, Oklahoma.
Willard Engel 54 1995 5 General Manager--Lyon County Co-op Oil Company,
Marshall, Minnesota, a local cooperative association
of farmers and ranchers.
Steven Erdman 43 1995 1 Farmer--Bayard, Nebraska.
Ben Griffith 44 1995 4 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.
Gail D. Hall 51 1994 5 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local cooperative
association of farmers and ranchers.
Barry Jensen 48 1993 3 Farmer--White River, South Dakota. Since May 1989
Mr. Jensen has served as President of Farmers Co-op
Oil Association, Winner, South Dakota, a local
cooperative association of farmers and ranchers.
Robert Merkle 64 1994 11 Farmer--Ashkum, Illinois and a Director of Tri Central
Co-op, Ashkum, Illinois, a local cooperative assoc-
Greg Pfenning 44 1994 1 Farmer--Hobart, Oklahoma
Vonn Richardson 60 1993 6 Farmer--Plains, Kansas. President of The Plains
Equity Exchange and Cooperative Union, Plains,
Monte Romohr 40 1993 3 Farmer--Gresham, Nebraska. In March 1988,
Mr. Romohr became President of Farmers Co-op
Paul Ruedinger 63 1995 10 Farmer--Van Dyne, Wisconsin. Prior to March 1989,
he was President of Agri-land Co-op, Fond DuLac,
Wisconsin, a local cooperative association of
farmers and ranchers.
Raymond J. Schmitz 62 1993 1 Farmer--Baileyville, Kansas.
Dale Stenerson 58 1993 3 Farmer -- Hillsboro, North Dakota.
Theodore J. Wehrbein 48 1995 7 Farmer--Plattsmouth, Nebraska. Past Director of
Newawka Farmers Cooperative Company, Nehawka,
Nebraska, a local cooperative association of farmers and
ranchers, having served as Secretary of the Board of
Directors from December 1985 to January 1989.
Robert Zinkula 63 1993 3 Farmer--Mount Vernon, Iowa. Secretary and
Treasurer of Linn Cooperative Oil Company,
Marion, Iowa, a local cooperative association
of farmers and ranchers.
<FN>
</TABLE>
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 Willard Engel, Robert Merkle, Otis Molz, Paul
Ruedinger, Albert Shivley, and H. D. Cleberg. The audit committee
consists of Willard Engel, Steven Erdman, Greg Pfenning, Vonn
Richardson and Raymond Schmitz.
<PAGE>
The executive officers of Farmland are:
Age as of
August 31,
Name 1993 Principal Occupation and Other Positions
J. F. Berardi 50 Executive Vice President and Chief
Financial Officer - Mr. Berardi joined
Farmland March 1, 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. From 1986 to 1989
Mr. Berardi served as Senior Vice
President and Chief Financial Officer of
Harcourt Brace Jovanovich, Inc.
H. D. Cleberg 54 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. From October 1987 to March
1989 he served as Vice President and
General Manager, Fertilizer and Ag
Chemicals Operations, and from July 1986
to September 1987 he served as President,
Farmland Foods. Prior to July 1986 he
held several executive management
positions, most recently Vice President,
Field Services and Operations Support.
S. P. Dees 50 President and General Manager of
Farmland Industrias, S.A. de C.V. -
Mr. Dees was appointed to his present
position in September 1993. From October
1990 to September 1993 he served as
Executive Vice President, Administrative
Group and General Counsel. Mr. Dees
joined Farmland in October 1984, serving
as Vice President and General Counsel,
Law and Administration until September
1990. He was a partner in the law firm
of Stinson, Mag and Fizzell, Kansas City,
Missouri, from 1971 until his employment
by Farmland.
G. E. Evans 49 Senior Vice President, Agricultural
Production Marketing/Processing -
Mr. Evans has been with Farmland since
1971. He was appointed to his present
position in January 1992. 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. He served as Executive
Vice President, Operations from January
1990 to September 1990. He served as
Vice President, Farmland Industries and
President, Farmland Foods from October
1987 to December 1989. He served as Vice
President and General Manager, Feed
Operations from June 1986 to September
1987, and from May 1983 to June 1986 he
served as Vice President, Feed
Operations.
R. W. Honse 50 Executive Vice President, Agricultural
Inputs Operations - Mr. Honse has been
with Farmland since September 1983. He
was appointed to his present position in
January 1992, and served as Executive
Vice President, Agricultural Operations
from October 1990 to January 1992. From
April 1989 to September 1990, he served
as Vice President and General Manager,
Fertilizer and Agricultural Chemicals
Operations. From July 1986 to March 1989
he served as General Manager of the
Florida phosphate fertilizer complex.
B. L. Sanders 52 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. From July 1986 to September
1987 he served as Director, Management
Information Services. From July 1984 to
June 1986 he served as Executive
Director, Corporate Strategy and Research
and from 1968 to June 1984, as Executive
Director, Economic and Market Research.
<PAGE>
EXECUTIVE COMPENSATION
<TABLE>
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,
1992 and 1991.
<CAPTION>
Annual Compensation
Employee
Year Variable
Name and Ending Compensation
Principal Position August 31 Salary Plan
<S> <C> <C> <C>
H. D. Cleberg, 1993 $ 433,506
President and 1992 $ 408,972 $185,745
Chief Executive Officer 1991 $ 293,440
G. E. Evans, 1993 $ 278,304
Senior Vice President 1992 $ 255,900 $114,257
Agricultural Production 1991 $ 205,270
Marketing/Processing
R. W. Honse, 1993 $ 231,964
Executive Vice President 1992 $ 204,686 $ 94,433
Agricultural Inputs Operations 1991 $ 158,503
J. F. Berardi, 1993 $ 206,016
Executive Vice President 1992 $ 100,008 $ 28,075
and Chief Financial Officer 1991 $ (a)
S. P. Dees,
President and General 1993 $ 205,366
Manager of Farmland 1992 $ 195,738 $ 51,521
Industrias, S.A. de C. V. 1991 $ 187,249
(a) Mr. Berardi joined Farmland March 1, 1992.
</TABLE>
An Annual Employee Variable Compensation Plan, a Long-Term
Management 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 are eligible to receive an
annual cash bonus that is based on the employee's position, income
before extraordinary items of the Company, and income or other
performance criteria of the individual's operating unit. Amounts
<PAGE>
accrued under this plan for the years ended August 31, 1993, 1992
and 1991 amounted to $-0-, $10,033,000 and $-0-, respectively.
Distributions under this plan are made annually after the close of
each fiscal year.
Under the Long-Term Management Incentive Plan, the Company's
executive management employees are paid cash bonus amounts
determined by a formula which takes into account the level of
management and the average annual net income of the Company over a
three-year period. The current Long-Term Management Incentive Plan
ends August 31, 1996. The Company's performance did not reach a
level where incentive was earned under the Long-Term Management
Incentive Plan that covered the three-year period ended August 31,
1993. As a result, operations in 1993 were credited by $2,463,000
to reverse provisions for management incentive awards previously
charged against operations in 1992 and 1991 ($1,171,000 and
$1,292,000, respectively).
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 accrued pursuant
to the plan for the accounts of the named individuals during the
fiscal years 1993, 1992 and 1991 are included in the cash
compensation table.
The Company established Farmland Industries, Inc. Employee
Retirement Plan in 1986 for all employees whose customary
employment is at the rate of at least 1000 hours per year.
Participation in this plan is optional prior to age 34, but
mandatory thereafter. Approximately 6,480 active and 6,900
inactive employees were participants in the plan on August 31,
1993. 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 Retirement 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. Payments to
participants in the plan are based upon length of participation and
compensation (limited to $235,840 annually for any employee)
reported to the plan for the four highest of the last ten years of
employment. The plan also contains provisions for death and
disability benefits. The Company made no contributions to the plan
in 1993, 1992 and 1991. At August 31, 1993 (based upon the Plan's
funded status as of May 31, 1993), the present value of the
accumulated benefit obligation was $130,163,000 and the estimated
fair value of plan assets was $212,647,000.
<PAGE>
In 1982, the Tax Equity and Fiscal Responsibility Act (TEFRA)
imposed a maximum retirement benefit which may be paid by a
qualified retirement plan. At the present time, that limit is
$115,641.
<TABLE>
The following table sets forth 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:
<CAPTION>
Remuneration Years of Service
Salaries 15 20 25 30
<S> <C> <C> <C> <C>
$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
175,000.......................... 45,937 61,250 76,562 91,875
200,000.......................... 52,500 70,000 87,500 105,000
225,000.......................... 59,062 78,750 98,437 118,125*
250,000.......................... 65,625 87,500 109,375 131,250*
275,000.......................... 72,187 96,250 120,312* 144,375*
300,000.......................... 78,750 105,000 131,250* 157,500*
<FN>
*Exceeds the actual amount which can be paid pursuant to the
present limitations of TEFRA.
</TABLE>
Subject to the $235,840 maximum limit on annual compensation
which may be covered by a qualified pension plan, amounts included
in the cash compensation table do not vary substantially from the
compensation covered by the pension plan.
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.
<PAGE>
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, 1993 and
1992
Consolidated Statements of Operations for each of
the years in the three-year period ended August
31, 1993
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended August
31, 1993
Consolidated Statements of Capital Shares and
Equities for each of the years in the three-year
period ended August 31, 1993
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Farmland Industries, Inc. and Subsidiaries for each
of the years in the three-year period ended August
31, 1993:
V--Property, Plant and Equipment
VI--Accumulated Depreciation and Amortization of Property,
Plant and Equipment
IX--Short-term Borrowings
X--Supplementary Income Statement Information
All other schedules are omitted as the required
information is inapplicable or the information is
presented in the consolidated financial statements or
related notes.
<PAGE>
(3) Exhibits
Articles of Incorporation and Bylaws:
3.A Articles of Incorporation and Bylaws of
Farmland Industries, Inc. effective August
30, 1990. (Incorporated by Reference - Form
SE, filed November 21, 1990)
Instruments Defining the Rights of Owners of
the Debt Securities Being Registered:
4.A(1) 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.A(2) 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.A(2)(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, filed December 3-2,
1991)
4.A(3) 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.A(3)(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, filed December 3-3,
1991)
4.A(4) Trust Indenture dated November 8, 1984, as
amended January 3, 1985, including specimen
<PAGE>
of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference -
Form S-1, No.2-94400, effective December
31, 1984)
4.A(4)(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, filed December 3-4,
1991)
4.A(5) 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.A(6) 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)
Instruments Defining Rights of Owners of
Indebtedness not Registered:
4.B(1) National Bank for Cooperatives Master Loan
Agreement for Farmland Industries, Inc.,
dated April 23, 1993. (Incorporated by
Reference - Form 10-Q, filed July 14, 1993)
4.B(2) List identifying contents of all omitted
schedules referenced in and not filed with,
the National Bank for Cooperatives Master
Loan Agreement for Farmland Industries,
Inc. (Incorporated by Reference - Form
10-Q, filed July 14, 1993)
<PAGE>
Material Contracts:
Lease Contracts:
10.A(1) The First National Bank of Chicago, not
individually but solely as Trustee for FNBC
Leasing Corporation, the First Chicago
Leasing Corporation, The Boatmen's National
Bank of St. Louis, Firstier Bank, N.A., and
Norwest Bank Minnesota, National
Association and Farmland Industries, Inc.
consummated a leveraged lease in the amount
of $73,153,000 dated September 6, 1991.
(Incorporated by Reference - Form SE, filed
December 3-1, 1991.)
10.A(2) Iowa-Des Moines National Bank as Trustee for
Citicorp Lescaman as Owner-Participant and
Farmland Industries, Inc. consummated a
leveraged lease in the amount of
$18,774,476 dated June 15, 1975.
(Incorporated by Reference - Form S-1,
No.2-57765, effective January 10, 1977)
10.A(3) The First National Bank of Commerce as
Trustee for General Electric Credit
Corporation as Beneficiary and Farmland
Industries, Inc. consummated a leveraged
lease in the amount of $51,909,257.90 dated
March 17, 1977. (Incorporated by Reference
- Form S-1, No.2-60372, effective December
22, 1977)
Management Remunerative Plans Filed Pursuant to
Item 14C of this Report.
10.(iii)(A)Annual Employee Variable Compensation Plan
(September 1, 1993 - August 31, 1994)
10.(iii)(A)Farmland Industries, Inc. Management
Long-Term Incentive Plan (Effective
September 1993)
10.(iii)(A)Farmland Industries, Inc. Executive
Deferred Compensation Plan (Incorporated by
Reference - Form SE, filed November 23,
1987)
22. 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.
<PAGE>
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, was incorporated under
the laws of the State of Delaware. National
Beef Packing Company has been included in
the consolidated financial statements
included 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 included 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 included in this registration.
<PAGE>
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 included 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
included 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
included 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 included in this registration.
Yuma Feeder Pig, Inc., a 72%-owned
subsidiary, was incorporated under the laws
of the state of Colorado. Yuma Feeder Pig,
Inc. has been included in the consolidated
financial statements included 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 included 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 included in this registration.
Uneco Investor Services, Inc., a
wholly-owned subsidiary, was incorporated
under the laws of the State of Delaware.
Uneco Investor Services, Inc. has been
included in the consolidated financial
statements included in this registration.
24. Power of Attorney
<PAGE>
(B) Reports on Form 8-K
A Form 8-K was filed September 15, 1993, pursuant to
Item 2 of the Form 8-K, as a result of the disposition
of The Cooperative Finance Association. Financial
statements filed with the Form 8-K:
a) Unaudited pro forma statements of
operations for the year ended August 31,
1992 and the nine months ended May 31, 1993;
b) Unaudited pro forma balance sheet as of May
31, 1993; and
c) Notes to unaudited pro forma financial
statements.
(C) Exhibits
The exhibits required by Item 601 of Regulation S-K are
filed herewith or have been filed with the Securities
and Exchange Commission and are incorporated by
reference as part of this Form 10-K. See Item 14(A)(3).
(D) Financial Statement Schedules required by Regulation are
filed herewith: See Item 14(A)(2).
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED AUGUST 31, 1993
<CAPTION>
Other
Balance Charges Balance
September 1, Additions Retirements Add/ August 31,
Classification 1992 at Cost or Sales (Deduct) 1993
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land and Land Improvements........$ 11,437 $ 880 $ 1,043 $ 551 $ 11,825
Site Improvements................. 15,308 10,087 96 1,579 26,878
Buildings......................... 193,215 34,531 9,806 (2,520) 215,420
Machinery and Equipment........... 593,014 77,998 11,409 (4,486) 655,117
Furniture and Fixtures............ 37,850 7,251 1,491 1,795 45,405
Automotive Equipment.............. 46,324 6,459 2,032 428 51,179
Mining Properties................. 26,569 217 -0- -0- 26,786
Fertilizer Properties............. 48,695 -0- -0- -0- 48,695
Construction and Acquisitions
in Progress(a).................. 53,812 3,432 -0- (2) 57,242
Leasehold Improvements............ 10,215 5,745 158 (6) 15,796
Total Property, Plant and
Equipment................... $1,036,439 $ 146,600 $26,035 $ (2,661) $1,154,343
<FN>
(a) Construction and acquisitions in progress reflects the net
change for the period after transfers to other
classifications.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED AUGUST 31, 1992
<CAPTION>
Other
Balance Charges Balance
September 1, Additions Retirements Add/ August 31,
Classification 1991 at Cost or Sales (Deduct) 1992
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land and Land Improvements........$ 12,560 $ 2,618 $ 3,534 $ (207) $ 11,437
Site Improvements................. 19,751 425 6,146 1,278 15,308
Buildings......................... 154,062 50,132 10,217 (762) 193,215
Machinery and Equipment........... 711,751 35,653 151,368 (3,022) 593,014
Furniture and Fixtures............ 37,166 5,462 5,264 486 37,850
Automotive Equipment.............. 44,328 8,071 5,852 (223) 46,324
Mining Properties................. 82,672 -0- 54,826 (1,277) 26,569
Fertilizer Properties............. 49,544 -0- 849 -0- 48,695
Construction and Acquisitions
in Progress(a).................. 35,207 24,821 4,574 (1,642) 53,812
Leasehold Improvements............ 9,465 749 -0- 1 10,215
Total Property, Plant and
Equipment................... $1,156,506 $ 127,931 242,630 $ (5,368) $1,036,439
<FN>
(a) Construction and acquisitions in progress reflects the net
change for the period after transfers to other
classifications.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED AUGUST 31, 1991
<CAPTION>
Other
Balance Charges Balance
September 1, Additions Retirements Add/ August 31,
Classification 1990 at Cost or Sales (Deduct) 1991
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land and Land Improvements........$ 12,778 $ 309 $ 399 $ (128) $ 12,560
Site Improvements................. 18,747 1,443 450 11 19,751
Buildings......................... 150,125 13,941 9,029 (975) 154,062
Machinery and Equipment........... 636,238 95,399 19,146 (740) 711,751
Furniture and Fixtures............ 31,500 4,826 1,019 1,859 37,166
Automotive Equipment.............. 46,652 2,977 5,247 (54) 44,328
Mining Properties................. 82,510 263 -0- (101) 82,672
Fertilizer Properties............. 49,539 5 -0- -0- 49,544
Construction and Acquisitions
in Progress(a).................. 75,111 (40,087) -0- 183 35,207
Leasehold Improvements............ 4,422 5,044 -0- (1) 9,465
Total Property, Plant and
Equipment................... $1,107,622 $ 84,120 $35,290 $ 54 $1,156,506
<FN>
(a) Construction and acquisitions in progress reflects the net
change for the period after transfers to other
classifications.
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED AUGUST 31, 1993
<CAPTION>
Additions
Charged to Other
Balance Profit and Retirements, Charges Balance
September 1, Loss of Renewals and Add/ August 31,
Classification 1992 Income Replacements (Deduct) 1993
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land Improvements.................$ 153 $ 1 $ -0- $ -0- $ 154
Site Improvements................. 10,377 2,439 94 (26) 12,696
Buildings......................... 69,907 7,832 875 (1,482) 75,382
Machinery and Equipment(a)........ 418,331 28,720 10,499 20,393 456,945
Furniture and Fixtures............ 21,537 6,398 1,333 1,103 27,705
Automotive Equipment.............. 32,827 4,366 1,474 76 35,795
Fertilizer Properties............. 34,094 3,199 78 1 37,216
Construction and Acquisitions
in Progress(b).................. -0- -0- -0- -0- -0-
Leasehold Improvements............ 3,211 872 11 -0- 4,072
Totals..................$590,437 $53,827 $14,364 $20,065 $649,965
<FN>
(a) Based on negotiations with potential purchasers, the carrying
values of the Coffeyville, Kansas refinery and a dragline
were reduced by adjusting accumulated depreciation by
$17,622,000 and $6,155,000, respectively.
(b) Construction and acquisitions in progress reflects the net
change for the period after transfers to other
classifications.
NOTE: The following percentages are used for computing depreciation:
Land Improvements................6 to 10%
Site Improvements................3 to 30%
Buildings........................2 to 10%
Machinery and Equipment..........3 to 20%
Furniture and Fixtures..........10 to 20%
Automotive Equipment............10 to 33%
Leasehold Improvements...........4 to 6%
Fertilizer Properties............6 to 7%
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED AUGUST 31, 1992
<CAPTION>
Additions
Charged to Other
Balance Profit and Retirements, Charges Balance
September 1, Loss of Renewals and Add/ August 31,
Classification 1991 Income Replacements (Deduct) 1992
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land Improvements.................$ 153 $ 1 $ -0- $ (1) $ 153
Site Improvements................. 13,666 676 3,968 3 10,377
Buildings......................... 72,369 5,810 8,261 (11) 69,907
Machinery and Equipment........... 488,684 29,592 98,262 (1,683) 418,331
Furniture and Fixtures............ 22,075 3,738 5,486 1,210 21,537
Automotive Equipment.............. 32,293 3,149 2,626 11 32,827
Fertilizer Properties............. 34,066 3,591 3,563 -0- 34,094
Construction and Acquisitions
in Progress(a).................. 113 -0- -0- (113) -0-
Leasehold Improvements............ 2,375 836 -0- -0- 3,211
Totals..................$665,794 $47,393 122,166 $ (584) $590,437
<FN>
(a) Construction and acquisitions in progress reflects the net
change for the period after transfers to other
classifications.
NOTE: The following percentages are used for computing depreciation:
Land Improvements.............................6 to 10%
Site Improvements.............................3 to 30%
Buildings.....................................2 to 10%
Machinery and Equipment.......................3 to 20%
Furniture and Fixtures.......................10 to 20%
Automotive Equipment.........................10 to 33%
Leasehold Improvements........................4 to 6%
Fertilizer Properties.........................6 to 7%
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEAR ENDED AUGUST 31, 1991
<CAPTION>
Additions
Charged to Other
Balance Profit and Retirements, Charges Balance
September 1, Loss of Renewals and Add/ August 31,
Classification 1990 Income Replacements (Deduct) 1991
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land Improvements.................$ 149 $ 3 $ -0- $ 1 $ 153
Site Improvements................. 13,160 878 323 (49) 13,666
Buildings......................... 71,094 5,640 4,011 (354) 72,369
Machinery and Equipment........... 471,149 33,404 16,732 863 488,684
Furniture and Fixtures............ 17,856 5,143 915 (9) 22,075
Automotive Equipment.............. 32,505 2,764 2,911 (65) 32,293
Fertilizer Properties............. 30,201 3,865 -0- -0- 34,066
Construction and Acquisitions
in Progress(a).................. 113 -0- -0- -0- 113
Leasehold Improvements............ 1,685 690 -0- -0- 2,375
Totals.................. $637,912 $52,387 $24,892 $ 387 $665,794
<FN>
(a) Construction and acquisitions in progress reflects the net
change for the period after transfers to other
classifications.
NOTE: The following percentages are used for computing depreciation:
Land Improvements..........................6 to 10%
Site Improvements..........................3 to 30%
Buildings..................................2 to 10%
Machinery and Equipment....................3 to 20%
Furniture and Fixtures....................10 to 20%
Automotive Equipment......................10 to 33%
Leasehold Improvements.....................4 to 6%
Fertilizer Properties......................6 to 7%
</TABLE>
<PAGE>
<TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
<CAPTION>
Weighted
Maximum Average Average
Amount Amount Interest
Balance at Weighted Outstanding Outstanding Rate
Category of Aggregate End of Average During During During
Short-Term Borrowings Period Interest Rate the Period the Period the Period
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
August 31, 1993:
Demand Loan Certificates.$ 29,860 3.8% $ 46,403 $ 35,002 4.3%
Bank Debt................$ 268,783 4.1% $ 370,726 $ 348,230 4.2%
August 31, 1992:
Demand Loan Certificates.$ 43,084 5.5% $ 58,684 $ 50,516 6.3%
Bank Debt................$ 200,072 4.5% $ 200,822 $ 174,397 5.3%
August 31, 1991:
Demand Loan Certificates.$ 56,796 7.0% $ 58,896 $ 55,144 7.6%
Bank Debt................$ 164,844 6.4% $ 191,019 $ 158,038 7.5%
<FN>
(1) The weighted average interest rate was calculated by dividing
an interest amount on short-term borrowings by the average
daily balance of short-term borrowings during the period.
</TABLE>
<TABLE>
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<CAPTION>
Charged to Costs and Expenses
For the Year Ended August 31
Item 1993 1992 1991
(Amounts in Thousands)
<S> <C> <C> <C>
1. Maintenance and repairs...$ 61,273 $ 50,252 $ 66,607
<FN>
NOTE: All other items required by Schedule X are excluded as such
items are less than one (1) percent of total sales for each of
the years presented.
<PAGE>
</TABLE>
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, 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 29, 1993.
FARMLAND INDUSTRIES, INC.
BY H. D. Cleberg
H. D. Cleberg
President and Chief Executive Officer
BY John F. Berardi
John F. Berardi
Executive Vice President and
Chief Financial Officer
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 21, 1993.
Signature Title Date
ALBERT J. SHIVLEY Chairman of Board, Director November 29, 1993
Albert J. Shivley
Vice Chairman of Board,
OTIS H. MOLZ Director November 29, 1993
Otis H. Molz
LYMAN ADAMS Director November 29, 1993
Lyman Adams
RONALD J. AMUNDSON Director November 29, 1993
Ronald J. Amundson
BAXTER ANKERSTJERNE Director November 29, 1993
Baxter Ankerstjerne
JODY BEZNER Director November 29, 1993
Jody Bezner
RICHARD L. DETTEN Director November 29, 1993
Richard L. Detten
WILLARD ENGEL Director November 29, 1993
Willard Engel
STEVEN ERDMAN Director November 29, 1993
Steven Erdman
BEN GRIFFITH Director November 29, 1993
Ben Griffith
GAIL D. HALL Director November 29, 1993
Gail D. Hall
BARRY JENSEN Director November 29, 1993
Barry Jensen
ROBERT MERKLE Director November 29, 1993
Robert Merkle
GREG PFENNING Director November 29, 1993
Greg Pfenning
VONN RICHARDSON Director November 29, 1993
Vonn Richardson
MONTE ROMOHR Director November 29, 1993
Monte Romohr
PAUL RUEDINGER Director November 29, 1993
Paul Ruedinger
RAYMOND J. SCHMITZ Director November 29, 1993
Raymond J. Schmitz
DALE STENERSON Director November 29, 1993
Dale Stenerson
THEODORE J. WEHRBEIN Director November 29, 1993
Theodore J. Wehrbein
ROBERT ZINKULA Director November 29, 1993
Robert Zinkula
