SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-60372
FARMLAND INDUSTRIES, INC.
(Exact Name of Registrant as Specified in Its Charter)
KANSAS 44-0209330
(State or Other Jurisdiction (I.R.S. Employer Identification No.)
of Incorporation
or Organization)
3315 North Farmland Trafficway, Kansas City, Missouri 64116-0005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 816-459-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes ( X ) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
Farmland Industries, Inc. is a cooperative. Its voting stock can only be held
by its members. No public market for voting stock of Farmland Industries, Inc.
is established and it is unlikely, in the foreseeable future, that a public
market for such voting stock will develop.
Documents incorporated by reference: None
PART 1
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing
cooperative headquartered in Kansas City, Missouri that is primarily owned by
its members and operates on a cooperative basis. Founded originally in 1929,
Farmland has grown from revenues of $310,000 during its first year of operation
to over $7.2 billion during 1995. Members are entitled to receive patronage
refunds distributed by Farmland from its member-sourced annual net earnings.
Unless the context otherwise requires, the term "member" herein means (i) any
voting member, (ii) any associate member, or (iii) any other person with which
Farmland is a party to a currently effective patronage refund agreement (a
"patron"). See "Business - Patronage Refunds and Distribution of Net Earnings".
Farmland was formally incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Farmland Trafficway, Kansas City, Missouri
64116 (telephone 816-459-6000). Unless the context requires otherwise,
(i) "Farmland" or the "Company" herein refers to Farmland Industries, Inc.
and its consolidated subsidiaries, (ii) all references herein to "year" or
"years" are to fiscal years ended August 31, and (iii) all references herein
to "tons" are to United States short tons.
MEMBERSHIP
Membership requirements are determined by Farmland's Articles of
Incorporation and the Board of Directors of Farmland (the ''Board of
Directors'').
VOTING MEMBERS
As of August 31, 1995, Farmland's requirements for voting membership were
as follows: (1) Voting membership is limited to (a) farmers' and ranchers'
cooperative associations which have purchased farm supplies from or provided
grain to Farmland during Farmland's two most recently completed years, and (b)
producers of hogs and cattle or associations of such producers which have
provided hogs or cattle to Farmland during Farmland's two most recent years. (2)
Voting members must maintain a minimum investment of $1,000 in par value of
Farmland common stock. (3) A cooperative must have open membership (an open
membership cooperative is open to anyone i.e. non-discriminatory) limit voting
to agricultural producers and conduct a majority of its business with voting
producers.
ASSOCIATE MEMBERS
Farmland's associate members have all the rights of membership except that
they do not have voting rights.
As of August 31, 1995, Farmland's requirements for associate membership
were: Associate members must maintain a minimum investment of $1,000 in par
value of Farmland associate member common stock and meet any one of the
following four criteria: (a) be a person meeting the requirements for voting
membership; (b) be a non-cooperative business entity owned 100%, directly or
indirectly, by Farmland or Farmland's members or associate members; (c) be an
association, other than one owned 100% by Farmland or Farmland's voting members
or associate members, which conducts business on a cooperative basis and has a
minimum of 25 active members; and (d) be a hog and/or cattle feeding business
which derives a majority of earned income from such feeding business and agrees
to provide Farmland with the information it needs to pay patronage refunds
from its hog and/or cattle marketing operations to members or other associate
members that are eligible to receive such refunds.
As of August 31, 1995, Farmland's membership, associate membership and
patrons eligible for patronage refunds consisted of approximately 1,800
cooperative associations of farmers and ranchers and 11,500 pork or beef
producers or associations of such producers. See ''Business - Patronage Refunds
and Distribution of Net Earnings''.
In the event the Board of Directors of Farmland shall determine that any
holder of the common stock or associate member common stock of Farmland does not
meet the qualifications as may be established by the Board of Directors for
holders thereof, such person shall have no rights or privileges on account of
such common stock to vote for director(s) or to vote on the management or
affairs of Farmland, and Farmland shall have the right, at its option, (a) to
purchase such common stock at its book or par value, whichever is less, as
determined by the Board of Directors of Farmland, or (b) in exchange for such
common stock or associate member common stock to issue or record on the books of
Farmland capital credits in an equivalent amount. On the failure of any holder,
following any demand by Farmland therefor, to deliver the certificate or
certificates evidencing any common stock or associate member common stock,
Farmland may cancel the same on its books and issue or record on the books of
Farmland an equivalent amount of capital credits in lieu thereof.
BUSINESS
GENERAL
The Company is one of the largest cooperatives in the United States in
terms of revenues. In 1995, Farmland had exports to approximately 72 countries,
and derived 47% of its grain revenues from export sales. Substantially all of
the Company's foreign grain sales are paid in U.S. Dollars.
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal product
divisions - petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum refining
and a complete line of car, truck and tractor tires, batteries and accessories.
Principal products of the crop production division are nitrogen-, phosphate- and
potash-based fertilizers, and, through the Company's ownership in the WILFARM
(a 50%-owned venture formed in 1995)("WILFARM"), a complete line of
insecticides, herbicides and mixed chemicals. Principal products of the feed
division include swine, dairy, pet, beef, poultry, mineral and specialty feeds,
feed ingredients and supplements, animal health products and livestock services.
Over 50% of the Company's farm supply products sold in 1995 was produced in
plants owned by the Company or operated by the Company under long-term lease
arrangements. Approximately 64% of the Company's farm supply products sold in
1995 were sold at wholesale to farm cooperative associations which are members
of Farmland. These farm cooperatives distribute products primarily to farmers
and ranchers in states which comprise the corn belt and the wheat belt and who
utilize the products in the production of farm crops and livestock.
On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain. In December 1995,
the Company plans to commence processing wheat into gluten for use primarily in
the commercial baking and pet food industries and starch for numerous industrial
purposes. In 1995, approximately 68% of the hogs processed and 49% of the grain
marketed were supplied to the Company by its members. Substantially all of the
Company's pork and beef products sold in 1995 were processed in plants owned by
the Company.
No material part of the business of any segment of the Company is dependent
on a single customer or a few customers. Financial information about the
Company's industry segments is presented in Note 12 of the Notes to Consolidated
Financial Statements included herein.
The Company competes for market share with numerous participants with
various levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
competitors include major oil companies, independent refiners, other
cooperatives and product brokers. Competitors in the crop production industry
include global producers of nitrogen and phosphate fertilizers (some of which
are cooperatives) and product importers and brokers. The feed, pork and beef
industries are comprised of a large variety of competitive participants.
PETROLEUM
MARKETING
The principal product of this business segment is refined fuels.
Approximately 66% of refined fuels product sales in 1995 resulted from
transactions with Farmland's members. The balance of the Company's refined
fuels product sales were principally through retailing chains in urban areas.
Other petroleum products include lube oil, grease, by-products of petroleum
refining and a complete line of car, truck and tractor tires, batteries and
accessories. Sales of petroleum products as a percent of the Company's
consolidated sales for 1993, 1994 and 1995 were 19%, 13% and 12%, respectively.
Competitive methods in the petroleum industry include service, product
quality and pricing. However, in refined fuel markets, price competition is
most dominant. Many participants in the industry engage in one or more of the
industry's processes (oil production and transportation, refining, wholesale
distribution and retailing). The Company participates in the industry primarily
as a midcontinent refiner and as a wholesale distributor of petroleum products.
PRODUCTION
The Company owns refineries at Coffeyville, Kansas and at Phillipsburg,
Kansas. The refinery at Phillipsburg, Kansas is closed. A loading terminal
located at the refinery remains in operation. The carrying value of this
refinery at August 31, 1995 was approximately $1.6 million. The Company is
evaluating alternative uses for this facility and cannot at this time determine
the extent of losses, if any, related to the closure of the refinery, but such
losses are expected not to be significant.
Production volume for 1993, 1994 and 1995 is as follows:
Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per Year
Location 1993 1994 1995
(barrels)
Coffeyville, Kansas . . . . . . 53,000 64,211 66,965
The Coffeyville refinery produced 20 million barrels of motor fuels and
heating fuels in 1993, 25 million barrels in 1994, and 26 million barrels in
1995. Approximately 67% of petroleum product sales in 1995 represented products
produced at this location.
Management terminated negotiations with a potential purchaser of the
Coffeyville refinery in 1994 when final sale terms were determined not to be in
the Company's best interest. See Note 17 of the Notes to Consolidated Financial
Statements included herein. In July 1994, the Company acquired a mothballed
refinery in Texas which is being reassembled at the Coffeyville refinery site.
When reassembly is complete in 1996, crude oil processing capacity is expected
to increase.
RAW MATERIALS
Farmland's refinery at Coffeyville, Kansas is designed to process high
quality crude oil with low sulfur content ("sweet crude"). Competition for
sweet crude and declining production in proximity of the refinery has increased
its cost of raw material relative to such cost for coastal refineries with the
capacity for processing and access to lower quality crude grades. The Company's
pipeline/trucking gathering system collects approximately 27% of its crude oil
supplies from producers near its refineries. Additional supplies are acquired
from diversified sources. Modifications to the Coffeyville refinery to increase
its capability to process efficiently crude oil streams containing greater
amounts of lower quality crude are continuing.
Crude oil is purchased approximately 45 to 60 days in advance of the time
the related refined products are to be marketed. Certain of these advance crude
oil purchase transactions, as well as fixed price refined products advance sales
contracts, are hedged utilizing petroleum futures contracts.
During periods of volatile crude oil price changes or in extremely short
crude supply conditions, the Company's petroleum operations could be affected to
a greater extent than petroleum operations of more vertically integrated
competitors with crude oil supplies available from owned producing reserves. In
past periods of relatively severe crude oil shortages, various governmental
regulations such as price controls and mandatory crude oil allocating programs
have been implemented to spread the adversity among all industry participants.
There can be no assurance as to what, if any, government action would be taken
if a crude oil shortage were to develop.
CROP PRODUCTION
MARKETING
The Company's crop production business segment includes nitrogen-,
phosphate-, and potash-based fertilizer products ("plant nutrients") and,
through the Company's ownership in the WILFARM joint venture, a complete line of
crop protection products such as insecticides, herbicides and mixed chemicals.
Sales of the crop production business segment as a percent of consolidated sales
for 1993, 1994 and 1995 were 19%, 17% and 16%, respectively.
Competition in the plant nutrient industry is dominated by price
considerations. However, during the spring and fall plant nutrient application
seasons, farming activities intensify and delivery service capacity is a
significant competitive factor. Therefore, the Company maintains a significant
capital investment in distribution assets and a seasonal investment in inventory
to support its manufacturing operations. The Company has plant nutrient custom
dry blending, liquid mixing, storage and distribution facilities at 33 locations
throughout its trade territory.
The Company's sales of crop production products are primarily at wholesale
to local cooperative associations (members and customers of the Company). In
view of this member/customer relationship, management believes that, with
respect to such customers, the Company has a slight competitive advantage.
Domestic competition, mainly from other regional cooperatives and
integrated crop production companies, is intense due to customers' sophisticated
buying tendencies and production strategies that focus on costs and service.
Also, foreign competition exists from producers of crop production products
manufactured in countries with lower cost natural gas supplies (the principal
raw material in nitrogen-based fertilizer products). In certain cases, foreign
producers of fertilizer for export to the United States may be subsidized by
their respective governments.
PRODUCTION
The Company manufactures nitrogen-based crop production products. Based
on total production capacity, the Company is one of the largest producers of
anhydrous ammonia fertilizer in the United States. The Company owns and
produces nitrogen-based products at four anhydrous ammonia plants and operates
three anhydrous ammonia plants under long-term lease arrangements.
The Company owns and produces phosphate-based products at one plant and
has 50% ownership interest in two ventures which produce phosphate-based
products.
<TABLE>
Nitrogen fertilizer production information for 1993, 1994 and 1995 is as
follows:
<CAPTION>
Actual Annual Production
Anhydrous Ammonia
Plant Location 1993 1994 1995
(tons)
<S> <C> <C> <C>
Lawrence, Kansas . . . . . . . . . . . . 375,000 443,000 430,000
Dodge City, Kansas . . . . . . . . . . . 241,000 257,000 276,000
Fort Dodge, Iowa . . . . . . . . . . . . 232,000 256,000 258,000
Beatrice, Nebraska . . . . . . . . . . . 243,000 277,000 281,000
Enid, Oklahoma (2 plants)(A) . . . . . . 969,000 985,000 998,000
Pollock, Louisiana(A) . . . . . . . . . . 490,000 526,000 497,000
<FN>
(a) Leased plants
</TABLE>
Natural gas is the major raw material used in production of synthetic
anhydrous ammonia. Synthetic anhydrous ammonia is the basic component of other
commercially produced nitrogen-based crop production products including urea,
ammonium nitrate, urea ammonium nitrate solutions and other products. The
Company produces such value-added nitrogen-based products at four plants.
Production of such value-added products from anhydrous ammonia for 1993, 1994
and 1995 is as follows:
<TABLE>
<CAPTION>
Actual Annual Production
Plant Location 1993 1994 1995
(tons)
<S> <C> <C> <C>
Lawrence, Kansas . . . . . . . . . . . . 661,000 654,000 719,000
Enid, Oklahoma . . . . . . . . . . . . . 473,000 433,000 473,000
Dodge City, Kansas . . . . . . . . . . . 205,000 163,000 202,000
Beatrice, Nebraska . . . . . . . . . . . 166,000 162,000 165,000
</TABLE>
Ammonia also is used to react with phosphoric acid to produce phosphoric
acid products such as liquid mixed fertilizer, diammonium phosphate and
monoammonium phosphate.
The Company owns a phosphate chemical plant located in Joplin, Missouri and
land in Florida which contains an estimated 40 million tons of phosphate rock.
The Joplin plant produces ammonium phosphate which is combined in varying ratios
with muriate of potash to produce 12 different fertilizer grade products. In
addition, feed grade phosphate (dicalcium phosphate) is produced at this
facility.
Production at the Joplin plant for 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
Actual Annual Production
1993 1994 1995
(tons)
<S> <C> <C> <C>
Ammonium Phosphate . . . . . . . . . . . 72,000 75,000 64,000
Feed Grade Phosphate . . . . . . . . . . 141,000 157,000 159,000
</TABLE>
The Company and Norsk Hydro a.s. own a joint venture, Farmland Hydro, L.P.
("Hydro"), which is a manufacturer of phosphate fertilizer products for
distribution to international markets. Hydro operates a phosphate plant at
Green Bay, Florida and owns phosphate rock reserves located in Hardee County,
Florida which contain an estimated 40 million tons of phosphate rock. The
Company provides management and administrative services and Norsk Hydro a.s.
provides marketing services to Hydro. The joint venture's plant produces
phosphoric acid products such as super acid, diammonium phosphate and
monoammonium phosphate. Annual production in tons of such products for 1993,
1994 and 1995 was 1,216,000, 1,437,000 and 1,471,000, respectively. The
phosphate rock required to operate the joint venture's plant is presently
purchased from outside suppliers and adequate supplies of sulfur are available
from several producers.
Plans for development of the phosphate reserves owned by the Company and
Hydro have not been established in view of the availability of adequate supplies
of phosphate rock from alternative sources.
The Company and J.R. Simplot Company own a joint venture, SF Phosphates
Limited Company, which operates a phosphate mine located in Vernal, Utah, a
phosphate chemical plant located in Rock Springs, Wyoming and a 96-mile pipeline
connecting the mine to the plant. The plant produces monoammonium phosphate and
super acid with annual production in tons for 1993, 1994 and 1995 of 440,000,
465,000 and 451,000, respectively. Under the joint venture agreement, the
Company and J.R. Simplot Company purchase the production of the joint venture in
proportion to their ownership.
The Company and Mississippi Chemical Company have entered into a letter of
intent to form a joint venture to develop, construct and operate a 1,850 metric
ton per day ammonia production facility at the Brighton Industrial Site, at
LaBrea in the Republic of Trinidad and Tobago. The partners expect the plant to
be funded by a combination of nonrecourse project financing and equity. The
Company expects to fund its equity position in the project (estimated to amount
to approximately $67.0 million) from currently available sources of capital.
Although production start up is expected early in 1998, there can be no
assurance that production will commence at such time. Also, the recent change
in the composition of the national government of the Republic of Trinidad and
Tobago could delay the project; however, this is not expected.
RAW MATERIALS
Natural gas, the largest single component of nitrogen-based fertilizer
production, is purchased directly from natural gas producers. Natural gas
purchase contracts are generally market sensitive and contract prices change as
the market price for natural gas changes. The Company's management believes
that the flexible pricing attributes of its gas supply contracts, without
relinquishing rights to long-term supplies, are essential to its competitive
position. In addition, the Company has a hedging program which utilizes natural
gas futures and options to reduce risks of market price volatility.
Natural gas is delivered to the Company's facilities under pipeline
transportation service agreements which have been negotiated with each plant's
delivering pipeline. Natural gas delivery to the plants could be curtailed
under regulations of the Federal Energy Regulatory Commission if the pipeline's
capacity were required to serve priority users such as residences, hospitals and
schools. In such case, production could be curtailed. No significant
production has been lost because of curtailments in transportation, and no such
curtailment is anticipated.
FEED
Products in the Company's feed line include swine, beef, poultry, dairy,
pet, mineral and specialty feeds, feed ingredients and supplements, animal
health products and livestock services.
This business segment's sales were approximately 10%, 8% and 6% of
consolidated sales for the years 1993, 1994 and 1995, respectively.
Approximately 51% of the feed business segment's sales in 1995 was attributable
to products manufactured in the Company's feed mills. The Company operates feed
mixing plants at 19 locations throughout its territory, an animal protein and
premix plant located in Eagle Grove, Iowa, a premix plant in Marion, Ohio and a
pet food plant in Muncie, Kansas. A new dairy feed mill is under construction
in Artesia, New Mexico.
Feed production is as follows:
<TABLE>
<CAPTION>
Actual Annual Production
1993 1994 1995
(tons)
<S> <C> <C> <C>
22 feed mills (combined) . . . . . . . . 1,030,000 1,118,000 1,112,000
</TABLE>
In addition, the Company's feed operations include placement of Company-
owned feeder pigs with individuals who have contractual arrangements with the
Company to feed pigs on a fee basis until weight gain is finished. During 1993,
1994 and 1995, approximately 113,000 pigs, 250,000 pigs and 298,000 pigs,
respectively, were finished under this program. The majority of the finished
pigs were sold to a 99%-owned subsidiary, Farmland Foods, Inc. ("Foods"), for
processing.
The Company owns less than a 50% interest in Alliance Farm Cooperative
Association (formerly Yuma Feeder Pig Limited Liability Company) which operates
swine farrowing facilities.
The Company operates a facility for production of quality swine breeding
stock. These animals are placed with farrowers under contractual arrangements.
In addition, the Company purchases swine breeding stock for placement with such
farrowers.
The Company conducts research in genetic selection, breeding, animal health
and nutrition at its research facility in Bonner Springs, Kansas. Through local
cooperative associations of farmers and ranchers, the Company participates in
livestock and hog services designed to produce lean, feed-efficient animals and
help livestock producers select feed formulations which maximize weight gain.
FOOD PROCESSING AND MARKETING
PORK
PROCESSING
The Company's pork processing and marketing operations are conducted
through Foods which operates eight food processing facilities. Meat processing
facilities at Springfield, Massachusetts, Carey, Ohio, and New Riegel, Ohio
produce Italian-style specialty meats and ham products. A facility at Wichita,
Kansas processes pork into fresh sausage, and pork, beef and chicken into hot
dogs, dry sausage and other luncheon meats. A facility in Denison, Iowa and one
in Crete, Nebraska function as pork abattoirs and have additional capabilities
for processing pork into bacon, ham and smoked meats. An additional facility at
Monmouth, Illinois was purchased February 1993. These facilities also process
fresh pork into primal cuts for additional processing into fabricated meats
which are sold to commercial users and to retail grocery chains, as well as
case-ready and label-branded cuts for retail distribution. The eighth plant
located in Carroll, Iowa is primarily a packaging facility for canned or cook-
in-bag products. A facility at San Leandro, California was closed on September
1, 1993.
Production for 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
Actual Weekly Production
1993 1994 1995
(pounds)
<S> <C> <C> <C>
Crete, Nebraska . . . . . . . . .2,800,000 2,800,000 3,100,000
Denison, Iowa . . . . . . . . . .2,600,000 2,700,000 2,800,000
Wichita, Kansas . . . . . . . . .1,500,000 1,900,000 2,200,000
Monmouth, Illinois(A) . . . . . .1,400,000 1,400,000 1,900,000
Carroll, Iowa . . . . . . . . . .1,200,000 1,100,000 1,400,000
Springfield, Massachusetts . . . 650,000 750,000 725,000
Carey/Riegel, Ohio . . . . . . . 225,000 275,000 425,000
San Leandro, California(B) . . . 250,000 -0- -0-
<FN>
(A) Acquired February 1993
(B) Closed September 1, 1993
<CAPTION>
Actual Weekly Head Slaughtered
1993 1994 1995
<S> <C> <C> <C>
Crete, Nebraska . . . . . . . . . . . 45,000 46,000 46,000
Denison, Iowa . . . . . . . . . . . . 37,000 40,000 41,000
Monmouth, Illinois . . . . . . . . . . 25,000 27,000 33,000
</TABLE>
MARKETING
Products marketed include fresh pork, fabricated pork, smoked meats, ham,
bacon, fresh sausage, dry sausage, hot dogs, and packing house by-products.
These products are marketed under the Farmland, Maple River, Marco Polo,
Carando, Regal and other brand names. Product distribution is through national
and regional retail food chains, food service accounts, distributors and
international marketing activities.
Pork marketing is a highly competitive industry with many suppliers of live
hogs, fresh pork and processed pork products. Other meat products such as beef,
poultry and fish also compete directly with pork products. Competitive methods
in this segment include price, product quality, product differentiation and
customer service.
BEEF
PROCESSING
The Company's beef processing and marketing operations are conducted
through National Beef Packing Company, L.P. ("NBPC"), which was formed in April
1993, and at August 31, 1995, was 68%-owned by Farmland (such ownership having
increased thereafter to approximately 76%). The processing facilities for these
beef operations are located in Liberal, Kansas and Dodge City, Kansas. These
facilities function as beef abattoirs and have capabilities for processing fresh
beef into primal cuts for additional processing into fabricated or boxed beef.
During 1994 and 1995, the two plants slaughtered 1.7 million and 1.9 million
cattle, respectively.
MARKETING
Products in the Company's beef processing and marketing operations include
fresh beef, boxed beef and packing house by-products. Product distribution is
through national and regional retail and food service customers under the
Farmland Black Angus Beef and other brand names. There is also a limited amount
of international product distribution.
Beef marketing is a highly competitive industry with many suppliers of live
cattle, fresh beef and processed beef. Other meat products such as pork,
poultry and fish also compete directly with beef products. Competitive methods
in this industry include price, product quality and customer service.
GRAIN MARKETING
The Company markets wheat, milo, corn, soybeans, barley and oats, with
wheat constituting the majority of the marketing business. The Company
purchases grain from members and nonmembers located in the Midwestern part of
the United States. Once the grain is purchased, the Company assumes all risks
related to selling such grain. Since grain is a commodity, pricing of grain in
the United States is principally conducted through bids based on the commodity
futures markets.
The Company is exposed to risk of loss in the market value of its grain
inventory and fixed price purchase contracts if grain market prices decrease,
and is exposed to loss on its fixed price sales contracts if grain market prices
increase. To reduce the price change risk associated with holding positions in
grain, the Company takes opposite and offsetting positions by entering into
grain commodity futures contracts. Such contracts have terms of up to one year.
The Company's strategy is to maintain hedged positions on as close to 100% of
its position in grain as is possible. During 1994 and 1995, the Company
maintained hedges on approximately 95.3% and 97.9%, respectively, of its grain
positions. Based on total assets at the beginning and end of 1995, the average
market value of grain positions not hedged during the year amounted to less than
1% of the Company's average total assets. While hedging activities reduce the
risk of loss from changing market values of grain, such activities also limit
the gain potential which otherwise could result from changes in market prices of
grain.
In 1995, approximately 47% of grain revenues were from export sales or
sales to domestic customers for export. The five largest purchasers during 1995
in terms of total revenues from grain operations, were China (15%), Mexico (7%),
Israel (6%), Egypt (6%), and Jordan (2%). In 1993 and 1994, export sales or
sales to domestic customers for export accounted for approximately 60% and 37%,
respectively, of consolidated grain revenues. A majority of the grain export
sales are under price subsidies or credit arrangements guaranteed by the United
States government, primarily through programs administered by the United States
Department of Agriculture ("USDA"). Export-related sales are subject to
international political upheavals and changes in other countries' trade policies
which are not within the control of the United States or the Company. Foreign
sales of grain generally are paid in U.S. Dollars.
As of November 1995, Heartland Wheat Growers, L.P. (79%-owned by Farmland
and 21%-owned by five cooperative members of Farmland) has completed
construction and is in final start-up testing of a wheat processing plant
located in Russell, Kansas. The plant will have capacity to process 4.2 million
bushels of wheat annually and produce gluten for use primarily in the commercial
baking and pet food industries and starch for numerous industrial purposes.
TRADIGRAIN
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain"). Tradigrain imports, exports and ships all major grains from the
major producing countries to final consumers which are either governmental
entities, private companies or other major grain companies.
Tradigrain's purchases of grain are made on a cash basis against
presentation of documents. Its sales of grain are mostly done against confirmed
letters of credit at sight or on 180/360 days deferred basis. For purposes of
the Company's Consolidated Financial Statements, on Tradigrain transactions, the
Company recognizes as revenues net margin on grain traded rather than the value
of the commodities involved in the trades.
PROPERTY
The Company owns or leases 30 inland elevators and one export elevator with
a total capacity of approximately 177,045,000 bushels of grain. The location,
type, number and aggregate capacity in bushels of the elevators at August 31,
1995 are as follows:
LOCATION AGGREGATE
TYPE NUMBER CAPACITY
Amarillo, Texas . . . . . Inland 1 3,226,000
Black, Texas . . . . . . . Inland 1 1,418,000
Commerce City, Colorado . Inland 1 3,234,000
Darrouzett, Texas . . . . Inland 1 1,277,000
Enid, Oklahoma . . . . . . Inland 4 50,300,000
Fairfax, Kansas . . . . . Inland 1 10,047,000
Galveston, Texas . . . . . Export 1 3,253,000
Hutchinson, Kansas . . . . Inland 3 25,268,000
Idaho and Utah . . . . . . Inland 11 9,825,000
Lincoln, Nebraska . . . . Inland 1 5,099,000
Omaha, Nebraska . . . . . Inland 2 4,266,000
Saginaw, Texas . . . . . . Inland 2 37,274,000
Topeka, Kansas . . . . . . Inland 1 12,055,000
Wichita, Kansas . . . . . Inland 1 10,503,000
RESEARCH
The Company operates a research and development farm near Bonner Springs,
Kansas where many aspects of animal nutrition are studied. The research is
directed toward improving the nutrition and feeding practices of livestock and
pets.
Expenditures related to Company-sponsored product and process improvements
amounted to $3.3 million, $2.7 million and $2.3 million for the years ended
1993, 1994 and 1995, respectively.
CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES
In 1995, the Company made capital expenditures of $124.7 million. These
expenditures related principally to the ongoing expansion of the Coffeyville,
Kansas refinery to a production level of 90,000 barrels per day. In addition,
NBPC's facility in Liberal, Kansas was undergoing major expansion as was Foods'
pork processing facility in Crete, Nebraska. Expenditures of the crop
production division included upgrading several existing facilities to improve
gas efficiencies and expanding urea ammonium nutrient ("UAN") facilities in
Lawrence, Kansas and at several storage terminals. As of August 31, 1995, the
Company was also constructing a wheat processing plant in Russell, Kansas.
The Company plans expenditures for capital additions, improvements and
investments in ventures of approximately $379.4 million during the years 1996
and 1997 as described in the following paragraphs. Of this amount, the Company
plans expenditures of $315.1 million for capital additions and improvements and
$64.3 million for investments in ventures.
Capital expenditures and investments planned for the crop production
business segment total $150.3 million and include: an investment in a venture
organized to construct and operate an anhydrous ammonia plant in The Republic
of Trinidad and Tobago and expenditures for operating efficiencies,
environmental and safety issues and for operating necessities or betterments.
Capital expenditures and investments planned for the feed business segment
total $11.9 million and include an additional investment in a venture with
Alliance Farms and expenditures for feed mill and livestock production
efficiencies, operating necessities and replacements.
Capital expenditures and investments planned for the petroleum business
segment total $94.9 million and are to complete the expansion of daily crude oil
processing capacity at the Coffeyville, Kansas refinery to 90,000 barrels per
day and for operating necessities, increased operating efficiency and for
environmental and safety issues.
Capital expenditures and investments of approximately $85.3 million are
planned for the food processing and marketing business segment. These
expenditures include an expansion of NBPC's facility at Liberal, Kansas, the
Crete, Nebraska and Wichita, Kansas plants and operational improvement and
replacements.
Capital expenditures and investments of approximately $6.7 million planned
for the grain business segment are mainly for expansion and replacements.
Capital expenditures and investments of $30.3 million are planned for the
other operations and corporate groups. These expenditures include upgrades of
management information services. The remaining expenditures are planned for
operating necessities and improvements.
The Company intends to fund its capital program with cash from operations
or through borrowings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources."
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials as the Company uses hazardous
substances and generates hazardous wastes in the ordinary course of its
manufacturing process. The Company recognizes liabilities related to remediation
of contaminated properties when the related costs are probable and can be
reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. Such liabilities include estimates
of the Company's share of costs attributable to potentially responsible parties
(''PRPs'') which are insolvent or otherwise unable to pay. All liabilities are
monitored and adjusted regularly as new facts or changes in law or technology
occur.
The Company wholly or jointly owns or operates 56 manufacturing properties
and has potential responsibility for environmental conditions at a number of
former manufacturing facilities and at waste disposal facilities operated by
third parties. The Company is investigating or remediating contamination at 24
properties. The Company has also been identified as a PRP under the federal
Comprehensive Environmental Response, Compensation, and Liability Act
(''CERCLA'') at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five such
sites. Such laws may impose joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property, and companies that generated, disposed of, or arranged
for the disposal of hazardous substance found at the property. During 1994 and
1995, the Company paid approximately $1.4 million and $3.2 million,
respectively, for environmental investigation and remediation.
The Company currently is aware of probable obligations for environmental
matters at 32 properties. As of August 31, 1995, the Company has made an
environmental accrual of $18.5 million. The Company periodically reviews and, as
appropriate, revises its environmental accruals. Based on current information
and regulatory requirements, the Company believes that the accruals established
for environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management also is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this paragraph
may exceed the liabilities which, in the opinion of management, are probable and
which costs are reasonably estimable at August 31, 1995. In the opinion of
management, it is reasonably possible for such costs to be approximately an
additional $19.8 million.
Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the
Company has five closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being conducted
at these locations and the Company does not plan to terminate such operations in
the foreseeable future. Therefore, the Company has not accrued these
environmental exit costs. The Company accrues these liabilities when plans for
termination of plant operations have been made. Such closure and post-closure
costs are estimated to be $5.8 million at August 31, 1995 (and is in addition to
the $19.8 million discussed in the prior paragraph).
The Company is currently involved in three administrative proceedings
brought by Region VII of the Environmental Protection Agency (''EPA'') with
respect to alleged violations under the Clean Air Act, the Emergency Planning
and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The
Company is currently negotiating with the EPA concerning these matters and
believes that such negotiations may result in compromise settlements, including
the possible implementation of a Supplemental Environmental Project in
connection with the Clean Air Act proceeding. Absent such settlements, the
Company intends to contest the EPA's allegations. Accordingly, no provision has
been made in the Company's financial statements for these proposed penalties.
See "Legal Proceedings".
Protection of the environment requires the Company to incur expenditures
for equipment or processes, which expenditures may impact the Company's future
net income. However, the Company does not anticipate that its competitive
position will be adversely affected by such expenditures or by laws and
regulations enacted to protect the environment. Environmental expenditures are
capitalized when such expenditures provide future economic benefits. In 1994 and
1995, the Company had capital expenditures of approximately $2.6 million and
$4.7 million, respectively, to prevent future discharges into the environment.
The majority of such expenditures was for improvements at the Coffeyville
refinery. Management believes the Company currently is in substantial compliance
with existing environmental rules and regulations.
GOVERNMENT REGULATION
The Company's business is conducted within a legal environment created by
numerous federal, state and local laws which have been enacted to protect the
public's interest by promoting fair trade practices, safety, health and welfare.
The Company's operating procedures conform to the intent of these laws and
management believes that the Company currently is in compliance with all such
laws, the violation of which could have a material adverse effect on the
Company.
Certain policies may be implemented from time to time by the USDA, the
Department of Energy or other governmental agencies which may impact the demands
of farmers and ranchers for the Company's products or which may impact the
methods by which certain of the Company's operations are conducted. Such
policies may impact the Company's farm supply and marketing operations.
Management is not aware of any newly implemented or pending policies having
a significant impact or which may have a significant impact on operations of the
Company.
EMPLOYEE RELATIONS
At August 31, 1995, the Company had approximately 12,700 employees.
Approximately 43% of the Company's employees were represented by unions having
national affiliations. The Company's relationship with employees is considered
to be generally satisfactory. No labor strikes or work stoppages within the last
three fiscal years have had a materially adverse effect on the Company's
operating results. Current labor contracts expire on various dates through May
1998. There are no wage re-openers in any of the collective bargaining
agreements.
PATRONAGE REFUNDS AND DISTRIBUTION OF NET EARNINGS
For purposes of this section, (1) annual earnings for 1994 and earlier
years means earnings before income taxes determined in accordance with federal
income tax law, and (2) annual earnings for 1995 and after means earnings before
income taxes determined in accordance with generally accepted accounting
principles.
Farmland operates on a cooperative basis. In accordance with its bylaws,
Farmland returns the member-sourced portion of its annual net earnings to its
members as a patronage refund. Each member's portion of the annual patronage
refund is determined by the quantity or value of business transacted by the
member with Farmland during the year for which the patronage is paid in
comparison with Farmland's total member-sourced earnings for such year in the
patronage allocation unit for which the patronage is paid.
Generally, a portion of the annual patronage refund is returned in cash and
for the balance of the patronage refund (the "non-cash portion") the members
receive Farmland common shares associate member common shares or capital credits
(the equity type received is determined by the membership status). The non-cash
portion of the patronage refund, also referred to herein as "allocated equity
portion", is determined annually by the Board of Directors. The annual
patronage refund is returned to members as soon as practical after the end of
each fiscal year. The Internal Revenue Code of 1986, as amended, allows a
cooperative to deduct from its taxable income the total amount of the patronage
refunds returned, provided that not less than 20% of the total patronage refund
returned is cash. The bylaws of Farmland provide that the Board of Directors
has complete discretion with respect to the handling and ultimate disposition
of any member-sourced losses.
For the years ended 1993, 1994 and 1995, Farmland returned the following
patronage refunds:
<TABLE>
<CAPTION> Cash or Cash
Equivalent Portion Non-Cash Portion Total Patronage
of Patronage Refunds of Patronage Refunds Refunds
(Amounts in thousands)
<S> <C> <C> <C>
1993 . . . . $ -0- $ -0- $ -0-
1994 . . . . $ 26,552 $ 44,032 $ 70,584
1995 . . . . $ 33,038 $ 61,356 $ 94,394
</TABLE>
Nonpatronage income or loss (income or loss from activities not directly
related to the cooperative marketing or purchasing activities of Farmland) is
subject to income taxes computed on the same basis as such taxes are computed on
the income or loss of other corporations.
ALLOCATED EQUITY REDEMPTION PLANS
The Allocated Equity Redemption Plans described below, namely the Base
Capital Plan (as defined below), the estate settlement plan and the special
allocated equity redemption plans (collectively, the "Plans") may be changed
at any time or from time to time at the sole and absolute discretion of the
Board of Directors. The Plans are also not binding upon the Board of
Directors or the Company, and the Board of Directors reserves the right
to redeem, or not redeem, any equities of the Company without regard
to whether such action or inaction is in compliance with the Plans.
The factors which may be considered by the Board of Directors in determining
when, and under what circumstances, the Company may redeem equities include,
but are not limited to, the terms of the Company's Base Capital Plan,
income and other tax considerations, the Company's results of
operations, financial position, cash flow, capital requirements, long-term
financial planning needs and other relevant considerations. By retaining
discretion to determine the amount, timing and ordering of any equity
redemptions, the Board of Directors believes that it can continue to assure that
the best interests of the Company and thus of its members will be protected.
BASE CAPITAL PLAN
For the purposes of acquiring and maintaining adequate capital to finance
the business of the Company, the Board of Directors has established a base
capital plan ("Base Capital Plan").
The Base Capital Plan provides a mechanism for determining the Company's
total capital requirements and each voting member's and associate member's share
thereof (the base capital requirement). As part of the Base Capital Plan, the
Board of Directors may, in its discretion, provide for redemption of Farmland
common stock or associate member common stock held by voting members or
associate members whose holdings of common shares or associate member shares
exceed the voting members' or associate members' base capital requirement. The
Base Capital Plan provides a mechanism under which the cash portion of the
patronage refund payable to voting members or associate members will depend upon
the degree to which such voting members or associate members meet their base
capital requirements.
ESTATE SETTLEMENT PLAN
The estate settlement plan provides that in the event of the death of an
individual (a natural person) allocated equity holder, the allocated equity
holdings of the deceased will be redeemed at par value with the exception
allocated equity which was purchased and held by the deceased for less than five
years. This provision is subject to a limitation of $1.0 million in any one
fiscal year without further authorization by the Board of Directors.
SPECIAL ALLOCATED EQUITY REDEMPTION PLANS
From time to time, the Company has redeemed portions of its outstanding
allocated equity under various special allocated equity redemption plans.
Each such plan has been designed to return cash to members or former
members of Farmland or Foods by redeeming certain types of outstanding allocated
equity. The order in which each type of allocated equity is redeemed is
determined by the Board of Directors. Except for preferred stock sold through a
public offering in 1984, substantially all the redemptions under these plans
were for allocated equities originally issued as the non-cash portion of the
Company's patronage refunds. See "Patronage Refunds and Distribution of Net
Earnings".
Special allocated equity redemption plans are designed to provide a
systematic method for redemption of outstanding allocated equity which is not
subject to redemption through other Plans, such as the Base Capital Plan or the
estate settlement plan.
As of August 31, 1995, provisions of the current special allocated equity
redemption plan include:
1. No special redemption will be made if the redemption may result in a
violation of covenants in loan agreements and similar instruments; and
2. The targeted amount for special redemptions is a percentage of
consolidated net income (member and nonmember). The percentage is
determined based on the ratio of Funded Indebtedness to Capitalization
(as defined in the special allocated equity redemption plan) before
the special redemption but after giving effect to the distribution of
cash and redemptions under the Base Capital Plan. Calculation for
special redemptions is as follows:
Total Special Allocated Equity
Funded Indebtedness as Redemption
as a Percent of as a Percent of
Capitalization Consolidated Net Income
> 50 % None
48 - 50 % 2.5 %
45 - 47 % 5.0 %
40 - 44 % 7.5 %
< 40 % 10.0 %
The targeted amount may be prorated between these levels.
3. The priority for redeeming equities under the Special Allocated Equity
Redemption Plans is at the sole discretion of the Board of Directors
of Farmland.
Presented below are the amounts of allocated equity approved for redemption
by the Board of Directors under the Base Capital Plan, the estate settlement
plan and the special allocated equity redemption plans for each of the years in
the five-year period ended 1995. The amounts approved for redemptions were paid
in cash in the fiscal year following approval.
<TABLE>
<CAPTION>
Base Capital Estate Special Equity
Plan Settlement Plan Redemption Plans Total Plan
Redemptions Redemptions Redemptions Redemptions
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
1991 2,300 4 5,351 7,655
1992 6,707 234 6,755 13,696
1993 -0- 127 12 139
1994 8,740 126 4,108 12,974
1995 14,159 128 13,451 27,738
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
In the opinion of Robert B. Terry, Vice President and General Counsel of
Farmland, there is no litigation existing or pending against Farmland or any of
its subsidiaries that, based on the amounts involved or the defenses available
to the Company, would have a material adverse effect on the financial position
of the Company except for the pending tax litigation relating to Terra
Resources, Inc. ("Terra"), a former subsidiary of the Company, as explained in
Note 7 of the Notes to Consolidated Financial Statements. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition, Liquidity and Capital Resources."
In accordance with the Securities and Exchange Commission's Regulation S-K,
the Company reports that it is currently involved in the following
administrative proceedings in which violations of environmental laws are
alleged and civil penalties in excess of $100,000 are sought.
1. COFFEYVILLE CERCLA/EPCRA FINE. On August 10, 1993, Region VII of the
U.S. Environmental Protection Agency (the "EPA") issued against the Company an
administrative complaint seeking $350,000 in civil penalties for alleged
violations of notification requirements under the Comprehensive Environmental
Response, Compensation and Liability Act and the Emergency Planning and
Community Right to Know Act. The Company has been negotiating with the EPA
concerning this matter, but no resolution has been reached to date.
2. COFFEYVILLE RCRA DOCKET NO. VII-94-H-0018. On August 2, 1994, Region
VII of the EPA issued against the Company an administrative complaint seeking
$1.4 million in civil penalties for alleged violations of the Resource
Conservation and Recovery Act (RCRA) and of regulations issued thereunder. The
Company has been negotiating with the EPA concerning this matter, but no
resolution has been reached to date.
3. COFFEYVILLE CLEAN AIR ACT CIVIL PENALTY. On March 22, 1995, the U.S.
Department of Justice ("DOJ") notified the Company of its intent to bring suit
against the Company for alleged violations of the Clean Air Act. During July
1995, the Company was notified that, if suit is filed, the Government will seek
civil penalties totaling $1.6 million. The Company has been negotiating with
the DOJ and EPA concerning this matter but no resolution has been reached to
date.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no established public market for the common stock, associate
member common stock and capital credits of Farmland. In view of the following,
it is unlikely in the foreseeable future that a public market for these equities
will develop:
1) the common stock, associate member common stock and capital credits
are nondividend bearing;
2) the right of any holder of common stock, associate member common
stock and capital credits to receive patronage refunds (including
any cash patronage refunds) from Farmland is dependent on the holder
being a voting member, an associate member or a patron. See
"Business and Properties - The Company";
3) the amount of patronage refunds (including any cash patronage
refunds) a holder, eligible to receive patronage refunds, may
receive is dependent on the net income of Farmland which is
attributable to the quantity or value of business such holder
transacts with Farmland and the amount by which a holder's
investment in Farmland varies from such holder's base capital
requirement. See "Business and Properties - Business - Patronage
Refunds and Distribution of Net Earnings"; and
4) Farmland intends to redeem its equities only in accordance with
provisions of the Plans which provisions are determined by the
Farmland Board of Directors at its sole discretion. See "Business
and Properties - Equity Redemption Plans".
At August 31, 1995, there are approximately 2,939 holders of common shares,
696 holders of associate member shares, and 11,937 holders of capital credits
based upon the number of recordholders.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of the end of and for
each of the years in the five-year period ended August 31, 1995 are derived from
the Consolidated Financial Statements of the Company, which Consolidated
Financial Statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Consolidated Financial Statements as of
August 31, 1994 and 1995 and for each of the years in the three-year period
ended August 31, 1995 (the "Consolidated Financial Statements"), and the
independent auditors' report thereon, are included elsewhere herein. The
information set forth below should be read in conjunction with information
appearing elsewhere herein: "Management's Discussion and Analysis of Financial
Condition and Results of Operations", the Consolidated Financial Statements and
related notes, and the independent auditors' report which contains an
explanatory paragraph concerning income tax adjustments proposed by the IRS
relating to Terra.
<TABLE>
<CAPTION>
Year Ended August 31
1991 1992 1993 1994 1995
(Amounts in Thousands except ratios)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:(1)(2)
Net Sales . . . . . . . . . . $ 3,638,072 $ 3,429,307 $ 4,722,940 $ 6,677,933 $ 7,256,869
Operating Profit of Industry
Segments . . . . . . . . . . 156,765 160,912 86,579 154,799 293,381
Interest Expense . . . . . . . 36,951 27,965 36,764 51,485 53,862
Income (Loss) From
Continuing Operations . . . 42,693 61,046 (30,400) 73,876 162,799
Net Income (Loss) . . . . . . . $ 42,693 $ 62,313 $ (30,400) $ 73,876 $ 162,799
DISTRIBUTION OF NET INCOME (LOSS):
Patronage Refunds:
Allocated Equity . . . . . . $ 17,837 $ 1,038 $ 1,155 $ 44,032 $ 61,356
Cash and Cash Equivalents . 12,571 17,918 495 26,580 33,061
Earned Surplus and Other
Equities . . . . . . . . . . 12,285 43,357 (32,050) 3,264 68,382
$ 42,693 $ 62,313 $ (30,400) $ 73,876 $ 162,799
BALANCE SHEETS:
Working Capital . . . . . . . . $ 122,124 $ 208,629 $ 260,519 $ 290,704 $ 319,513
Property, Plant and Equipment,
Net . . . . . . . . . . 490,712 446,002 504,378 501,290 592,145
Total Assets . . . . . . . . . 1,369,231 1,526,392 1,719,981 1,926,631 2,185,943
Long-Term Debt (excluding
current maturities) . . . . 291,192 322,377 485,861 517,806 506,033
Capital Shares and Equities . . 497,364 588,129 561,707 585,013 687,287
<FN>
</TABLE>
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition, Liquidity and Capital
Resources" for a discussion of the pending income tax litigation relating
to Terra, a former subsidiary of the Company.
(2) Acquisitions and Dispositions:
(a) During 1994, the Company acquired 79% of the common stock of National
Carriers, Inc. ("NCI") for a cash purchase price of $4.4 million.
NCI is a trucking company located in Liberal, Kansas. NCI provides
substantially all the trucking service needs of National Beef Packing
Company, L.P. ("NBPC"), a limited partnership. See Note 2 of the
Notes to Consolidated Financial Statements included herein.
(b) In December 1993, the Company acquired all the common stock of
seven international grain trading companies (collectively referred
to as "Tradigrain"). The purchase price for Tradigrain ($31.4
million) was paid in cash. See Note 2 of the Notes to
Consolidated Financial Statements included herein.
(c) During 1993, Farmland acquired a 58% interest in NBPC (having
increased to 68% on March 31, 1995 and, subsequent to August 31,
1995, such interest having increased to approximately 76%).
Effective April 15, 1993, NBPC acquired Idle Wild Foods, Inc.'s
beef packing plant and feedlot located in Liberal, Kansas. See
Note 2 of the Notes to Consolidated Financial Statements
included herein.
(d) On August 30, 1993, The Cooperative Finance Association ("CFA")
purchased 10,113,000 shares of its voting common stock from Farmland
as part of a recapitalization plan which established CFA as an
independent finance association for its members. As a result of CFA's
stock purchase and amendments to CFA's bylaws, Farmland did not have
voting control of CFA at August 31, 1993 and, therefore, did not
include CFA in its consolidated balance sheet at August 31, 1993.
Farmland's remaining investment in CFA is being accounted for by the
cost method.
(e) The following unaudited financial information for the year ended
August 31, 1993 presents pro forma results of operations of the
Company as if the disposition of CFA and the acquisition of NBPC had
occurred at the beginning of the period presented. The pro forma
financial information includes adjustments for amortization of
goodwill, additional depreciation expense, and increased interest
expense both on recourse and nonrecourse debt assumed in the
acquisitions. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred
had the Company been a single entity which excluded CFA and included
NBPC for the full year 1993. See Note 2 of the Notes to Consolidated
Financial Statements included herein.
August 31
1993
Unaudited
(Amounts in Thousands)
Net Sales . . . . . . . . . . . . . $ 5,357,867
Income (Loss) Before
Extraordinary Item . . . . . . . (44,040)
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its debt securities (the
"continuous debt program") and bank lines of credit.
The Company's debt securities issued under the continuous debt program
generally are offered on a best-efforts basis through the Company's wholly owned
broker-dealer subsidiary, Farmland Securities Company, and through American
Heartland Investments, Inc. (which is not affiliated with Farmland), and also
may be offered by selected unaffiliated broker-dealers. The types of securities
offered in the continuous debt program include certificates payable on demand
and five- and ten-year subordinated debt certificates. The total amount of such
debt outstanding and the flow of funds to, or from, the Company as a result of
the continuous debt program are influenced by the rate of interest which
Farmland establishes for each type of debt certificate offered and by options of
Farmland to call for redemption certain of its outstanding debt certificates.
During the year ended August 31, 1995, the outstanding balance of demand
certificates decreased by $9.6 million and the outstanding balance of
subordinated debt certificates increased by $19.9 million.
Farmland has a $650.0 million Credit Agreement. The Credit Agreement
provides short-term credit of up to $450.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $200.0 million. At
August 31, 1995, short-term borrowings under the Credit Agreement were $250.8
million, revolving term borrowings were $85.0 million and $35.8 million was
being utilized to support letters of credit issued on behalf of Farmland by
participating banks.
Farmland pays commitment fees under the Credit Agreement of 1/10 of 1%
annually on the unused portion of the short-term commitment and 1/4 of 1%
annually on the unused portion of the revolving term commitment. In addition,
Farmland must maintain consolidated working capital of not less than $150.0
million, consolidated net worth of not less than $475.0 million and funded
indebtedness and senior funded indebtedness of not more than 52% and 43% of
Combined Total Capitalization (as defined in the Credit Agreement),
respectively. All computations are based on consolidated financial data adjusted
to exclude nonrecourse subsidiaries (as defined in the Credit Agreement). At
August 31, 1995, Farmland was in compliance with all covenants under the Credit
Agreement. The Company and the bank participants annually renew the short-term
commitments of the Credit Agreement. The next renewal date is in May
1996. Management expects that the short-term commitment will be renewed;
however, at such annual renewal date, any bank participant may choose not to
renew its portion of the short-term commitment. The revolving term loan
facility will expire in May 1997.
The Company maintains other borrowing arrangements with banks and
financial institutions. Under such agreements, at August 31, 1995, $47.2 million
was borrowed. Financial covenants of these arrangements generally are not more
restrictive than under the Credit Agreement.
The Company also has filed a registration statement with the Securities
and Exchange Commission to issue $200.0 million of debt. No such securities
have been issued by the Company. If issued, such debt would be unsecured and
non-subordinated obligations of the Company and would rank on parity in right of
payment with all other unsecured and non-subordinated indebtedness of the
Company.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operating and capital plans. However,
alternative financing arrangements are continuously evaluated.
NBPC maintains borrowing agreements with a group of banks which provide
financing support for its beef packing operations. Such borrowings are
nonrecourse to Farmland or Farmland's other affiliates. At August 31, 1995,
$90.0 million was available under this facility of which $32.0 million was
borrowed and $1.0 million was utilized to support letters of credit. In
addition, NBPC has incurred certain long-term borrowings from Farmland. NBPC has
pledged certain assets to Farmland and such group of banks to support its
borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. Obligations of Tradigrain under these
loan agreements are nonrecourse to Farmland or Farmland's other affiliates. At
August 31, 1995, such borrowings totaled $70.3 million.
Leveraged leasing has been utilized to finance railcars and a substantial
portion of the Company's fertilizer production equipment. Under the most
restrictive covenants of its leases, the Company has agreed to maintain working
capital of at least $75.0 million, Consolidated Funded Debt of not greater than
65% of Consolidated Capitalization and Senior Funded Debt of not greater than
50% of Consolidated Capitalization (all as defined in the most restrictive
lease).
As a cooperative, Farmland's member-sourced net earnings (i.e., income
from business done with or for members) are distributed to its voting members,
associate members and patrons in the form of common equity, capital credits or
cash. For this purpose, net income or loss was determined in accordance with the
requirements of federal income tax law up to 1994 and is determined in
accordance with generally accepted accounting principles in 1995 and after.
Other income is treated as "nonmember-sourced income". Nonmember-sourced income
is subject to income tax and after-tax earnings are transferred to earned
surplus. Under Farmland's bylaws, the member-sourced income is distributed to
members as patronage refunds unless the earned surplus account, at the end of
that year, is lower than 30% of the sum of the prior year-end balance of
outstanding shares, associate member shares, capital credits, nonmember capital
and patronage refunds for reinvestment. In such cases, member-sourced income is
reduced by the lesser of 15% or an amount required to increase the earned
surplus account to the required 30%. The amount by which the member-sourced
income is so reduced is treated as nonmember-sourced income. The member-sourced
income remaining is distributed to members as patronage refunds. For the years
1993, 1994 and 1995, the earned surplus account exceeded the required amount by
$3.8 million, $2.3 million and $62.8 million, respectively.
Generally, a portion of the patronage refund is distributed in cash and
the allocated equity portion is distributed in common stock, associate member
common stock or capital credits (depending on the membership status of
the recipient), or the Board of Directors may determine to distribute
the allocated equity portion in any other form or forms of equities. The
allocated equity portion of the patronage refund is determined annually by the
Board of Directors, but the allocated equity portion of the patronage refund is
not deductible for federal income tax purposes when it is issued unless at least
20% of the amount of the patronage refund is paid in cash. The allocated equity
portion of the patronage refund is a source of funds from operations which is
retained for use in the business and increases Farmland's equity base. Common
stock and associate member common stock may be redeemed by cash payments from
Farmland to holders thereof who participate in Farmland's base capital plan.
Capital credits and other equities of Farmland and Foods may be redeemed under
other equity redemption plans. The base capital plan and other equity
redemption plans are described under "Business - Equity Redemption Plans"
included herein.
Cash provided by operating activities totaled $44.7 million in 1995
compared with $106.0 million in 1994. This decrease reflects the cash effect of
increased inventories and accounts receivable (principally in the output
business, and mostly the grain business).
Other major sources of cash include $42.5 million from disposition of
investments and collections on long-term notes receivable, $37.1 million from an
increase in checks and drafts outstanding which is attributable to the Company's
cash management systems, $10.3 million from investors in demand loan and
subordinated debt certificates and $9.2 million from bank loans and other notes.
Major uses of cash during 1995 include $124.7 million for capital
additions or improvements, $26.8 million for acquisition of investments and
notes receivable, $26.6 million for patronage refunds and dividends distributed
from 1994 earnings and $12.4 million for the redemption of allocated equities
under the Farmland base capital plan and special allocated equity redemption
plan.
In July 1983, Farmland sold the stock of Terra, a wholly owned subsidiary
engaged in oil and gas exploration and production operations, and exited its oil
and gas exploration and production activities. The gain from the sale of Terra
amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the IRS issued a statutory notice to Farmland asserting
deficiencies in federal income taxes (exclusive of statutory interest thereon)
in the aggregate amount of $70.8 million. The asserted deficiencies relate
primarily to the Company's tax treatment of a $237.2 million gain resulting from
its sale, in July 1983, of the stock of Terra and the IRS's contention that
Farmland incorrectly treated the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset. The statutory notice
further asserts that Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million, and a loss of approximately $2.3
million, from dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court on
September 14, 1995; reply briefs were submitted to the court on November 28,
1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $ 178.3 million,
before tax benefits of the interest deduction, through August 31, 1995), or
$264.1 million in the aggregate at August 31, 1995. In addition, such a
decision would affect the computation of Farmland's taxable income for its 1989
tax year and, as a result, could increase Farmland's federal and state income
taxes for that year by approximately $5.0 million plus applicable statutory
interest thereon. Finally, the additional federal and state income taxes and
accrued interest thereon, which would be owed based on an adverse decision,
would become immediately due and payable unless the Company appealed the
decision and posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision would be charged to
current operations and would have a material adverse effect on the Company and
may affect its ability to pay, when due, principal and interest on the Company's
indebtedness. In order to pay any such tax claim, the Company would have to
consider new financing arrangements, including the incurrence of indebtedness
and the sale of assets. Moreover, the Company would be required to renegotiate
the Credit Agreement with its bank lenders, as well as other existing financing
agreements with certain other parties, not only to permit such new financing
arrangements, but also to cure events of default under the Credit Agreement and
certain of such other existing financing agreements and to maintain compliance
with various requirements of the Credit Agreement and such other existing
financing agreements, including working capital and funded indebtedness
provisions, in order to avoid default thereunder. No assurance can be given
that such financing arrangements or such renegotiation would be successfully
concluded.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the above
described IRS claims. Farmland believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave, Farmland's special tax counsel, it is more
likely than not that the courts will ultimately conclude that Farmland's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of Farmland on any of these issues.
RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1993, 1994 AND 1995
The Company's revenues, margins and net income depend, to a large extent,
on conditions in agriculture and may be volatile due to factors beyond the
Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In addition,
various federal and state regulations to protect the environment encourage
farmers to reduce the use of fertilizers and other chemicals. Global variables
which affect supply, demand and price of crude oil, refined fuels, natural gas
and other commodities may impact the Company's operations. Historically,
changes in the costs of raw materials used in the manufacture of the Company's
finished products have not necessarily resulted in corresponding changes in the
prices at which such products have been sold by the Company. Management cannot
determine the extent to which these factors may impact future operations of the
Company. The Company's cash flow and net income may continue to be volatile as
conditions affecting agriculture and markets for the Company's products change.
The increase (decrease) in sales and operating income by business segment
in each of the years in the three-year period ended 1995, compared with the
respective prior year, is presented in the below table.
Management's discussion of industry segment sales, operating income or
loss and other factors affecting the Company's net income during 1993, 1994 and
1995 follows the table.
<TABLE>
<CAPTION>
Change in Sales Change in Net Income
1993 1994 1995 1993 1994 1995
Compared Compared Compared Compared Compared Compared
with 1992 with 1993 with 1994 with 1992 with 1993 with 1994
(Amounts in Millions) (Amounts in Millions)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) OF
BUSINESS SEGMENT -
SALES AND OPERATING
INCOME OR LOSS:
Petroleum . . . . . . . . . . $ (92) $ (32) $ 21 $ (13) $ 32 $ (35)
Crop Production . . . . . . . (13) 278 8 (60) 74 73
Feed . . . . . . . . . . . . 34 49 (60) (1) (4) (7)
Food Processing and Marketing 563 943 337 (8) 4 56
Grain Marketing . . . . . . . 798 674 279 1 (34) 52
Other . . . . . . . . . . . . 4 43 (6) 7 (4) -0-
$ 1,294 $ 1,955 $ 579 $ (74) $ 68 $ 139
<CAPTION>
<S> <C> <C> <C>
CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease . . . . . . . . . . . . $ 9 $ (9) $ (14)
Other income and deductions (net) increase (decrease) . . . . . . . . . 7 14 (6)
Interest expense (increase) decrease . . . . . . . . . . . . . . . . . (9) (15) (2)
Equity in net income of investees increase (decrease) . . . . . . . . . (10) 23 11
Minority owners' interest in income
of subsidiaries (increase) decrease . . . . . . . . . . . . . . . . (1) 5 (14)
Provision for loss on disposition
of assets (increase) decrease . . . . . . . . . . . . . . . . . . . (29) 29 -0-
Income taxes (increase) decrease . . . . . . . . . . . . . . . . . . . 15 (11) (25)
Net income increase (decrease) . . . . . . . . . . . . . . . . . . . . $ (92) $ 104 $ 89
</TABLE>
In computing the operating income or loss of a business segment, none of
the following have been added or deducted: corporate expenses (included in the
statements of operations as selling, general and administrative expenses),
which cannot practicably be identified or allocated to an industry segment,
interest expense, interest income, equity in net income (loss) of investees,
other income (deductions) and income taxes.
PETROLEUM
SALES
Sales of the petroleum business increased $21.3 million in 1995 compared
with 1994, or 2.5%. Sales of gasoline increased $42.1 million due to 9.6%
higher unit sales and 2.4% higher prices. Sales of distillates and propane
decreased $14.3 million and $3.0 million, respectively, and sales of other
petroleum products decreased $3.5 million. Unit sales of distillates and
propane decreased as a result of the mild winter and a wet spring.
Sales of petroleum products reflect a decrease of $31.9 million in 1994
compared with 1993 primarily due to lower prices of refined fuels and propane.
The effect of lower prices was to reduce reported sales by approximately $62.4
million. Part of this decrease was offset by the effect of a 6% increase in
refined fuels and propane unit sales.
Sales of the petroleum segment decreased $92.2 million in 1993 compared
with 1992, primarily a result of a 12% decrease in unit sales of refined fuels
(gasoline, diesel and distillates) and a 2% decline of the average selling price
thereof. Unit sales decreased principally because the Company sold its
investment in National Cooperative Refinery Association ("NCRA") in June 1992.
The refined fuels unit sales decrease in 1993 reduced sales by approximately
$92.2 million compared with 1992 and lower prices of refined fuels reduced sales
by $17.7 million. Sales of other products (principally asphalt and coke)
decreased $12.4 million. Propane sales increased approximately $30.1 million in
1993 due to a 27% increase in unit sales and 18% higher prices.
OPERATING INCOME
The petroleum business incurred an operating loss of $8.0 million in 1995
compared with operating income of $27.2 million in 1994. This was attributable
to increased crude oil costs (approximately 9%) without corresponding increases
in finished product selling prices.
Results from petroleum operations increased $31.7 million in 1994 compared
with 1993 primarily because unit margins on diesel fuels with low levels of
sulfur (required by the Environmental Protection Agency ("EPA") for diesel fuel
sold after September 30, 1993) were higher than the prior year. These margins,
which were significantly higher immediately after the crossover to the low
sulfur level diesel fuels, decreased to normal levels later in 1994. In
addition, margins on other refined fuels improved in 1994 compared with 1993
because the cost per barrel of crude oil decreased and because production at the
Coffeyville, Kansas refinery was substantially higher than in the prior year.
Operating income of the petroleum segment decreased $12.8 million in 1993
compared with 1992. The favorable effects of improved margins in propane and
lower marketing and administrative expenses were more than offset by the
unfavorable effects of lower income from distributing fuels produced by NCRA and
the write-down to market value of certain petroleum inventories.
CROP PRODUCTION
SALES
Sales of the crop production business increased $8.0 million in 1995
compared with 1994. Sales of plant nutrients increased $117.9 million due to
higher selling prices. Unit sales of plant nutrients decreased slightly from
the record level of 7.4 million tons set in 1994. Sales of crop protection
products reflect a decrease of $109.9 million as a result of placing the
Company's crop protection operations in a 50%-owned joint venture on January 1,
1995.
Crop production sales in 1994 increased $278.5 million compared with 1993
due to higher plant nutrient prices and unit sales. The average price per ton
of nutrient increased approximately 13.3% and unit sales increased approximately
1.1 million tons or 18%.
Sales of the crop production segment decreased $13.0 million in 1993
compared with 1992. Nitrogen fertilizer sales increased $54.1 million due to 8%
higher unit sales and because the average selling price increased 3%. Phosphate
fertilizer sales decreased $64.7 million. This decrease is primarily a result
of the sale of the Green Bay, Florida phosphate plant to a 50%-owned joint
venture. Subsequent to this sale (on November 15, 1991) export sales from the
Green Bay plant have not been reported in the Company's operations. In 1992,
the Company's sales included export sales from the Green Bay plant of $60.9
million.
OPERATING INCOME
Operating income of the crop production business increased $72.7 million in
1995 compared with 1994. In addition, the Company's share of the net income of
joint ventures engaged in phosphate manufacturing increased $4.6 million and the
Company's share of net income of WILFARM was $2.2 million. The increased
operating results from crop production operations was principally attributable
to the effect of higher selling price on unit margins and contributed
significantly to the Company's increased net income in 1995.
Operating income of the crop production business in 1994 increased $74.4
million compared with 1993. This increase resulted from higher unit sales and
unit margins. Unit margins in 1994 were approximately twice the level of 1993
which increased operating income in this segment approximately $66.8 million.
Unit sales increased over one million tons (18%) which increased operating
income by approximately $10.8 million. In addition, included in the statement
of operations in the caption, "Equity in income (loss) of investees", is $15.3
million in 1994 representing the Company's share of net income from fertilizer
joint ventures. This is an increase of $23.4 million compared with 1993.
Demand for plant nutrients in 1994 was stronger than in 1993 due to an increase
in the number of acres under cultivation, principally corn acreage (corn acreage
harvested was relatively low in 1993 due to wet weather and the resulting floods
in the Company's trade territory). In addition, demand for plant nutrients was
stimulated by favorable weather conditions during the fall and spring
application seasons. The increased demand for plant nutrients translated into
higher unit sales and margins and contributed significantly to the Company's
increased net income in 1994.
Operating income of the crop production segment decreased $60.3 million in
1993 compared with 1992, primarily because of a 29% higher natural gas cost (the
principal raw material consumed in producing nitrogen fertilizer) which was not
recovered through selling prices. Fertilizer margins decreased approximately
$43.2 million because of higher natural gas cost. In addition, phosphate
fertilizer margins decreased approximately $7.1 million because decreased
phosphate fertilizer selling prices more than offset decreased cost. In
addition, the Company's share of the net loss of fertilizer ventures (included
in the Company's Consolidated Statement of Operations in the caption "Equity in
net income (loss) of investees") was $8.1 million in 1993 compared with a loss
of $1.3 million in 1992.
FEED
SALES
Sales of the feed business decreased $60.1 million in 1995 compared with
1994. This decrease reflects lower unit sales in traditional markets for beef,
dairy and swine feed partly offset by increased commercial (bulk) feed sales.
Unit sales of dairy feed decreased because the number of dairy cattle on feed
programs in the Company's trade territory decreased in 1995. Beef and swine
feed unit sales decreased because the relatively low market prices available to
livestock producers encouraged such producers to reduce input costs wherever
possible and such efforts were aided by the mild winter during which pastures in
most of the Company's trade area remained open and provided suitable grazing for
beef cattle.
Sales of feed products increased $48.7 million in 1994 compared with 1993.
Unit sales of formula feed and feed ingredients each increased approximately 10%
which generated a $39.6 million increase in sales. The balance of the sales
increase resulted primarily from higher feed ingredient prices.
Sales of the feed segment increased $33.9 million in 1993 compared with
1992, primarily because of higher unit sales. Formula feed unit sales increased
approximately 9% which increased sales $20.3 million. Feed ingredients unit
sales increased approximately 12% which increased sales by $18.1 million. In
addition, sales of animal health products increased $2.0 million. Lower formula
feed selling prices partly offset the effect of higher unit sales.
OPERATING INCOME
Operating income of the feed business decreased $7.0 million in 1995
compared with 1994. This decease is attributable to decreased unit sales in
traditional markets with cooperatives combined with a net loss on sales to
commercial accounts.
Operating income of the feed business segment decreased $3.7 million in
1994 compared with 1993. Gross margins decreased approximately $.5 million
reflecting lower margins on feed ingredients and pet food of $.8 million and $.4
million, respectively, partly offset by $.7 million higher margins on animal
health products. In addition, feed sales, marketing and administration expenses
increased $3.2 million primarily due to higher commissions and other variable
compensation plans.
Operating income of the feed segment of $20.7 million in 1993 decreased
slightly compared with 1992. The decrease was due to the impact of lower
selling prices.
FOOD PROCESSING AND MARKETING
SALES
Sales of the food processing and marketing business increased $337.3
million in 1995 compared with 1994. Sales of beef increased $350.6 million.
Approximately $235.0 million of this increase resulted from NBPC's purchase of
assets from Hyplains Beef L.C. (formerly 50%-owned by Farmland). The balance of
the increased sales of beef resulted primarily from increased volume
(approximately 16%) at NBPC's plant. Sales of pork decreased $13.3 million
reflecting the net effect of lower wholesale pork prices, partly offset by
higher unit sales.
Sales of the food processing and marketing business increased $943.0
million in 1994 compared with 1993. Sales of beef increased $747.0 million
principally because NBPC has been included in the Company's 1994 results for the
full year. NBPC was acquired in April 1993. Pork sales increased
$195.9 million, due mostly to including operations of the Monmouth, Illinois
plant in the Company's results for a full year in 1994. This plant was acquired
in February 1993. In addition, sales of specialty meats of the Company's
Carando division increased $13.0 million.
Food processing and marketing sales increased $562.5 million in 1993
compared with 1992, primarily due to business acquisitions. In April 1993, the
Company and partners organized NBPC. Farmland acquired a 58% ownership interest
in NBPC (such interest having increased to 68% effective March 31, 1995 and,
subsequent to August 31, 1995, such interest having increased to 76%) which
acquired a beef packing plant and feedlot located in Liberal, Kansas. As a
result of this acquisition, the Company's sales included beef sales of $442.1
million in 1993. In February 1993, Foods purchased a pork processing plant
located at Monmouth, Illinois. As a result of this acquisition, sales of pork
products increased approximately $90.0 million. Sales of fabricated pork
products at the Company's other plants increased $17.0 million and sales of
specialty meats of the Carando division increased $8.3 million.
OPERATING INCOME
Operating income of the food processing and marketing business increased
$56.5 million in 1995 compared with 1994. This increase includes increased
operating income of $43.5 million in beef operations and $13.0 million in pork
operations. In addition, the Company's share of net income of Hyplains in 1995
(for the period prior to its acquisition by NBPC) increased $5.2 million
compared with 1994. These increases reflect increased unit margins (mostly a
result of lower cattle and hog market prices) and an increased number of cattle
and hogs processed.
Operating income in the food processing and marketing segment of $20.6
million in 1994 reflects an increase of $4.1 million compared with 1993. The
increase includes $13.0 million higher operating income of the pork business
partly offset by an $8.9 million decrease of operating income of the beef
business. Operating income from pork processing and marketing operations
increased primarily due to higher volume and higher margins on fresh pork,
branded pork, hams and specialty meats of the Carando division. Operating
income of the beef business decreased owing to weak consumer demands for beef
and industry price competition.
Operating income of the food processing and marketing segment decreased
$8.7 million in 1993 compared with 1992. The decrease is primarily due to a
4.6% increase in live hog costs. Margins on fabricated products and hams
increased $3.6 million and $4.4 million, respectively, and margins on beef
products (not included in the Company's operations in 1992) were $4.2 million.
These increases resulted from acquisitions which increased sales as discussed
above. However, these increases were more than offset by the effects of the
4.6% increase in live hog costs which could not be fully recovered through
increased wholesale prices of fresh and processed pork products and by higher
selling and administrative expenses.
GRAIN MARKETING
SALES AND OPERATING INCOME
Sales of grain increased $279.0 million in 1995 compared with 1994. This
increase resulted from higher grain prices and unit sales, primarily export
sales. Operating income of the grain business totaled $17.9 million in 1995
compared with a loss of $33.5 million in 1994. The increase in operating
results was attributable to approximately 59.0 million bushels higher export
volume by the North American grain division increased volume of international
grain brokered by Tradigrain and as a result of more favorable unit margins
which developed as market prices increased in response to decreased worldwide
production in 1995.
Grain sales increased $673.6 million in 1994 compared with 1993 primarily
due to the acquisition of Wells-Bowman Trading Company and from operating
elevators in Utah and Idaho which were leased to the Company in 1994.
The grain marketing business had an operating loss of $33.5 million in 1994
compared with near break-even operations in 1993. The operating loss in 1994
includes an operating loss of $14.4 million in the international operations of
Tradigrain and an operating loss of $19.1 million in the Company's grain
division. The loss in 1994 resulted primarily from negative unit margins on
international grain transactions and higher domestic operating expenses.
Grain operations which were acquired in July 1992 reported sales for the
full year in 1993 of $953.5 million. Sales for the two months ended August 31,
1992 were $155.2 million.
In 1993, operating income of the grain business was $.1 million compared
with a loss of $.7 million for the two months ended August 31, 1992. In 1993,
grain marketing operations were relocated to Kansas City from Enid, Oklahoma, an
export elevator at Houston, Texas was sold and certain duplicative
administrative costs were eliminated. As a result, cost reductions were
realized in 1993.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $39.1
million in 1995 compared with 1994. Approximately $25.3 million of the increase
was directly connected to business segments (primarily the grain and pork
businesses) and has been included in the determination of the operating income
of business segments. The increase of general corporate expenses, not
identified to business segments ($13.8 million), reflects higher variable
compensation, pension and other employee costs and higher costs for legal
services.
SG&A increased $81.5 million in 1994 compared with 1993. However, as a
percent of sales, these expenses were slightly lower in 1994 than in 1993.
Approximately $17.6 million of the increase resulted from acquisition of
Tradigrain and NCI and from including NBPC in the Company's financial statements
for the full year in 1994. Approximately $29.0 million of the increase was in
pork marketing and processing and resulted primarily from including the
Monmouth, Illinois pork plant in the Company's operations for a full year, and
from higher sales of pork. Farm supply businesses and the grain marketing
business had higher SG&A of $13.1 million and $3.4 million, respectively. The
balance of the SG&A increase was primarily due to variable compensation plans.
These expenses decreased $12.3 million in 1993 compared with 1992 primarily
due to SG&A directly connected to business segments. Corporate, general and
administrative expenses, not identified to business segments (see Note 12 of the
Notes to Consolidated Financial Statements) decreased $9.3 million in 1993
compared with 1992.
OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense increased $2.4 million in 1995 compared with 1994,
reflecting a higher average interest rate (approximately 1/2% higher), partly
offset by a lower amount of average borrowings.
Interest expense reflects an increase of $14.7 million in 1994 compared
with 1993. The increase is primarily attributable to including the interest
costs of NBPC's beef operations in the Company's financial statements for a full
year in 1994, the acquisition of NCI and Tradigrain in May 1994 and by higher
interest rates.
Interest expense increased $8.8 million in 1993 compared with 1992 due to
an increase of the average level of borrowings, partly offset by lower interest
rates.
PROVISION FOR LOSS ON DISPOSITION OF ASSETS
At August 31, 1993, management was negotiating to sell the Company's
refinery at Coffeyville, Kansas. Based on the progress of negotiation and the
transactions contemplated, operations for 1993 included a $20.0 million
provision for loss on the sale of the refinery. Accordingly, the net carrying
value of property, plant and equipment was reduced by $20.0 million at August
31, 1993. The transactions contemplated were subject to certain conditions,
including negotiation of final agreements. During 1994, management determined
that final sale terms anticipated by the potential purchaser were not in the
Company's best interest. Accordingly, negotiations were terminated, and the
sale was not consummated.
In 1993, the Company entered discussions with a potential purchaser of a
dragline. Based on these discussions, the Company estimated a loss of $6.2
million from the sale. Accordingly, at August 31, 1993, the carrying value of
the dragline was written down by $6.2 million and a provision for this loss was
included in the Company's Consolidated Statement of Operations for the year then
ended. In 1994, this sale was consummated on terms substantially as expected.
At August 31, 1993, the carrying value of a pork processing plant at Iowa
Falls, Iowa was written down by $3.3 million to an estimated disposal value.
CAPITAL EXPENDITURES
See "Business - Capital Expenditures and Investments in Ventures" included
herein.
OTHER, NET
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding the
Defendants' insurance coverage obligations for environmental remediation costs.
In 1994 and 1995, the Company negotiated settlements with 20 and 2 insurance
companies, respectively, and, as part of the settlements, the Company provided
the Defendants with releases of various possible environmental obligations. As
a result of these settlements, the Company received cash payments of $13.6
million and $.3 million in 1994 and 1995, respectively, and has included such
amounts in the caption "Other income (deductions): Other, net" in the Company's
and Consolidated Statement of Operations for the year then ended. See Note 16
of the Notes to Consolidated Financial Statements included herein.
MATTERS INVOLVING THE ENVIRONMENT
See "Business - Matters Involving the Environment" included herein.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, ''Accounting for Certain
Investments in Debt and Equity Securities'' (''Statement 115''), which was
issued by the Financial Accounting Standards Board (''FASB'') in May 1993.
Statement 115 expands the use of fair value accounting and the reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. The effect of the Company's
implementation of Statement 115 at September 1, 1994 was insignificant.
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, ''Employer's Accounting for
Postemployment Benefits'' (''Statement 112''), which was issued by FASB in
November 1992. Statement 112 establishes standards of accounting and reporting
for the estimated cost of benefits provided to former or inactive employees. The
effect of the Company's implementation of Statement 112 at September 1, 1994 was
insignificant.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed of,"
was issued by the Financial Accounting Standards Board ("FASB") in March 1995
and is effective for fiscal years beginning after December 15, 1995 (the
Company's 1997 fiscal year). Statement 121 establishes accounting standards for
the impairment of long-lived assets, certain identifiable intangible, and
goodwill related to those assets to be held and used and for long-lived assets
and certain identifiable intangibles to be disposed of. Management expects that
the adoption of Statement 121 will not have a significant impact on the
Company's Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Independent Auditors' Report . . . . . . . . . . . . . . 30
Consolidated Balance Sheets,
August 31, 1994 and 1995 . . . . . . . . . . . . . . 31
Consolidated Statements of Operations
for each of the years in
the three-year period ended August 31, 1995 . . . . . 33
Consolidated Statements of Cash Flows for
each of the years in the three-year
period ended August 31, 1995 . . . . . . . . . . . . 34
Consolidated Statements of Capital Shares
and Equities for each of the years in
the three-year period ended August 31, 1995 . . . . . 36
Notes to Consolidated Financial Statements . . . . . . . 37
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Farmland Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Farmland
Industries, Inc. and subsidiaries as of August 31, 1994 and 1995, and the
related consolidated statements of operations, cash flows and capital shares and
equities for each of the years in the three-year period ended August 31, 1995.
These Consolidated Financial Statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these Consolidated
Financial Statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Farmland Industries,
Inc. and subsidiaries as of August 31, 1994 and 1995, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 7 to the Consolidated Financial Statements, the Internal
Revenue Service ("IRS") has examined the Company's tax returns for the years
ended August 31, 1983 and 1984, and has proposed certain adjustments. Should
the IRS ultimately prevail, the federal and state income taxes and statutory
interest thereon could be significant. Farmland believes it has meritorious
positions with respect to such claims and, based upon the opinion of special tax
counsel, management believes it is more likely than not that the courts will
ultimately conclude that Farmland's treatment of such items was substantially,
if not entirely, correct. The ultimate outcome of this matter can not presently
be determined. Therefore, no provision for such income taxes and interest has
been made in the accompanying Consolidated Financial Statements.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
October 20, 1995
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . $ 44,084 $ -0-
Accounts receivable - trade . . . . . . . . . . 360,560 446,232
Inventories (Note 3) . . . . . . . . . . . . . 572,660 772,528
Other current assets . . . . . . . . . . . . . 119,139 60,883
Total Current Assets . . . . . . . . . . . $ 1,096,443 $ 1,279,643
Investments and Long-Term Receivables
(Notes 4 and 14) . . . . . . . . . . . . . . . $ 189,601 $ 185,687
Property, Plant and Equipment (Notes 5 and 6):
Property, plant and equipment, at cost . . . . $ 1,202,159 $ 1,334,849
Less accumulated depreciation and amortization 700,869 742,704
Net Property, Plant and Equipment . . . . . . . $ 501,290 $ 592,145
Other Assets . . . . . . . . . . . . . . . . . . . $ 139,297 $ 128,468
Total Assets . . . . . . . . . . . . . . . . . . . $ 1.926,631 $ 2,185,943
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Demand loan certificates . . . . . . . . . . . . $ 23,158 $ 13,524
Short-term notes payable (Note 6) . . . . . . . 279,137 346,133
Current maturities of long-term debt (Note 6) . 27,840 42,394
Accounts payable - trade . . . . . . . . . . . . 246,181 245,905
Accrued payroll . . . . . . . . . . . . . . . . 52,816 50,337
Other current liabilities . . . . . . . . . . . 176,607 261,837
Total Current Liabilities . . . . . . . $ 805,739 $ 960,130
Long-Term Debt (excluding current
maturities) (Note 6) . . . . . . . . . . . . . . $ 517,806 $ 506,033
Deferred Income Taxes (Note 7) . . . . . . . . . . $ 6,340 $ 12,501
Minority Owners' Equity in Subsidiaries (Note 8) . $ 11,733 $ 19,992
Capital Shares and Equities (Note 9):
Preferred shares, $25 par value--Authorized
8,000,000 shares, 98,113 shares issued
and outstanding (148,069 shares in 1994) . . . $ 3,702 $ 2,453
Common shares, $25 par value -- Authorized
50,000,000 shares, 15,416,370 shares
issued and outstanding
(14,542,478 shares in 1994) . . . . . . . . . 363,562 385,409
Associate member common shares (nonvoting),
$25 par value -- Authorized 2,000,000
shares, 445,323 shares issued and
outstanding (370,707 shares in 1994) . . . . . 9,268 11,133
Earned surplus and other equities . . . . . . . 208,481 288,292
Total Capital Shares and Equities . . . $ 585,013 $ 687,287
Contingent Liabilities and Commitments (Notes 6, 7 and 10)
Total Liabilities and Equities . . . . . . . . . . $ 1,926,631 $ 2,185,943
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . $ 4,722,940 $ 6,677,933 $ 7,256,869
Cost of sales . . . . . . . . . . . . . 4,470,290 6,284,084 6,699,178
Gross income . . . . . . . . . . . . . $ 252,650 $ 393,849 $ 557,691
Selling, general and administrative
expenses . . . . . . . . . . . . . $ 223,792 $ 305,279$ 344,364
Other income (deductions):
Interest expense . . . . . . . . . $ (36,764) $ (51,485) $ (53,862)
Interest income . . . . . . . . . . 4,189 6,170 8,334
Other, net (Note 16) . . . . . . . 9,536 20,111 11,600
Provision for loss and disposition
of assets (Note 17) . . . . . . (29,430) -0- -0-
Total other income (deductions) . . . . $ (52,469) $ (25,204) $ (33,928)
Income (loss) before income
taxes and equity in net income
(loss) of investees and minority
owners' interest in
net (income) loss of subsidiaries . $ (23,611) $ 63,366 $ 179,399
Income tax (expense) benefit (Note 7) . 6,433 (4,890) (29,628)
Income (loss) before equity in net
income (loss) of
investees and minority
owners' interest in
net (income) loss of subsidiaries . $ (17,178) $ 58,476 $ 149,771
Equity in net income (loss) of
investees (Note 4) . . . . . . . . (12,394) 10,878 22,785
Minority owners' interest in net (income)
loss of subsidiaries (Note 8) . . . (828) 4,522 (9,757)
Net income (loss) . . . . . . . . . . $ (30,400) $ 73,876 $ 162,799
Distribution of net income (Note 9):
Patronage refunds:
Farm supply patrons . . . . . . $ -0- $ 59,685 $ 74,557
Pork marketing patrons . . . . -0- 10,927 16,087
Beef marketing patrons . . . . -0- -0- 2,488
Grain marketing patrons . . . . -0- -0- 1,285
The Cooperative Finance
Association's patrons . . . 1,650 -0- -0-
$ 1,650 $ 70,612 $ 94,417
Earned surplus and other equities
(Note 9) . . . . . . . . . . . . . (32,050) 3,264 68,382
$ (30,400) $ 73,876 $ 162,799
<FN>
See notes to Consolidated Financial Statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ (30,400) $ 73,876 $ 162,799
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . 57,730 62,960 69,138
Provision for loss on disposition of assets . . . 29,430 -0- -0-
(Gain) loss on disposition of fixed assets . . . (385) (1,794) 1,882
Patronage refunds received in equities . . . . . (2,241) (2,171) (2,025)
Proceeds from redemption of patronage equities . 1,731 573 1,026
Equity in net (income) loss of investees . . . . 12,394 (10,878) (22,785)
Deferred income tax (benefit) expense . . . . . . (3,463) (5,034) 6,161
Minority owners' equity in
income (loss) of subsidiaries . . . . . . . 828 (4,522) 9,757
Other . . . . . . . . . . . . . . . . . . . 6,776 5,292 412
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable . . . . . . . . . . . . (92,024) (12,079) (70,413)
Inventories . . . . . . . . . . . . . . . . (65,402) (4,692) (186,570)
Other assets . . . . . . . . . . . . . . . . (30,154) (45,990) 38,889
Accounts payable . . . . . . . . . . . . . . 19,630 17,884 782
Other liabilities . . . . . . . . . . . . . (17,981) 32,617 35,684
Net cash provided by (used in) operating activities . . $ (113,531) $ 106,042 $ 44,737
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to borrowers by finance companies . . . . . . $ (624,618) $ -0- $ -0-
Collections from borrowers by finance companies . . . . 631,668 -0- -0-
Acquisition of businesses . . . . . . . . . . . . . . . (10,500) (35,790) -0-
Proceeds from disposal of investments and
notes receivable . . . . . . . . . . . . . . . . 12,115 34,577 42,530
Acquisition of investments and notes receivable . . . . (50,378) (22,117) (26,789)
Capital expenditures . . . . . . . . . . . . . . . . . (98,238) (69,776) (124,722)
Proceeds from sale of fixed assets . . . . . . . . . . 10,900 14,785 3,828
Distribution from joint venture, net . . . . . . . . . -0- -0- -0-
Proceeds from sale of assets to
joint venture partner . . . . . . . . . . . . . . -0- 2,310 -0-
Proceeds from disposition of subsidiary (Note 2) . . . 87,227 -0- -0-
Other . . . . . . . . . . . . . . . . . . . (2,140) 5,547 (1,628)
Net cash used in investing activities . . . . . . . . . $ (43,964) $ (70,464) $ (106,781)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease of demand loan certificates . . . . . . . $ (13,224) $ (6,702) $ (9,634)
Proceeds from bank loans and notes payable . . . . . . 916,799 888,088 522,916
Payments of bank loans and notes payable . . . . . . . (777,268) (924,731) (513,672)
Proceeds from issuance of subordinated
debt certificates . . . . . . . . . . . . . . . 72,423 57,636 46,715
Payments for redemption of subordinated
debt certificates . . . . . . . . . . . . . . . (16,490) (33,034) (26,866)
Checks and drafts outstanding . . . . . . . . . . . . . -0- 37,088
Payments for redemption of equities . . . . . . . . . . (13,505) (3,244) (12,431)
Payments of patronage refunds and dividends . . . . . . (17,946) -0- (26,648)
Other . . . . . . . . . . . . . . . . . . . . . . . . . 340 2,120 492
Net cash provided by (used in) financing activities . . $ 151,129 $ (19,867) $ 17,960
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . $ (6,366) $ 15,711 $ (44,084)
Cash and cash equivalents at beginning of year . . . . 34,739 28,373 44,084
Cash and cash equivalents at end of year . . . . . . . $ 28,373 $ 44,084 $ -0-
SUPPLEMENTAL SCHEDULE OF CASH PAID
FOR INTEREST AND INCOME TAXES:
Interest . . . . . . . . . . . . . . . . . . . . . . . $ 41,136 $ 43,645 $ 49,885
Income taxes (net of refunds) . . . . . . . . . . . . . $ 1,479 $ 9,746 $ 30,006
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equities and minority owners' interest
called for redemption . . . . . . . . . . . . . . $ -0- $ 12,935 $ 27,738
Transfer of assets in exchange for
investment in joint ventures . . . . . . . . . . $ -0- $ 309 $ 2,061
Appropriation of current year's net income
as patronage refunds . . . . . . . . . . . . . . $ -0- $ 70,612 $ 94,417
Acquisition of businesses:
Fair value of net assets acquired . . . . . . . $ 114,519 $ 131,847 $ -0-
Goodwill . . . . . . . . . . . . . . . . . . . . 16,086 1,094 -0-
Minority owners' investment . . . . . . . . . . . (7,000) (843) -0-
Cash Paid . . . . . . . . . . . . . . . . . . . . (10,500) (35,790) -0-
Liabilities Assumed . . . . . . . . . . . . . . . . . . $ 113,105 $ 96,308 $ -0-
<FN>See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES
<TABLE>
<CAPTION>
Years Ended August 31, 1993, 1994 and 1995
Earned Total
Associate Surplus Capital
Member And Shares
Preferred Common Common Other And
Shares Shares Shares Equities Equities
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1992 . . . . . . . . . $ 3,713 $ 376,383 $ 8,176 $ 199,857 $ 588,129
Issue, redemption and cancellation of equities (5) 6,740 (49) (1,058) 5,628
Appropriation of current year's net loss . . -0- -0- -0- (30,400) (30,400)
Transfers to current liabilities . . . . . . -0- -0- -0- (1,650) (1,650)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (3,127) 69 3,058 -0-
BALANCE AT AUGUST 31, 1993 . . . . . . . . . $ 3,708 $ 379,996 $ 8,196 $ 169,807 $ 561,707
Issue, redemption and cancellation of equities -0- (355) 17 (3,397) (3,735)
Appropriation of current year's net income . -0- -0- -0- 73,876 73,876
Patronage refund payable in cash transferred
to current liabilities . . . . . . . . -0- -0- -0- (26,552) (26,552)
Base capital redemptions transferred
to current liabilities . . . . . . . . -0- (8,628) (112) -0- (8,740)
Other equity redemptions transferred
to current liabilities . . . . . . . . (6) (9) -0- (3,440) (3,455)
Transferred to liabilities . . . . . . . . . -0- -0- -0- (8,084) (8,084)
Dividends on preferred stock . . . . . . . . -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (7,442) 1,167 6,275 -0-
BALANCE AT AUGUST 31, 1994 . . . . . . . . . $ 3,702 $ 363,562 $ 9,268 $ 208,481 $ 585,013
Issue, redemption and cancellation of equities -0- (51) 332 (990) (709)
Appropriation of current year's net income . -0- -0- -0- 162,799 162,799
Patronage refund payable in cash transferred
to current liabilities . . . . . . . . -0- -0- -0- (33,061) (33,061)
Base capital redemptions transferred
to current liabilities . . . . . . . . -0- (13,939) (220) -0- (14,159)
Other equity redemptions transferred
to current liabilities . . . . . . . . (1,249) (30) -0- (11,477) (12,756)
Prior year patronage refund allocation . . . -0- 35,940 1,508 (37,284) 164
Dividends on preferred stock . . . . . . . . -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (73) 245 (172) -0-
BALANCE AT AUGUST 31, 1995 . . . . . . . . . $ 2,453 $ 385,409 $ 11,133 $ 288,292 $ 687,287
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Farmland Industries, Inc., a Kansas corporation, is organized and operated
as a cooperative and its mission is to be a producer-driven and profitable
agricultural supply to consumer foods cooperative system.
Principles of Consolidation -- The Consolidated Financial Statements
include the accounts of Farmland Industries, Inc. and all its majority-owned
subsidiaries ("Farmland" or the "Company", unless the context requires
otherwise). All significant intercompany accounts and transactions have been
eliminated. The Company's fiscal year ends August 31. Accordingly, all
references to "year" or "years" are to fiscal years ended August 31.
Cash and Cash Equivalents -- Investments with maturities of less than three
months are included in "Cash and cash equivalents."
Investments -- Investments in companies over which the Company exercises
significant influence (20% to 50% voting control) are accounted for by the
equity method. Other investments are stated at cost, less provision for
impairment (other than temporary impairment).
Accounts Receivable -- The Company uses the allowance method to account for
doubtful accounts and notes. Uncollectible accounts and notes receivable from
members are written off against the common shares held by members before such
uncollectible accounts are charged to operations.
Inventories -- Grain inventories are valued at market adjusted for net
unrealized gains or losses on open commodity contracts. Crude oil, refined
petroleum products, cattle and beef inventories are valued at the lower of
last-in, first-out cost or market. Other inventories are valued at the lower of
first-in, first-out cost or market. Supplies are valued at cost.
Property, Plant and Equipment -- Assets, including assets under capital
leases, are stated at cost. Depreciation and amortization are computed
principally using the straight-line method over the estimated useful lives of
the assets and the remaining terms of the capital leases, respectively.
Goodwill -- The excess of cost over the fair market value of assets of
businesses purchased is amortized on a straight-line basis over a period of 15
to 25 years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows. Goodwill is
reflected in the accompanying Consolidated Balance Sheets net of accumulated
amortization of $3.3 million and $6.9 million, respectively at August 31, 1994
and 1995.
Sales -- The Company's policy is to recognize sales at the time product is
shipped. Net margins on international grain merchandised, rather than the value
of such products, are included in net sales. The gross value of international
grain merchandised in 1994 and 1995 was $590.2 million and $1,552.4 million,
respectively.
Environmental Costs -- Liabilities related to remediation of contaminated
properties are recognized when the related costs are considered probable and can
be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs, and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. All liabilities are monitored and
adjusted regularly as new facts or changes in law or technology occur.
Environmental expenditures are capitalized when such costs provide future
economic benefits.
Federal Income Taxes -- Farmland is subject to income taxes on all income
not distributed to patrons as patronage refunds. Farmland files consolidated
federal and state income tax returns. Effective September 1, 1993, Farmland
adopted Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Farmland accounted for income taxes using the deferred method
under APB Opinion 11 for the year ended August 31, 1993.
Reclassification -- Certain prior-year amounts have been reclassified to
conform with the current year presentations.
(2) ACQUISITIONS AND DISPOSITIONS
During 1993, the Company and partners organized National Beef Packing
Company, L.P. ("NBPC"). Farmland retained a 58% ownership interest (having
increased to 68% effective March 31, 1995 and, subsequent to August 31, 1995,
such interest having increased to 76%) in NBPC by investing $10.5 million in
cash. On April 15, 1993, NBPC acquired the business of Idle Wild Foods, Inc.
("Idle Wild"), a beef packing plant and feedlot located in Liberal, Kansas.
NBPC acquired the assets by assuming liabilities of Idle Wild with a fair value
of approximately $130.6 million (including bank loans which are nonrecourse to
NBPC's partners). The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of NBPC have been included in the
Company's Consolidated Financial Statements from April 15, 1993. The
liabilities assumed over the fair value of the net identifiable assets acquired
has been recorded as goodwill.
To establish The Cooperative Finance Association ("CFA") as an independent
finance association for its members, on August 30, 1993 CFA purchased 10.1
million shares of its voting common stock from the Company for a purchase price
comprised of $1.5 million in cash, equities of Farmland Industries, Inc. (with a
par value of $2.4 million) held by CFA and a $6.2 million subordinated
promissory note payable to the Company bearing interest of 5.3%. In addition,
during 1993, CFA: 1) repaid its operating loan from the Company
($25.2 million); and, 2) purchased the lending operations and assets of Farmland
Financial Services Company for a cash payment of $60.5 million and a $2.1
million, 6.0% subordinated note payable to the Company. The Company repaid
$87.2 million of its borrowings from the National Bank for Cooperatives with the
proceeds received from CFA. As a result of CFA's stock purchase and amendments
to CFA's bylaws, The Company's voting control in CFA decreased to 25%.
Accordingly, effective August 31, 1993, CFA is not included in the consolidated
balance sheet of the Company.
The following unaudited financial information, for 1993, presents pro forma
results of operations of the Company as if the disposition of CFA and the
acquisitions of NBPC had occurred at the beginning of the period presented. The
pro forma financial information includes adjustments for amortization of
goodwill, additional depreciation expense and increased interest expense on debt
assumed in the acquisitions. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company been a single entity which excluded CFA and included NBPC for the full
year 1993.
<TABLE>
<CAPTION>
August 31, 1993
(Unaudited)
(Amounts in Thousands)
<S> <C>
Net sales . . . . . . . . . . . . . $ 5,357,867
Income (loss) before
extraordinary item . . . . . . . $ (44,040)
</TABLE>
During 1994, the Company acquired approximately 79% of the common stock of
National Carriers, Inc. ("NCI") for a cash purchase price of $4.4 million. NCI
is a trucking company located in Liberal, Kansas. NCI provides substantially
all the trucking service needs of National Beef Packing Company, L.P. ("NBPC").
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain"). The purchase price for Tradigrain ($31.4 million) was paid in
cash.
The acquisitions of NCI and Tradigrain have been accounted for by the
purchase method of accounting and, accordingly, the operating results of each
enterprise have been included in the Company's Consolidated Financial Statements
from the respective dates of acquisition. The excess of the cash paid over the
fair value of the net assets acquired has been recorded as goodwill. The pro
forma effects of acquisitions of NCI and Tradigrain on the Consolidated
Financial Statements are not significant.
(3) INVENTORIES
<TABLE>
Major components of inventories are as follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Grain . . . . . . . . . . . . . . . . . . $ 170,699 $ 312,202
Beef . . . . . . . . . . . . . . . . . . 21,116 30,179
Materials . . . . . . . . . . . . . . . . . 51,428 39,399
Supplies . . . . . . . . . . . . . . . . . 43,036 50,328
Finished and in-process products . . . . . 286,381 340,420
$ 572,660 $ 772,528
</TABLE>
The carrying values of crude oil and refined petroleum inventories stated
under the lower of last-in, first-out ("LIFO") cost or market at August 31, 1994
and 1995 were $86.2 million and $82.6 million, respectively. If the lower of
first-in, first-out ("FIFO") cost or market had been used to value these
products, the carrying values of inventories at August 31, 1994 and 1995 would
have been lower by $4.1 million and $7.9 million, respectively.
The carrying values of beef inventories stated under LIFO at August 31,
1994 and 1995 were $21.1 million and $30.2 million, respectively. The LIFO
method of accounting for beef inventories had no effect on the carrying value of
inventories or on the results of operations reported in 1993, 1994 and 1995, as
market value of these inventories was lower than LIFO and approximated FIFO
cost.
(4) INVESTMENTS AND LONG-TERM RECEIVABLES
<TABLE>
Investments and long-term receivables are as follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Investments accounted for by the equity method $ 52,478 $ 88,786
Investments in and advances to other cooperatives 42,744 47,320
National Bank for Cooperatives . . . . . . . . 28,786 26,999
Other investments and long-term receivables . . 16,638 18,363
Notes receivable from ventures, 20% to 50% owned 48,955 4,219
$ 189,601 $ 185,687
</TABLE>
National Bank for Cooperatives ("CoBank") requires borrowers from the bank
to maintain an investment in stock of the bank. The amount of investment
required is based on the average amount borrowed from CoBank during the previous
five years. At August 31, 1994 and 1995, Farmland's investment in CoBank
approximated its requirement. This investment is pledged to secure borrowings
from CoBank. See Note 14.
Summarized financial information of investees accounted for by the equity
method is as follows:
August 31
1994 1995
(Amounts in Thousands)
Current Assets . . . . . . . . . . . . $ 105,981 $ 243,259
Long-Term Assets . . . . . . . . . . . 252,704 238,297
Total Assets . . . . . . . . . . . . $ 358,685 $ 481,556
Current Liabilities . . . . . . . . . . $ 111,077 $ 205,713
Long-Term Liabilities . . . . . . . . . 144,255 94,029
Total Liabilities . . . . . . . . . $ 255,332 $ 299,742
Net Assets . . . . . . . . . . . . . . $ 103,353 $ 181,814
<TABLE>
<CAPTION>
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
<S> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . $ 601,194 $ 803,516 $ 1,212,592
Net income (loss) . . . . . . . . . . . . . . . $ (22,755) $ 24,285 $ 46,803
Farmland's equity in net income (loss) . . . . $ (12,394) $ 10,878 $ 22,785
</TABLE>
The Company's investments accounted for by the equity method consist
principally of 50% equity interests in two phosphate fertilizer manufacturing
ventures (Farmland Hydro, L.P. and SF Phosphates Limited Company) and, through
March 31, 1995, a 50% interest in Hyplains Beef, L.C. (such interest being
contributed to NBPC in return for an additional 10% ownership interest by
the Company in NBPC).
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The cumulative effect of this change in the use of fair
value accounting and reporting for certain investments in debt and equity
securities was immaterial.
(5) PROPERTY, PLANT AND EQUIPMENT
<TABLE>
A summary of cost for property, plant and equipment is as follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Land and improvements. . . .. . $ 42,261 $ 42,355
Buildings . . . . . . . . .. . . 224,767 245,460
Machinery and equipment . .. . . 716,683 765,383
Automotive equipment . . .. . . 65,986 67,124
Furniture and fixtures . .. . . 48,613 54,888
Capital leases . . . . . .. . . 50,956 49,241
Leasehold improvements . .. . . 15,085 21,763
Other . . . . . . . . . .. . . 7,045 7,124
Construction in progress .. . . 30,763 81,511
$ 1,202,159 $ 1,334,849
</TABLE>
During 1993, 1994 and 1995, the Company capitalized construction period
interest of $1.6 million, $.4 million and $.7 million, respectively.
(6) BANK LOANS, SUBORDINATED DEBT CERTIFICATES AND NOTES PAYABLE
<TABLE>
Bank loans, subordinated debt certificates and notes payable are as
follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Subordinated certificates of investment
and capital investment certificates
--6% to 9.5%, maturing 1996 through 2014 . . . $ 210,054 $ 225,132
Subordinated monthly interest certificates
--6.25% to 12%, maturing 1996 through 2014 . . 70,057 74,863
National Bank for Cooperatives
--6.22% to 9.2%, maturing 1996 through 2001 . . 74,278 68,444
Other bank notes--6.1% to 8.75%,
maturing 1996 through 2001 . . . . . . . . . . 117,813 88,054
Industrial revenue bonds--5.75% to 8%,
maturing 1996 through 2007 . . . . . . . . . . 25,055 21,750
Promissory notes--7% to 10%,
maturing 1996 through 2002 . . . . . . . . . . 18,684 14,794
Other--5% to 13% . . . . . . . . . . . . . . . . . 29,705 55,390
$ 545,646 $ 548,427
Less current maturities . . . . . . . . . . . . . . 27,840 42,394
$ 517,806 $ 506,033
</TABLE>
The Company has a $650.0 million Credit Agreement. The Credit Agreement
provides short-term credit of up to $450.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $200.0 million. At
August 31, 1995, the Company had $250.8 million of short-term borrowings under
the Credit Agreement, $85.0 million of revolving term borrowings and $35.8
million was being utilized to support letters of credit issued on behalf of the
Company by participating banks.
The Company pays commitment fees under the Credit Agreement of 1/10 of 1%
annually on the unused portion of the short-term commitment and 1/4 of 1%
annually on the unused portion of the revolving term commitment. In addition,
the Company must maintain consolidated working capital of not less than $150.0
million, consolidated net worth of not less than $475.0 million and funded
indebtedness and senior funded indebtedness of not more than 52% and 43% of
Combined Total Capitalization (as defined in the Credit Agreement),
respectively. All computations are based on consolidated financial data adjusted
to exclude nonrecourse subsidiaries (as defined in the Credit Agreement). At
August 31, 1995, the Company was in compliance with all covenants under the
Credit Agreement. The short-term provisions of the Credit Agreement are reviewed
and/or renewed annually. The next review date is in May 1996. The revolving
term provisions of this agreement expire in May 1997.
The Company maintains other borrowing arrangements with banks and financial
institutions. At August 31, 1995, $47.2 million was borrowed under such
agreements. Financial covenants of these arrangements generally are not more
restrictive than under the Credit Agreement.
NBPC maintains a $90.0 million borrowing agreement with a group of banks
which provides financing support for its beef packing operations. Such
borrowings are nonrecourse to Farmland or Farmland's other affiliates. At
August 31, 1995, $32.0 million was borrowed under this agreement and $1.0
million was utilized to support letters of credit. In addition, NBPC has
incurred certain long-term borrowings from Farmland. NBPC has pledged certain
assets to Farmland and such group of banks to support its borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. At August 31, 1995, such short-term
borrowings totaled $70.3 million. Obligations of Tradigrain under these loan
agreements are nonrecourse to Farmland or Farmland's other affiliates.
Subordinated debt certificates have been issued under several different
indentures. The Company may redeem subordinated certificates of investments and
capital investment certificates in advance of scheduled maturities.
Additionally, the Company may redeem subordinated certificates of investments,
capital investment certificates and subordinated monthly interest certificates
upon death of the holder.
Outstanding subordinated debt certificates are subordinated to senior
indebtedness. At August 31, 1995, senior indebtedness included $441.7 million
for money borrowed, and additional financings (principally long-term operating
leases) require aggregate payments over 15 years of approximately
$115.7 million.
Under industrial revenue bonds and other agreements, property, plant and
equipment with a carrying value of $23.9 million have been pledged.
Bank loans, subordinated debt certificates and notes payable mature during
the fiscal years ending August 31 in the following amounts:
(Amounts in Thousands)
1996 . . . . . . . . . . . . . . . . . . $ 42,394
1997 . . . . . . . . . . . . . . . . . . 146,131
1998 . . . . . . . . . . . . . . . . . . 81,429
1999 . . . . . . . . . . . . . . . . . . 27,465
2000 . . . . . . . . . . . . . . . . . . 31,719
2001 and after . . . . . . . . . . . . . 219,289
$ 548,427
At August 31, 1994 and 1995, the Company had demand loan certificates and
short-term bank debt outstanding of $305.0 million (weighted average interest
rate of 5.1%) and $365.3 million (weighted average interest rate of 6.4%),
respectively.
(7) INCOME TAXES
A. TERRA RESOURCES, INC.
In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"),
a wholly owned subsidiary engaged in oil and gas exploration and production
operations, and exited its oil and gas exploration and production activities.
The gain from the sale of Terra amounted to $237.2 million for tax reporting
purposes.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of the
$237.2 million gain resulting from its sale, in July 1983, of the stock of Terra
and the IRS's contention that Farmland incorrectly treated the Terra sale gain
as income against which certain patronage-sourced operating losses could be
offset. The statutory notice further asserts that Farmland incorrectly
characterized for tax purposes gains aggregating approximately $14.6 million,
and a loss of approximately $2.3 million, from dispositions of certain other
assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court on
September 14 1995; reply briefs are due in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $178.3 million,
before tax benefits of the interest deduction, through August 31, 1995), or
$264.1 million in the aggregate at August 31, 1995. In addition, such a
decision would affect the computation of Farmland's taxable income for its 1989
tax year and, as a result, could increase Farmland's federal and state income
taxes for that year by approximately $5.0 million plus applicable statutory
interest thereon. Finally, the additional federal and state income taxes and
accrued interest thereon, which would be owed based on an adverse decision,
would become immediately due and payable unless the Company appealed the
decision and posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision would be charged to
current operations and would have a material adverse effect on the Company and
may affect its ability to pay, when due, principal and interest on the Company's
indebtedness. In order to pay any such tax claim, the Company would have to
consider new financing arrangements, including the incurrence of indebtedness
and the sale of assets. Moreover, the Company would be required to renegotiate
the Credit Agreement with its bank lenders, as well as other existing financing
agreements with certain other parties, not only to permit such new financing
arrangements, but also to cure events of default under the Credit Agreement and
certain of such other existing financing agreements and to maintain compliance
with various requirements of the Credit Agreement and such other existing
financing agreements, including working capital and funded indebtedness
provisions, in order to avoid default thereunder. No assurance can be given
that such financing arrangements or such renegotiation would be successfully
concluded.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. The Company believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave, the Company's special tax counsel, it is more
likely than not that the courts will ultimately conclude that the Company's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of the Company on any of these issues.
B. OTHER INCOME TAX MATTERS
<TABLE>
Income tax expense (benefit) attributable to income from continuing
operations is comprised of the following:
<CAPTION>
Year Ended August 31
1993 1994 1995
(Amounts in Thousands)
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . . $ (2,502) $ 10,076 $ 18,533
Deferred . . . . . . . . . (2,944) (3,217) 4,255
$ (5,446) $ 6,859 $ 22,788
State:
Current . . . . . . . . . . $ (468) $ 1,965 $ 3,356
Deferred . . . . . . . . . (519) (755) 665
$ (987) $ 1,210 $ 4,021
Foreign:
Current . . . . . . . . . . $ -0- $ (2,117) $ 1,578
Deferred . . . . . . . . . -0- (1,062) 1,241
$ -0- $ (3,179) $ 2,819
$ (6,433) $ 4,890 $ 29,628
</TABLE>
Income (loss) before income tax expense from foreign sources amounted to
($14.3 million) and $19.3 million for 1994 and 1995, respectively.
<TABLE>
Income tax expense (benefit) attributable to income from continuing
operations differs from the "expected" income tax expense (benefit) using
statutory rate of 35% (34% for 1993), as follows:
<CAPTION>
Year Ended August 31
1993 1994 1995
<S> <C> <C> <C>
Computed "expected" income tax expense (benefit)
on income (loss) before income taxes . . . . . .(34.0) % 35.0 % 35.0 %
Increase (reduction) in income tax expense (benefit)
attributable to:
Patronage refunds . . . . . . . . . . . . . . . . (4.0) (33.3) (18.3)
Patronage-sourced items for
which no benefit is available . . . . . . . 26.5 -0- -0-
State income tax expense (benefit) net of
federal income tax effect . . . . . . . . . (2.2) 1.1 2.2
Benefit associated with exempt income of
foreign sales corporation . . . . . . . . . (1.4) -0- -0-
Other, net . . . . . . . . . . . . . . . . . . . (2.7) 3.8 (2.4)
Income tax expense (benefit) . . . . . . . . . . . . .(17.8) % 6.6 % 16.5 %
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at August 31, 1994
and 1995 are as follows:
August 31
1994 1995
(Amounts in Thousands)
Deferred tax liabilities:
Property, plant and equipment, principally
due to differences in depreciation . $ 20,242 $ 26,009
Prepaid pension cost . . . . . . . . . 21,124 19,807
Other . . . . . . . . . . . . . . . . . 14,021 15,065
Total gross deferred liabilities . . $ 55,387 $ 60,881
Deferred tax assets:
Safe harbor leases . . . . . . . . . . $ 5,391 $ 5,096
Accrued expenses . . . . . . . . . . . 27,017 29,394
Accounts receivable, principally due to
allowance for doubtful accounts . . 4,394 2,300
Other . . . . . . . . . . . . . . . . . 12,245 11,590
Total gross deferred assets . . . . $ 49,047 $ 48,380
Net deferred tax liability . . . . . . . . $ 6,340 $ 12,501
A valuation allowance for deferred tax assets was not necessary at August
31, 1994 or 1995.
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended August 31,
1994 and 1995 are as follows:
<TABLE>
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Deferred tax expense (benefit) . . . . . . . . . . . . . . $ (8,044) $ 6,161
Charge in lieu of taxes resulting from initial recognition
of acquired tax benefits that are allocated to reduce
goodwill related to the acquired entity . . . . . . . 3,010 -0-
$ (5,034) $ 6,161
</TABLE>
<TABLE>
Deferred income taxes for the year ended August 31, 1993 result from timing
differences in the recognition of income and expenses for financial reporting
and income tax reporting purposes. The sources of these timing differences and
their tax effect are as follows:
<CAPTION>
Year Ended
1993
(Amounts in Thousands)
<S> <C>
Depreciation . . . . . . . . . . . . . . . $ 473
Safe harbor lease rentals . . . . . . . . . (378)
Provision for loss on proposed
sale of assets . . . . . . . . . . . . (3,454)
Unfunded pension expense . . . . . . . . . (355)
Other, net . . . . . . . . . . . . . . . . 251
$ (3,463)
</TABLE>
The tax benefit for the year ended August 31, 1993 resulted from the
carryback of nonpatronage-sourced losses to reduce the amount of federal and
state income taxes paid during prior years.
During the year ended August 31, 1994, Farmland utilized nonmember-sourced
loss carryforwards amounting to $7.5 million to reduce goodwill for financial
reporting purposes by $3.0 million. No such carryforwards were available at
August 31, 1995. At August 31, 1994, the Company had alternative minimum tax
credit carryforwards of approximately $7.0 million which were utilized during
1995.
(8) MINORITY OWNERS' EQUITY IN SUBSIDIARIES
<TABLE>
A summary of the equity of subsidiaries owned by others is as follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
National Beef Packing Company, L.P. and G.P. . . $ 2,925 $ 12,473
Farmland Foods, Inc. . . . . . . . . . . . . . . 5,618 4,682
Heartland Wheat Growers, L.P. and G.P. . . . . . 2,100 2,295
Other subsidiaries . . . . . . . . . . . . . . . 1,090 542
$ 11,733 $ 19,992
</TABLE>
(9) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES
<TABLE>
A summary of preferred stock is as follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Preferred shares, $25 par value - Authorized 8,000,000 shares:
6% - 608 shares issued and outstanding
(608 shares in 1994) . . . . . . . . . . . . . . . . . . . . . . $ 15 $ 15
5-1/2% - 2,436 shares issued and outstanding
(2,592 shares in 1994) . . . . . . . . . . . . . . . . . . . . . 65 61
Series F - 95,069 shares issued and outstanding
(144,869 shares in 1994) . . . . . . . . . . . . . . . . . . . . 3,622 2,377
$ 3,702 $ 2,453
</TABLE>
The 5-1/2% and 6% preferred stocks have preferential liquidation rights
over the Series F nondividend bearing preferred stock. Dividends on the 5-1/2%
and 6% preferred stock are cumulative if declared by the Farmland Board of
Directors and only to the extent earned each year. Upon liquidation, holders of
all preferred stock are entitled to the par value thereof and, with respect to
the 5-1/2% and 6% preferred stock, any declared or unpaid earned dividends.
<TABLE>
A summary of earned surplus and other equities is as follows:
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Earned surplus . . . . . . . . . . . . . . . . $ 130,250 $ 197,666
Patronage refund payable in equities . . . . . 44,032 61,356
Nonmember capital . . . . . . . . . . . . . . . 103 -0-
Capital credits . . . . . . . . . . . . . . . . 32,547 27,645
Additional paid-in surplus . . . . . . . . . . 1,603 1,603
Currency translation adjustment . . . . . . . . (54) 22
$ 208,481 $ 288,292
</TABLE>
In accordance with the bylaws of Farmland, the member-sourced portion of
its net income or loss and the resulting patronage refund payable to members and
patrons are determined annually.
Farmland maintains a base capital plan. The plan's objectives are as
follows: 1) to achieve proportionality between the dollar amount of business a
member or associate member of Farmland ("Participant") transacts with Farmland
and the equity of Farmland which the Participant should hold (hereinafter
referred to as the Participants' "Base Capital Requirement"); and, 2) provide a
method for the Board of Directors, in its discretion, to redeem equities held by
a Participant when the Participant's allocated equity exceeds the Participant's
Base Capital Requirement. This plan provides that the relationship between the
Participant's allocated equity and the Participant's Base Capital Requirement
shall influence the cash portion of any patronage refund paid to the
Participant.
The Base Capital Requirement shall be determined annually by the Farmland
Board of Directors at its sole discretion. At August 31, 1994 and 1995, common
stock and associate member common stock with an aggregate par value of $8.7
million and $14.2 million, respectively, were approved for redemption by the
Board of Directors under the base capital plan and such amounts have been
included in "Other current liabilities" in the Consolidated Balance Sheet at
August 31, 1994 and 1995, respectively.
Farmland maintains an estate settlement plan for redemption of equities
held by estates of deceased individuals (except equities purchased and held less
than five years) and special allocated equity redemption plans to redeem
equities of holders who do not participate in the Farmland base capital plan.
Under these plans, the Board of Directors, in its discretion, may redeem
equities based on certain factors, including the financial position and
consolidated net income of the Company. A priority for redeeming equities under
these plans has been established.
At August 31, 1994 and 1995, certain equities of Farmland with a face
amount of $3.5 million and $12.8 million, respectively, and capital equity fund
certificates held by certain members of Farmland Foods, Inc. in the amount of
$.7 million and $.8 million, respectively, have been approved by the Board of
Directors for redemption under the estate settlement and special allocated
equity redemption plans and such amounts have been included in "Other current
liabilities" in the Consolidated Balance Sheet at August 31, 1994 and 1995.
Capital credits are issued: 1) for payment of patronage refunds to patrons
who do not satisfy requirements for membership or associate membership; and,
2) upon conversion of common stock or associate member common stock held by
persons who do not meet qualifications for membership or associate membership in
Farmland.
Additional paid-in surplus results from members donating Farmland equity to
Farmland.
None of the aforementioned equities are held by or for the account of
Farmland or in any sinking or other special fund of Farmland and none have been
pledged by Farmland.
(10) CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various equipment and real properties under long-term
operating leases. For 1993, 1994 and 1995, rental expenses totaled $41.1
million, $41.8 million and $44.6 million, respectively. Rental expense is
reduced for mileage credits received on leased railroad cars ($1.9 million in
1993, $1.9 million in 1994 and $1.8 million in 1995).
The leases have various remaining terms ranging from one year to fifteen
years. Some leases are renewable, at the Company's option, for additional
periods. The minimum required payments for these leases during the fiscal years
ending August 31 are as follows:
(Amounts in Thousands)
1996 . . . . . . . . . . . $ 48,126
1997 . . . . . . . . . . . 44,302
1998 . . . . . . . . . . . 35,493
1999 . . . . . . . . . . . 27,529
2000 . . . . . . . . . . . 22,313
2001 and after . . . . . . 86,391
. . . . . . . . . . . . . $ 264,154
The Company is involved in various lawsuits incidental to the businesses.
In the opinion of management, the ultimate resolution of these litigation issues
will not have a material adverse effect on the Company's Consolidated Financial
Statements.
The Company has been designated by the Environmental Protection Agency as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), at various National
Priority List ("NPL") sites. In addition, the Company is aware of possible
obligations associated with environmental matters at other sites, including
sites where no claim or assessment has been made. The Company's accrued
liability for probable and reasonably determinable obligations for resolution of
environmental matters at NPL and other sites was $7.2 million and $18.5 million
at August 31, 1994 and 1995, respectively.
The ultimate costs of resolving environmental matters are not quantifiable
because many such matters are in preliminary stages and the timing and extent of
actions which governmental authorities may ultimately require are unknown. It
is possible that the costs of such resolution may be greater than the
liabilities which, in the opinion of management, are probable and reasonably
determinable at August 31, 1995. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $19.8 million.
Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the
Company has five closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being conducted
at these locations and the Company does not plan to terminate such operations in
the foreseeable future. Therefore, the Company has not accrued these
environmental exit costs. The Company accrues these liabilities when plans for
termination of plant operations have been made. Such closure and post-closure
costs are estimated to be $5.8 million at August 31, 1995 (and is in addition to
the $19.8 million discussed in the prior paragraph).
The Cooperative Finance Association has loans receivable from customers
engaged in pork production operations and from cooperative associations which
are guaranteed by the Company. At August 31, 1995, such guarantees amounted to
$8.7 million.
Farmland has issued letters of credit totaling $15.5 million to support
nonrecourse borrowing arrangements of subsidiaries.
(11) EMPLOYEE BENEFIT PLANS
The Farmland Industries, Inc. Employee Retirement Plan ("the Plan") is a
defined benefit plan covering substantially all employees of the Company who
meet minimum age and length-of-service requirements. Benefits payable under the
Plan are based on years of service and the employee's average compensation
during the highest four of the employee's last ten years of employment.
The assets of the Plan are maintained in a trust fund. The majority of the
Plan's assets are invested in common stocks, corporate bonds, United States
Government securities and short-term investment funds.
The Company's funding policy is to make the maximum annual contribution to
the Plan's trust fund that can be deducted for federal income tax purposes. The
Company charges pension cost as accrued based on actuarial valuation of the
Plan.
<TABLE>
Components of the Company's pension cost are as follows:
<CAPTION>
August 31
1993 1994 1995
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period . . . $ 7,449 $ 8,663 $ 10,336
Interest cost on projected benefit obligation . . . . 12,134 15,292 16,707
Actual return on Plan assets . . . . . . . . . . . . . (15,842) (10,949) (27,422)
Net amortization and deferral . . . . . . . . . . . . (374) (7,860) 8,677
Pension expense . . . . . . . . . . . . . . . . . . $ 3,367 $ 5,146 $ 8,298
</TABLE>
The discount rate and the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations were 8.5% and 5.0% at August 31, 1993, and 8.0% and 4.5% at both
August 31, 1994 and 1995. At August 31, 1993, 1994 and 1995, the expected
long-term rate of return on assets was 8.5%.
<TABLE>
The following table sets forth the Plan's funded status and amounts
recognized in the Company's consolidated balance sheet at August 31, 1994 and
1995. Such prepaid pension cost is based on the Plan's funded status as of May
31, 1994 and 1995.
<CAPTION>
August 31
1994 1995
(Amounts in Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits . . . . . . . . . . . . . . . . . . . . . . . . . . $ 148,648 $ 170,105
Nonvested benefits . . . . . . . . . . . . . . . . . . . . . . . . 9,163 11,584
Accumulated benefit obligation . . . . . . . . . . . . . . . . . . $ 157,811 $ 181,689
Increase in benefits due to future compensation increases . . . . . 53,533 56,353
Projected benefit obligation . . . . . . . . . . . . . . . . . . . $ 211,344 $ 238,042
Estimated fair value of Plan assets . . . . . . . . . . . . . . . . 226,681 259,262
Plan assets in excess of projected benefit obligation . . . . . . . $ 15,337 $ 21,220
Unrecognized net loss from past experience different
from that assumed and effects of changes
in assumptions . . . . . . . . . . . . . . . . . . . . . . . . 37,332 27,750
Unrecognized net transition asset being
recognized over 10 years . . . . . . . . . . . . . . . . . . . (933) -0-
Unrecognized prior service cost . . . . . . . . . . . . . . . . . . 1,308 1,089
Prepaid pension cost at end of year . . . . . . . . . . . . . . . . . . . $ 53,044 $ 50,059
</TABLE>
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employer's Accounting for Postemployment
Benefits." The cumulative effect of this change in accounting for the estimated
cost of benefits provided to former or inactive employees was immaterial. Prior
years' financial statements have not been restated to apply the provisions of
Statement 112.
In 1994, the Company adopted Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions", and the effect was insignificant.
(12) INDUSTRY SEGMENT INFORMATION
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal product
divisions - petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum refining
and a complete line of car, truck and tractor tires, batteries and accessories.
Principal products of the crop production division are nitrogen, phosphate and
potash fertilizers, and, through the Company's ownership in the WILFARM joint
venture, a complete line of insecticides, herbicides and mixed chemicals.
Principal products of the feed division include swine, dairy, pet, beef,
poultry, mineral and specialty feeds, feed ingredients and supplements, animal
health products and livestock services.
On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain.
Other operations include farm supply stores and services such as computer
services, accounting, financial, management and transportation.
The operating income (loss) of each industry segment includes the revenue
generated on transactions involving products within that industry segment less
identifiable and allocated expenses. In computing operating income (loss) of
industry segments, none of the following items have been added or deducted:
interest expense, interest income, other income (deductions), or corporate
expenses (included in the statements of operations as selling, general and
administrative expenses), which cannot practicably be identified or allocated by
industry segment, equity in net income (loss) of investees, and income taxes
Corporate assets include cash, investments in other cooperatives, the Company's
corporate headquarters and certain other assets.
<TABLE>
Following is a summary of industry segment information as of and for the
years ended August 31, 1993, 1994 and 1995. Export sales to unaffiliated
customers from U.S. operations for the years ended August 31, 1993, 1994 and
1995 were $690.2 million, $842.5 million and $1,287.8 million, respectively.
<CAPTION>
Unallocated
Cooperative Corporate
Cooperative Farm Supply Marketing and Items and
Crop Processing Other Inter-Segment
Petroleum Production Feed Foods Grain Operations Eliminations Consolidated
(Amounts in Thousands)
<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 . . . $ (4,602) $ 51,654 $ 20,676 $ 16,485 $ 104 $ 2,262 $ 86,579
Equity in net income (loss)
of investees (Note 4) . $ 2 $ (8,223) $ (35) $ (3,306) $ -0- $ (832) $ (12,394)
Provision for loss on disposition
of assets (Note 17) . . (20,022) (6,155) -0- (3,253) -0- -0- (29,430)
General corporate expenses (57,721)
Other corporate income . 13,725
Interest expense . . . . (36,764)
Minority interest . . . . (828)
Income tax benefit . . . 6,433
Net (loss) . . . . . . . $ (30,400)
Identifiable assets at
August 31, 1993 . . . . $308,731 $ 324,956 $ 94,948 $ 391,152 $ 254,734 $ 35,986 $1,410,507
Investment in and advances to
investees . . . . . . . $ 526 $ 72,166 $ 1,572 $ 18,686 $ -0- $ 3,553 $ 1,606 $ 98,109
Corporate assets . . . . 211,365
Total assets . . . . . . $1,719,981
Provision for depreciation and
amortization . . . . . $ 13,546 $ 13,843 $ 4,487 $ 10,807 $ 2,637 $ 3,369 $ 9,041 $ 57,730
Capital expenditures (including
$48.4 million of capital assets
of business acquired) . $ 35,629 $ 17,972 $ 6,590 $ 73,561 $ 1,894 $ 3,613 $ 7,341 $ 146,600
1994
Sales to unaffiliated customers $855,479 $1,163,357 $527,864 $2,355,599 $1,627,156 $148,478 $ -0- $6,677,933
Transfers between segments 4,843 9,513 2,072 3,007 -0- 19,467 (38,902) -0-
Total sales and transfers $860,322 $1,172,870 $529,936 $2,358,606 $1,627,156 $167,945 $(38,902) $6,677,933
Operating income (loss) of
industry segments . . . $ 27,172 $ 126,047 $ 17,019 $ 20,608 $ (33,637) $ (2,410) $ 154,799
Equity in net income (loss)
of investees (Note 4) . $ (41) $ 15,466 $ 155 $ (4,404) $ -0- $ (298) $ 10,878
General corporate expenses (66,229)
Other corporate income . 26,281
Interest expense . . . . (51,485)
Minority interest . . . . 4,522
Income tax expense . . . (4,890)
Net income . . . . . . . $ 73,876
Identifiable assets at
August 31, 1994 . . . . $306,366 $ 357,178 $ 92,767 $ 395,159 $ 341,367 $ 62,301 $1,555,138
Investment in and advances to
investees . . . . . . . $ 746 $ 76,439 $ 1,761 $ 13,927 $ -0- $ 8,560 $ 101,433
Corporate assets . . . . 270,060
Total assets . . . . . . $1,926,631
Provision for depreciation and
amortization . . . . . $ 9,911 $ 14,700 $ 3,815 $ 16,776 $ 4,011 $ 7,982 $ 5,765 $ 62,960
Capital expenditures (including
$16.9 million of capital assets
of businesses acquired) $ 14,399 $ 14,136 $ 4,508 $ 19,040 $ 6,256 $ 26,051 $ 2,274 $ 86,664
1995
Sales to unaffiliated customers $876,776 $1,171,389 $467,695 $2,692,892 $1,906,191 $141,926 $ -0- $7,256,869
Transfers between segments 2,877 6,547 940 3,100 -0- 29,100 (42,564) -0-
Total sales and transfers $879,653 $1,177,936 $468,635 $2,695,992 $1,906,191 $171,026 $(42,564) $7,256,869
Operating income (loss) of
industry segments . . . $ (8,029) $ 198,720 $ 10,061 $ 77,060 $ 17,942 $ (2,373) $ 293,381
Equity in net income (loss)
of investees (Note 4) . $ 168 $ 22,096 $ 130 $ 823 $ 688 $ (1,120) $ 22,785
General corporate expenses (80,054)
Other corporate income . 19,934
Interest expense . . . . (53,862)
Minority interest . . . . (9,757)
Income tax expense . . . (29,628)
Net income . . . . . . . $ 162,799
Identifiable assets at
August 31, 1995 . . . . $313,478 $ 410,979 $ 93,438 $ 491,257 $ 525,032 $ 59,108 $1,893,292
Investment in and advances to
investees . . . . . . . $ 953 $ 80,805 $ 1,497 $ 325 $ 120 $ 9,305 $ 93,005
Corporate assets . . . . 199,646
Total assets . . . . . . $2,185,943
Provision for depreciation and
amortization . . . . . $ 9,858 $ 15,530 $ 4,319 $ 21,891 $ 5,156 $ 5,308 $ 7,076 $ 69,138
Capital expenditures . . $ 27,638 $ 23,845 $ 5,766 $ 32,219 $ 905 $ 7,504 $ 26,845 $ 124,722
</TABLE>
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company extends credit to its customers on terms no more favorable than
standard terms of the industries it serves. A substantial portion of the
Company's receivables are concentrated in the agricultural industry.
Collections on these receivables may be dependent upon economic returns from
farm crop and livestock production. The Company's credit risks are continually
reviewed and management believes that adequate provisions have been made for
doubtful accounts.
The Company maintains investments in and advances to cooperatives,
cooperative banks and joint ventures from which it purchases products or
services. A substantial portion of the business of these investees is dependent
upon the agribusiness economic sector. See Note 4.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
<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 the carrying value:
<CAPTION>
August 31, 1994 August 31, 1995
Carrying Fair Carrying Fair
Amount Value Amount Value
(Amounts in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Investments and long-term receivables:
Notes receivable from investees,
20% to 50% owned . . . . . . . $ 48,955 $ 45,414 $ 4,519 $ 4,047
National Bank for Cooperatives . 28,786 **** 26,999 ****
Other cooperatives:
Equities . . . . . . . . . . 28,214 **** 27,720 ****
Notes receivable . . . . . . 14,530 13,385 19,600 17,327
FINANCIAL LIABILITIES:
Long-term debt:
Subordinated certificates of investment,
capital investment certificates and
subordinated monthly
interest certificates . . . . . $ (280,111) $ (284,523) $ (299,994) $ (304,450)
<FN>
****Investments in National Bank for Cooperatives and other cooperatives'
equities which have been purchased are carried at cost and equities received as
patronage refunds are carried at par value, less provisions for other than
temporary impairment. The Company believes it is not practicable to estimate
the fair value of these equities because there is no established market for
these equities and estimated future cash flows, which are largely dependent on
the future redemptions policy of each cooperative, are not determinable.
</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.
(15) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in Farmland Hydro, L.P. and SF Phosphates
Limited Company. Both ventures are manufacturers and distributors of phosphate
products. During 1993, 1994 and 1995, the Company purchased $66.5 million,
$83.1 million and $106.2 million, respectively, of product from these ventures.
Accounts payable includes $1.4 million and $4.8 million due to these ventures at
August 31, 1994 and 1995, respectively. The Company also has notes receivable
from these ventures in the amount of $29.6 million and $6.6 million at August
31, 1994 and 1995, respectively.
(16) OTHER INCOME
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding the
Defendants' insurance coverage obligations for environmental remediation costs.
The Company negotiated settlements with 20 and 2 insurance companies in 1994
and 1995, respectively. As part of the settlements, the Company provided the
Defendants with releases of various possible environmental obligations. As a
result of these settlements, the Company received cash payments in 1994 and 1995
of $13.6 million and $.3 million, respectively, and included such amounts in the
caption "Other income" in the Consolidated Statement of Operations for the years
then ended.
(17) PROVISION FOR LOSS ON DISPOSITION OF ASSETS
At August 31, 1993, management was negotiating to sell the Company's
refinery at Coffeyville, Kansas. Based on the progress of negotiation and the
transactions contemplated, operations for the year ended August 31, 1993
included a $20.0 million for loss on the sale of the refinery. Accordingly, the
net carrying value of property, plant and equipment was reduced by $20.0 million
in the consolidated balance sheets at August 31, 1993. The transactions
contemplated were subject to certain conditions, including negotiation of final
agreements. During 1994, management determined that final sale terms
anticipated by the potential purchaser were not in the Company's best interest.
Accordingly, negotiations were terminated and the sale was not consummated.
In 1993, the Company entered discussions with a potential purchaser of a
dragline. Based on these discussions, the Company estimated a loss of $6.2
million from the sale. Accordingly, at August 31, 1993, the carrying value of
the dragline was written down by $6.2 million and a provision for this loss was
included in the Company's consolidated statement of operations for the year then
ended. In 1994, this sale was consummated on terms substantially as expected.
At August 31, 1993, the carrying value of a pork processing plant at Iowa
Falls, Iowa was written down by $3.3 million to an estimated disposal value.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreement on any matter of accounting principles or practices or
financial statement disclosure was reported.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The directors of Farmland are as follows:
<TABLE>
<CAPTION>
Total
Expiration Years of
Age as of of Service
August 31 Positions Present as
, Held With Term as Board
Name 1995 Farmland Director Member Business Experience During Last Five Years
<S> <C> <C> <C> <C>
Albert J. Shivley 52 Chairman 1995 11 General Manager--American Pride Co-op
of the Association, Brighton, Colorado, a local
Board cooperative association of farmers and ranchers.
H. D. Cleberg 56 President 1997 5 Mr. Cleberg has been with Farmland since 1968.
and Chief He was named as president-elect in February 1991
Executive and became President in April 1991. From
Officer September 1990 to January 1991 he served as
Senior Vice President and Chief Operating
Officer, Agricultural Group. From April 1989 to
August 1990 he served as Executive Vice
President, Operations.
Otis H. Molz 64 Vice 1997 12 Producer--Deerfield, Kansas. Mr. Molz has served
Chairman as Chairman of the Board of the National Bank for
and Vice Cooperatives since January 1993. He served as
President Chairman of the Board of Directors of Farmland
Industries, Inc. from December 1991 to December
1992. He served as First Vice President of the
National Bank for Cooperatives from January 1990
to January of 1993. He was Second Vice Chairman
from January 1, 1989 to January 1, 1990.
Lyman Adams, Jr. 44 1995 3 General Manager--Cooperative Grain and Supply,
Hillsboro, Kansas, a local cooperative
association of farmers and ranchers.
Ronald J. Amundson 51 1997 7 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association of
farmers and ranchers.
Baxter Ankerstjerne 59 1996 5 Producer--Peterson, Iowa. Since December 1988
Mr. Ankerstjerne has served as Chairman of the
Board of Directors of Farmers Cooperative,
Association, Marathon, Iowa, a local cooperative
association of farmers and ranchers.
Jody Bezner 54 1997 4 Producer--Texline, Texas.
Richard L. Detten 61 1996 8 Producer--Ponca City, Oklahoma.
Steven Erdman 45 1995 3 Producer--Bayard, Nebraska.
Warren Gerdes 47 1995 2 General Manager--Farmers Cooperative Elevator
Company, Buffalo Lake, Minnesota, a local
cooperative association of farmers and ranchers.
Ben Griffith 46 1995 6 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.
Gail D. Hall 53 1997 7 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local cooperative
association of farmers and ranchers.
Jerome Heuertz 54 1997 1 General Manager--Farm Service Cooperative,
Council Bluffs, Iowa, a local cooperative
association of farmers and ranchers.
Barry Jensen 50 1996 5 Producer--White River, South Dakota.
Mr. Jensen currently serves as a Director,
and was President from May 1989 to May 1993, of
Farmers Co-op Oil Association, Winner, South
Dakota, a local cooperative association of
farmers and ranchers.
Greg Pfenning 46 1997 3 Producer--Hobart, Oklahoma. Director of Hobart &
Roosevelt Cooperative, a local cooperative
association of farmers and ranchers.
Vonn Richardson 62 1996 8 Producer--Plains, Kansas. President of The
Plains Equity Exchange and Cooperative Union,
Plains, Kansas, a local cooperative association
of farmers and ranchers.
Monte Romohr 42 1996 5 Producer--Gresham, Nebraska. From March 1988,
to March 1991, Mr. Romohr served as President
of Farmers Co-op Business Association, Shelby,
Nebraska, a local cooperative association of
farmers and ranchers.
Joe Royster 43 1996 2 General Manager--Dacoma Farmers Cooperative,
Inc., Dacoma, Oklahoma, a local cooperative
association of farmers and ranchers.
Paul Ruedinger 65 1995 12 Producer--Van Dyne, Wisconsin.
Raymond J. Schmitz 64 1996 8 Producer--Baileyville, Kansas
Theodore J. Wehrbein 50 1995 9 Producer--Plattsmouth, Nebraska. Past Director
of Nehawka Farmers Cooperative Company, Nehawka,
Nebraska, a local cooperative association of
farmers and ranchers.
Robert Zinkula 65 1996 5 Producer--Mount Vernon, Iowa. Secretary and
Treasurer of Linn Cooperative Oil Company,
Marion, Iowa, a local cooperative association of
farmers and ranchers.
</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 Ronald Amundson, Ben
Griffith, Otis Molz, Monte Romohr, Albert Shivley and H. D. Cleberg. With the
exception of H.D. Cleberg, President and Chief Executive Officer, members of the
executive committee serve as chairman of standing committees of the Board of
Directors as follows: Ronald Amundson, corporate responsibility committee; Ben
Griffith, audit committee; Otis Molz, compensation committee; Monte Romohr,
finance committee; and Albert Shivley, nominating committee.
The executive officers of Farmland are:
<TABLE>
<CAPTION>
Age as of
August 31,
Name 1995 Principal Occupation and Other Positions
<S> <C> <C>
J. F. Berardi 52 Executive Vice President and Chief Financial Officer - Mr. Berardi
joined Farmland March 1992 to serve in his present position.
Mr. Berardi served as Executive Vice President and Treasurer of
Harcourt Brace Jovanovich, Inc., a diversified Fortune 200 company,
and was a member of its Board of Directors from 1988 until 1990.
H. D. Cleberg 56 President and Chief Executive Officer - Mr. Cleberg has been with
Farmland since 1968. He was appointed to his present position
effective April 1991. From September 1990 to March 1991 he served as
Senior Vice President and Chief Operating Officer. From April 1989
to August 1990 he served as Executive Vice President, Operations.
Prior to April 1989 he held several executive management positions
with Farmland.
S. P. Dees 52 Executive Vice President, Business Development - Mr. Dees joined
Farmland in 1984, serving as Vice President and General Counsel, Law
and Administration. He was appointed to his present position in
September 1995. From September 1993 to September 1995 he served as
Executive Vice President, Farmland and Director General of Farmland
Industrias, S.A. de C.V. From October 1990 to September 1993 he
served as Executive Vice President, Administrative Group and General
Counsel.
G. E. Evans 51 Group Vice President, Meat and Livestock Businesses - Mr. Evans has been
with Farmland since 1971. He was appointed to his present position
in September 1995. From January 1992 to September 1995 he served as
Senior Vice President, Agricultural Production Marketing/Processing.
From April 1991 to January 1992 he served as Senior Vice President,
Agricultural Inputs. He served as Executive Vice President,
Agricultural Marketing from October 1990 to March 1991.
R. W. Honse 52 Group Vice President, Ag Input Businesses - Mr. Honse has been with
Farmland since 1983. He was appointed to his present position in
September 1995. From January 1992 to September 1995, he served as
Executive Vice President, Agricultural Inputs Operations. From
October 1990 to January 1992 he served as Executive Vice President,
Agricultural Operations.
A. H. Lewis 48 Group Vice President, Grain and Grain Processing Businesses - Mr. Lewis
joined Farmland August 1994 to serve as Vice President, Grain
Marketing. He was appointed to his current position in September
1995. From 1985 to 1994, Mr. Lewis worked for CONAGRA as the
President, Klein-Berger Companies in San Francisco, California.
B. L. Sanders 54 Vice President and Corporate Secretary - Dr. Sanders has been with
Farmland since 1968. He was appointed to his present position in
September 1991. From April 1990 to September 1991 he served as Vice
President, Strategic Planning and Development. From October 1987 to
March 1990 he served as Vice President, Planning.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation awarded to, earned
by, or paid to the Chief Executive Officer and the Company's next four most
highly compensated executive officers for services rendered to the Company in
all capacities during 1993, 1994 and 1995.
<TABLE>
<CAPTION>
Annual Compensation
Employee
Variable
Name and Year Ending Compensation Other Annual
Principal Position August 31 Salary Plan Compensation
<S> <C> <C> <C> <C>
H. D. Cleberg, . . . . . . . . . . 1993 $ 433,506
President and . . . . . . . . . . 1994 $ 439,728 $ 338,481
Chief Executive Officer 1995 $ 456,218 $ 346,944
G. E. Evans, . . . . . . . . . . 1993 $ 278,304
Group Vice President, 1994 $ 278,304 $ 217,761
Meat and Livestock 1995 $ 283,988 $ 217,761
Businesses
R. W. Honse, . . . . . . . . . . 1993 $ 231,964
Group Vice President, 1994 $ 251,532 $ 205,206
Ag Input Businesses 1995 $ 280,248 $ 210,337
J. F. Berardi, . . . . . . . . . . 1993 $ 206,016
Executive Vice President 1994 $ 216,252 $ 146,576
and Chief Financial Officer 1995 $ 226,914 $ 150,241
S. P. Dees, . . . . . . . . . . 1993 $ 205,366
Executive Vice President, 1994 $ 205,066 $ 119,093 $ 124,138(a)
Business Development 1995 $ 211,000 $ 122,070 $ 127,878(a)
<FN>
(a) Mr. Dees received a differential remuneration and reimbursements in 1994
and 1995 for taxes in connection with foreign assignments.
</TABLE>
An Annual Employee Variable Compensation Plan, a Management Long-Term
Incentive Plan, and an Executive Deferred Compensation Plan have been
established by the Company to meet the competitive salary programs of other
companies, and to provide a method of compensation which is based on the
Company's performance.
Under the Company's Annual Employee Variable Compensation Plan, all regular
salaried employees total compensation is based on a combination of base and
variable pay. The variable compensation payment is dependent upon the
employee's position, the performance of the Company for the fiscal year or other
performance criteria of the individual's operating unit. Variable compensation
is awarded only in years that the Company achieves a performance level, approved
each year by the Board of Directors. The Company intends for its total cash
compensation (base plus variable) to be competitive, recognizing that in the
event the Company fails to achieve a predetermined threshold level of
performance, the base pay alone will place the employees well under market
rates. This system of variable compensation allows the Company to keep its
fixed costs (base salaries) lower, and only increase payroll costs consistent
with the Company's ability to pay. Amounts accrued under this plan for the
years ended August 31, 1993, 1994 and 1995 amounted to $ -0-, $17.8 million and
$35.5 million, respectively. Distributions under this plan are made annually
after the close of each fiscal year.
<TABLE>
<CAPTION>
Information as to awards made in 1995 under the Company's Management
Long-Term Incentive Plan, which awards relate to the three year period 1995 to
1997, is set forth below.
Estimated Future Payouts Under Non-Stock Price-Based
Plans
(A) (B) (C) mounts in Thousands)
Performance or
Other Period
Number of Until
Shares, Units or Maturation or (D) (E) (F)
Name Other Rights (1) Payout Threshold Target (2) Maximum (2)
<S> <C> <C> <C> <C>
H. D. Cleberg 1995 - 1997 $ 234
G. E. Evans 1995 - 1997 $ 117
R. W. Honse 1995 - 1997 $ 117
J. F. Berardi 1995 - 1997 $ 83
S. P. Dees 1995 - 1997 $ 83
<FN>
(1) Rights in the incentive pool are expressed as a minimum percentage of
the total pool. See discussion contained below herein.
(2) Not applicable as payouts are based on a percentage of aggregate
income; the plan does not specify a target or maximum payment.
See discussion contained below herein.
</TABLE>
Under the Management Long-Term Incentive Plan, the Company's executive
management employees are paid cash incentive amounts determined by a formula
which takes into account the level of management and the aggregate income of
the Company over a three year period. The Management Long-Term Incentive Plan
provides for three year performance and reward cycles and, in general,
participants must be active employees of the Company at the end of the cycle
in order to receive payment of the award with respect to such cycle. Periods
currently covered by the Management Long-Term Incentive Plan are: 1994
through 1996 ("1996 Plan"); 1995 through 1997 ("1997 Plan"); and, 1996
through 1998 ("1998 Plan"). The income threshold ("Threshold") for the
three year period of the 1996 Plan, the 1997 Plan and the 1998 Plan is
$192,810,000, $235,043,000 and $393,481,000, respectively. For each plan, if
the aggregate income is less than the Threshold or if the sum of the cash
returned to members during the 1996 Plan, the 1997 Plan and the 1998 Plan, as
patronage refunds, redemptions under the base capital plan, estate settlement
plans and special allocated equity redemption plans is less than $65,030,000,
$61,938,000 and $90,000,000, respectively, subject to the following sentence,
no payment will occur with respect to such plan. The Board of Directors of
the Company may, in its sole discretion, amend or discontinue the Management
Long-Term Incentive Plan, adjust or cancel any awards otherwise payable
thereunder should the Company incur a loss in the final year of any
performance cycle or impact the goals and rewards of the plan by approving
for inclusion or exclusion in the calculation of performance results, the
financial results of extraordinary events occurring during the cycle. Subject
to the preceding sentence, if aggregate income equals or exceeds the Threshold
and the cash returned to members equals or exceeds the specified amounts,
then 2.5%, .83% and .83% of aggregate income for the 1996 Plan, the 1997 Plan
and the 1998 Plan, respectively, is allocated to an incentive pool for each
such plan from which awards to management will be paid. Of the amount,
if any, allocated to the incentive pools for the 1996 Plan, the 1997 Plan and
the 1998 Plan, Messrs. Cleberg, Evans, Honse, Berardi, and Dees, will
receive at least 12%, 6%, 6%, 4.25%, and 4.25%, respectively, absent a
significant change in their status, in which event such percentages may be
adjusted.
The Company's Executive Deferred Compensation Plan permits executive
employees to defer part of their salary and/or part or all of their bonus
compensation. The amount to be deferred and the period for deferral is
specified by an election made semi-annually. Payments of deferred amounts shall
begin at the earlier of the end of the specified deferral period, retirement,
disability or death. The employee's deferred account balance is credited
annually with interest at the highest rate of interest paid by the Company on
any subordinated debt certificate sold during the year. Payment of an
employee's account balance shall, at the employee's election, be a lump sum or
in ten annual installments. Amounts deferred pursuant to the plan for the
accounts of the named individuals during the fiscal years 1993, 1994 and 1995
are included in the cash compensation table.
The Company established the Farmland Industries, Inc. Employee Retirement
Plan ("Plan") in 1986 for all employees whose customary employment is at the
rate of at least 1,000 hours per year. Participation in the Plan is optional
prior to age 34, but mandatory thereafter. Approximately 6,400 active and 6,630
inactive employees were participants in the Plan on August 31, 1995. The Plan
is funded by employer and employee contributions to provide lifetime retirement
income at normal retirement age 65, or a reduced income beginning as early as
age 55. The Plan also contains provisions for death and disability benefits.
The Plan has been determined qualified under the Internal Revenue Code. The
Plan is administered by a committee appointed by the Board of Directors of
Farmland, and all funds of the Plan are held by a bank trustee in accordance
with the terms of the trust agreement. It is the present intent to continue
this plan indefinitely. The Company's funding policy is to make the maximum
annual contributions to the Plan's trust fund that can be deducted for federal
income tax purposes. Company contributions made to the Plan for the years ended
August 31, 1993, 1994 and 1995 were $ -0-, $2.9 million and $5.3 million,
respectively.
Payments to participants in the Plan are based upon length of participation
and compensation reported to the Plan for the four highest of the last ten years
of employment. Compensation for this purpose includes base salary and
compensation earned under the Company's Annual Employee Variable Compensation
Plan discussed above. However, at the present time, the maximum compensation
(per participant) which may be covered by a qualified pension plan is limited to
$150,000 annually and the maximum retirement benefit which may be paid by such
plan is limited to $120,000 annually by the Tax Equity and Fiscal Responsibility
Act (TEFRA).
The Company established the Farmland Industries, Inc. Supplemental
Executive Retirement Plan ("SERP") effective January 1, 1994. The SERP is
intended to supplement the retirement income of executive participants in the
Farmland Industries, Inc. Employee Retirement Plan whose retirement benefit
would otherwise be reduced because of the limitation of the Internal Revenue
Code on the amount of salary which can be included in the computation of
retirement income ($150,000) or the amount of retirement benefit which may be
paid by a qualified retirement plan ($120,000).
The Company's Board of Directors has appointed an Administrative Committee
to administer the SERP. To fund the SERP, the Company purchased cash value life
insurance polices on the lives of plan participants. The Company owns these
insurance policies and has the sole right to name policy beneficiaries. The
total SERP premiums charged to operations for the eight months ended August 31,
1994 and for the year ended August 31, 1995 were $.4 million and $.6 million,
respectively.
The Company's obligation to pay supplemental retirement benefits under the
SERP is limited to the aggregate cash value of the life insurance policies
designated by the Administrative Committee as policies of the SERP. If the
benefits under the plan for a year would exceed the total cash value of the
policies, each participant's payment will be reduced.
The following table sets forth, for compensation levels up to $150,000, the
estimated annual benefits payable at age 65 for members of the Retirement Plan,
which benefits are not reduced by virtue of Social Security payments. The
following table also sets forth, for compensation levels exceeding $150,000, the
combined estimated annual benefits payable under the Retirement Plan and SERP
for each of the first 10 years following retirement (no SERP payouts are to be
made after 10 years) assuming: retirement occurs after age 55; the employer's
portion of the benefit lost (due to TEFRA limitations) by the employee is 85%;
the employee lives for 10 years after retirement; and, the aggregate payments
under the SERP are less than the cash value of life insurance policies
designated (see above) as SERP policies.
<TABLE>
<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
200,000. .. 46,813 62,417 78,021 93,625
250,000. .. 54,250 72,333 90,417 108,500
300,000. .. 61,688 82,250 102,813 123,375
350,000. .. 69,125 92,167 115,209 138,250
400,000. .. 76,563 102,083 127,604 153,125
450,000. .. 84,000 112,000 140,000 168,000
500,000. .. 91,437 121,917 152,396 182,875
600,000. .. 106,313 141,750 177,188 212,626
700,000. .. 121,188 161,584 201,980 242,376
800,000. .. 136,063 181,417 226,771 272,126
900,000. .. 150,938 201,251 251,564 301,876
1,000,000. .. 165,813 221,083 276,355 331,626
</TABLE>
The following table sets forth the credited years of service for the
executive officers of the Company at August 31, 1995.
Name Years of Creditable Service
H. D. Cleberg . . . . . . . . . . . . 30
G. E. Evans . . . . . . . . . . . . . 21
R. W. Honse . . . . . . . . . . . . . 21
J. F. Berardi . . . . . . . . . . . . 2
S. P. Dees . . . . . . . . . . . . . . 10
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons, none of whom, except as indicated below, is either
currently or formerly an officer or employee of the Company or any of its
subsidiaries, served as members of the Company's compensation committee
during 1995: Messrs. Jody Bezner, Warren Gerdes, Gail Hall, Greg Pfenning and
Otis Molz. Mr. Molz was Chairman of the Board of the Company from
December 1991 to December 1992. No executive officer of the Company (i)
served as a member of a compensation committee (or other board committee
performing equivalent functions or, in the absence of such committee, the
entire board of directors) of another entity, one of whose executive officers
served on the compensation committee of the Company, (ii) served as a director
of another entity, one of whose executive officers served on the compensation
committee of the Company, or (iii) served as a member of a compensation
committee (or other board committee performing equivalent functions or, in the
absence of such committee, the entire board of directors) of another entity,
one of whose executive officers served as a director of the Company.
COMPENSATION OF DIRECTORS
Directors' compensation consists of payment of three hundred dollars
($300.00) per day of attendance at the Board of Directors or committee
meetings, plus reimbursement of necessary expenses incurred in connection
with their official duties.
CERTAIN TRANSACTIONS
The Company transacts business in the ordinary course with its directors
and with its local cooperative members with which the directors are associated
on terms no more favorable than those available to its other local cooperative
members.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No person owns of record or is known to own beneficially more than five
percent of Farmland's equity securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company transacts business in the ordinary course with its directors
and with its local cooperative members with which the directors are associated
on terms no more favorable than those available to its other local cooperative
members.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Listing of Financial Statements Financial Statement Schedules and Exhibits
(1) FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Balance Sheets, August 31, 1994 and 1995
Consolidated Statements of Operations for each of the years
in the three-year period ended August 31, 1995
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended August 31, 1995
Consolidated Statements of Capital Shares and Equities for
each of the years in the three-year period ended August 31,
1995
Notes to Consolidated Financial Statements
(2) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as the required information is inapplicable
or the information is presented in the Consolidated Financial
Statements or related notes.
(3) EXHIBITS
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 1, 1994.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES:
4.(i)A Trust Indenture dated November 20, 1981, as amended January 4,
1982, including specimen of Demand Loan Certificates.
(Incorporated by Reference - Form S-1, No.2-75071, effective
January 7, 1982)
4.(i)B Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 10-year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form S-1,
No. 2-94400, effective December 31, 1984)
4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 10-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated December 3,
1991)
4.(i)C Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 5-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated December 3,
1991)
4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985
and November 20, 1985, including specimen of 10-year Subordinated
Monthly Income Capital Investment Certificates. (Incorporated by
Reference - Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)E Trust Indenture dated November 11, 1985 including specimen of the
5-year Subordinated Monthly Income Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 33-1970,
effective December 31, 1985)
4.(ii)A Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 20-year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form
S-1, No. 2-94400, effective December 31, 1984)
4.(ii)A(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 20-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated
December 3, 1991)
4.(ii)B Credit Agreement among Farmland Industries, Inc., as Borrower,
ABN Amro Bank N.V., The Bank of Nova Scotia, Boatmen's First
National Bank of Kansas City, The Chase Manhattan Bank, N.A.,
Commerce Bank of Kansas City, N.A., NBD Bank, N.A., as Banks
and The National Bank for Cooperatives, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", New York
Branch, as Banks and as Co-Agents, dated May 19, 1994, (the
"Syndicated Credit Facility"). (Incorporated by Reference -
Form 10-Q filed July 14, 1994)
4.(ii)B(1) List identifying contents of all omitted schedules
referenced in and not filed with, the Syndicated
Credit Facility, dated May 19, 1994. (Incorporated by
Reference - Form 10-Q, filed July 14, 1994)
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First
National Bank of Chicago, not individually but solely as
Trustee for AT&T Commercial Finance Corporation, The Boatmen's
National Bank of St. Louis, Firstier Bank, N.A. and Norwest
Bank Minnesota, National Association and Farmland Industries,
Inc. in the amount of $73,153,000. (Incorporated by Reference -
Form SE, filed December 3, 1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National
Bank of Commerce as Trustee for General Electric Credit
Corporation as Beneficiary and Farmland Industries, Inc. in the
amount of $51,909,257.90. (Incorporated by Reference - Form
S-1, No.2-60372, effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Annual Employee Variable Compensation Plan (September 1,
1995- August 31, 1996)
10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1995)
10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement
Plan (Effective January 1, 1994)
21. Subsidiaries of the Registrant
Farmland Foods, Inc., a 99%-owned subsidiary, was incorporated
under the laws of the State of Kansas. Farmland Foods, Inc.
has been included in the Consolidated Financial Statements
filed in this registration.
Farmland Insurance Agency, a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri.
Farmland Insurance Agency has been included in the
Consolidated Financial Statements filed in this registration.
Farmers Chemical Company, a wholly-owned subsidiary, was
incorporated under the laws of the State of Kansas. Farmers
Chemical Company has been included in the Consolidated
Financial Statements filed in this registration.
Farmland Securities Company, a wholly-owned subsidiary, was
incorporated under the laws of the State of Delaware.
Farmland Securities Company has been included in the
Consolidated Financial Statements filed in this registration.
Cooperative Service Company, a wholly-owned subsidiary, was
incorporated under the laws of the State of Nebraska.
Cooperative Service Company has been included in the
Consolidated Financial Statements filed in this registration.
Double Circle Farm Supply Company, a wholly-owned subsidiary,
was incorporated under the laws of the State of Nevada.
Double Circle Farm Supply Company has been included in the
Consolidated Financial Statements filed in this registration.
National Beef Packing Company, L.P., a 58%-owned subsidiary
(68%-owned effective March 31, 1995), was formed under the laws
of the State of Delaware. National Beef Packing Company has
been included in the Consolidated Financial Statements filed
in this registration.
NBPCo, L.L.C., a wholly-owned subsidiary, was formed under the
laws of the State of Kansas. NBPCo has been included in the
Consolidated Financial Statements filed in this registration.
Farmland Financial Services Company, a wholly-owned subsidiary,
was incorporated under the laws of the State of Kansas.
Farmland Financial Services Company has been included in the
Consolidated Financial Statements filed in this registration.
Farmland Transportation, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri. Farmland
Transportation, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Environmental and Safety Services, Inc., a wholly-owned
subsidiary, was incorporated under the laws of the State of
Missouri. Environmental and Safety Services, Inc. has been
filed in the Consolidated Financial Statements included in
this registration.
Penterra, Inc., a 81%-owned subsidiary, was incorporated under
the laws of the State of Kansas. Penterra, Inc. has been
included in the Consolidated Financial Statements filed in
this registration.
Farmland Industries, Ltd., a wholly-owned subsidiary, was
incorporated under the laws of the United States Virgin Islands.
Farmland Industries, Ltd. has been included in the Consolidated
Financial Statements filed in this registration.
Heartland Data Services, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Kansas. Heartland
Data Services, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Equity Country, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Delaware.
Equity Country, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Equity Export Oil and Gas Company, Inc., a wholly-owned
subsidiary, was incorporated under the laws of the State of
Oklahoma. Equity Export Oil and Gas Company, Inc. has been
included in the Consolidated Financial Statements filed
in this registration.
Ceres Realty Corporation, a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri.
Ceres Realty Corporation has been included in the Consolidated
Financial Statements filed in this registration.
Heartland Wheat Growers, L.P., a 79%-owned subsidiary, was
formed under the laws of the State of Kansas. Heartland Wheat
Growers has been included in the Consolidated Financial
Statements filed in this registration.
Heartland Wheat Growers, Inc., a 79%-owned subsidiary, was
incorporated under the laws of the State of Kansas. Heartland
Wheat Growers has been included in the Consolidated Financial
Statements filed in this registration.
Farmland Industrias S.A. de C.V., a wholly-owned subsidiary,
was formed under the laws of Mexico. Farmland Industrias has
been included in the Consolidated Financial Statements filed
in this registration.
National Carriers, Inc., a 79%-owned subsidiary, was
incorporated under the laws of the State of Kansas. National
Carriers has been included in the Consolidated Financial
Statements filed in this registration.
Supreme Land, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Kansas.
Supreme Land has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Tennessee.
Tradigrain, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under
the laws of Switzerland. Tradigrain S.A. of Switzerland
has been included in the Consolidated Financial Statements
filed in this registration.
Tradigrain Shipping S.A., a wholly-owned subsidiary, was
formed under the laws of Switzerland. Tradigrain Shipping
S.A. has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under
the laws of France. Tradigrain S.A. of France has been included
in the Consolidated Financial Statements filed in this
registration.
Tradigrain GmbH, a wholly-owned subsidiary, was formed under
the laws of Germany. Tradigrain GmbH has been included in the
Consolidated Financial Statements filed in this registration.
Tradigrain LTD., a wholly-owned subsidiary, was formed under
the laws of Great Britain. Tradigrain LTD. has been included
in the Consolidated Financial Statements filed in this
registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the
laws of Argentina. Tradigrain S.A. of Argentina has been
included in the Consolidated Financial Statements filed in this
registration.
24. Power of Attorney
27. Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FARMLAND
INDUSTRIES, INC. HAS DULY CAUSED THIS FORM 10-K TO BE SIGNED ON ITS BEHALF BY
THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF KANSAS CITY, STATE OF
MISSOURI ON NOVEMBER 28, 1995.
FARMLAND INDUSTRIES, INC.
BY JOHN F. BERARDI
John F. Berardi
Executive Vice President and
Chief Financial Officer
BY ROBERT B. TERRY
Robert B. Terry
Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS FORM 10-K
HAS BEEN SIGNED FOR THE FOLLOWING PERSONS ON THE DATE INDICATED PURSUANT TO
VALID POWER OF ATTORNEY EXECUTED ON OCTOBER 25, 1995.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
ALBERT J. SHIVLEY Chairman of Board, November 28, 1995
Albert J. Shivley Director
H. D. CLEBERG President, Chief Executive November 28, 1995
H. D. Cleberg Officer and Director
(Principal Executive Officer)
OTIS H. MOLZ Vice Chairman of Board November 28, 1995
Otis H. Molz Vice President and Director
LYMAN ADAMS, JR. Director November 28, 1995
Lyman Adams, Jr.
RONALD J. AMUNDSON Director November 28, 1995
Ronald J. Amundson
BAXTER ANKERSTJERNE Director November 28, 1995
Baxter Ankerstjerne
JODY BEZNER Director November 28, 1995
Jody Bezner
RICHARD L. DETTEN Director November 28, 1995
Richard L. Detten
STEVEN ERDMAN Director November 28, 1995
Steven Erdman
WARREN GERDES Director November 28, 1995
Warren Gerdes
BEN GRIFFITH Director November 28, 1995
Ben Griffith
GAIL D. HALL Director November 28, 1995
Gail D. Hall
JEROME HEUERTZ Director November 28, 1995
Jerome Heuertz
BARRY JENSEN Director November 28, 1995
Barry Jensen
GREG PFENNING Director November 28, 1995
Greg Pfenning
VONN RICHARDSON Director November 28, 1995
Vonn Richardson
MONTE ROMOHR Director November 28, 1995
Monte Romohr
JOE ROYSTER Director November 28, 1995
Joe Royster
PAUL RUEDINGER Director November 28, 1995
Paul Ruedinger
RAYMOND J. SCHMITZ Director November 28, 1995
Raymond J. Schmitz
THEODORE J. WEHRBEIN Director November 28, 1995
Theodore J. Wehrbein
ROBERT ZINKULA Director November 28, 1995
Robert Zinkula
</TABLE>
Exhibit 99
EXHIBIT INDEX
The following exhibits and financial statement schedules are filed as a part
of this Form 10-K. Certain on these exhibits are incorporated by the reference
indicated. Items marked with an asterisk (*) are filed herewith.
Exhibit No. Exhibit
ARTICLES OF INCORPORATION AND BYLAWS:
*3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 1, 1994.
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES:
4.(i)A Trust Indenture dated November 20, 1981, as amended January 4,
1982, including specimen of Demand Loan Certificates.
(Incorporated by Reference - Form S-1, No.2-75071, effective
January 7, 1982)
4.(i)B Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 10-year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form S-1,
No. 2-94400, effective December 31, 1984)
4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 10-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated December 3,
1991)
4.(i)C Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 5-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated December 3,
1991)
4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985
and November 20, 1985, including specimen of 10-year Subordinated
Monthly Income Capital Investment Certificates. (Incorporated by
Reference - Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)E Trust Indenture dated November 11, 1985 including specimen of the
5-year Subordinated Monthly Income Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 33-1970,
effective December 31, 1985)
4.(ii)A Trust Indenture dated November 8, 1984, as amended January 3,
1985, including specimen of 20-year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form
S-1, No. 2-94400, effective December 31, 1984)
4.(ii)A(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985 covering Farmland Industries, Inc.'s 20-Year
Subordinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, dated
December 3, 1991)
4.(ii)B Credit Agreement among Farmland Industries, Inc., as Borrower,
ABN Amro Bank N.V., The Bank of Nova Scotia, Boatmen's First
National Bank of Kansas City, The Chase Manhattan Bank, N.A.,
Commerce Bank of Kansas City, N.A., NBD Bank, N.A., as Banks
and The National Bank for Cooperatives, Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A. "Rabobank Nederland", New York
Branch, as Banks and as Co-Agents, dated May 19, 1994, (the
"Syndicated Credit Facility"). (Incorporated by Reference -
Form 10-Q filed July 14, 1994)
4.(ii)B(1) List identifying contents of all omitted schedules
referenced in and not filed with, the Syndicated
Credit Facility, dated May 19, 1994. (Incorporated by
Reference - Form 10-Q, filed July 14, 1994)
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First
National Bank of Chicago, not individually but solely as
Trustee for AT&T Commercial Finance Corporation, The Boatmen's
National Bank of St. Louis, Firstier Bank, N.A. and Norwest
Bank Minnesota, National Association and Farmland Industries,
Inc. in the amount of $73,153,000. (Incorporated by Reference -
Form SE, filed December 3, 1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National
Bank of Commerce as Trustee for General Electric Credit
Corporation as Beneficiary and Farmland Industries, Inc. in the
amount of $51,909,257.90. (Incorporated by Reference - Form
S-1, No.2-60372, effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
*10.(iii)A Annual Employee Variable Compensation Plan (September 1,
1995- August 31, 1996)
*10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1995)
*10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement
Plan (Effective January 1, 1994)
*21. Subsidiaries of the Registrant
*24. Power of Attorney
*27. Financial Data Schedule
EXHIBIT 3.A
ARTICLES OF INCORPORATION AND BYLAWS OF FARMLAND INDUSTRIES, INC.
Kansas City, Missouri
(Effective 12-1-94)
ARTICLES OF INCORPORATION
ARTICLE I - NAME
Section 1. Name. The name of this corporation shall be FARMLAND
INDUSTRIES, INC.
ARTICLE II - PURPOSES
Section 1. Purposes. The purposes for which the Association is organized
are to engage in any activity in connection with the marketing or selling of the
agricultural products of its members and other patrons; or with the harvesting,
threshing, milling, preserving, drying, processing, canning, packing, storing,
handling, shipping, or utilization thereof, including (without limitation) doing
a public warehouse business and storing agricultural products in interstate
commerce; or the manufacturing or marketing of the by-products thereof; or in
connection with the manufacturing, selling, or supplying to its members and
other patrons of machinery, equipment or supplies, or in connection with
agricultural education, research, legislation and economic and social
conditions; or in connection with the improvement of livestock breeds by means
of artificial breeding or otherwise; or in the financing of the above-enumerated
activities; or in any one or more of the activities specified herein.
ARTICLE III - PLACE OF BUSINESS
Section 1. Place. The place where its business is to be transacted is at
3315 North Oak Trafficway, Kansas City, Missouri, and at such other places
either within or outside the State of Kansas as may be provided by the bylaws or
as determined by the Board of Directors.
ARTICLE IV - TERM
Section 1. Term. The term for which this corporation is to exist is fifty
years. (By a Certificate of Renewal filed with the Secretary of State of Kansas
on September 7, 1973, the term was extended for a period of fifty years from and
after September 1, 1973.)
ARTICLE V - NUMBER OF DIRECTORS
Section 1. Number of Directors. The number of directors of this
corporation shall be twenty-two (22), and the term of office of each thereof
shall be three (3) years and until his successor is elected and has qualified.
ARTICLE VI - CAPITAL STOCK
Section 1. Authorized Capital Stock. The capital stock of this
Association shall be $1,500,000,000, consisting of 50,000,000 shares of common
stock of the par value of $25 per share, 2,000,000 shares of associate member
common stock of the par value of $25 per share and 8,000,000 shares of preferred
stock of the par value of $25 per share.
Section 2. Common Stock. The common stock of this Association may be
purchased, owned or held only by producers of agricultural products and
associations of such producers, who patronize the Association in accordance with
uniform terms and conditions and only such producers and associations of such
producers shall be regarded as eligible voting members of the Association. In
the event the Board of Directors of the Association shall determine that any
holder of the common stock of this Association does not meet the qualifications
as may be established by the Board of Directors for holders thereof, such person
shall have no rights or privileges on account of such common stock to vote for
director(s) or to vote on the management or affairs of the Association, and the
Association shall have the right, at its option, (a) to purchase such common
stock at its book or par value, whichever is less, as determined by the Board of
Directors of the Association, or (b) in exchange for such common stock, to issue
an equivalent par value amount of associate member common stock or to issue or
record on the books of the Association, capital credits in an equivalent amount.
On the failure of any holder, following any demand by the Association therefor,
to deliver the certificate or certificates evidencing any common stock, the
Association may cancel the same on its books and issue associate member common
stock or issue or record on the books of the Association an equivalent amount of
capital credits, in lieu thereof. The common stock of this Association may be
transferred, and associate member common stock and capital credits may be
converted to common stock and transferred, only with the consent of the Board of
Directors of the Association and on the books of the Association and then only
to persons eligible to hold the same; and no purported assignment or transfer of
common stock shall pass to any person not eligible to hold the same, any rights
or privileges on account of such stock to vote on the management or affairs of
the Association. Each holder of common stock shall be entitled to a minimum of
one vote. Common shareholders will receive one additional vote for each
complete increment of $1,000 in common stock above membership requirements and
one additional vote for each complete increment of dollar volume of business in
an amount equal to the product of $1,000 multiplied by a fraction the numerator
of which is the total dollar volume of patronage business of the Association
during the preceding fiscal year with common shareholders and the denominator of
which is the total dollar amount of the Association's common stock issued and
outstanding at the close of the preceding fiscal year. No common shareholder
shall be entitled to vote more than five percent (5%) of the total votes of the
Association available to be cast. This Association shall have a lien on (and
right of setoff against) all of its issued common stock for all indebtedness of
the holder(s), whether due or to become due, thereof to the Association. No
interest or dividend shall be paid on outstanding common stock. The Board of
Directors, in its sole discretion, may at any time or times and on any basis
deemed appropriate authorize the retirement of any common stock, in whole or in
part. Each certificate of common stock issued subsequent to the date of an
amendment shall have the then applicable provisions printed thereon.
Section 3. Associate Member Common Stock. The associate member common
stock of the Association may be purchased, owned or held by any person having
the qualifications as may be established by the Board of Directors. Associate
member common stock shall have all of the rights and privileges attendant to
that of common stock, except that such associate member common stock shall not
entitle the holder thereof to vote, irrespective of the number of shares held,
for director(s) or to vote on the management or affairs of the Association. In
the event the Board of Directors of the Association shall determine that any
holder of the associate member common stock of the Association does not meet the
qualifications as may be established by the Board of Directors for holders
thereof, the Association shall have the right, at its option, (a) to purchase
such associate member common stock at its book or par value, whichever is less,
as determined by the Board of Directors of the Association, or (b) to convert
the associate member common stock held by any such person to capital credits by
notifying such holder, after which such associate member common stock shall be
cancelled on the books of the Association. The associate member common stock of
this Association may be transferred, and common stock and capital credits may be
converted to associate member common stock and transferred, only with the
consent of the Board of Directors of the Association and then only to persons
eligible to hold the same; and no purported assignment or transfer of associate
member common stock shall pass to any person not eligible to hold the same, any
rights or privileges on account of such stock. This Association shall have a
lien on (and right of setoff against) all of its issued associate member common
stock for all indebtedness of the holder(s), whether due or to become due,
thereof to the Association. No interest or dividend shall be paid on
outstanding associate member common stock. The Board of Directors, in its sole
discretion, may at any time or times and on any basis deemed appropriate au-
thorize the retirement of any associate member common stock, in whole or in
part. Each certificate of associate member common stock issued subsequent to
the date of an amendment shall have the then applicable provisions printed
thereon.
Section 4. Preferred Stock. The preferred stock shall be nonvoting and
may be (1) made subject to redemption at such time or times, and at such price
or prices, and (2) issued in such series, with such designations, preferences,
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions as shall be stated and expressed in
the Articles of Incorporation of this Association, or in the resolution or
resolutions adopted by the Board of Directors thereof for the issue of such
stock; and the said Board of Directors is hereby granted authority (1) to
provide from time to time for the issue of preferred stock, in one or more
series, and with such designations, preferences, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions, and (2) to make such stock, or any part thereof, subject to
redemption at such time or times, and at such price or prices, as the said Board
of Directors, in its sole discretion, may from time to time determine.
Section 5. Capital Credits. The Association may issue at any time, and
record or transfer on its books and records, one or more classes of capital
credits in the Association. Holders of capital credits shall not be entitled to
vote. The capital credits of this Association may be transferred, and common
stock and associate member common stock may be converted to capital credits and
transferred, only with the consent of the Board of Directors of the Association
and on the books of the Association. The Board of Directors, in its sole
discretion, may at any time or times and on any basis deemed appropriate
authorize the transfer or retirement of any capital credits, in whole or in
part. No interest or dividend shall be paid on outstanding capital credits.
This Association shall have a lien on (and right of setoff against) all of its
issued capital credits for all indebtedness of the holder(s), whether due or to
become due, thereof to the Association. Each certificate of capital credits
issued subsequent to the date of an amendment shall have the then applicable
provisions printed thereon.
ARTICLE VII - INDEMNIFICATION
Section 1. Indemnification. The Association may agree to the terms and
conditions upon which any director, officer, employee or agent accepts his
office or position and in its bylaws, by contract or in any other manner may
agree to indemnify and protect any director, officer, employee or agent of the
Association, or any person who serves at the request of the Association as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted by the laws
of the State of Kansas.
Section 2. Limitation of Liability. Without limiting the generality of
the foregoing provisions of this ARTICLE VII, to the fullest extent permitted or
authorized by the laws of the State of Kansas, including without limitation the
provisions of subsection (b)(8) of Kan. Stat. Ann. Section 17-6002 (1981) as
now in effect and as it may from time to time hereafter be amended, no person
who is currently or shall hereinafter become a director of the Association shall
have personal liability to the Association for monetary damages for breach of
fiduciary duty as a director for any act or omission occurring subsequent to the
date this provision becomes effective. If the Kansas General Corporation Code
is amended after approval of this provision by the shareholders of the
Association, to authorize corporate action further limiting or eliminating the
personal liability of directors, then the liability of a director of the
Association shall be limited or eliminated to the fullest extent permitted by
the Kansas General Corporation Code, as so amended.
BYLAWS
ARTICLE I - CAPITAL STOCK
Section 1. Stock Certificates. Certificates of stock shall be issued to
each holder of fully-paid shares. Each certificate shall state the par value of
the shares, the number of shares represented, the name of the person to whom
issued, and shall bear the signature of the president or a vice president and
the secretary or an assistant secretary and the seal of the Association, which
signatures and seal may be facsimiles. Certificates of stock shall be numbered
and issued in numerical order and a record of each certificate issued shall be
kept.
Section 2. Certificates of Indebtedness. The Association shall have the
authority to issue certificates of indebtedness in such form and containing such
terms as may be approved by the Board of Directors, which certificates shall
bear such rate or rates of interest as the Board of Directors may from time to
time determine.
ARTICLE II - DISTRIBUTION OF EARNINGS
Section 1. Current Year's Net Earnings and Patronage Refund Obligation.
(a) The Association shall determine annually its earnings or loss including the
appropriate portions thereof constituting net earnings for patronage refunds.
It shall then allocate and distribute its net overall earnings from its
allocation units as patronage refunds to its Members and Patrons with the
amounts distributed being determined on the basis of their patronage with such
units during the year.
(b) The Association's overall earnings or loss shall first be determined
using generally accepted accounting principles. For the fiscal year ending
August 31, 1994, the overall net earnings or loss shall then be increased or
decreased in accordance with the applicable rules and regulations for computing
income taxes. Beginning with the fiscal year ending August 31, 1995, the
overall net earnings or loss shall no longer be adjusted based on such
applicable rules and regulations for computing income taxes. Then any earnings
or losses of the allocation units shall be offset in accordance with Section 4
of this Article to establish the overall net earnings of the Association's
remaining allocation units which will be available for patronage refunds.
(c) The Association's overall net earnings or loss shall be divided into
(i) a patronage-sourced portion, determined on the basis of the quantity or
value of business done by the Association with or for its Members or Patrons who
are eligible to receive patronage refunds and who acquire supplies or services
from, or market products through the Association, and (ii) a non-patronage-
sourced portion which shall include amounts determined on the basis of the quan-
tity or value of business done with or for persons who are not eligible to
receive patronage refunds from the Association, plus such net amounts of income
(or expense) which are unrelated to the marketing, purchasing or service
operations carried on by the Association for its Members and Patrons on a
cooperative basis.
(d) Any patronage-sourced net earnings shall be further reduced (but not
below zero) by the ratably determined portion of dividends on stock applicable
to such net earnings that are paid or payable for the fiscal year. Then there
shall be deducted the accumulated amount of patronage-sourced losses from prior
years which have not otherwise been disposed of by the Board of Directors but
not in excess of the amount of net operating loss carryforwards available for
use in such year.
(e) If at the conclusion of any fiscal year, the amount of retained
earnings (which shall include the current year's non-patronage-sourced net
earnings) is less than thirty percent (30%) of Member and Associate Member
common stock issued and outstanding, and patronage refunds for reinvestment
balances as of the end of the previous year then, in order to provide for the
Association's reasonable member reserves, there shall be transferred to re-
tained earnings, from patronage-sourced net earnings, as members' contribution
to reserves, an amount equal to the lesser of (i) fifteen percent (15%) of the
current year's remaining patronage-sourced net earnings, or (ii) such amount
necessary to increase retained earnings (which shall include the current year's
non-patronage-sourced net earnings) to thirty percent (30%) of Member and
Associate Member common stock outstanding at the conclusion of the previous
fiscal year.
(f) Any amount then remaining shall constitute the net earnings of the
Association from which Members' and Patrons' patronage refunds shall be paid,
and such amount shall be apportioned among the Members and Patrons of the
appropriate allocation units on any equitable patronage basis approved by the
Board of Directors, and the amounts so determined, shall be paid as patronage
refunds in the form of cash, qualified or non-qualified written notices of
allocation, provided, however, that a payment by qualified written notice of
allocation shall be accompanied by no less than twenty percent (20%) of the
stated dollar amount thereof in cash with the balance at par value in Member
common stock, Associate Member common stock or capital credits at par value or
stated value as determined by the Board of Directors. The Board of Directors
shall determine the cash and non-cash amounts, if any, of a Member's or Patron's
patronage refund to be retained for purposes of collecting amounts due the
Association for such Member's or Patron's subscriptions to any official
publication of the Association or for any or all of such Member's or Patron's
outstanding indebtedness to the Association, provided that no retention of cash
hereunder shall reduce the cash portion of any Member's or Patron's patronage
refund otherwise paid by qualified written notice of allocation, to an amount
which is less than twenty percent (20%) of the total stated dollar amount
thereof.
Section 2. Bylaw Consent. Each applicant for membership who continues as
a voting member after having been accepted to membership in the Association and
after receiving a copy of this bylaw consent provision, shall, by such act
alone, consent that the amount of any distributions paid by qualified written
notices of allocation, respecting such person's patronage with the Association
occurring after it has received a copy of the bylaw consent and while such
person remains a voting member thereafter, shall be taken into account by such
person at its stated dollar amount for the taxable year in which such
distribution(s) are received, in the manner provided by 26 U.S.C. 1385(a).
Section 3. Losses. The Board of Directors of this Association shall have
complete discretion to determine the handling and ultimate disposition of the
Association's losses (including allocation unit losses) and the form, priority
and manner in which such losses or portions thereof shall be taken into account,
retained, and ultimately disposed of or recovered. The Board may retain losses
of the Association and subsequently (i) dispose of them by offset against the
net earnings of the Association of subsequent years, (ii) apply such losses to
prior years' patronage allocations at any time in order to dispose of them by
means of offset and cancellation against members' and patrons' equity account
balances, (iii) select and use any other method of disposition as the Board of
Directors, in its sole discretion, shall from time to time then determine.
Section 4. Netting of Allocation Unit Earnings and Loss. If one or more
of the Association's allocation units experience both earnings and losses during
any fiscal year, the earnings and losses of such allocation unit or units shall
be ratably allocated to and netted with the earnings and losses of the remaining
allocation units of the Association in order to determine the Association's
overall net earnings. The Association's Patrons and Members shall be notified
in any fiscal year for which such netting has occurred.
Section 5. Definitions. (a) As used in this Article, the term "Member"
shall mean a holder of common stock or Associate Member common stock of the
Association; the term "Patron" shall include any person, firm or association
which is not also a Member or Associate Member of the Association, with whom the
Association has in effect an agreement pursuant to which it has agreed to pay
patronage refunds to such person on the basis of the quantity or value of the
Association's business done with or for such person during the fiscal year.
(b) As used in this Article, the term "allocation unit" shall mean any
business or other unit of the Association with respect to which patronage
refunds are to be paid (or patronage-sourced losses are to be taken into
account) on the basis of the quantity or value of business done during the year
with the Association by its Members and Patrons.
ARTICLE III - CAPITALIZATION
Section 1. Base Capital Plan. For the purposes of acquiring and
maintaining adequate capital to finance the business of the Association, the
Board of Directors may establish a Base Capital Plan. The Plan may provide a
mechanism for determining the Association's total capital requirements and each
member's or patron's share thereof (the base capital requirement). As part of
the Plan, the Board of Directors may, in its discretion, provide for redemption
of capital held by members or patrons in excess of their base capital
requirements and may provide a mechanism under which the cash portion of the
patronage refund payable to members or patrons will depend upon the degree to
which such members or patrons meet their base capital requirements. Such Plan
may be amended or modified from time to time or suspended by the Board of
Directors as it deems fit.
ARTICLE IV - MEMBERS' AND PATRONS' INVESTMENTS
Section 1. Common Stock, Associate Member Common Stock, Capital Credits.
As a condition of the right to receive patronage refunds as hereinbefore
provided, and as a condition of each purchase from, or other transaction with,
the Association, and in consideration of similar subscriptions by others, each
Member and Patron entitled to receive patronage refunds under the bylaws shall
and does hereby, as of the first day of each fiscal year of the Association,
irrevocably subscribe for and agree to purchase common stock, associate member
common stock or other capital credit(s) of the Association, at par, in an amount
of not more than eighty percent (80%) of the amount to be paid to such patron by
the Association as patronage refunds resulting from business transacted during
such year, as conclusively determined by the Board of Directors of the
Association at the time of payment of such refunds. Such subscriptions shall be
payable in cash on or before the last day of such fiscal year, without the
execution and delivery of any further agreement, and without any acceptance,
call or notice by the Association, but only out of such patronage refunds.
ARTICLE V - MEETINGS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held each year at such time and at such place as may be fixed from time to
time by the Board of Directors.
Section 2. Special Meetings. The chairman of the board shall call a
special meeting of the shareholders upon a written request of at least ten
percent (10%) of the shareholders, or upon a majority vote of the directors.
The notice of the time, place, and purpose of such special meeting shall be
issued within fifteen (15) days from and after the presentation of such
petition, and such special meeting shall be held within thirty (30) days from
and after the date of presenting such petition.
Section 3. Notice of Meetings. Notice shall be given by the secretary of
all annual and special meetings of the shareholders by mailing a notice thereof
to each shareholder not less than fifteen (15) days preceding the date of the
proposed meeting.
Section 4. Presiding Officer. The chairman of the board of the
Association shall preside at all meetings of shareholders, and shall cast the
deciding vote in all cases of a tie.
Section 5. Absent Members Voting. Voting by proxy shall not be permitted,
but absent shareholders entitled to vote may vote on specific questions, other
than the removal of directors, by ballots transmitted to the secretary, and such
ballots shall be counted only in the meeting at the time at which such vote is
taken.
Section 6. Quorum. A quorum for the transaction of business shall consist
of at least two hundred (200) shareholders entitled to vote and at least one-
third of the total votes eligible to be cast. All shareholders voting by mail
and all votes cast by mail shall be counted as present in determining a quorum
for the consideration of a specified question on which votes may be cast by
mail.
ARTICLE VI - DIRECTORS AND OFFICERS
Section 1. Directors. The business and affairs of the Association shall
be managed under the direction and control of the Board of Directors, consisting
of twenty-two (22) members, elected at annual meetings by the shareholders
entitled to vote from their own numbers for three-year terms. Twenty-one
members of the Board of Directors shall be elected according to districts as
hereinafter provided and shall be known as district directors. The remaining
member of the Board of Directors shall be nominated and elected from the floor
and shall be known as a director-at-large.
Section 2. Election of Directors.
(a) The territory in which the Association operates shall, for the purpose
of electing district directors, be divided into districts, each of which shall
be entitled to the number of directors herein specified.
District 1 (Missouri and Kentucky) -- 1 director;
District 2 (Kansas) -- 4 directors;
District 3 (Colorado, Wyoming, Utah, Oregon and Idaho) -- 1 director;
District 4 (Nebraska) -- 4 directors;
District 5 (South Dakota, North Dakota and Montana) -- 1 director;
District 6 (Iowa, Illinois and Indiana) -- 4 directors;
District 7 (Oklahoma and Arkansas) -- 3 directors;
District 8 (Michigan, Minnesota and Wisconsin) -- 1 directors; and
District 9 (Texas and New Mexico) -- 2 director.
(b) The Board of Directors may from time to time assign to any of the
aforesaid districts any member or members residing in any state or states or
foreign country or foreign countries, other than the states named in the
foregoing paragraph. In any such case a member so assigned to any district
shall for all purposes be deemed to belong to such district and shall be
entitled to attend and participate in the hereinafter mentioned caucus of that
district.
(c) The various districts shall, by caucus, nominate their candidate or
candidates for director as herein provided. The following persons shall be
eligible for election as a director at the annual meeting of members: individual
shareholders; members, directors, officers, or employees of an association
shareholder; and, employees of the Association. In the event the number of
directors who are employees of shareholders entitled to vote totals ten or more
at any given time, no employee of a shareholder may be elected or appointed to
the Board of Directors, provided however, this limitation shall not disqualify
any director in office from being eligible for election or re-election as a
director. No person shall be eligible for nomination as a director if such
person has attained 65 years of age. Five months prior to the annual meeting the
chairman of the board shall appoint a nominating committee for each district in
which the term of a director expires at the next annual meeting. The district
nominating committee shall consist of three persons (one person to be appointed
as chairman) meeting the qualifications required to be a director as set forth
above. As promptly as possible after the appointment of district nominating
committees, the secretary of the Association shall notify the president of each
member association in each such district, by mail, of the members of the
district nominating committee. Each member association may notify the chairman
of the district nominating committee of the member association's candidate or
candidates for director at least three months prior to the date of the annual
meeting. Such action shall be evidenced by board resolution duly recorded in its
minutes. The district nominating committee shall mail its report to the
president of each member association in each such district at least one month
prior to the annual meeting and shall render its report at the caucus of such
district to be held at and in conjunction with the annual meeting, and in doing
so, shall provide at least one candidate, but not more than three candidates,
for each director term which is expiring. In addition to the names of candidate
or candidates provided by member associations for consideration by the district
nominating committee, such committee may also consider as candidates persons the
committee feels qualified. Any official delegate may make nominations at the
district caucus. Such district shall thereupon nominate its nominee or nominees
for directors and the names of said nominee or nominees shall be placed before
the members at the annual meeting for election. Should said nominee or nominees
fail to receive a majority of the votes cast by shareholders entitled to vote
and present and voting, nominations may be made from the floor, of nominee or
nominees from the district involved, and such shareholders shall thereupon vote
on said nominee or nominees. In each district caucus wherein directors are
nominated and in the election of directors at the annual meeting, shareholders
entitled to vote shall have the number of votes as determined under the Articles
of Incorporation, of the Association, for each director to be elected.
(d) A redistricting of the territory served by the Association, or a
reapportionment of the number of directors for each district, may be made by the
members at any annual meeting.
Section 3. Officers. The officers, each of whom shall serve at the will
of the Board of Directors and shall be elected by the Board of Directors, shall
consist of a chairman of the board, vice chairman, president, vice president,
secretary, one or more assistant secretaries, treasurer, one or more assistant
treasurers, and such other officers as the Board of Directors may from time to
time deem advisable. Only the chairman of the board, vice chairman, president,
and the vice president need be members of the Board of Directors. No person may
hold the offices of chairman of the board and president at the same time.
Section 4. Vacancies. Any vacancy on the Board of Directors shall be
filled by appointment by the remainder of the board until the next annual
meeting when a replacement for the unexpired term shall be elected.
Section 5. Meetings. The board shall meet upon the call of the chairman
of the board who shall determine the time and place of meetings, or upon call by
a majority of the directors; and meetings shall be held at least quarterly.
Section 6. Quorum. A majority of the qualified members shall constitute a
quorum both for the Board of Directors and the executive committee.
Section 7. Compensation. The compensation of the directors for attendance
at meetings shall be Three Hundred Dollars ($300.00) per day, plus necessary
expenses.
Section 8. Removal. Any director of the Association may be removed for
cause, by vote of not less than two-thirds of the members present, at any annual
meeting or at any special meeting called for the purpose. A director shall be
informed in writing of the charges preferred against him at least fifteen (15)
days before the meeting and at such meeting shall have an opportunity to be
heard in person or by counsel and by witnesses thereto. Officers or agents of
the Board of Directors may be removed from office or employment at any time by
action of the Board of Directors.
Section 9. Indemnification of Directors, Officers and Employees. Each
person who is or was a director, officer or employee of the Association or is or
was serving at the request of the Association as a director, officer or employee
of another corporation (including the heirs, executors, administrators or estate
of such person) shall be indemnified by the Association as of right to the full
extent permitted or authorized by the laws of the State of Kansas, as now in
effect and as hereafter amended, against any liability, judgment, fine, amount
paid in settlement, cost and expense (including attorneys' fees) asserted or
threatened against and incurred by such person in his capacity as or arising out
of his status as a director, officer or employee of the Association, or, if
serving at the request of the Association, as a director, officer or employee of
another corporation. The indemnification provided by this bylaw provision shall
not be exclusive of any other rights to which those indemnified may be entitled
under any other bylaw or under any agreement, vote of shareholders or
disinterested directors or otherwise, and shall not limit in any way any right
which the Association may have to make different or further indemnifications
with respect to the same or different persons or classes of persons.
ARTICLE VII - DUTIES OF DIRECTORS
Section 1. Management of Business. The Board of Directors shall direct
the management of the affairs of the Association and shall make all necessary
rules and regulations, not inconsistent with the law or the articles of
incorporation or bylaws of the Association, for the management and control of
the affairs of the Association and the guidance of the officers, agents, and
employees thereof. The day-to-day business affairs of the Association shall be
in the management and control of the president, selected by the board.
Section 2. Executive Committee. An executive committee of six, which
shall include the chairman, vice chairman, and president of the Association and
three other members to be elected by the board from among its own members at its
first meeting after the annual meeting shall have all the powers and exercise
all the functions of the Board of Directors, subject to the Board of Directors'
general control and direction.
Section 3. Bonds. The Board of Directors shall require all officers and
employees charged by the Association with responsibility for the custody of any
of its funds or property to give adequate bonds, and the costs thereof shall be
paid by the Association.
Section 4. Audits. As often as the Board of Directors may consider
necessary, but at least once a year, the Board of Directors shall obtain the
services of a competent and disinterested auditor, who shall make a careful
audit of the books and accounts of the Association and render a report in
writing thereon. The annual audit report shall be submitted to the members of
the Association at the annual meeting.
ARTICLE VIII - DUTIES OF OFFICERS
Section 1. Duties of Chairman of the Board. The chairman of the board
shall preside over all meetings of the shareholders and of the Board of
Directors and call special meetings of the shareholders and of the Board of
Directors whenever he deems such action advisable.
Section 2. Duties of Vice Chairman. In the absence or disability of the
chairman, the vice chairman shall perform the duties and exercise the powers of
the chairman. The vice chairman shall perform such other duties as may be
imposed upon him from time to time by the board.
Section 3. Duties of President. The president shall be the chief
executive officer; shall sign or delegate to such other officers or employees of
the Association as the president may, in his sole discretion, determine, the
authority to sign stock certificates, deeds, leases, bills of sale and other
instruments conveying any interest in real estate or personal property of the
Association and such other instruments or documents as the Board of Directors
may authorize or direct from time to time; shall have and exercise the power to
hire and fire all employees other than officers, administrative officers, agents
or employees selected by the Board of Directors; see that the management and
business operations of the Association are exercised and conducted in accordance
with general policies established by the Board of Directors; and perform such
other duties and exercise such other power or powers as the Board of Directors
may from time to time authorize or direct.
Section 4. Duties of Vice Presidents. One vice president shall be chosen
from the membership of the board. The president may appoint such additional
vice presidents as he deems appropriate to conduct the affairs of the
Association. The duties of vice presidents shall be assigned to them by the
president. The president may delegate to one or more elected officer(s) the
authority to perform his duties during his absence in such manner as he deems
appropriate. In the event of the total disability or death of the president,
the vice president who is a board member shall perform the duties of the
president until such time as the board shall otherwise direct or until a
successor to the president is elected.
Section 5. Duties of Secretary. The secretary shall (1) keep a complete
record of the meetings of the shareholders and of the directors; (2) sign all
stock and membership certificates with the president or a vice president, and
such other papers pertaining to the Association as he may be authorized or
directed to sign by the directors; (3) serve all notices and make all reports
required by law and these bylaws, and perform such other secretarial duties as
may be required by the Board of Directors. The assistant secretaries shall
perform the duties and exercise the powers of the secretary during the absence
or disability of the secretary.
Section 6. Duties of Treasurer. The treasurer shall keep such records and
perform such other duties pertaining to his office as the Board of Directors may
require. The assistant treasurers shall perform the duties and exercise the
powers of the treasurer during the absence or disability of the treasurer.
ARTICLE IX - GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of this Association shall
commence September 1 and end on August 31.
Section 2. Amendments. These bylaws may be amended or altered, in whole
or in part, as provided by law, at any regular meeting of the members or at any
special meeting, when such action has been duly announced in the call, provided
that a majority of the votes cast by the shareholders entitled to vote and
present and voting, including those votes cast by mail, shall approve such
amendment or alteration.
Section 3. Official Publication. The Association may publish an official
publication. It may be mailed to subscriber lists provided by member
associations and the subscription price may be deducted from patronage refunds
earned by members.
Section 4. Membership Vote for Sale of Principal Business. The
Association shall not, without approval by a vote of the majority of the votes
cast by members entitled to vote and present and voting at a duly called meeting
of the Association, sell or convey or cause or permit the sale or conveyance of
more than forty-nine percent (49%) of the voting shares in any subsidiary which
accounted for fifty percent (50%) or more of the Association's gross sales on a
consolidated basis during any one of the Association's three (3) most recently
completed fiscal years or during such shorter period as such subsidiary has been
in existence.
ARTICLE X - DISSOLUTION
Section 1. Upon dissolution or liquidation of the Association in any
manner, except as may be otherwise provided by law, the assets of the
Association shall be distributed in the following order and manner, to wit:
1. To pay all costs and expenses of dissolution, liquidation and
distribution;
2. To pay and discharge all indebtedness of the Association, exclusive of
any liability for the distribution of net earnings;
3. To retire, at par value plus unpaid accrued dividends thereon, if any,
the five and one-half percent (5 1/2%) and the six percent (6%) preferred stock;
4. To retire, at par value plus unpaid accrued dividends thereon, if any,
all other preferred stock of the Association, in the order and in accordance
with such priority as may be provided for by the terms and provisions of the
outstanding certificates therefor;
5. To pay all patronage refunds payable from current net earnings; and
6. All remaining assets, if any, shall be distributed among the holders of
common stock and associate member common stock or other capital credit(s) in
proportion to the amounts thereof held by each.
EXHIBIT 10.(iii)A
FY 96 STANDARD VARIABLE COMPENSATION PLAN
(SEPTEMBER 1, 1995 - AUGUST 31, 1996)
OBJECTIVE
To pay additional cash beyond base salary to eligible employees of Farmland
Industries, Inc. or one of its units, contingent upon the company s
financial performance. Farmland Industries, Inc. ("Corporate") must
achieve a threshold or minimum income before extraordinary items, or no
payout occurs, regardless of individual business/service unit results.
This plan includes three important exhibits which are an integral part
of the plan structure. Please be aware of and consult them. They
include the following:
Exhibit A - Corporate and Unit financial performance criteria
and levels
Exhibit B - A summary chart of plan structure
Exhibit C - Descriptions and definitions of accounting terms
and methodologies relevant to this plan
PLAN STRUCTURE
The plan provides a one-time cash payment following the conclusion of FY 96
to eligible employees for the attainment of corporate and unit objectives.
Participation is divided into four categories. Category 1 participants
receive payout based solely on corporate net income. A category 1, non-
management employee at grade 72 or below will normally have a payout
opportunity based 100% on corporate results; however, such employees in a
production environment or in a subsidiary may be in a customized plan.
Whether on a customized plan or standard plan, they will not be allowed to
switch back and forth from year to year. Individuals employed by a
business unit, but whose functions provide service to the entire company,
may be placed on a 100% corporate payout opportunity. Such employees shall
remain on a 100% corporate opportunity until the nature of their job
changes.
Payout opportunity for category 1 will be determined as a percentage of
eligible gross wages or salary paid during the fiscal year. Payout
opportunities for categories 2,3, and 4 will be a percentage of salary
range midpoint. Any variations in the criteria explained in categories 1-4
below result in a customized variation from the standard plan (i.e., a
customized plan).
CATEGORY 1
Participants
All eligible corporate and business unit employees with job grades 0-72
(excluding grade 0-72 production supervisors).
Payout Opportunity
3%-5%-8%
Based on gross earnings during the fiscal year.
Measure
100% Corporate Return on Equity
CATEGORY 2
Participants
All eligible corporate and business unit employees with job grades 73-79.
Grade 0-72 production supervisors.
Payout Opportunity
5%-8%-15% - Grade 0-72 Production Supervisors
5%-8-%-15% - Grades 73-74
6%-12%-20% - Grades 75-77
8%-18%-34% - Grades 78-79
Based on Midpoint
Measures
Corporate Units: 100% Corporate Return on Equity
Corporate unit participants include eligible corporate and region
employees, as well as any eligible employee of a business unit, as
designated by management.
Business Units: 50% Corporate Return on Equity
50% Business Unit Cash Flow
Return on Assets
Earnings After Interest
(Note: The three business unit measures are
weighted equally)
CATEGORY 3
Participants
All eligible employees with job grades 80 or above who are not Farmland
Industries, Inc. vice presidents.
Payout Opportunity
10%-22%-40%
Based on Midpoint
Measures
Corporate Units: 100% Corporate Return on Equity
Corporate unit participants include eligible corporate and regional
employees, as well as any eligible employees of a business unit, as
designated by management.
Business Units: 30% Corporate Return on Equity
70% Business Unit Cash Flow
Return on Assets
Earnings After Interest
CATEGORY 4
Participants
All eligible Farmland Industries, Inc. vice presidents and above.
Payout Opportunity
15%-31%-52% - VPs serving on the Management Council
Designated members of senior management
20%-40%-64% - Designated members of senior management
25%-45%-70% - Chief Executive Officer
Based on Midpoint
A cash patronage payment will be required prior to any payout to
participants in this category.
Measures
Senior Management 100% Corporate Return on Equity
and Corporate Unit
Vice Presidents
Business Unit 30% Corporate Return on Equity
Vice Presidents 70% Business Unit Cash Flow
Return on Assets
Earnings After Interest
ELIGIBILITY The following types of employees are ineligible for payout under
the Standard Variable Compensation Plan:
o Employees whose terms and conditions of employment are subject to
collective bargaining.
o Employees hired after 5/31/96. (Waived if the employee is a
former regular full time employee during FY 96. Payout is
prorated.)
o Regular part time employees with less than 500 hours of service
during FY 96
o Temporary employees with less than 1000 hours of service during
FY 96
o Employees terminated for cause prior to 8/31/96
o Employees who terminate voluntarily prior to 8/31/96 (Employees
who terminate to accept a position with a member cooperative may
be eligible for a prorated payout.)
o Employees included invariable compensation plans other than the
standard variable compensation plan.
PRORATIONS
The circumstances listed below result in a prorated payout (the
amount of payout is proportionate to time served as an active
employee in this plan during the fiscal year):
Death/Disability
Retirement
Reduction in Force
Focus Team member obtaining outside employment
Layoff
Leave of Absence
Hired after 9/1/95 but before 5/31/96
Involuntary separations, other than for reasons listed above,
which are not for performance or for cause may result in
prorated payout.
Employees who voluntarily terminate prior to 08/31/96 for the
purpose of assuming a position with an MCA cooperative may be
eligible to receive a prorated payout. To secure eligibility,
the employee must notify Corporate Human Resources, in
writing, at the time of separation and ensure that the MCA
cooperative notifies Farmland s Corporate Human Resources
Department, in writing, to verify employment from the point of
separation through the conclusion of the plan year.
Employees on formal disciplinary or performance probation are
ineligible for that portion of the fiscal year.
Employees who transfer from one business/service unit to
another receive a prorated award based on the goals attained
and eligible gross wages paid or the salary range midpoint in
each unit.
DETERMINATION
OF PAYOUT
Payout is determined as a percentage of salary range midpoint or
eligible gross wages paid during the fiscal year. Business unit or
corporate performance measurements are labeled "threshold",
"target", and "maximum".
Threshold - The performance level required for the plan to pay out.
Attainment of threshold results in a payout equivalent to 3% of
eligible gross wages or salary paid during the fiscal year to
category 1 participants. Payouts for categories 2, 3, and 4 range
from 5% to 25% of midpoint. No payout occurs for achievement below
threshold.
Target - Identifies the actual performance objective. Attainment of
target results in a payout to category 1 participants equivalent to
5% of eligible gross wages or salary earned during the fiscal year.
Category 2, 3, and 4 participants receive payouts ranging from 8% to
45% of midpoint.
Maximum - A performance level exceeding target at which the payout
percentage is frozen. Attainment of maximum results in a payout
equivalent to 8% of eligible gross wages or salary earned during the
fiscal year to category 1 participants. Category 2, 3, and 4
participants would receive payouts ranging from 15% to 70% of
midpoint. No payout occurs beyond these percentages regardless of
performance.
Payout for performance between threshold and target or target and
maximum is prorated.
APPROVED:
H. D. CLEBERG
H.D. Cleberg
President and CEO
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit:
Threshold Target Maximum
Cash Flow
Return on Assets
Earnings after interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: TRANSPORTATION
Threshold Target Maximum
TRUCK OPERATIONS
Cash Flow 757,000 1,082,000 1,407,000
Return on Assets 27.52% 39.32% 51.12%
Earnings after 1,013,000 1,447,000 1,881,000
interest
FTI
Cash Flow 924,000 1,320,000 1,716,000
Return on Assets 34.04% 48.63% 63.22%
Earnings after 1,203,000 1,719,000 2,235,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: CROP PRODUCTION
Threshold Target Maximum
Cash Flow 41,061,000 82,122,000 123,183,000
Return on Assets 16.03% 32.05% 48.08%
Earnings after 78,876,000 157,752,000 236,628,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: PETROLEUM
Threshold Target Maximum
Cash Flow (79,095,000) (60,842,000) (42,589,000)
Return on Assets 2.08% 2.97% 3.86%
Earnings after 6,419,000 9,170,000 11,921,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: FEED
Threshold Target Maximum
Cash Flow 6,567,000 9,382,000 12,196,000
Return on Assets 10.05% 14.36% 18.67%
Earnings after 9,293,000 13,276,000 17,259,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: FOODS, INCLUDING CARANDO
Threshold Target Maximum
Cash Flow 1,093,000 1,562,000 2,031,000
Return on Assets 3.70% 5.80% 7.90%
Earnings after 9,884,000 15,495,000 21,106,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: HEARTLAND DATA SERVICES
Threshold Target Maximum
Cash Flow 218,000 272,000 326,000
Return on Assets 12.08% 15.10% 18.12%
Earnings after 322,000 402,000 482,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: PRINT OPERATIONS
Threshold Target Maximum
Cash Flow (39,000) (30,000) (21,000)
Return on Assets 23.10% 33.00% 42.90%
Earnings after 562,000 802,000 1,043,000
interest
EXHIBIT A
FY 96 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 11.5% 15%
Business Unit: GRAIN
Threshold Target Maximum
Cash Flow
Return on Assets
Earnings after
interest
<TABLE>
EXHIBIT B
FY 96 STANDARD VARIABLE COMPENSATION PLAN
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C>
Category Management Corporate Employees Business Unit Employees Thr. Target Max. Grades
Level Basis for Payout Basis for Payout
1 Non-Mgmt. 100% Corporate 100% Corporate Return on Equity 3% 5% 8% 0-72
Return on Equity
2 Managers & 100% Corporate 50% Corporate Return on Equity 5% 8% 15% Production Supv &
Above Return on Equity 50% Business Unit Measures
o Cashflow 6% 12% 20% 73-74
o Return on Assets 75-77
o Earnings after interest 8% 18% 34% 78-79
3 Managers & 100% Corporate 30% Corporate Return on Equity 10% 22% 40% 80+ (Non-
Directors Return on Equity 70% Business Unit Measures Farmland
o Cash Flow Industries,
o Return on Assets Inc. VPs)
o Earnings After Interest
4 Vice (All Senior Management, (Business Unit VP s) 15% 31% 52% FII VPs &
Presidents Corporate, & Regional 30% Corporate Return on Equity Designated Sr
& Senior VP s) 70% Business Unit Measures 20% 40% 64% Mgmt
Management 100% Corporate o Cash Flow Designated Sr
Return on Equity o Return on Assets Mgmt
Cash Patronage Qualifier o Earnings After interest 25% 45% 70%
o Cash Patronage Qualifier CEO
<FN>
Notes: 1) No payout unless the Company achieves the threshold (i.e.,
minimally acceptable) return on equity level.
2) Employees may at management discretion be placed at payout
opportunity levels lower than those for which they would be
qualified based on grade and/or organizational level.
3) No payout for category 4 unless cash patronage is paid.
4) The business unit measures of cash flow, return on assets, and
earnings after interest are weighted equally.
</TABLE>
EXHIBIT C
ACCOUNTING TERMS AND METHODOLOGY
DEFINITIONS
INCOME is defined as income before taxes and extraordinary items as reported for
Key Results purposes.
EQUITY is the prior year s ending equity. Equity includes all capital shares
and equities (preferred, common and associate member shares, patronage refunds
for reinvestment, and earned surplus). It does not include minority owners
equity in subsidiaries.
RETURN ON EQUITY (ROE) is the ratio determined by dividing Income by Equity.
CASH FLOW will be measured by using the Net Cash Generated formula of net income
plus beginning assets minus ending assets. The assets are those reported for
Key Results purposes, and at the business unit level, exclude such items as
prepayments and redating of inventory.
AVERAGE ASSETS are the key results assets averaged by adding the previous year-
end assets, September through July ending assets multiplied by two, the current
year ending assets and dividing by 24.
RETURN ON AVERAGE ASSETS is the ratio of income divided by the Average Assets.
EARNINGS AFTER INTEREST is the Key Results income for the operating unit after
interest, other income and joint venture income.
TREATMENT OF THE VARIABLE COMPENSATION EXPENSE
The ROE targets have been expressed after the recognition of the variable
compensation expense. In calculating the level at which variable compensation
will be paid, the variable compensation expense is added back to Income. For
example, assume Equity is $686,849,000 and the ROE for threshold is expressed as
8%. This would correspond to Income of $54,948,000 (.08 times $686,849,000).
However, the $54,948,000 includes variable compensation expense (variable
compensation expense is budgeted at target and an accrual is made each month).
EXAMPLE OF REQUIRED INCOME*
(ASSUMING PRIOR YEAR ENDING EQUITY OF $686,849,000 MILLION)
ROE Required Income
Threshold 8.0% $ 54,948,000
Target 11.5% $ 78,988,000
Maximum 15.0% $ 103,027,000
* Actual FY 95 ending ROE has yet to be determined. When it is, these
income figures will be subject to some modification.
DETERMINATION OF EXTRAORDINARY ITEM
If Farmland achieves its performance goals, but experiences a loss year due to
extraordinary items, the Board of Directors of Farmland Industries, Inc.
maintains the discretion to authorize, adjust, or deny payout of the management
portion of the Variable Compensation Plan (include employee in categories 2-4).
This also applies to employees with management level payout opportunities who
participate in customized plans. Employees on sales incentive plans, with base
pay administered through sales paylines, are NOT affected by this provision
unless specific portions of their plans are tied to corporate performance; nor
are employees in category 1.
GUIDELINES FOR "EXTRAORDINARY" DESIGNATION
The Chief Financial Officer and the Chief Executive Officer must approve the
classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
o The punitive portion of litigation results in favor of or against Farmland,
excluding redemptive payments on normal business matter where the
intent is to substantially restore net income to where it would have been had
the incident not occurred.
o Non-recurring (one-time) adjustments to income or expense such as the gain
from settlement of the retirement plan. Any such items would generally be
reported as extraordinary items on Farmland financial statements under
generally accepted accounting principles.
o The gain or loss on the disposal of a major asset, group of assets, or
investments.
o The gain or loss from any new business activity or business unit added
subsequent to the approval of the Business Plan, provided that the
acquisition was such that it required specific Board of Director approval
outside of the business plan.
o The impact of adjustments resulting from LIFO inventory computations or
reserves.
o Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative
before review by the Chief Financial Officer and the Chief Executive
Officer.
EXHIBIT 10.(iii)B
Farmland Industries, Inc.
Management Long Term Incentive Plan
A. EFFECTIVE DATE AND PLAN PURPOSE
1. The Management Long Term Incentive Plan (the Plan) is effective
September 1, 1993.
a. The Plan provides incentive compensation opportunities for
designated management employees of Farmland Industries, Inc. (the
Company) based on the attainment of highly focused multi-year
performance goals. (See Exhibit A for performance criteria and
goals.)
b. The Plan's initial performance and reward cycle covers fiscal
years 1994 through 1996, inclusive, the period from September 1,
1993 through August 31, 1996.
c. The Plan's subsequent performance and reward cycles will begin
each subsequent year thereafter for a three year time span. The
Plan's second performance and reward cycle covers fiscal years
1995 through 1997, the Plan's third performance and reward cycle
covers fiscal years 1996 through 1998, etc.
d. It is the Company's intent to continue this Plan indefinitely,
but the Company reserves the right to amend or discontinue the
Plan at any time if such action is deemed in the best interests
of the Company and the Membership.
2. The key purposes of the Plan are set forth below.
a. To attract and retain high quality management personnel that can
produce the level of sustained results needed to allow the
Company to attain its mission on a continuous basis for the
immediate and ongoing benefit of its Membership. (See Exhibit B
for a list of participants.)
b. To provide a long term incentive element which includes
"ownership type" motivation for those employees most responsible
for strategic results.
c. To provide a competitive program of total cash compensation in
appropriate marketplaces with an emphasis on variable, pay-for-
performance opportunities linked to the accomplishment of
demonstrated results.
d. To focus key employees on key strategic results and motivate
those actions which reinforce the attainment of the Company's
business plan over a sustained period of time.
B. DESCRIPTION OF PLAN IN OPERATION
1. The Plan shall establish multi-year performance and award cycles
(Plan cycle).
a. The initial cycle is from 9/1/93 through 8/31/96.
b. Subsequent plan cycles shall commence each year thereafter and
contain a three year performance cycle., e.g.
9/1/94 through 8/31/97
9/1/95 through 8/31/98
To continue as management determines valid.
2. Participation shall be as designated by the CEO for each cycle
(except that the CEO's participation shall be approved by the Board
of Directors), and shall be limited to management positions which
have a significant impact on long term, strategic results. Position
and/or individuals participate at the discretion of the CEO.
3. Multi-year performance goals shall be established each cycle which
shall focus on one, or a very few, key, measurable results of
strategic financial importance to the Company.
4. An incentive pool from which participant awards can be paid shall be
created each cycle based on results achieved against goals. The pool
shall be equal to an increasing percentage share of Company gains as
results improve. For results above the maximum goal level, the
percentage share shall remain fixed at the maximum level, but the
incentive pool shall be an open-ended, uncapped amount to provide
participants with an "ownership interest" in maximizing results.
5. Performance goals and the share of results used to produce the
incentive pool can vary from cycle to cycle, but generally be
established under the following criteria:
Level Share of Awards Payable - Approximate
Achieved Results To Resulting Compensation Odds of
Pool Level in Marketplace Attainment
< Threshold None None - Uncompetitive -
Threshold Small Meaningful - Below Average 8 in 10
Target More Significant - Desired (Average) 5 in 10
Maximum Maximum Large - Very Competitive 2 in 10
> Maximum Same, set share Open-ended "ownership" share of -
outstanding results
6. Each cycle the Company shall establish a Basic Award Percentage (pool
portion) for each participant in the Plan. Such Basic Award
Percentages shall:
a. be communicated to participants by the Company;
b. remain unchanged during a cycle unless a participant's status
shall significantly change; and
c. in total, be approximately 10-15% less than the total incentive
pool.
The remaining 10-15% portion of the incentive pool for each Part of
the Plan shall be a Reserve Incentive Pool available for
discretionary use by the CEO and/or for allocation for new
participants as selected by the CEO.
7. Each cycle, the CEO may distribute all or some portion of the Plan's
Reserve Incentive Pool to participants for any of these reasons:
a. to recognize outstanding individual performance or contributions
to overall Company results;
b. to recognize changes in status during a cycle where a
participant's position is significantly increased; or
c. to permit participation by a person hired or promoted into a
participating position during a cycle.
If additional participants caused the incentive pool to be more than
100% allocated, the CEO would determine the amount of reduction to
each participant's pool portion.
Such distribution can consist of an additional dollar award at cycle
end, or a new or increased Base Share Award determined during the
cycle.
8. Total awards can not exceed the size of the incentive pool generated
each cycle. No awards are payable if no money has been generated
based on plan formulas.
9. A participant's total award shall be the sum of his (or her) Basic
Award Percentage plus any additional amount awarded by the CEO from
the Reserve Incentive Pool. Total awards shall be payable as soon as
practical at the end of the cycle subject to (10) and (11) below.
a. About mid-December, 1996 for the initial cycle.
b. About mid-December, following the end of each successive cycle.
10. Awards shall be payable in cash and subject to all applicable
withholding.
11. Participants may voluntarily elect to irrevocably defer receipt of
awards otherwise payable in accordance with rules and procedures
established by the Company in the Farmland Industries, Inc. Executive
Deferred Compensation Plan.
12. Exhibit A lists the Performance criteria and Goals, and the amount
by which the pool is to be funded for each level of performance.
Exhibit B lists participants and their Basic Award Percentage
assigned.
C. VESTING AND FORFEITURE OF AWARDS
1. A participant must be an active employee of the Company at the end of
each cycle in order to receive an award for such cycle unless active
employment ceased for reasons of death, total disability, or
retirement.
2. In the event of a participant's death, total disability, or
retirement during a cycle, awards otherwise payable shall be prorated
on the basis of full months of active participation in relation to
the length of the cycle.
3. In the event of a participant's change of status to a non-
participating position during a cycle, awards otherwise payable shall
be prorated and/or adjusted depending upon the reason for the change,
but generally on the basis of full months participation in relation
to the length of the cycle.
4. If a participant's employment is terminated with the Company for
reasons other than death, total disability or retirement during a
cycle, such participant shall forfeit all rights to any award
otherwise payable.
5. Decisions regarding proration and award adjustment shall be made by
the CEO and, barring highly unusual circumstances, on the basis of
full months of active participation in relation to the months within
the cycle. The Board and CEO authorities and guidelines for specific
situations are set for in Section D.
D. APPROVAL AUTHORITY FOR KEY ACTIONS
1. The Plan was approved by the Board in August 1993. The Board, in its
sole judgement, has the authority for all the following actions.
a. Amendment or discontinuance of the Plan.
b. Adjustment or cancellation of any awards otherwise payable should
the Company suffer an operating loss in the final fiscal year of
any performance cycle.
c. Approval for any cycle for all the following:
(i) performance goals; and
(ii) award payout procedures which are not specifically
delegated to the Compensation Committee of the Board
(the Committee), the CEO or the Company.
d. Approval of all of the following with respect to the CEO for any
given Plan cycle:
(i) The CEO's portion of any incentive award pool generated
by the Plan;
(ii) An appropriate prorata portion of any award otherwise
payable in the event of termination of employment by
the CEO during a cycle due to death, total disability,
or retirement;
(iii) An appropriate prorata award for a CEO hired or
promoted into such position during a cycle; and
(iv) A determination of the CEO's personal performance
during a cycle, with authority to deny, or adjust, any
award otherwise payable should such performance be
deemed, in the Board's majority judgement, wholly
unsatisfactory.
e. Approval for the inclusion or exclusion of major, extraordinary
financial results or transactions occurring during the cycle in
the calculation of performance results impacting Plan goals and
awards. Such decisions will be made on a case-by-case basis with
the basic standard of judgement being the best interests of the
company and its Membership and the purposes of the Plan.
f. Delegation to the Committee of the power to review or decide any
issue relative to the Plan.
2. The Committee shall be responsible for monitoring the Plan, reviewing
all major aspects in detail, analyzing Company requests for Plan
actions or approvals, recommending Plan amendments or actions to the
Board, and reporting to the Board such information as it may
reasonably request.
3. The Company shall be responsible for administering the Plan,
establishing appropriate accounting reserves to recognize award
liabilities, communicating all appropriate details to participants in
a timely manner, recommending necessary plan amendments or actions to
the Committee, and reporting such information to the Committee and
the Board as they may request.
4. The CEO is specifically authorized to take the following actions with
respect to all other participants.
a. Approval for any cycle for the following:
(i) participants
(ii) levels of opportunity and incentive pool calculations
b. Distribution on a subjective, discretionary basis of the Plan's
Reserve Incentive Pool, if any.
(i) Distribution can be made in any amount the CEO shall
determine, and need not be consistent with the
distribution of Basic Award Percentages.
(ii) The total distribution cannot exceed the funds in the
Reserve Incentive Pools but the total Reserve need not
be spent and any unused funds shall not be carried over
to subsequent cycles but shall revert to the Company.
c. Approval of appropriate prorata awards and/or Basic Award
Percentages from the Incentive Pool to a participant in the event
of any of the following circumstances.
(i) A participant's death, total disability, or retirement
at any time during a Plan Cycle.
(ii) A participant's change of status during a Plan cycle
which is sufficiently significant to either (a) render
further participation inappropriate, or (b) render the
originally designated Basic Award Percentage
inappropriate relative to those applicable to other
participants in positions of similar responsibility and
impact.
(iii) The hiring, or promotion, of an employee during a cycle
into a position for which Plan participation is
appropriate.
Such decisions shall be subjective, discretionary judgements
made on a case-by-case basis, but the CEO shall generally
follow these guidelines:
(a) Prorata awards and prorata assignment of Basic Award
Percentages shall generally be mathematically determined
on the basis of full months of active participation in
the applicable position divided by the number of months
within the Plan cycle.
(b) If a participant's status is reduced to a position where
Plan participation is no longer appropriate, a prorata
award will generally be determined in accordance with
(ii) above if the change was due to reorganization or
similar Company instigated action. The CEO will
determine appropriate action if a participant leaves the
plan due to individual performance or personal choice.
E. ADMINISTRATIVE ISSUES
1. Participation in the Plan is not a guarantee of employment, nor does
participation in one cycle guarantee participation in subsequent
cycles.
2. Plan awards shall not be considered as compensation for any Company
benefit plan whatsoever.
3. For purposes of the Plan, the following definitions shall apply:
a. "Retirement" shall mean the cessation of Company employment at or
after age 55 and immediate retirement under the Company's primary
qualified retirement plan applicable to the participant whether
or not retirement benefits are then commenced. The CEO in his
sole discretion may make an exception for an individual over 55
who has not vested in the retirement plan.
b. "Total Disability" shall mean the cessation of Company employment
for reasons of physical or mental impairment which on the basis
of evidence provided to the CEO or Board (as appropriate) is, in
the CEO's or Board (as appropriate) sole judgement, expected to
last at least 12 months.
4. In the event of a substantial change of ownership in which the
Company, as constituted on the Effective Date, is not a surviving
entity, the Plan shall continue in effect and insure to the benefit
of the new entity.
5. The Basic Award Percentages originally assigned to any participant
but subsequently forfeited or otherwise reduced for such participant
during a Plan cycle may be reassigned to any other participant. The
Board may make such assignment with respect to the CEO, and the CEO
may make such assignment with respect to any other participant.
6. The total awards payable under the Plan for any cycle can not exceed
the total incentive pools generated by the Plan for such cycle, and
any unused incentive pool funds shall revert to the Company at cycle
end.
7. All participants shall designate a beneficiary under the Plan in
accordance with policies and procedures established by the Company
from time to times, and it is a participant's responsibility to keep
such designation up to date. In the event of a participant's death,
the Company shall pay any award payable on behalf of such participant
to such designated beneficiary or, if such beneficiary is no longer
living or can not be located, to the participant's estate.
EXHIBIT A
Performance criteria for FY 1994 - FY 1996 cycle include the following:
Aggregate Income, defined as the targeted income, before taxes and
extraordinary items(1), for the entire three-year period, as shown in the
table below.
Performance goals and amounts funding the payout pool include the following:
Performance Level Aggregate Income % of Net Earnings to Pool
Below Target Below $192,810,000 0%
Target $192,810,000 2.5% of earnings
Above Target Above $192,810,000 2.5% of earnings
During the FY 94-96 cycle, Farmland Industries, Inc. must return to its members
at least $65,030,000 in cash(2), squared or no payout will occur under this
plan.
In order to ensure the integrity of Farmland's financial strength, a limit on
funded indebtedness as a percent of capitalization is incorporated into this
plan. In the event that a the indebtedness ratio is above the level which is
established by bank covenants at the end of the cycle, no payout will occur
under this plan.
(1) Guidelines for "Extraordinary" Designation were issued on September 1,
1990, and updated on September 1, 1992. These guidelines state that the
Chief Financial Officer and the Chief Executive Officer must approve the
classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of income for
variable compensation include:
o Income or losses that pertain to discontinued operations or
activities which have been nonoperational through a fiscal year-end.
o The punitive portion of litigation results in favor of or against
Farmland, excluding redemptive payments on normal business matter
where the intent is to substantially restore net income to where it
would have been had the incident not occurred.
o Nonrecurring (one-time) adjustments to income or expense such as the
gain from settlement of the retirement plan r a write-down of a
major fixed asset.
o The gain or loss on the disposal of a major asset or a group of
assets.
o Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative before
review by the Chief Financial Officer and the Chief Executive Officer.
ADDITIONAL ITEM EXCLUDED FROM CALCULATION OF
VARIABLE COMPENSATION INCOME
o The impact of adjustments to income resulting form LIFO inventory
computations will not be included in income for variable
compensation purposes.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownership retirements, capital credits, preferred stock dividends
and preferred stock redemption and Cooperative Finance Company cash
patronage refund.
EXHIBIT B
TITLE OF PARTICIPANT
President and CEO
Executive Vice President, Inputs
Senior Vice President, Outputs
Executive Vice President and CFO
Executive Vice President and President Farmland, Mexico
Senior Vice President and Corporate Secretary
Vice President, Region 1
Vice President, Region 2
Vice President, Region 3
Vice President, Region 4
Vice President, Region 5
Vice President, Crop Production
Vice President, Feed
Vice President, Petroleum
Vice President, Farmland Foods
Vice President, Grain
Vice President, International/Transportation
Vice President, Transportation
Vice President, MFS/IS
Vice President, and Controller
Vice President and Treasurer
Vice President and General Counsel
Vice President, Human Resources
Vice President, Corporate Administrative Services
Director, Planning
EXHIBIT C
Performance criteria for FY 1995 - FY 1997 cycle include the following:
Aggregate Income, defined as the targeted income, before taxes and
extraordinary items(1), for the entire three-year period, as shown in the
table below.
Performance goals and amounts funding the payout pool include the following:
Performance Level Aggregate Income % of Net Earnings to Pool
Below Target Below $235,043,000 0%
Target $235,043,000 .83% of earnings
Above Target Above $235,043,000 .83% of earnings
During the FY 95-97 cycle, Farmland Industries, Inc. must return to its members
at least $61,938,000 in cash (2), squared or no payout will occur under this
plan.
In order to ensure the integrity of Farmland's financial strength, a limit on
funded indebtedness as a percent of capitalization is incorporated into this
plan. In the event that a the indebtedness ratio is above the level which is
established by bank covenants at the end of the cycle, no payout will occur
under this plan.
(1) The Chief Financial Officer and the Chief Executive Officer must approve
the classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
o The punitive portion of litigation results in favor of or against
Farmland, excluding redemptive payments on normal business matter
where the intent is to substantially restore net income to where it
would have been had the incident not occurred.
o Nonrecurring (one-time) adjustments to income or expense such as the
gain from settlement of the retirement plan. Any such items would
generally be reported as extraordinary items on Farmland financial
statements under generally accepted accounting principles.
o The gain or loss on the disposal of a major asset, group of assets,
or investments.
o The impact of adjustments resulting from LIFO inventory computations
or reserves.
o Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative
before review by the Chief Financial Officer and the Chief Executive
Officer.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownership retirements, capital credits, preferred stock dividends,
preferred stock redemptions, and estate settlements.
EXHIBIT D
Performance criteria for FY 1996 - FY 1998 cycle include the
following:
Aggregate Income, defined as the targeted income, before taxes and
extraordinary items,(1) for the entire three-year period, as shown
in the table below.
Performance goals and amounts funding the payout pool include the
following:
Performance Level Aggregate Income % of Net Earnings
to Pool
Below Target Below $393,481,000 0%
Target $393,481,000 .83% of earnings
Above Target Above $393,481,000 .83% of earnings
During the FY 96 - 98 cycle, Farmland Industries, Inc. must return
to its members at least $90,000,000 in cash,(2) or no payout will
occur under this plan.
In order to ensure the integrity of Farmland's financial strength,
a limit on funded indebtedness as a percent of capitalization is
incorporated into this plan. In the event that the indebtedness
ratio is above the level which is established by bank covenants at
the end of the cycle, not payout will occur under this plan.
(1) The Chief Financial Officer and the Chief Executive Officer
must approve the classification of any item as
"extraordinary." Transaction deemed as "extraordinary" and
therefore excluded in the determination of Income for variable
compensation include:
o The punitive portion of litigation results in favor
of or against Farmland, excluding redemptive
payments on normal business matter where the intent
is to substantially restore net income to where it
would have been had the incident not occurred.
o Nonrecurring (one-time) adjustments to income or
expense such as the gain from settlement of the
retirement plan. Any such items would generally be
reported as extraordinary items on Farmland
financial statements under generally accepted
accounting principles.
o The gain or loss on the disposal of a major asset,
group of assets, or investments.
o The impact of adjustments resulting from LIFO
inventory computations or reserves.
o Other items as approved.
Specific requests by an operating unit for treatment of
an item as "extraordinary" must be approved by the Senior
Management representative before review by the Chief
Financial Officer and Chief Executive Officer.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownerships retirements, capital credits, preferred stock dividends,
preferred stock redemptions, and estate settlements.
EXHIBIT 10.(iii)C
FARMLAND INDUSTRIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
1. Name of Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . 1
3. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
(a) Deferred Compensation Plan . . . . . . . . . . . . . . . . 1
(b) Retirement Plan . . . . . . . . . . . . . . . . . . . . . . 1
(c) Retirement Plan Benefit . . . . . . . . . . . . . . . . . . 1
(d)
(i) Actuarial Equivalent . . . . . . . . . . . . . . . . 1
(ii) Accumulated Retirement Annuity . . . . . . . . . . . 1
(iii) Beneficiary . . . . . . . . . . . . . . . . . . . . . 1
(iv) Deferred Retirement Date . . . . . . . . . . . . . . 1
(v) Early Retirement Annuity . . . . . . . . . . . . . . 1
(vi) Early Retirement Date . . . . . . . . . . . . . . . . 1
(vii) Final Average Wage Base . . . . . . . . . . . . . . . 1
(viii) Normal Retirement Date . . . . . . . . . . . . 1
4. Participants . . . . . . . . . . . . . . . . . . . . . . . . . . 1
5. Supplemental Retirement Benefit . . . . . . . . . . . . . . . . . 1
(a) Form of Benefit . . . . . . . . . . . . . . . . . . . . . . 1
(b) Amount of Benefit: Normal or Deferred Retirement Date . . 2
(c) Early Retirement Benefit . . . . . . . . . . . . . . . . . 3
6. Limitation on Benefits: Life Insurance . . . . . . . . . . . . . 3
7. Death Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . 3
(a) Death Before Retirement . . . . . . . . . . . . . . . . . . 3
(b) Death After Retirement . . . . . . . . . . . . . . . . . . 3
8. Forfeiture for Violating Standards of Conduct . . . . . . . . . . 4
9. Participants' Rights Unsecured . . . . . . . . . . . . . . . . . 4
10. Payments to Incompetent Persons . . . . . . . . . . . . . . . . . 4
11. Amendments to the Plan . . . . . . . . . . . . . . . . . . . . . 4
12. Termination of the Plan . . . . . . . . . . . . . . . . . . . . . 4
13. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
14. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
15. Plan Administrator . . . . . . . . . . . . . . . . . . . . . . . 5
16. Interpretation and Governing Law . . . . . . . . . . . . . . . . 5
17. Administrative Committee . . . . . . . . . . . . . . . . . . . . 5
FARMLAND INDUSTRIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Farmland Industries, Inc. (the "Corporation") hereby establishes a
deferred compensation plan for certain of its employees, under the terms set
forth below:
1. Name of Plan. This Plan shall be known as the "Farmland Industries,
Inc. Supplemental Executive Retirement Plan." It may be referred to in this
document simply as the "Plan."
2. Effective Date. The Plan shall be effective January 1, 1994.
3. Definitions. The following terms shall have the meaning given them
below:
(a) Deferred Compensation Plan means the Corporation's Executive
Deferred Compensation Plan, as it may be amended from time to time.
(b) Retirement Plan means the Farmland Industries, Inc. Employee
Retirement Plan, as it may be amended from time to time.
(c) Retirement Plan Benefit means the amount of benefit payable
from the Retirement Plan to a Participant in the form of a single life
annuity.
(d) The following terms shall have the meaning set forth in the
Retirement Plan:
(i) Actuarial Equivalent;
(ii) Accumulated Retirement Annuity;
(iii) Beneficiary;
(iv) Deferred Retirement Date;
(v) Early Retirement Annuity;
(vi) Early Retirement Date;
(vii) Final Average Wage Base; and
(viii) Normal Retirement Date.
4. Participants. The employees listed in Appendix A shall be
Participants in the Plan. Appendix A may be revised from time to time by the
Board of Directors of the Corporation.
5. Supplemental Retirement Benefit. Each Participant (a) whose
employment with the Corporation terminates on or after his or her 55th birthday,
and (b) who has earned a fully vested employer-provided benefit under the
Retirement Plan, shall be eligible to receive a Supplemental Retirement Benefit
under this Plan.
(a) Form of Benefit. A Participant's Supplement Retirement
Benefit determined under this Plan shall be paid in annual installments.
Annual installments shall be paid during the first 15 days of January,
beginning with the January immediately following the Participant's
termination of employment with the Corporation. Payments shall be made
for the shorter of (i) the Participant's lifetime, or (ii) ten years. No
more than ten annual payments shall be made in any event.
(b) Amount of Benefit: Normal or Deferred Retirement Date. The
annual Supplemental Retirement Benefit payable at a Participant's Normal
Retirement Date or Deferred Retirement Date shall be two-thirds of the
following annual benefit payment:
(i) The employer-provided portion of the Participant's
Accumulated Retirement Annuity under the Retirement Plan (expressed
as an annual amount), as modified under rules set forth below, less
(ii) The employer-provided portion of the actual Normal
Retirement or Deferred Retirement benefit (whichever is applicable)
payable to the Participant in a single life annuity under the
Retirement Plan (expressed as an annual amount), and less
(iii) The employer-provided portion of the Participant's
benefit payable, in a single life annuity, at the Participant's
Normal Retirement Date or Deferred Retirement Date (whichever is
applicable) under the Deferred Compensation Plan (expressed as an
annual amount).
Rules for Calculating (i) Above. In calculating the amount in (i)
above, the Participant's Accumulated Retirement Annuity under the
Retirement Plan shall be modified. It shall be modified by including as
wages (for purposes of calculating the Participant's Final Average Wage
Base) all deferrals made by the Participant under the Deferred
Compensation Plan. It shall also be modified by disregarding the
limitations imposed by Sections 401(a)(17) and 415 of the Internal Revenue
Code of 1986, as they may be amended. These adjustments shall have no
impact on the benefit actually paid to the Participant under the
Retirement Plan. This shall instead affect only the calculation of the
Participant's Supplemental Retirement Benefit under this Plan.
Determining Employer-Provided Portion of Benefits. In calculating
the amount in (ii) above, the employer-provided portion of a Participant's
actual Normal or Deferred Retirement benefit shall be the portion
considered to be derived from employer contributions under Section
411(c)(1) of the Internal Revenue Code of 1986, as that Section may be
amended. In calculating the amount in (i) above, the employer-provided
portion of a Participant's Accumulated Retirement Benefit shall be the
Participant's Accumulated Retirement Benefit multiplied by a fraction.
The fraction shall have as its numerator the employer-provided portion of
the Participant's Accumulated Retirement Annuity on the Participant's
Normal Retirement Date or Deferred Retirement Date (whichever is
applicable). The denominator shall be the Participant's full Accumulated
Retirement Annuity determined on the Participant's Normal Retirement Date
or Deferred Retirement Date (whichever is applicable).
Early Retirement "Window" Enhancements Disregarded. In calculating
a Participant's Accumulated Retirement Annuity under the Retirement Plan,
any enhancement of benefits for early retirement available only to those
retiring during a "window" of time which is no longer than two years in
length, shall not be taken into account.
(c) Early Retirement Benefit. The annual Supplemental Retirement
Benefit payable at a Participant's Early Retirement Date shall be equal to
the benefit determined under the preceding provisions of this Section, but
adjusted by applying to that benefit the Early Retirement Annuity factors
applicable under the Retirement Plan.
6. Limitation on Benefits: Life Insurance. The Corporation intends to
purchase an insurance policy or policies on the lives of some or all the
Participants under this Plan. All such policies shall be owned by the
Corporation, and the Corporation shall be entitled to designate the
beneficiaries under those policies, which may be the Corporation. Participants
must fully cooperate with the Corporation in applying for and obtaining
insurance on the Participants' lives.
The Corporation's obligation to pay benefits under this Plan for any
Participant shall, in the aggregate, be limited at all times to the aggregate
cash value of those life insurance policies designated by the Administrative
Committee. The initial list of policies designated by the Administrative
Committee for this purpose is set forth in Appendix B.
The Corporation is under no obligation (a) to establish or maintain cash
values under the life insurance policies in any particular amount, (b) to make
life insurance premium payments in any particular amount (or to make any
payments at all), or (c) to obtain or maintain policies insuring the lives of
any particular Participant or Participants (or any Participants at all). If the
benefit payments under this Plan for a year would, when added to all prior
benefit payments made from this Plan, exceed (a) the total cash value, on August
31 of the preceding year, of the policies designated by the Administrative
Committee, increased by (b) any previous reductions in cash value caused by
withdrawals from the policies by the Corporation, each Participant's payment
shall be reduced. A Participant's reduced payment shall be the product of (a)
the total amount available for the payment of benefits for the year, and (b) a
fraction, the numerator of which is the Participant's full payment due for the
year and the denominator of which is the total full payment due to all
Participants for the year.
7. Death Benefit.
(a) Death Before Retirement. If a Participant dies (i) before his
employment with the Corporation terminates, (ii) after attaining age 55,
and (iii) after having earned a fully vested employer-provided benefit
under the Retirement Plan, a death benefit shall be paid to the
Participant's Beneficiary. That Beneficiary shall be entitled to one
annual payment. The annual payment shall be in an amount equal to the
annual benefit the Participant would have received if he or she had
retired on the date of the Participant's death, and shall be paid in the
January following the Participant's death.
(b) Death After Retirement. If a Participant entitled to a
benefit under this Plan dies after his employment terminates, the
Participant's Beneficiary shall receive the next annual payment to which
the Participant would have been entitled if the Participant had survived.
The payment shall be made in the January following the Participant's
death. The Beneficiary of a Participant who received ten annual payments
shall not, however, be entitled to any further payment.
8. Forfeiture for Violating Standards of Conduct. Unless the Board of
Directors of the Corporation, in its sole discretion, chooses otherwise, no
benefit shall be payable to a Participant if one of the reasons for the
Participant's termination of employment is the Corporation's reasonable belief
that the Participant has committed a criminal act or has violated the
Corporation's standards of conduct set forth in the Corporation's employee
handbook.
9. Participants' Rights Unsecured. The right of a Participant, or any
beneficiary, to receive a distribution under this Plan shall be an unsecured
claim against the general assets of the Corporation. Neither the Participant
nor his or her beneficiaries shall have any right to enter against any specific
assets of the Corporation. The Participants shall have the status of general
unsecured creditors to the Corporation. This Plan constitutes a mere promise by
the Corporation to make benefit payments in the future. Benefits under this
Plan may not in any way be encumbered or assigned by a Participant or any
beneficiary.
10. Payments to Incompetent Persons. Every person receiving or claiming
a benefit under the Plan shall be presumed to be mentally competent and of age
until the Administrative Committee receives reliable, written notice that such
person is incompetent or a minor. Payments otherwise due a minor shall be paid
to any custodial parent of such minor. Payments otherwise due any other
incompetent person shall be paid to the guardian, conservator, or other legal
representative of such person. In the event that the Administrative Committee
is unable to locate a parent, guardian, conservator, or other legal
representative of an incompetent person who is otherwise entitled to payment
under the Plan, such payment shall be made to the individual determined by the
Administrative Committee to have assumed financial responsibility for the care
of such person. Before the initial payment is made to an individual designated
in this section, the minor or other legally incompetent person shall be notified
of the Administrative Committee's intent to make such payment to that other
individual. Any payment of a benefit in accordance with the provisions of this
Section shall be a complete discharge of any liability to make such payment.
11. Amendments to the Plan. The Board of Directors of the Corporation
(the "Board") may amend the Plan at any time, without the consent of the
Participants or their Beneficiaries, provided, however, that no amendment shall
divest any Participant or Beneficiary of his or her Supplemental Retirements
Benefits already accrued. For this purpose, the Supplemental Retirement
Benefits accrued to the date the Plan is amended, when added to the benefits
previously paid to Participants and Beneficiaries, shall, however, be limited to
the aggregate cash values on the date the Plan is amended of the life insurance
policies referred to in Section 6, increased by any previous reductions in cash
value caused by withdrawals from the policies by the Corporation.
12. Termination of the Plan. The Board may terminate the Plan at any
time. No additional benefits shall be credited following termination of the
Plan, and benefits shall be limited to the aggregate cash values on the date the
Plan is terminated of the life insurance policies referred to in Section 6,
increased by any previous reductions in cash value caused by withdrawals from
the policies by the Corporation. Upon termination of the Plan, distribution of
Participants' benefits shall be made in the manner and at the time described
under the Plan's normal provisions.
13. Expenses. Costs of administration of the Plan shall be paid by the
Corporation.
14. Notices. Any Notice or election required or permitted to be given
hereunder shall be in writing, in the form prescribed by the Administrative
Committee, and shall be deemed to be filed:
(a) On the date it is personally delivered to the Administrative
Committee (or its designee), or
(b) Three business days after it is sent by registered or
certified mail, addressed to the Administrative Committee (or its
designee) at the Corporation's address.
15. Plan Administrator. The Administrative Committee shall be the Plan
Administrator for the Plan.
16. Interpretation and Governing Law. This Plan is established in the
state of Missouri. To the extent federal law does not apply, any questions
arising under the Plan will be determined under the laws of the state of
Missouri.
17. Administrative Committee. The Board shall appoint an administrative
committee of no more than ten members (the "Administrative Committee") to
administer this Plan. The Administrative Committee shall have the power to
interpret the Plan and to determine all questions that arise under it. Such
power includes, for example, the administrative discretion necessary to
determine whether an individual meets the Plan's written eligibility
requirements, and to interpret any other term contained in this document. All
payments of benefits under the Plan shall be made by the Corporation in
accordance with the written direction of the Administrative Committee. The
decision of the Administrative Committee upon all matters within the scope of
its authority shall be final and binding on all parties.
IN WITNESS WHEREOF, the Corporation hereby adopts this Supplemental
Executive Retirement Plan this 23rd day of February, 1994.
FARMLAND INDUSTRIES, INC.
By: H. D. CLEBERG
H. D. Cleberg
Title: President and CEO
ATTEST:
BERNARD L. SANDERS
Bernard L. Sanders
APPENDIX A
Allen, W.
Baldwin, M.
Berardi, J.
Campbell, T.
Carter, H.
Cleberg, H.
Daniel, M.
Daugherty, T.
Dees, S.
Douglass, R.
Evans, G.
Filson, D.
Grazier, G.
Hodges, C.
Honse, R.
Kimble, D.
Morris, C.
Morrison, G.
Otwell, K.
Pardun, R.
Richter, G.
Rieman, S.
Sadler, M.
Sander, D.
Sanders, B.
Schrodt, F.
Shepard, R.
Sweat, M.
Vickers, K.
Wallace, E.
APPENDIX B
(List of life insurance policies whose cash
values serve as a cap on benefits.)
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Farmland Foods, Inc., a 99%-owned subsidiary, was incorporated under the laws of
the State of Kansas. Farmland Foods, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Farmland Insurance Agency, a wholly-owned subsidiary, was incorporated under the
laws of the State of Missouri. Farmland Insurance Agency has been included in
the Consolidated Financial Statements filed in this registration.
Farmers Chemical Company, a wholly-owned subsidiary, was incorporated under the
laws of the State of Kansas. Farmers Chemical Company has been included in the
Consolidated Financial Statements filed in this registration.
Farmland Securities Company, a wholly-owned subsidiary, was incorporated under
the laws of the State of Delaware. Farmland Securities Company has been
included in the Consolidated Financial Statements filed in this registration.
Cooperative Service Company, a wholly-owned subsidiary, was incorporated under
the laws of the State of Nebraska. Cooperative Service Company has been
included in the Consolidated Financial Statements filed in this registration.
Double Circle Farm Supply Company, a wholly-owned subsidiary, was incorporated
under the laws of the State of Nevada. Double Circle Farm Supply Company has
been included in the Consolidated Financial Statements filed in this
registration.
National Beef Packing Company, L.P., a 58%-owned subsidiary (68%-owned effective
March 31, 1995), was formed under the laws of the State of Delaware. National
Beef Packing Company has been included in the Consolidated Financial Statements
filed in this registration.
NBPCo, L.L.C., a wholly-owned subsidiary, was formed under the laws of the State
of Kansas. NBPCo has been included in the Consolidated Financial Statements
filed in this registration.
Farmland Financial Services Company, a wholly-owned subsidiary, was incorporated
under the laws of the State of Kansas. Farmland Financial Services Company has
been included in the Consolidated Financial Statements filed in this
registration.
Farmland Transportation, Inc., a wholly-owned subsidiary, was incorporated under
the laws of the State of Missouri. Farmland Transportation, Inc. has been
included in the Consolidated Financial Statements filed in this registration.
Environmental and Safety Services, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri. Environmental and Safety
Services, Inc. has been filed in the Consolidated Financial Statements included
in this registration.
Penterra, Inc., a 81%-owned subsidiary, was incorporated under the laws of the
State of Kansas. Penterra, Inc. has been included in the Consolidated Financial
Statements filed in this registration.
Farmland Industries, Ltd., a wholly-owned subsidiary, was incorporated under the
laws of the United States Virgin Islands. Farmland Industries, Ltd. has been
included in the Consolidated Financial Statements filed in this registration.
Heartland Data Services, Inc., a wholly-owned subsidiary, was incorporated under
the laws of the State of Kansas. Heartland Data Services, Inc. has been
included in the Consolidated Financial Statements filed in this registration.
Equity Country, Inc., a wholly-owned subsidiary, was incorporated under the laws
of the State of Delaware. Equity Country, Inc. has been included in the
Consolidated Financial Statements filed in this registration.
Equity Export Oil and Gas Company, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Oklahoma. Equity Export Oil and Gas
Company, Inc. has been included in the Consolidated Financial Statements filed
in this registration.
Ceres Realty Corporation, a wholly-owned subsidiary, was incorporated under the
laws of the State of Missouri. Ceres Realty Corporation has been included in
the Consolidated Financial Statements filed in this registration.
Heartland Wheat Growers, L.P., a 79%-owned subsidiary, was formed under the laws
of the State of Kansas. Heartland Wheat Growers has been included in the
Consolidated Financial Statements filed in this registration.
Heartland Wheat Growers, Inc., a 79%-owned subsidiary, was incorporated under
the laws of the State of Kansas. Heartland Wheat Growers has been included in
the Consolidated Financial Statements filed in this registration.
Farmland Industrias S.A. de C.V., a wholly-owned subsidiary, was formed under
the laws of Mexico. Farmland Industrias has been included in the Consolidated
Financial Statements filed in this registration.
National Carriers, Inc., a 79%-owned subsidiary, was incorporated under the laws
of the State of Kansas. National Carriers has been included in the Consolidated
Financial Statements filed in this registration.
Supreme Land, Inc., a wholly-owned subsidiary, was incorporated under the laws
of the State of Kansas. Supreme Land has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain, Inc., a wholly-owned subsidiary, was incorporated under the laws of
the State of Tennessee. Tradigrain, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the laws of
Switzerland. Tradigrain S.A. of Switzerland has been included in the
Consolidated Financial Statements filed in this registration.
Tradigrain Shipping S.A., a wholly-owned subsidiary, was formed under the laws
of Switzerland. Tradigrain Shipping S.A. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the laws of France.
Tradigrain S.A. of France has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain GmbH, a wholly-owned subsidiary, was formed under the laws of
Germany. Tradigrain GmbH has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain LTD., a wholly-owned subsidiary, was formed under the laws of Great
Britain. Tradigrain LTD. has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the laws of
Argentina. Tradigrain S.A. of Argentina has been included in the Consolidated
Financial Statements filed in this registration.
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS THAT EACH PERSON WHOSE SIGNATURE APPEARS
BELOW CONSTITUTES AND APPOINTS ROBERT B. TERRY AND JOHN F. BERARDI, AND EACH OF
THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND AGENTS, WITH FULL POWER OF
SUBSTITUTION AND RESUBSTITUTION, FOR HIM IN HIS NAME, PLACE AND STEAD, IN ANY
AND ALL CAPACITIES, TO SIGN ANY AND ALL FARMLAND INDUSTRIES, INC.'S 1995 ANNUAL
REPORT PREPARED, PURSUANT TO SECTIONS 13 OR 15D OF THE SECURITIES ACT OF 1934,
(INCLUDING ANY AMENDMENTS THERETO), AND FILE THE SAME, WITH ALL EXHIBITS
THERETO, AND OTHER DOCUMENTS IN CONNECTION THEREWITH, WITH THE SECURITIES AND
EXCHANGE COMMISSION, GRANTING UNTO SAID ATTORNEYS-IN-FACT AND AGENTS FULL POWER
AND AUTHORITY TO DO AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND
NECESSARY TO BE DONE IN AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND
PURPOSES AS THEY MIGHT OR COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING
ALL THAT SAID ATTORNEYS-IN-FACT AND AGENTS, OR ANY OF THEM OR HIS SUBSTITUTE OR
SUBSTITUTES, MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
Signature Title Date
ALBERT J. SHIVLEY Chairman of Board, October 25, 1995
Albert J. Shivley Director
H. D. CLEBERG President, Chief Executive October 25, 1995
H. D. Cleberg Officer and Director
(Principal Executive Officer)
OTIS H. MOLZ Vice Chairman of Board October 25, 1995
Otis H. Molz and Director
LYMAN ADAMS, JR. Director October 25, 1995
Lyman Adams, Jr.
RONALD J. AMUNDSON Director October 25, 1995
Ronald J. Amundson
BAXTER ANKERSTJERNE Director October 25, 1995
Baxter Ankerstjerne
JODY BEZNER Director October 25, 1995
Jody Bezner
RICHARD L. DETTEN Director October 25, 1995
Richard L. Detten
STEVEN ERDMAN Director October 25, 1995
Steven Erdman
WARREN GERDES Director October 25, 1995
Warren Gerdes
BEN GRIFFITH Director October 25, 1995
Ben Griffith
GAIL D. HALL Director October 25, 1995
Gail D. Hall
JEROME HEUERTZ Director October 25, 1995
Jerome Heuertz
BARRY JENSEN Director October 25, 1995
Barry Jensen
GREG PFENNING Director October 25, 1995
Greg Pfenning
VONN RICHARDSON Director October 25, 1995
Vonn Richardson
MONTE ROMOHR Director October 25, 1995
Monte Romohr
JOE ROYSTER Director October 25, 1995
Joe Royster
PAUL RUEDINGER Director October 25, 1995
Paul Ruedinger
RAYMOND J. SCHMITZ Director October 25, 1995
Raymond J. Schmitz
THEODORE J. WEHRBEIN Director October 25, 1995
Theodore J. Wehrbein
ROBERT ZINKULA Director October 25, 1995
Robert Zinkula
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-K
for the fiscal year ending August 31, 1995 and is qualified in its entirety by
reference to such Form 10-K.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> AUG-31-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 446,232
<ALLOWANCES> 0
<INVENTORY> 772,528
<CURRENT-ASSETS> 1,279,643
<PP&E> 1,334,849
<DEPRECIATION> 742,704
<TOTAL-ASSETS> 2,185,943
<CURRENT-LIABILITIES> 960,130
<BONDS> 506,033
<COMMON> 385,409
0
2,453
<OTHER-SE> 299,425
<TOTAL-LIABILITY-AND-EQUITY> 2,185,943
<SALES> 7,119,550
<TOTAL-REVENUES> 7,256,869
<CGS> 6,657,686
<TOTAL-COSTS> 6,699,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,862
<INCOME-PRETAX> 179,399
<INCOME-TAX> 29,628
<INCOME-CONTINUING> 162,799
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 162,799
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
