FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
February 28, 1995 Number 2-67985
FARMLAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Kansas 44-0209330
(State of Incorporation) (I.R.S. Employer Identification No.)
3315 North Oak Trafficway, Kansas City, Missouri
(Address of principal executive offices)
64116
(Zip Code)
816-459-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes {X} No { }
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
February 28 August 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ -0- $ 44,084
Accounts receivable . . . . . . . . . . . . . . . . . . 447,043 394,906
Inventories (note 2) . . . . . . . . . . . . . . . . . 646,857 538,314
Prepaid expenses . . . . . . . . . . . . . . . . . . . 26,169 15,159
Other current assets . . . . . . . . . . . . . . . . . 106,929 103,980
Total Current Assets . . . . . . . . . . . . . . . . . . . . $ 1,226,998 $ 1,096,443
Investments and Long-Term Receivables . . . . . . . . . . . $ 182,922 $ 189,601
Property, Plant and Equipment:
Property, plant and equipment, at cost . . . . . . . . $ 1,247,679 $ 1,202,159
Less accumulated depreciation and amortization . . . . 721,000 700,869
Net Property, Plant and Equipment . . . . . . . . . . . . . . $ 526,679 $ 501,290
Other Assets . . . . . . . . . . . . . . . . . . . . . . $ 135,393 $ 139,297
Total Assets . . . . . . . . . . . . . . . . . . . . . . $ 2,071,992 $ 1,926,631
<FN>
See Accompanying notes to condensed consolidated financial statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
February 28 August 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Accounts and notes payable . . . . . . . . . . . . . . $ 501,509 $ 548,476
Current maturities of long-term debt . . . . . . . . . 36,474 27,840
Customers' advances on product purchases . . . . . . . 198,576 24,438
Other current liabilities . . . . . . . . . . . . . . . 190,740 204,985
Total Current Liabilities . . . . . . . . . . . . . . . . . . $ 927,299 $ 805,739
Long-Term Debt (excluding current maturities) . . . . . . . . $ 468,724 $ 517,806
Deferred Income Taxes (note 1) . . . . . . . . . . . . . . . $ 11,944 $ 6,340
Minority Owners' Equity in Subsidiaries . . . . . . . . . . . $ 11,043 $ 11,733
Net Income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 68,161 $ -0-
Capital Shares and Equities:
Common shares, $25 par value - Authorized
50,000,000 shares . . . . . . . . . . . . . . . . $ 399,217 $ 363,562
Other equities . . . . . . . . . . . . . . . . . . . . 185,604 221,451
Total Capital Shares and Equities . . . . . . . . . . . . . . $ 584,821 $ 585,013
Total Liabilities and Equities . . . . . . . . . . . . . . . $ 2,071,992 $ 1,926,631
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
February 28
February 28 1994
1995 Restated
(Amounts in Thousands)
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . $ 3,307,659 $ 3,000,903
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 3,069,326 2,841,579
Gross income . . . . . . . . . . . . . . . . . . . . . . $ 238,333 $ 159,324
Selling, general & administrative expenses . . . . . . . . . $ 152,027 $ 135,226
Other income (deductions):
Interest expense . . . . . . . . . . . . . . . . . . . $ (27,133) $ (27,111)
Other, net . . . . . . . . . . . . . . . . . . . . . . 10,077 6,660
Total other income (deductions) . . . . . . . . . . . . . . . $ (17,056) $ (20,451)
Income before income taxes, equity in net income
of investees and minority owners' interest in
net loss of subsidiaries . . . . . . . . . . . . . . . $ 69,250 $ 3,647
Income tax (expense) (note 1) . . . . . . . . . . . . . . . . (10,706) (241)
Income before equity in net income of investees
and minority owners' interest in
net loss of subsidiaries . . . . . . . . . . . . . . . $ 58,544 $ 3,406
Equity in net income of investees (note 4) . . . . . . . . . 9,075 301
Minority owners' interest in net loss
of subsidiaries . . . . . . . . . . . . . . . . . . . . 542 3,226
Net income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 68,161 $ 6,933
<FN>
See Accompanying notes to condensed consolidated financial statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
February 28
February 28 1994
1995 Restated
(Amounts in Thousands)
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . $ 1,691,492 $ 1,526,911
Cost of sales . . . . . . . . . . . . . . . . . . . . . . 1,587,437 1,457,815
Gross income . . . . . . . . . . . . . . . . . . . . . . $ 104,055 $ 69,096
Selling, general & administrative expenses . . . . . . . . . $ 76,681 $ 69,321
Other income (deductions):
Interest expense . . . . . . . . . . . . . . . . . . . $ (13,690) $ (13,978)
Other, net . . . . . . . . . . . . . . . . . . . . . . 5,435 3,730
Total other income (deductions) . . . . . . . . . . . . . . . $ (8,255) $ (10,248)
Income (loss) before income taxes, equity in net income
of investees and minority owners' interest in
net loss of subsidiaries . . . . . . . . . . . . . . . $ 19,119 $ (10,473)
Income tax (expense) benefit (note 1) . . . . . . . . . . . . (1,938) 518
Income (loss) before equity in net income of investees
and minority owners' interest in
net loss of subsidiaries . . . . . . . . . . . . . . . $ 17,181 $ (9,955)
Equity in net income of investees . . . . . . . . . . . . . 2,705 4,368
Minority owners' interest in net loss
of subsidiaries . . . . . . . . . . . . . . . . . . . 330 1,785
Net income (loss) (note 1) . . . . . . . . . . . . . . . . . $ 20,216 $ (3,802)
<FN>
See Accompanying notes to condensed consolidated financial statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
February 28 February 28
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,161 $ 6,933
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 32,637 30,828
Equity in net income of investees . . . . . . . . . . . . . . (9,075) (301)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 4,782 (3,698)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . (53,835) 25,270
Inventories . . . . . . . . . . . . . . . . . . . . . . . (108,543) (144,619)
Other assets . . . . . . . . . . . . . . . . . . . . . . (4,060) (55,843)
Accounts payable . . . . . . . . . . . . . . . . . . . . (42,501) (6,742)
Advances on product purchases . . . . . . . . . . . . . . 174,138 130,795
Accrued interest and other liabilities . . . . . . . . . 68,380 19,772
Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 130,084 $ 2,395
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . $ (56,574) $ (35,183)
Proceeds from disposal of investments
and notes receivable . . . . . . . . . . . . . . . . . . . . . 27,218 8,789
Acquisition of investments and notes receivable . . . . . . . . . . (16,262) (17,936)
Acquisition of businesses . . . . . . . . . . . . . . . . . . . . -0- (33,251)
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . 2,023 12,438
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 -0-
Net cash used in investing activities . . . . . . . . . . . . . . . . . . $ (43,422) $ (65,143)
Cash flows from financing activities:
Net decrease of demand loan certificates . . . . . . . . . . . . . $ (6,994) $ (8,378)
Proceeds from bank loans and notes payable . . . . . . . . . . . . 251,374 609,795
Payments on bank loans and notes payable . . . . . . . . . . . . . (380,179) (596,852)
Proceeds from issuance of subordinated debt certificates . . . . . 16,157 31,829
Payments for redemption of subordinated debt certificates . . . . . (10,638) (23,835)
Increase of checks and drafts outstanding . . . . . . . . . . . . . 38,040 20,585
Payments for redemption of equities . . . . . . . . . . . . . . . . (12,198) (46)
Payments of patronage refunds and dividends . . . . . . . . . . . . (26,308) -0-
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 1,277
Net cash provided by (used in) financing activities . . . . . . . . . . . $ (130,746) $ 34,375
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . $ (44,084) $ (28,373)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 44,084 28,373
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ -0- $ -0-
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENTS
The information included in these condensed consolidated financial statements
of Farmland and subsidiaries (the "Company") reflects all adjustments
(consisting only of normal recurring accruals) which, in the opinion of
management, are necessary for a fair statement of the results for the interim
periods presented.
In accordance with the bylaws of Farmland Industries, Inc. ("Farmland") and
its cooperative subsidiaries, the member-sourced portion of income before income
taxes is determined annually and distributed to members of Farmland as patronage
refunds. The member-sourced portion of such income is determined on the basis
of the quantity or value of business done by Farmland during the year with or
for patrons entitled to receive patronage refunds. As this determination is
made only after the end of the fiscal year, and since the appropriation of
earned surplus is dependent on the determination of the amount of patronage
refunds, and in view of the fact that the portion of the annual patronage refund
to be paid in cash and Farmland equity (common stock, associate member common
stock or capital credits) is determined (by the Farmland Board of Directors at
its discretion) after the amount of the annual patronage refund has been
determined, Farmland makes no provision for patronage refunds in its interim
financial statements. Therefore, the amount of net income has been reflected as
a separate item in the accompanying February 28, 1995 condensed consolidated
balance sheet.
As patronage refunds are an integral part of the computation of income taxes,
the Company had historically not provided for income taxes in interim period
financial statements. However, in accordance with generally accepted
accounting principles, effective with the filing of the 1995 fiscal year first
quarter Form 10-Q, the Company commenced including a provision for estimated
income taxes in its interim financial statements. For the six months and three
months ended February 28, 1995, the Company estimated an effective tax rate
based on historic effective rates. The actual effective rate may be subject to
revision. Based on the effective tax rate for the prior year, interim results
for the six months and three months ended February 28, 1994 have been restated
to include an interim income tax benefit of $740,000 and $1,499,000,
respectively.
(2) INVENTORIES
Major components of inventories at February 28, 1995, and August 31, 1994,
are as follows:
<TABLE>
<CAPTION>
February 28 August 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Finished and in-process products . . . . . . . . . . . $ 347,624 $ 286,381
Materials . . . . . . . . . . . . . . . . . . . . . . 41,166 51,428
Supplies . . . . . . . . . . . . . . . . . . . . . . . 41,317 39,885
Beef . . . . . . . . . . . . . . . . . . . . . . . . 25,486 24,267
Grain . . . . . . . . . . . . . . . . . . . . . . . . 191,264 136,353
$ 646,857 $ 538,314
</TABLE>
All inventories, other than supplies, grain and certain beef and petroleum
inventories, are valued at the lower of first-in, first-out (FIFO) cost or
market. Supplies are valued at cost. Grain inventories are valued at market
adjusted for the net unrealized gains or losses on open grain contracts. Crude
oil, refined petroleum products, beef and beef by-products are valued at the
lower of last-in, first-out (LIFO) cost or market. In applying the lower of
cost or market valuation method in the case of petroleum LIFO inventory, the
general practice is modified to conform to the integral view of interim
financial statements. Accordingly, a seasonal market value decline below cost
of LIFO inventories, at an interim date, which is reasonably expected to be
restored by year-end, is not recognized in interim results of operations since
no loss is expected to be incurred in the annual period. At February 28, 1995,
the carrying value of petroleum inventories stated under the LIFO method was
$93,076,000. This exceeded the market value of such inventory by $10,053,000.
However, based on historical prices of energy products and seasonal market price
variations, the market value decline below cost is expected to be a temporary
seasonal price fluctuation.
The carrying value of beef inventories stated under the LIFO method was
$20,434,000 at February 28, 1995. The LIFO method of accounting for beef
inventories had no effect on the carrying value of inventories or on the income
reported for the six months and three months ended February 28, 1995 because
market value of these inventories was lower than LIFO or FIFO cost.
(3) CONTINGENCIES
On July 28, 1983, Farmland sold the stock of Terra Resources, Inc.
("Terra"), a wholly-owned subsidiary engaged in oil and gas exploration and
production operations, and exited its oil and gas exploration and production
activities. The gain from the sale of Terra amounted to $237,200,000 for tax
reporting purposes. During 1983, and prior to the sale of the Terra stock,
Farmland received certain distributions from Terra totaling $24,800,000. For
tax purposes, Farmland claimed intercorporate dividends-received deductions for
the entire amount of such distributions.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70,775,000. The
asserted deficiencies relate primarily to the Company's tax treatment of the
sale of the Terra stock and the distributions received from Terra prior to the
sale. The IRS asserts that Farmland incorrectly treated the Terra sale gain as
income against which certain patronage-sourced operating losses could be offset,
and that, as a nonexempt cooperative, Farmland was not entitled to an
intercorporate dividends-received deduction in respect of the 1983 distribution
by Terra. It further asserts that Farmland incorrectly characterized gains for
tax purposes aggregating approximately $14,600,000, and a loss of approximately
$2,300,000, from the disposition of certain other assets. On June 11, 1993,
Farmland filed a petition in the United States Tax Court contesting the asserted
deficiencies in their entirety. Discovery and other pre-trial phases of the
case have been substantially completed. The originally scheduled trial date of
March 6, 1995 has been vacated. It is presently contemplated that a limited
court hearing, if necessary, will be held in June 1995, and that briefs in the
case will be filed by late fall of 1995.
If the IRS ultimately prevails on all of the adjustments asserted in the
statutory notice, Farmland would have additional federal and state income tax
liabilities aggregating approximately $85,800,000 plus accumulating statutory
interest thereon through March 31, 1995, of approximately $166,409,000 (before
tax benefits of the interest deduction). In addition, such adjustments would
affect the computation of Farmland's taxable income for its 1989 tax year and,
as a result, could increase Farmland's federal and state income taxes for that
year by approximately $5,000,000 plus applicable statutory interest thereon.
No provision has been made in the consolidated financial statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. Farmland believes that it has meritorious positions with
respect to all of these claims and will continue to vigorously pursue their
favorable resolution through the pending litigation.
In the opinion of Bryan Cave, Farmland's special tax counsel, it is more
likely than not that the courts will ultimately conclude that (i) Farmland's
treatment of the Terra sale gain was substantially, if not entirely, correct;
and (ii) Farmland properly claimed a dividends-received deduction in respect of
the 1983 distributions which it received from Terra prior to the sale of the
Terra stock. Counsel has further advised, however, that none of the issues
involved in these disputes is free from doubt, and that there can be no
assurance that the courts will ultimately rule in favor of Farmland on any of
these issues.
Should the IRS ultimately prevail on all of its asserted claims, the claimed
federal and state income taxes as well as accrued interest would become
immediately due and payable, and would be charged to current operations. In
such case, the Company would be required to renegotiate its agreements with its
banks to maintain compliance with various provisions of such agreements,
including working capital and funded indebtedness provisions. However, no
assurance can be given that such renegotiation would be successful.
Alternatives could include other financing arrangements or the possible sale of
assets.
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 probable and
reasonably determinable obligations for resolution of environmental matters at
NPL and other sites are estimated to be $7,958,000 and such amount has been
accrued at February 28, 1995.
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 February 28, 1995. In the opinion of management, it is
reasonably possible for such costs to approximate up to $36,700,000 and to
extend over 30 years.
(4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY
METHOD
Summarized financial information of investees accounted for by the equity
method for six months ended February 28, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
February 28 February 28
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . . . . . $ 515,424 $ 365,380
Net Income (loss) . . . . . . . . . . . . . . . . . . $ 17,957 $ 1,809
Farmland's equity in net income . . . . . . . . . . . $ 9,075 $ 301
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company maintains two primary sources for debt capital: a continuous
public offering of its debt securities and bank lines of credit.
The Company's debt securities are offered on a best-efforts basis by
Farmland Securities Company and American Heartland Investments, Inc. and may be
offered by other selected broker-dealers. The types of securities offered
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 this public offering is influenced by
the rate of interest which Farmland establishes for each type of debt
certificate offered and by options of Farmland to call and redeem certain of its
outstanding debt certificates. During the six months ended February 28, 1995,
the outstanding balance of demand loan and subordinated debt certificates
decreased $1.5 million.
Farmland's primary source of bank credit is through a $650.0 million
syndicated credit facility provided by nine domestic and international banking
institutions. This 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 February 28, 1995, short-term borrowings under this facility
were $140.6 million, revolving term borrowings were $50.0 million and $47.6
million was being utilized to support letters of credit issued on behalf of
Farmland by participating banks.
Farmland pays commitment fees of 1/8 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 capitalization, respectively. All computations
are based on consolidated financial data adjusted to exclude nonrecourse
subsidiaries (as defined in the credit agreement). At February 28, 1995,
Farmland was in compliance with all covenant provisions of the agreement.
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements, at February 28, 1995, $42.8 million was
borrowed. Financial covenants of these arrangements are not more restrictive
than the Company's syndicated credit facility.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operations and capital plans. However,
alternative financing arrangements are continuously evaluated.
National Beef Packing Company, L.P. ("NBPC"), 58%-owned by Farmland,
maintains borrowing agreements with a bank which provides financing support for
its beef packing operations. Borrowings under this credit agreement are
nonrecourse to Farmland or Farmland's other affiliates. At February 28, 1995,
$82.6 million was available under this agreement of which $61.8 million was
borrowed and $9.0 million was utilized to support letters of credit. All assets
of NBPC (carried at $169.4 million) are pledged 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.
Major uses of cash during the six months ended February 28, 1995 include net
payments of $128.8 million to reduce the outstanding balance of bank loans and
other notes payable, $56.6 million for capital expenditures, $26.3 million for
patronage refunds and dividends distributed from income of the 1994 fiscal year,
$16.3 million for acquisition of investments and $12.2 million for the
redemption of equities under the Farmland base capital plan and special
redemption plan. Major sources of cash include $130.1 million from operations,
$38.0 million from an increase in the balance of checks and drafts outstanding
and $27.2 million from the disposition of investments and notes receivables.
The Internal Revenue Service issued a statutory notice to Farmland asserting
significant deficiencies in federal income taxes and statutory interest thereon.
Farmland filed a petition in the United States Tax Court contesting the asserted
deficiencies in their entirety. See note 3 of the notes to the condensed
consolidated financial statements.
RESULTS OF OPERATIONS
GENERAL
The Company's revenues depend to a large extent on conditions in agriculture
and may be volatile due to factors beyond the Company's control, such as
weather, crop failures, federal agricultural programs, production efficiencies,
and direct imports or exports. In addition, global variables which affect
supply, demand and price of crude oil and refined fuels impact the Company's
petroleum operations. Management cannot determine the extent to which future
operations of the Company may be impacted by these factors. The Company's cash
flow and net income may continue to be volatile as conditions affecting
agriculture and markets for the Company's products change.
Operating results for any quarter are not necessarily indicative of the
results expected for the full year. The principal businesses of the Company are
highly seasonal. Historically, the majority of sales of farm supply products
occur in the spring. Revenues in the beef business and in grain marketing
historically have been concentrated in the summer and summer is the lowest sales
period for pork products. In view of the seasonality of the Company's
businesses, it must be emphasized that the results for the six months and three
months ended February 28, 1995 should not be annualized to project a full year's
results.
SIX MONTHS ENDED FEBRUARY 28, 1995 COMPARED WITH SIX MONTHS ENDED FEBRUARY 28,
1994
SALES
Sales for the six months ended February 28, 1995 increased $306.8 million or
10.2% compared with the corresponding period of the prior year. The increase
includes $213.5 million higher sales of agricultural output products (grain and
food) and $97.1 million higher sales of farm production input products (crop
production, petroleum and feed).
Sales of agricultural output products increased for the six months ended
February 28, 1995 compared with the corresponding period of the prior year
principally because of higher domestic unit sales of wheat and higher wheat
prices. In addition, sales of pork and beef increased due to higher unit sales
of these products partially offset by lower prices of fresh and processed pork
and beef.
Sales of input products increased reflecting higher sales of crop production
and petroleum products partially offset by lower sales of feed. Sales of crop
production products increased because prices of nitrogen and phosphate based
plant nutrients increased approximately 22% and 16%, respectively, and total
unit sales of these products increased approximately 13%. Sales of petroleum
products increased due to higher production levels at the Coffeyville refinery
partly offset by the effect of the mild winter on sales of distillate and
propane. Feed sales decreased because unit sales and prices of formula feed and
feed ingredients declined reflecting the mild winter and a decrease of the
number of cattle on feed.
NET INCOME
Net income for the six months ended February 28, 1995, increased $61.2
million compared with the corresponding period of the prior year. The increase
reflects higher operating profits in crop production, food processing and
marketing and grain marketing. In addition, the net results of joint ventures
engaged in crop production and beef operations increased. The effect of these
increases on net income was reduced by decreased operating profit in the
petroleum and feed businesses and higher general corporate expenses.
Operating profit of the Company's crop production business increased
primarily as a result of a 22% increase in the average price of nitrogen
products and because unit sales of nitrogen products increased by 15%. Net
income from phosphate operations (conducted through joint ventures) increased
because of a global recovery of phosphate demand and the ensuing increase of
phosphate export volume and worldwide market prices.
Operating profit of the food processing and marketing business increased due
to higher margins on pork and beef, particularly margins on fresh pork which are
attributable to a decline of live hog and cattle costs without a corresponding
decline in selling prices. In addition, unit sales of fresh pork and processed
pork increased approximately 12% and 9%, respectively, and unit sales of beef
increased approximately 20%.
Operating results in grain increased were due to higher volume and more
favorable unit margins on all grains handled.
For the six months ended February 28, 1995, results from petroleum
operations were negative due to lower unit margins on all refined fuels,
particularly the margins on low sulfur diesel fuel, and because distillate and
propane unit sales decreased reflecting the relatively mild winter.
Selling, general and administrative expenses increased in the six months
ended February 28, 1995 compared with the corresponding period of the prior
year. Approximately $7.6 million of the increase is directly connected to
business segments (primarily the output businesses - grain, beef and pork) and
has been included in the determination of the operating profit of business
segments. Corporate general expenses, not identified to business segments,
increased reflecting the higher cost of variable compensation plans and employee
pension expenses.
The estimated effective tax rate for the six months and three months ended
February 28, 1995 is based on historical effective rates. The actual effective
tax rate may be subject to subsequent revision. The effective tax rate for
fiscal year 1994 has been used to provide income taxes for the six months and
three months ended February 28, 1994.
THREE MONTHS ENDED FEBRUARY 28, 1995 COMPARED WITH THREE MONTHS ENDED FEBRUARY
28, 1994
The changes in sales and net income for the three months ended February 28,
1995, compared to the corresponding period of the prior year are primarily as
discussed in the six months comparison.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of fiscal year 1995, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 112, "Employer's Accounting
for Postemployment Benefits." Statement 112 establishes standards of accounting
and reporting for the estimated cost of benefits provided to former employees.
The effect of implementation of Statement 112 at September 1, 1994 was
insignificant.
In the first quarter of fiscal year 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 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 implementation of Statement 115 at September 1, 1994
was insignificant.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibit listed below is filed as part of Form 10-Q for quarter ended
February 28, 1995.
Exhibit No. Exhibit
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended February 28,
1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FARMLAND INDUSTRIES, INC.
(Registrant)
By: /s/ JOHN F. BERARDI
John F. Berardi
Executive Vice President
and Chief Financial Officer
Date: April 13, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Form
10-Q for the period ending February 28, 1995 and is qualified in its entirety by
reference to such Form 10-Q.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1995
<PERIOD-START> SEP-01-1994
<PERIOD-END> FEB-28-1995
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 447,043
<ALLOWANCES> 0
<INVENTORY> 646,857
<CURRENT-ASSETS> 1,226,998
<PP&E> 1,247,679
<DEPRECIATION> 721,000
<TOTAL-ASSETS> 2,071,992
<CURRENT-LIABILITIES> 927,299
<BONDS> 468,724
<COMMON> 399,217
0
3,699
<OTHER-SE> 181,905
<TOTAL-LIABILITY-AND-EQUITY> 2,071,992
<SALES> 3,261,130
<TOTAL-REVENUES> 3,307,659
<CGS> 3,043,408
<TOTAL-COSTS> 3,069,326
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,133
<INCOME-PRETAX> 69,250
<INCOME-TAX> 10,706
<INCOME-CONTINUING> 68,161
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 68,161
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
