SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 1)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 2-60372
Farmland Industries, Inc.
(Exact Name of Registrant as Specified in Its Charter)
Kansas 44-0209330
(State or Other Jurisdiction of \ (I.R.S. Employer Identification No.)
Incorporation or Organization)
3315 N. Oak Trafficway, Kansas City, Missouri 64116-0005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 816-459-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (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/A or any amendment to this Form 10-K/A. [ ]
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
company 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 $6.6 billion during 1994. 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 Oak 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, 1994, 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 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 the right to vote at a meeting of the shareholders of Farmland.
As of August 31, 1994, Farmland's requirements for associate membership
were as follows: (1) Any person meeting the requirements for voting membership
can be an associate member. (2) Associate members must maintain a minimum
investment of $1,000 in par value of Farmland associate member common stock.
(3) Associations other than those owned 100% by voting members and associate
members of Farmland must conduct business on a cooperative basis and must have a
minimum of 25 active members. (4) Hog and/or cattle feeding businesses must
derive a majority of earned income from such feeding business and agree 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.
In 1994, Farmland's membership consisted of 1,480 cooperative associations
of farmers and ranchers and 1,365 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 the largest farmer-owned cooperative in the United States
in terms of revenues. The Company's principal U.S. trade territory is comprised
of 22 midwestern states. During the three years ended December 31, 1992,
average productions in those states, as a percent of the United States total,
accounted for 82% of wheat production, 88% of corn production, 81% of soybean
production, 72% of cattle production and 82% of hog production. Farmland has
endeavored to develop a significant presence in international markets. In 1994,
Farmland had exports to approximately 85 countries, and derived 37% of its
grain revenues from export sales. Foreign grain sales generally are paid in
U.S. Dollars.
The Company conducts business primarily in two operating areas: 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. The Company's three farm supply
divisions produce and distribute products principally at wholesale. Over 50% of
the Company's farm supply products sold in 1994 were produced in plants owned by
the Company or operated by the Company under long-term lease arrangements.
Approximately 65% of the Company's sales of farm supply products sold in 1994
were 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 storage and marketing of grain, the processing of pork and beef, and
the marketing of fresh pork, processed pork and fresh beef. In 1994,
approximately 61% of the hogs processed and 46% of the grain marketed were
supplied to the Company by its members. Substantially all of the Company's pork
and beef products sold in 1994 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
v a rious levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
c o m p e titors 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 68% of refined fuels product sales in 1994 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.
Based on total volume of refined fuels withdrawn at terminal storage facilities
along pipelines which serve most of the Company's trade territory, the Company
estimates its market share in rural markets is approximately 8%. Other
petroleum products include lube oil, grease, by-products of petroleum refining
and a complete line of car, truck and tractor tires, batteries and accessories.
Sales of petroleum products as a percent of the Company's consolidated sales for
1992, 1993 and 1994 were 29%, 19% and 13%, 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. Prior to June 30, 1992 the Company owned approximately 30% of the
National Cooperative Refinery Association ("NCRA"). As a 30% owner, Farmland
was required to purchase 30% of the production of this refinery. On June 30,
1992, the Company sold its ownership interest in NCRA.
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, 1994 was approximately $1.9 million ($1.6 million at May
31, 1995). The Company is evaluating alternative uses for this facility and
cannot at this time determine the extent of any losses related to the closure of
the refinery, but such losses are expected not to be significant. During the
four months of 1992 in which it operated, sales associated with products of the
Phillipsburg refinery amounted to approximately $20.9 million and the refinery
processed 871,000 barrels of crude oil.
Production volume for 1992, 1993 and 1994 is as follows:
Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per Year
----------------------------------
Location 1992 1993 1994
-------- -------- -------- --------
(barrels)
Coffeyville, Kansas . . . . . . 57,000 53,000 64,211
The Coffeyville refinery produced 23 million barrels of motor fuels and
heating fuels in 1992, 20 million barrels in 1993, and 25 million barrels in
1994. Approximately 68% of petroleum product sales in 1994 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. <PAGE>
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 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 1992,
1993 and 1994 were 26%, 19% and 17%, 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 15 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, major
petroleum companies with chemical divisions and integrated chemical 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, four urea
ammonium nitrate plants and two urea plants. In addition, the Company 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 1992, 1993 and 1994 is as
follows:
<CAPTION>
Actual Annual Production
Anhydrous Ammonia
------------------------------------------------
Plant Location 1992 1993 1994
-------------- ------------ ------------ ------------
(tons)
<S> <C> <C> <C>
Lawrence, Kansas . . . . . . . . . . . . . . . . . . . . . 450,000 375,000 443,000
Dodge City, Kansas . . . . . . . . . . . . . . . . . . . . 254,000 241,000 257,000
Fort Dodge, Iowa . . . . . . . . . . . . . . . . . . . . . 240,000 232,000 256,000
Beatrice, Nebraska . . . . . . . . . . . . . . . . . . . . 250,000 243,000 277,000
Enid, Oklahoma (2 plants)* . . . . . . . . . . . . . . . . 1,017,000 969,000 985,000
Pollock, Louisiana* . . . . . . . . . . . . . . . . . . . . 501,000 490,000 526,000
--------------
* Indicates leased plants.
</TABLE>
Synthetic anhydrous ammonia is the basic component of other commercially
produced nitrogen-based crop production products and uses natural gas as the
major raw material.
Ammonia is used as the principal raw material in the production of value-
added nitrogen-based products such as urea, ammonium nitrate, urea ammonium
nitrate solutions and other products.
Production of urea, ammonium nitrate, urea ammonium nitrate solutions and
other nitrogen-based products from anhydrous ammonia, as a raw material, for
1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
Actual Annual Production
------
Plant Location 1992 1993 1994
-------------- ---- ---- ----
(tons)
<S> <C> <C> <C>
Lawrence, Kansas . . . . . . . . . . . . . . . . . . . . . 635,000 661,000 654,000
Enid, Oklahoma . . . . . . . . . . . . . . . . . . . . . . 442,000 473,000 433,000
Dodge City, Kansas . . . . . . . . . . . . . . . . . . . . 217,000 205,000 163,000
Beatrice, Nebraska . . . . . . . . . . . . . . . . . . . . 177,000 166,000 162,000
</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 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
Actual Annual Production
1992 1993 1994
---- ---- ----
(tons)
<S> <C> <C> <C>
Ammonium Phosphate . . . . . . . . . . . 88,000 72,000 75,000
Feed Grade Phosphate . . . . . . . . . . 129,000 141,000 157,000
</TABLE>
Prior to November 15, 1991, the Company owned and operated a phosphate
chemical plant located in Green Bay, Florida. Effective November 15, 1991, the
Company and Norsk Hydro a.s. formed Farmland Hydro, L.P. ("Hydro") to
manufacture 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 short tons of such products for the ten months in 1992 during which the joint
venture operated, for 1993 and for 1994 was 880,000, 1,216,000 and 1,437,000,
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 formed a joint venture in April 1992,
SF Phosphates, Limited, to own and operate a phosphate mine located in Vernal,
Utah, a phosphate chemical plant located in Rock Springs, Wyoming and a 96-mile
pipeline connecting the mine to the plant. The plant produces monoammonium
phosphate and super acid with annual production of 138,000 tons for the five
months of operations in 1992, 440,000 tons for 1993 and 465,000 tons for 1994.
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 1,725 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 the joint venture will proceed, that such nonrecourse financing
will be obtained at all or on favorable terms or that production will commence
at such time.
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 13%, 10% and 8% of
c o n s o l idated sales for the years 1992,1993 and 1994, respectively.
Approximately 45% of the feed business segment's sales in 1994 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.
Feed production is as follows:
<TABLE>
<CAPTION>
Actual Annual Production
---
1992 1993 1994
---- ---- ----
(tons)
<S> <C> <C> <C>
22 feed mills (combined) . . . . . . . . 954,000 1,030,000 1,118,000
</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 1992,
1993 and 1994, approximately 46,300 pigs, 113,000 pigs and 250,100 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.
Pork Processing and Marketing
Production
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 on February 15, 1993. These facilities also
process fresh pork into primal cuts for additional processing into fabricated
meats which are sold to commercial users and to retail grocery chains, as well
as case-ready and label-branded cuts for retail distribution. The eighth plant
located in Carroll, Iowa is primarily a packaging facility for canned or cook-
in-bag products. A facility at San Leandro, California was closed on September
1, 1993. A previously closed pork processing plant at Iowa Falls, Iowa is held
for sale.
Production for 1992, 1993 and 1994 is as follows:
<TABLE>
<CAPTION>
Actual Weekly Production
On a One-Shift Basis
----------------------------
1992 1993 1994
(pounds)
<S> <C> <C> <C>
Wichita, Kansas 1,618,000 1,514,000 1,884,000
Carroll, Iowa* 1,131,000 1,204,000 1,111,000
San Leandro, California** . . . . . . 269,000 243,000 -0-
Springfield, Massachusetts . . . . . . 560,000 666,000 747,000
Carey/Riegel, Ohio . . . . . . . . . . 220,000 231,000 275,000
Denison, Iowa . . . . . . . . . 39,000 37,000 40,000
Crete, Nebraska . . . . . . . . . 46,000 45,000 47,000
Monmouth, Illinois*** . . . . . . . . -0- 25,000 28,000
<FN>
------------
* All ham products were produced on two work shifts per day during 1992,
1993 and 1994.
** .Closed September 1, 1993.
*** .The Company did not own the Monmouth facility in 1992.
</TABLE>
Marketing
The Company's pork marketing operations include meat processing, primarily
pork, and marketing. Products marketed include fresh pork, fabricated pork,
smoked meats, ham, bacon, fresh sausage, dry sausage, hot dogs, and packing
house by-products. These products are marketed under 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 and Marketing
Production
As of August 31, 1994, the Company's beef processing and marketing
operations were conducted through two ventures. National Beef Packing
Company, L.P. ("NBPC"), formed in April 1993, is located in Liberal, Kansas
and is 58%-owned by Farmland (having increased to 68% effective March 1, 1995).
Hyplains Beef, L.C., formed in July 1992, is located in Dodge City, Kansas and
is 50%-owned by Farmland. As of September 1995, such beef processing and
marketing operations are conducted through NBPC, which is now 68%-owned by
Farmland. These facilities function as beef abattoirs and have capabilities
for processing fresh beef into primal cuts for additional processing into
fabricated or boxed beef. During 1994, the two plants operated at 97%
capacity and slaughtered 1,708,000 cattle.
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
Effective June 30, 1992, the Company acquired substantially all the
business and assets of Union Equity Co-Operative Exchange ("Union Equity"). The
grain marketing and storage operations of the Company as described herein are
substantially the same as the grain operations previously conducted by Union
Equity.
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, the Company maintained
hedges on approximately 95.3% of its grain positions. Based on total assets at
the beginning and end of 1994, the average market value of grain positions not
hedged during the year amounted to approximately 1/5 of 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 1994, approximately 37% of grain revenues were from export sales. The
five largest purchasers in terms of total revenues from grain operations were
Mexico (6%), Jordan (5%), Egypt (4%), Israel (4%) and South Africa (2%). In
1992 and 1993, export sales or sales to domestic customers for export accounted
for approximately 55% and 60%, 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.
Tradigrain
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as "Tradigrain")
formerly owned by B.P. Nutrition B.V. 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. The volume of
grain traded by Tradigrain varies from seven to ten million metric tons per year
and represents total sales of between $800 million to $1.2 billion per year.
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 31 inland elevators and one export elevator with
a total capacity of approximately 177,157,000 bushels of grain. The location,
type, number and aggregate capacity in bushels of the elevators at August 31,
1994 are as follows:
<TABLE>
<CAPTION>
Aggregate
Location Type Number Capacity
-------- ---- ------ --------
<S> <C> <C> <C>
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
Stratford, Texas . . . . . . Inland 1 112,000
Topeka, Kansas . . . . . . . Inland 1 12,055,000
Wichita, Kansas . . . . . . . Inland 1 10,503,000
</TABLE>
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.
Research related to commercialization of a wheat processing plant to
produce wheat gluten as a replacement source for raw material used in certain
consumer products has been completed and technology for an economically viable
plant has been developed. Farmland has formed Heartland Wheat Growers, L.P., a
joint venture with local cooperatives, and is building a wheat processing plant
in Russell, Kansas that will process approximately 4.25 million bushels of wheat
per year. See " Capital Expenditures".
Expenditures related to Company-sponsored product and process improvements
amounted to $3.3 million, $3.3 million and $2.7 million for the years ended
1992, 1993 and 1994, respectively.
Capital Expenditures
The Company plans capital expenditures of approximately $289.9 million
during 1995 and 1996.
Capital expenditures of approximately $111.8 million are planned for the
crop production business segment (excluding costs for construction of an
anhydrous ammonia plant in Trinidad which is being evaluated at this time). A
new urea ammonium nitrate ("UAN") facility is planned at the Fort Dodge, Iowa
anhydrous ammonium plant. The new facility is expected to cost approximately
$30.0 million of which approximately $21.0 million is expected be expended
during this period. This facility will upgrade anhydrous ammonium to produce
approximately 210,000 tons of UAN per year. A UAN plant at the Lawrence, Kansas
facility is being expanded to increase production by approximately 188,000 tons
per year. An estimated $2.5 million will be expended in fiscal 1995 to complete
the project. Expenditures at the Dodge City, Kansas facility of approximately
$6.0 million are expected to increase anhydrous ammonia and UAN production
capacity by 52,500 tons and 10,500 tons, respectively. Capital expenditures of
$66.4 million are planned for operating efficiency improvements, necessities and
replacements, and $15.9 million are planned for environmental and safety issues,
predominately at nitrogen fertilizer plants.
Capital expenditures in the feed business segment are estimated to be
$23.4 million. A feed mill in southeast New Mexico is being constructed at an
approximate cost of $1.3 million. The remaining projected expenditures of $22.1
million are for feed mill and livestock production efficiencies, operating
necessities and replacements.
Capital expenditures in the petroleum business segment are expected to be
$87.4 million and include approximately $32.9 million to increase daily crude
oil processing capacity at the Coffeyville, Kansas refinery of which $27.9
million is to be expended during this period. The remaining projected
expenditures of the petroleum business segment are as follows: $23.6 million for
operating necessities; $20.7 million for increased operating efficiency; and
$10.2 million for environmental and safety issues.
Capital expenditures of approximately $32.6 million are planned in the
pork marketing business segment. A waste water expansion project at the Crete,
Nebraska facility is expected to cost approximately $2.4 million. A 10,000
square foot loading dock and storage facility will be constructed at the
Monmouth, Illinois plant for an estimated $1.5 million. The remaining
expenditures are mostly for operational improvements and replacements.
Capital expenditures of approximately $7.3 million planned for the grain
business segment are mainly for expansion and replacements.
Heartland Wheat Growers, L.P. was formed for the purpose of constructing
and operating a wheat processing facility, to produce wheat gluten, wheat starch
and derivative products and to market and distribute such products. The Company
has a 79% interest in the partnership. The Company's planned investment to
finance construction of the wheat gluten plant amounts to approximately $25.5
million of which $21.5 million will be expended during the period.
The Company intends to fund its capital program with cash from operations
or from its primary sources of debt capital. Of the foregoing planned capital
e x penditures, $86.5 million were made through May 31, 1995. 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
m a n ufacturing 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 available
facts, existing technology, undiscounted site specific costs and 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 54 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 17
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 six 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 owner or operator of a contaminated
property, and companies that generated, disposed, or arranged for the disposal,
of hazardous substance found at the property. During 1993 and 1994, the Company
paid approximately $.5 million and $1.4 million, respectively, for environmental
investigation and remediation.
At August 31, 1994, the Company was aware of probable obligations for
environmental matters at 27 properties. As of August 31, 1994, the Company has
made an environmental accrual of $7.2 million ($8.4 million at May 31, 1995).
The Company periodically reviews and, as appropriate, revises its environmental
accruals. Based on information available at August 31, 1994 and regulatory
requirements then in effect, 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 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, 1994. At August 31, 1994, in the
opinion of management, it was reasonably possible for such costs to be
approximately an additional $32.0 million (an additional $24.0 million at May
31, 1995).
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 are also in place for three landfills and two
injections 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 $5.4 million at August 31, 1994 (and is
in addition to the $32.0 million described in the preceding paragraph).
At August 31, 1994, the Company was involved in two administrative
proceedings brought by Region VII of the Environmental Protection Agency
("EPA") with respect to alleged violations under the Emergency Planning and
Community Right-to-Know Act and RCRA at the Coffeyville refinery.
Specifically, the two administrative proceedings are described as follows:
(1) The Company is a party to an administrative enforcement action
brought by Region VII of the EPA which alleges violations of the
Emergency Planning and Community Right-to-Know Act and the release
reporting requirements of CERCLA at its Coffeyville, Kansas refinery.
This proceeding involves alleged violations of release reporting
requirements and seeks a civil penalty in the amount of $350,000.
(2) The Company is a party to an administrative enforcement action
brought by Region VII of the EPA which alleges violations of RCRA
at its Coffeyville, Kansas refinery. In this proceeding, the EPA
has proposed a civil penalty in the amount of approximately
$1.4 million.
Subsequently, the Company became involved in an administrative
proceeding brought by Region VII of the EPA with respect to alleged
violations under the Clean Air Act. The Company has been informed
by the U.S. Department of Justice of its intent to bring an
enforcement action alleging certain violations of the Clean Air
Act at its Coffeyville, Kansas refinery. The U.S. Department of
Justice has informed the Company that it will seek a civil penalty
of at least $1.6 million.
The Company is currently negotiating with the EPA concerning all of
these matters and believes that such negotiations may result in
compromise settlements. Absent such settlements, the Company may
contest the EPA's allegations. Accordingly, no provision has been
made in the Company's financial statements for these proposed
penalties.
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, the Company had capital expenditures of approximately
$2.6 million to prevent future discharges into the environment. Such capital
expenditures (through May 31, 1995) were approximately $2.0 million. The
majority of such expenditures was for improvements at the Coffeyville
refinery. Management believes the Company 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 at August 31, 1994, the Company was 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, 1994, the Company had approximately 11,000 employees.
Approximately 41% 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. Labor contracts at August 31, 1994 expire on various dates
through March 1997. 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 "invested portion") the members
receive Farmland common stock, associate member common stock or capital credits
(the equity type received is determined by the membership status). The invested
portion of the patronage refund 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 1992, 1993 and 1994, Farmland returned the following
patronage refunds:
<TABLE>
<CAPTION>
Cash or Cash
Equivalent Portion Invested Portion Total Patronage
of Patronage Refunds of Patronage Refunds Refunds
(Amounts in thousands)
<S> <C> <C> <C>
1992 . . . . . . . $ 17,449 $ -0- $ 17,449
1993 . . . . . . . -0- -0- -0-
1994 . . . . . . . 26,552 44,032 70,584
</TABLE>
Nonpatronage income or loss (income or loss from activities not directly
related to thecooperative 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.
Equity Redemption Plans
The Equity Redemption Plans described below, namely the Base Capital
Plan (as defined below), the estate settlement plan and the special equity
redemption plans (collectively, "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 who have an investment in Farmland common
stock or associate member common stock which exceeds 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) equity holder, the equity holdings of the
deceased will be redeemed at par value with the exception of purchased
equity holdings owned 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 Equity Redemption Plans
From time to time and for all profitable years following 1987, the
Company has redeemed portions of its outstanding equity under various special
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
equity. The order in which each type of equity is redeemed is determined
by the Board of Directors. Except for preferred stock sold through a
public offering in 1984, substantially all the equity redeemed under these
plans was originally issued as part of the Company's patronage
refunds. See " Patronage Refunds and Distribution of Net Earnings".
The special equity redemption plan is designed to provide a
systematic method for redemption of outstanding equity which is not
subject to redemption through other Plans, such as the Base Capital Plan or
the estate settlement plan.
At August 31, 1994, provisions of the special equity redemption plan
included:
1. No special redemption will be made if the redemption of equities 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 equity redemption plan) before the special
redemption but after giving effect to the distribution of cash and the
redemption of equities under the Base Capital Plan. The calculation
for special redemptions is as follows:
Total Special Equity
Funded Indebtedness as Redemption
as a Percent of as a Percent of
Capitalization Consolidated Net Income
> 50 % . . . . . . . . . . . None
48 - 50 % . . . . . . . . . . . 2.5 %
44 - 47 % . . . . . . . . . . . 5.0 %
40 - 43 % . . . . . . . . . . . 7.5 %
< 40 % . . . . . . . . . . . 10.0 %
3. The priority for redeeming equities under the Special Redemption
Program will be as follows listed in order of first to be redeemed.
a. Capital Credits (Series of Ten) which, on or before August 31, 1992,
were issued to and held by, any dissolved cooperative for the
benefit of its membership. One-third of the total outstanding amount of
such Capital Credits, Series of Ten to be redeemed pro rata to such
holders following each of the next three fiscal year-ends.
b. Capital Credits (Series of Ten) outstanding ten years or longer -- paid
in order of lowest numbered series first.
c. Capital Credits held by individual livestock producers age 70 or older
that have been held for five years or longer -- paid in descending
order of age of the individual (oldest person first). Holders of
equities in Farmland Foods, Inc. will have their equities redeemed
on the same basis as holders of Farmland equity. Former Farmland
Foods equity holders who accepted the exchange offer for Farmland
Industries' equities in 1991 will be deemed to have met the five-
year holding requirement for those equities involved in the exchange.
d. Capital Credits (Series of Ten) outstanding five years or
longer -- paid in order of lowest numbered series first.
e. Capital Credits held by individual livestock producers age 65 or older
that have been held for five years or longer -- paid in descending
order of age of the individual (oldest person first). Holders of
equities in Farmland Foods, Inc. will have their equities redeemed
on the same basis as holders of Farmland equity. Former Farmland
Foods equity holders who accepted the exchange offer for Farmland
Industries' equities in 1991 will be deemed to have met the five-
year holding requirement for those equities involved in the exchange.
f. Any Capital Credits outstanding for twenty years or more -- paid in
order of year issued, oldest first. Holders of equities in Farmland
Foods, Inc. will have their equities redeemed on the same basis as
holders of Farmland equity. Former Farmland Foods equity holders
who accepted the exchange offer for Farmland Industries' equities
in 1991 will be deemed to have met the five-year holding requirement
for those equities involved in the exchange. Nonmember capital will
participate on the same basis as capital credits in the redemption.
g. Capital Credits (Series of Ten) remaining balance -- paid in order
of lowest numbered series first.
h. Minority held equities in Farmland Foods, Inc. remaining
balance -- paid in descending order of years outstanding, oldest first.
i. Any Capital Credits outstanding for ten years or more -- paid in order
of year issued, oldest first. Nonmember capital will participate on
the same basis as capital credits in the redemption.
j. Any Common Stock or Associate Member Common Stock outstanding for
twenty years or more -- in order of year issued, oldest first.
k. Any Capital Credit outstanding for five years or more -- paid in
order of year issued, oldest first. Nonmember capital will
participate on the same basis as capital credits in the redemption.
l. Any Common Stock or Associate Member Common Stock outstanding for five
years or more -- paid in order of year issued, oldest first.
Presented below are the amounts approved for redemption of equity by
the Board of Directors under the Base Capital Plan, the estate settlement
plan and the special equity redemption plans for all years following 1987,
the year in which the Company returned to profitability following the loss
years of the mid-1980's. The amounts approved for redemption of equity
were paid in cash in the fiscal year following approval.
<TABLE>
<CAPTION>
Base Estate Special Equity
Capital Settlement Redemption
Plan Plan Plans Total Plan
Redemptions* Redemptions Redemptions Redemptions
(Amounts in Thousands)
<S> <C> <C> <C> <C>
1988 $ -0- $ 16 $ 5,368 $ 5,384
1989 -0- 13 15,518 15,531
1990 -0- 78 20,029 20,107
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
<FN>
----------
* The Base Capital Plan became effective in 1991.
</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 Condensed Consolidated Financial Statements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations Financial Condition, Liquidity and Capital Resources."
The Company is currently involved in three administrative proceedings
brought by Region VII of the EPA. See "Business Matters Involving the
Environment".
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders, through the solicitation
of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
There is no established public market for the common stock, associate
member common stock and capital credits of Farmland. In view of the following,
it is unlikely in the foreseeable future that a public market for these equities
will develop:
1) the common stock, associate member common stock and capital
credits are nondividend bearing;
2) the right of any holder of common stock, associate member common
stock and capital credits to receive patronage refunds (including
any cash patronage refunds) from Farmland is dependent on whether
the holder is 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".
There are approximately 2,570 holders of common stock, 275 holders of
associate member common stock, and 9,835 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, 1994 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 1993 and for each of the years in the three-year period
ended August 31, 1994 (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
r e lated 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
1990 1991 1992 1993 1994
------ ------ ------ ------ -------
(Amounts in Thousands except ratios)
<S> <C> <C> <C> <C> <C>
Summary of Operations:(1)(2)(3)
Net Sales . . . . . . . . . . . . . $ 3,377,603 $ 3,638,072 $ 3,429,307 $ 4,722,940 $ 6,677,933
Operating Profit of
Industry Segments . . . . . . . 154,811 156,765 160,912 86,579 155,049
Interest Expense (net of interest
capitalized) . . . . . . . . . . 30,090 36,951 27,965 36,764 51,485
Income (Loss) Before Income
Taxes and Extraordinary Item . . 58,184 50,166 70,504 (36,833) 78,766
Net Income (Loss) . . . . . . . . . 48,580 42,693 62,313 (30,400) 73,876
============= ============== ============== ============ =============
Distribution of Net Earnings:
Patronage Refunds:
Equity Reinvestments . . . . . $ 24,403 $ 17,837 $ 1,038 $ 1,155 $ 44,032
Cash or Cash Equivalent . . . . 8,800 12,571 17,918 495 26,580
Earned Surplus and Other
Equities . . . . . . . . . . . . 15,377 12,285 43,357 (32,050) 3,264
------------- ------------- ------------- ------------- ------------
$ 48,580 $ 42,693 $ 62,313 $ (30,400) $ 73,876
============= ============== ============== ============== =============
Balance Sheets:
Working Capital . . . . . . . . . . $ 121,518 $ 122,124 $ 208,629 $ 260,519 $ 290,704
Property, Plant and Equipment, Net 469,710 490,712 446,002 504,378 501,290
Total Assets . . . . . . . . . . . 1,352,889 1,369,231 1,526,392 1,719,981 1,926,631
Long-Term Debt (excluding
current maturities) . . . . . . 273,071 291,192 322,377 485,861 517,806
Capital Shares and Equities . . . . 476,011 497,364 588,129 561,707 585,013
. . . . . . . .
-------------------------------------------------
</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) During 1991, the Company changed its method for inventory pricing of
certain petroleum inventories from the first-in, first-out (FIFO) method
previously used to the last-in, first-out (LIFO) method because the LIFO
method better matches current costs with current revenues. Pro forma
effects of retroactive application of the LIFO method are not
determinable.
(3) Acquisitions and Dispositions:
(a) In October 1993, the Company acquired approximately 53% of the
common stock of National Carriers, Inc. ("NCI") and increased its
ownership of NCI to 79% in August 1994. 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. The purchase price of NCI ($4.4
million) was paid in cash. 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% effective March 1, 1995). 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) Effective June 30, 1992, the Company acquired the grain marketing
assets of Union Equity Co-Operative Exchange ("Union Equity"). See
Note 2 of the Notes to Consolidated Financial Statements included
herein.
(f) The following unaudited financial information for the years ended
August 31, 1992 and 1993 presents pro forma results of operations of
the Company as if the disposition of CFA and the acquisitions of
Union Equity and NBPC had occurred at the beginning of each period
presented. The pro forma financial information includes adjustments
for amortization of goodwill, additional depreciation expense, and
increased interest expense 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 Union Equity and NBPC for the full years 1992 and
1993. See Note 2 of the Notes to Consolidated Financial Statements
included herein.
<TABLE>
<CAPTION> August 31(Unaudited)
------------------------
1992 1993
--------- ---------
(Amounts in Thousands)
<S> <C> <C>
Net Sales . . . . . . . . . . . . . . $ 5,441,303 $ 5,357,867
========= =========
Income (Loss)Before Extraordinary Item $ 47,225 $ (44,040)
========= =========
</TABLE>
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, 1994, the outstanding balance of demand loan
and subordinated debt certificates increased by $17.6 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, 1994, short-term borrowings under the Credit Agreement were
$217.4 million, revolving term borrowings were $95.0 million and $62.6 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 1/8 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
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, 1994, Farmland was in compliance with all covenants
under the Credit Agreement. The Credit Agreement expires in May 1997.
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements, at August 31, 1994, $51.2 million was
borrowed and letters of credit issued by banks amounted to $2.2 million.
Financial covenants of these arrangements generally are not more restrictive
than under the Credit Agreement.
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, 58%-owned by Farmland (having increased to 68% effective March 1,
1995), maintains borrowing agreements with a bank which provides financing
support for its beef packing operations. Such borrowings are nonrecourse to
Farmland or Farmland's other affiliates. At August 31, 1994, NBPC's available
bank credit of $61.6 million had been borrowed. 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.
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 common stock, associate member stock, 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 1992, 1993 and 1994, the earned surplus account exceeded the
required amount by $49.5 million, $3.8 million and $2.3 million, respectively.
Generally, a portion of the patronage refund is distributed in cash and the
balance (the "invested portion") is distributed in common stock, associate
member common stock or capital credits (depending on the membership status of
the recipient), or the Board of Directors may determine to distribute the
invested portion in any other form or forms of equities. The invested portion
of the patronage refund is determined annually by the Board of Directors, but
the invested 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 invested portion of the patronage refund
is a source of funds from operations which is retained for use in the business
and increases Farmland's equity base. Common stock and associate member common
stock representing the invested portion of patronage refunds may be redeemed by
cash payments from Farmland to holders thereof who participate in Farmland's
base capital plan. Capital credits and other equities of Farmland and Farmland
Foods, Inc., a 99% owned subsidiary ("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.
In 1994, operations generated a net cash inflow of $106.0 million. Other
major cash sources in 1994 included $34.6 million from dispositions of
investments and notes receivable, $17.9 million (net) from investors in demand
loan and subordinated debt certificates and $17.1 million from sales of
property, plant and equipment.
The primary uses of cash in 1994 included $69.8 million for capital
additions or improvements, $36.6 million (net) for repayment of bank loans and
other notes payable, $35.8 million for acquisition of businesses (Tradigrain and
NCI) and $22.1 million for investments and notes receivable.
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 the $237.2 million gain resulting
from its sale 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 and that Farmland was not
entitled to a claimed intercorporate dividends-received deduction with respect
to a $24.8 million distribution received in 1983 from Terra.
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. Prior to trial, the IRS withdrew its challenge to Farmland's
claimed intercorporate dividends-received deduction and several other minor
issues were resolved. The parties will submit post-trial briefs to the court in
September and 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 $173.4 million,
before tax benefits of the interest deduction, through June 30, 1995), or $259.2
million in the aggregate at June 30, 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. 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, 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, 1992, 1993 and 1994
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 amount of fertilizer and other chemical applications that
they use. 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 profit by business segment
in each of the years in the three-year period ended 1994, compared with the
respective prior year, is presented in the table below.
Management's discussion of business segment sales, operating profit or loss
and other factors affecting the Company's income before income taxes and
extraordinary item during 1992, 1993 and 1994 follows the table.
<TABLE>
<CAPTION>
Change in Income Before Income
Change in Sales Taxes and Extraordinary Item
--------------------------------- ----------------------------------
1992 1993 1994 1992 1993 1994
Compared Compared Compared Compared Compared Compared
with 1991 with 1992 with 1993 with 1991 with 1992 with 1993
--------- --------- -------- --------- --------- --------
(Amounts in Millions) (Amounts in Millions)
<S> <C> <C> <C> <C> <C> <C>
Increase (Decrease) of
Business Segment
Sales and Operating
Profit or Loss:
Petroleum . . . . . . . . . . $ (210) $ (92) $ (32) $ 17 $ (13) $ 32
Crop Production . . . . . . . (138) (13) 278 (13) (60) 74
Feed . . . . . . . . . . . . (21) 34 49 (3) (1) (4)
Food Processing and Marketing 21 563 943 14 (8) 4
Grain Marketing . . . . . . . 155 798 674 (1) 1 (34)
Other . . . . . . . . . . . . (16) 4 43 (10) 7 (4)
. . . . . . . . . . . . --------- -------- -------- --------- --------- ---------
$ (209) $ 1,294 $ 1,955 $ 4 $ (74) $ 68
========= ======== ======== ========= ========= ========
<CAPTION>
<S> <C> <C> <C>
Corporate Expenses and Other:
General corporate expenses (increase) decrease . . . . . . . . . . . . 13 9 (9)
Other income and deductions (net) increase (decrease) . . . . . . . . . (5) 7 14
Interest expense (increase) decrease . . . . . . . . . . . . . . . . . 9 (9) (14)
Equity in income of investees increase (decrease) . . . . . . . . . . . (1) (10) 23
Minority owners' interest in income
of subsidiaries (increase) decrease . . . . . . . . . . . . . . . . -0- (1) 5
Provision for loss on disposition
of assets (increase) decrease . . . . . . . . . . . . . . . . . . . -0- (29) 29
--------- ---------- --------
Income before income taxes and
extraordinary item increase (decrease) . . . . . . . . . . . . . . . $ 20 $ (107) $ 116
========= ========== ========
</TABLE>
In computing the operating profit or loss of a business segment, none of
the following have been added or deducted: corporate, general and administrative
expenses which cannot practicably be identified or allocated to a business
segment, interest expense, equity in income (loss) of investees, and
miscellaneous income or deductions.
Petroleum
Sales
Sales of 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. <PAGE>
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.
In 1992, sales of petroleum products declined $209.7 million compared with
1991. This decrease resulted primarily because unit sales of refined products
(gasoline, distillate and diesel) and the average prices of these products were
each lower in 1992 than 1991 by 4% and 16%, respectively. The unit sales and
price declines reduced sales of these products by approximately $37.3 million
and $154.2 million, respectively. In addition, propane prices in 1992 averaged
approximately 82% of the prior year's level, which reduced sales by
approximately $13.5 million.
Operating Profit
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
were significantly higher immediately after the crossover to the low sulfur
level diesel fuels. 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. Unit margins on diesel fuels with low sulfur levels
have decreased to, and are expected to remain, near normal levels.
Operating profit 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.
Operating profit of the petroleum segment was $8.2 million in 1992 compared
with a loss of $9.3 million in 1991. Most of this improvement resulted from
elimination in 1992 of losses experienced in 1991 on petroleum futures
contracts. The Company changed its hedging practice in March 1991.
Crop Production
Sales
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.
The crop production segment's sales declined $137.7 million in 1992
compared with 1991. Substantially all of this decrease resulted from lower unit
sales and prices for phosphate fertilizers. The Company reported 30% lower
phosphate unit sales in 1992 which reduced sales approximately $117.3 million.
This decrease resulted principally from the sale on November 15, 1991 of the
Green Bay, Florida phosphate plant to a 50%-owned joint venture. In addition,
sales of phosphate fertilizers decreased approximately $18.2 million, because
the average price was 7% lower. Sales of turf and garden products were
approximately $2.9 million lower.
Operating Profit
Operating profits 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 profit in this segment approximately $66.8 million.
Unit sales increased over one million tons (18%) which increased operating
profit 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 profit 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
income (loss) of investees") was $8.2 million in 1993 compared with a loss of
$1.3 million in 1992.
The crop production segment's operating profit of $111.9 million decreased
$13.4 million in 1992 compared with 1991. The decrease resulted primarily from
lower phosphate fertilizer selling prices and from realignment of the Company's
phosphate fertilizer production operations into two 50%-owned ventures.
Feed
Sales
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.
The feed segment's sales for 1992 decreased $20.9 million compared with
1991, principally because feed ingredients unit sales decreased 22%. Unit sales
of feed ingredients decreased because sales efforts were directed from products
with near break-even margins to products with higher margins. Feed ingredient
sales decreased approximately $41.7 million because of the unit sales decline.
Feed ingredient prices increased an average of 8% which increased sales by
approximately $11.2 million and formula feed sales increased $6.8 million,
principally due to higher unit sales.
Operating Profit
Operating profit 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 profit 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.
Operating profit of the feed segment for 1992 of $21.3 million decreased
$3.2 million compared with 1991. The decrease resulted from $1.3 million lower
patronage refunds received on purchases from other cooperatives and from $2.5
million higher expenses partly offset by $.4 million higher gross margins.
Food Processing and Marketing
Sales
Sales of the food processing and marketing business increased $943.0
million in 1994 compared with 1993. Sales of beef increased $735.5 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 $207.5
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 1, 1995)
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.
Sales of the food processing and marketing segment in 1992 increased $21.1
million compared with 1991. Sales of specialty meats increased $51.1 million
primarily because these products were not included in sales for 1991 prior to
April 1, when the Company acquired three specialty meats plants. Fresh and
processed pork sales were lower than in 1991 because the effect of lower
wholesale prices was greater than the effect of higher unit sales.
Operating Profit
Operating profit 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 profit of the pork business
partly offset by an $8.9 million decrease of operating profit of the beef
business. Operating profit 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
profit of the beef business decreased owing to weak consumer demands for beef
and industry price competition.
Operating profit 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.
Operating profit of the food processing and marketing segment for 1992
increased $13.8 million compared with 1991. The improvement includes higher
gross margins of approximately $26.8 million, partially offset by approximately
$13.4 million higher selling, general and administrative expenses. The gross
margin increase includes $9.9 million higher margins on specialty meats
attributable to ownership of specialty meats plants during all of 1992, compared
with only five months of 1991. Additional improvements of gross margins
resulted from a more favorable spread between the costs of live hogs and
wholesale pork prices, from higher unit sales, and from a shift of sales to
value-added products with higher unit margins. Selling, general and
administrative expenses of this segment increased, primarily due to expenses
incurred in connection with the specialty meats plants which were operated by
the Company for only five months in the prior year.
Grain Marketing
Sales and Operating Profit
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. <PAGE>
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 profit 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 $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.
In 1992, corporate general and administrative expenses not identified to
business segments decreased $5.2 million compared with 1991. This decrease was
mostly due to lower retirement plan costs, reduced corporate advertising and
reduced coverage and cost of liability insurance.
Other Income (Deductions)
Interest Expense
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. Interest expense decreased $8.9 million in 1992 compared with 1991. The
decrease results from lower borrowings and 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."
Other, Net
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding
Defendants' insurance coverage obligations for environmental remediation costs.
In 1994, the Company negotiated settlements with 20 insurance companies and, as
part of the settlements, the Company provided Defendants with releases of
various possible environmental obligations. As a result of these settlements,
the Company received cash payments of $13.6 million in 1994 and has included
such amount in the caption "Other income (deductions): Other, net" in the
Company's Consolidated Statement of Operations for the year then ended.
Matters Involving the Environment
See "Business - Matters Involving the Environment."
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," was issued by the Financial
Accounting Standards Board ("FASB") in May 1993 and is effective for fiscal
years beginning after December 15, 1993 (which the Company adopted in its 1995
fiscal year). Statement 115 expands the use of fair value accounting and the
reporting for certain investments in debt and equity securities. Management
expects the adoption of Statement 115 will not have a significant impact on the
Company's Consolidated Financial Statements.
Statement of Financial Accounting Standards No. 112, "Employer's Accounting
for Postemployment Benefits," was issued by the FASB in November 1992 and is
effective for fiscal years beginning after December 15, 1993 (which the Company
adopted in its 1995 fiscal year). Statement 112 establishes standards of
accounting and reporting for the estimated cost of benefits provided to former
or inactive employees. Management expects that the adoption of Statement 112
will not have a significant impact on the Company's Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
Independent Auditors' Report . . . . . . . . . . . . . . . . 31
Consolidated Balance Sheets, August 31, 1994 and 1993 . . . . 32
Consolidated Statements of Operations for each of the years in
the three-year period ended August 31, 1994 . . . . . . . . . 34
Consolidated Statements of Cash Flows for each of the years in
the three-year period ended August 31, 1994 . . . . . . . . . 35
Consolidated Statements of Capital Shares and Equities for each
of the years in the three-year period ended August 31, 1994 . 37
Notes to Consolidated Financial Statements . . . . . . . . . . 38
Financial Statement Schedules
Farmland Industries, Inc. and Subsidiaries for each
of the years in the three-year period ended August 31, 1994:
II--Amounts Receivable from Related Parties . . . . . . . . . 68
V--Property, Plant and Equipment . . . . . . . . . . . . . . . 69
VI--Accumulated Depreciation and Amortization of . . . . . . . 72
Property, Plant and Equipment
IX--Short-Term Borrowings . . . . . . . . . . . . . . . . . . 75
X--Supplementary Income Statement Information . . . . . . . . 75
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or related Notes.
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 1993, 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, 1994.
In connection with our audits of the Consolidated Financial Statements, we also
have audited the financial statement schedules as listed in the accompanying
index. These Consolidated Financial Statements and financial statement
schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these Consolidated Financial
Statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the Consolidated Financial Statements referred to above present
fairly, in all material respects, the financial position of Farmland Industries,
Inc. and subsidiaries as of August 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1994, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic Consolidated Financial Statements taken
as a whole, present fairly, in all material respects, the information set forth
therein.
As discussed in Note 7.a to the Consolidated Financial Statements, the Internal
Revenue Service (IRS) has examined the Company's tax returns for the years ended
August 31, 1984 and 1983, and has proposed certain adjustments. Should the IRS
ultimately prevail, the federal and state income taxes and statutory interest
thereon could be significant. Farmland believes it has meritorious positions
with respect to such claims and, based upon the opinion of special tax counsel,
management believes it is more likely than not that the courts will ultimately
conclude that Farmland's treatment of such items was substantially, if not
entirely, correct. The ultimate outcome of this matter can not presently be
determined. Therefore, no provision for such income taxes and interest has been
made in the accompanying Consolidated Financial Statements.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
October 21, 1994 except as to Note 7.a.,
which is as of September 5, 1995
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31
1994 1993
---------- -----------
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . $ 44,084 $ 28,373
Accounts receivable - trade . . . . . . . . . . 394,906 320,980
Inventories (Note 3) . . . . . . . . . . . . . 538,314 496,690
Other current assets . . . . . . . . . . . . . 119,139 69,357
---------- ----------
Total Current Assets . . . . . . . . . . . $ 1,096,443 $ 915,400
---------- ----------
Investments and Long-Term Receivables (Note 4) . . $ 189,601 $ 183,312
---------- ----------
Property, Plant and Equipment (Notes 5 and 6):
Property, plant and equipment, at cost . . . . . . $ 1,202,159 $ 1,154,343
Less accumulated depreciation and amortization . . 700,869 649,965
---------- ----------
Net Property, Plant and Equipment . . . . . . . $ 501,290 $ 504,378
---------- ----------
Other Assets . . . . . . . . . . . . . . . . . . . $ 139,297 116,891
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . $ 1,926,631 $ 1,719,981
========== ==========
<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 1993
-------------- ---------------
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Demand loan certificates . . . . . . . . . . . . . . . . . . . . . . $ 23,158 $ 29,860
Short-term notes payable (Note 6) . . . . . . . . . . . . . . . . . . 279,137 256,655
Current maturities of long-term debt (Note 6) . . . . . . . . . . . . 27,840 31,947
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . . 246,181 217,982
Other current liabilities (Note 9) . . . . . . . . . . . . . . . . . 229,423 118,437
-------------- ---------------
Total Current Liabilities . . . . . . . . . . . . . . . . $ 805,739 $ 654,881
-------------- ---------------
Long-Term Debt (excluding current
maturities) (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . $ 517,806 $ 485,861
-------------- ---------------
Deferred Income Taxes (Note 7) . . . . . . . . . . . . . . . . . . . . . $ 6,340 $ 2,169
-------------- ---------------
Minority Owners' Equity in Subsidiaries (Note 8) . . . . . . . . . . . . $ 11,733 $ 15,363
-------------- ---------------
Capital Shares and Equities (Note 9):
Preferred shares, $25 par value--Authorized 8,000,000 shares,
148,069 shares issued and outstanding (148,325 shares in 1993) . . . $ 3,702 $ 3,708
Common shares, $25 par value -- Authorized 50,000,000 shares,
14,542,478 shares issued and outstanding
(15,199,833 shares in 1993) . . . . . . . . . . . . . . . . . . . 363,562 379,996
Associate member common shares (nonvoting), $25 par value --
Authorized 2,000,000 shares, 370,707 shares issued and
outstanding (327,828 shares in 1993) . . . . . . . . . . . . . . . 9,268 8,196
Earned surplus and other equities . . . . . . . . . . . . . . . . . . 208,481 169,807
-------------- ---------------
Total Capital Shares and Equities . . . . . . . . . . . . $ 585,013 $ 561,707
-------------- ---------------
Contingent Liabilities and Commitments (Notes 4, 6, 7, 10 and 11)
Total Liabilities and Equities . . . . . . . . . . . . . . . . . . . . . $ 1,926,631 $ 1,719,981
============== ==============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31
--------------------------------------------------
1994 1993 1992
-------------- -------------- ---------------
(Amounts in Thousands)
<S> <C> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . $ 6,677,933 $ 4,722,940 $ 3,429,307
Cost of sales . . . . . . . . . . . . . . . . . . 6,284,084 4,470,290 3,099,316
-------------- -------------- ---------------
Gross income . . . . . . . . . . . . . . . . . . . $ 393,849 $ 252,650 $ 329,991
-------------- -------------- ---------------
Selling, general and administrative expenses . . . . . $ 305,279 $ 223,792 $ 236,065
-------------- -------------- ---------------
Other income (deductions):
Interest expense . . . . . . . . . . . . . . . . $ (51,485) $ (36,764) $ (27,965)
Interest income . . . . . . . . . . . . . . . . . 6,170 4,189 2,667
Equity in income (loss) of investees (Note 4) . . 10,878 (12,394) (2,341)
Provision for loss on disposition of assets
(Note 17) . . . . . . . . . . . . . . . . . -0- (29,430) -0-
Other, net (Note 16) . . . . . . . . . . . . . . 20,111 9,536 4,217
-------------- -------------- ---------------
$ (14,326) $ (64,863) $ (23,422)
--------------- --------------- ---------------
Income (loss) before income taxes, minority
owners' interest and extraordinary item . . . . . $ 74,244 $ (36,005) $ 70,504
Income tax (expense) benefit (Note 7) . . . . . . . . . (4,890) 6,433 (9,458)
Minority owners' interest in loss (income)
of subsidiaries . . . . . . . . . . . . . . . . . 4,522 (828) -0-
-------------- --------------- ---------------
Income (loss) before extraordinary item . . . . . . . . $ 73,876 $ (30,400 $ 61,046
Extraordinary item - Utilization of loss
carryforward (Note 7) . . . . . . . . . . . . . . -0- -0- 1,267
-------------- -------------- ---------------
Net income (loss) . . . . . . . . . . . . . $ 73,876 $ (30,400) $ 62,313
============== =============== ===============
Distribution of net income (Note 9):
Patronage refunds:
Farm supply patrons . . . . . . . . . . . . $ 59,685 $ -0- $ 16,229
Pork marketing patrons . . . . . . . . . . . 10,927 -0- 1,245
The Cooperative Finance
Association's patrons . . . . . . . . . -0- 1,650 1,482
-------------- -------------- ---------------
$ 70,612 $ 1,650 $ 18,956
Earned surplus and other equities . . . . . . . . . . . 3,264 (32,050) 43,357
-------------- --------------- ---------------
$ 73,876 $ (30,400) $ 62,313
============== =============== ===============
<FN>
See Notes to Consolidated Financial Statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
--------------------------------------------------
1994 1993 1992
-------------- -------------- ---------------
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) . . . . . . . . . . . . . . . . . . . $ 73,876 $ (30,400) $ 62,313
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization . . . . . . . . . . 62,960 57,730 50,784
Provision for loss on disposition of assets . . . -0- 29,430 -0-
(Gain) on disposition of fixed assets . . . . . . (1,794) (385) (1,181)
Patronage refunds received in equities . . . . . (2,171) (2,241) (2,320)
Proceeds from redemption of patronage equities . 573 1,731 7,727
Equity in (income) loss of investees . . . . . . (10,878) 12,394 2,341
Deferred income tax (benefit) expense . . . . . . (5,034) (3,463) 1,752
Other . . . . . . . . . . . . . . . . . . . 770 7,604 3,786
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable . . . . . . . . . . . . (12,079) (92,024) 9,095
Inventories . . . . . . . . . . . . . . . . (4,692) (65,402) (27,483)
Other assets . . . . . . . . . . . . . . . . (45,990) (30,154) 11,490
Accounts payable . . . . . . . . . . . . . . 17,884 19,630 (48,425)
Other liabilities . . . . . . . . . . . . . 32,617 (17,981) 10,722
-------------- --------------- ---------------
Net cash provided by (used in) operating activities . . $ 106,042 $ (113,531) $ 80,601
-------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Advances to borrowers by finance companies . . . . . . $ -0- $ (624,618) $ (733,403)
Collections from borrowers by finance companies . . . . -0- 631,668 685,383
Acquisition of businesses . . . . . . . . . . . . . . . (35,790) (10,500) -0-
Proceeds from disposal of investments and
notes receivable . . . . . . . . . . . . . . . . 34,577 12,115 71,582
Acquisition of investments and notes receivable . . . . (22,117) (50,378) (58,979)
Capital expenditures . . . . . . . . . . . . . . . . . (69,776) (98,238) (79,954)
Proceeds from sale of fixed assets . . . . . . . . . . 14,785 10,900 8,191
Distribution from joint venture, net . . . . . . . . . -0- -0- 29,324
Proceeds from sale of assets to
joint venture partner . . . . . . . . . . . . . . 2,310 -0- 62,104
Proceeds from disposition of subsidiary (Note 2) . . . -0- 87,227 -0-
Other . . . . . . . . . . . . . . . . . . . 5,547 (2,140) -0-
-------------- --------------- ---------------
Net cash used in investing activities . . . . . . . . . $ (70,464) $ (43,964) $ (15,752)
--------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease of demand loan certificates . . . . . . . $ (6,702) $ (13,224) $ (13,712)
Proceeds from bank loans and notes payable . . . . . . 888,088 916,799 669,608
Payments of bank loans and notes payable . . . . . . . (924,731) (777,268) (711,101)
Proceeds from issuance of subordinated
debt certificates . . . . . . . . . . . . . . . 57,636 72,423 57,780
Payments for redemption of subordinated
debt certificates . . . . . . . . . . . . . . . (33,034) (16,490) (22,557)
Payments for redemption of equities . . . . . . . . . . (3,244) (13,505) (8,046)
Payments of patronage refunds and dividends . . . . . . -0- (17,946) (12,204)
Other . . . . . . . . . . . . . . . . . . . 2,120 340 (3,853)
-------------- -------------- ----------------
Net cash provided by (used in) financing activities . . $ (19,867) $ 151,129 $ (44,085)
--------------- -------------- ----------------
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . . $ 15,711 $ (6,366) $ 20,764
Cash and cash equivalents at beginning of year . . . . 28,373 34,739 13,975
-------------- -------------- ---------------
Cash and cash equivalents at end of year . . . . . . . $ 44,084 $ 28,373 $ 34,739
============== ============== ================
SUPPLEMENTAL SCHEDULE OF CASH PAID
FOR INTEREST AND INCOME TAXES:
Interest . . . . . . . . . . . . . . . . . . . $ 38,425 $ 41,136 $ 35,626
============== ============== ===============
Income taxes (net of refunds) . . . . . . . . . . . . . $ 9,746 $ 1,479 $ 12,181
============== ============== ===============
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Equities and minority owners' interest
called for redemption . . . . . . . . . . . . . . $ 12,935 $ -0- $ 13,365
============== ============== ===============
Transfer of assets in exchange for
investment in joint ventures . . . . . . . . . . $ 309 $ -0- $ 63,911
============== ============== ===============
Issuance of Farmland equities to minority owners'
of Foods . . . . . . . . . . . . . . . . . . . $ -0- $ -0- $ 16,680
============== ============== ===============
Appropriation of current year's net income
as patronage refunds . . . . . . . . . . . . . . $ 70,612 $ -0- $ 18,956
============== ============== ===============
Acquisition of businesses:
Fair value of net assets acquired . . . . . . . . $ 35,539 $ 1,414 $ 30,321
Goodwill . . . . . . . . . . . . . . . . . . . 1,094 16,086 20,976
Minority owners' investment . . . . . . . . . . . (843) (7,000) -0-
--------------- -------------- ---------------
$ 35,790 $ 10,500 $ 51,297
============== ============== ===============
<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, 1994, 1993 and 1992
-------------------------------------------------------------
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, 1991 . . . . . . . . . $ 3,733 $ 330,646 $ 7,680 $ 155,305 $ 497,364
Issue, redemption and cancellation of equities (20) 44,297 (15) 13 44,275
Appropriation of current year's net income . -0- -0- -0- 62,313 62,313
Transfers to current liabilities . . . . . . -0- (12,045) (6) (19,329) (31,380)
Transfers from minority owners' equity . . . -0- 5,570 -0- 10,072 15,642
Dividends on preferred stock . . . . . . . . -0- -0- -0- (5) (5)
Distribution to farm supply patrons in common
stock, associate member common stock
and other equities . . . . . . . . . . -0- 15,807 873 (16,760) (80)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (7,892) (356) 8,248 -0-
----------- ----------- ---------- ---------- ----------
BALANCE AT AUGUST 31, 1992 . . . . . . . . . $ 3,713 $ 376,383 $ 8,176 $ 199,857 $ 588,129
Issue, redemption and cancellation of equities (5) 6,740 (49) (1,058) 5,628
Appropriation of current year's net loss . . -0- -0- -0- (30,400) (30,400)
Transfers to current liabilities . . . . . . -0- -0- -0- (1,650) (1,650)
Exchange of common stock, associate member
common stock and other equities . . . . -0- (3,127) 69 3,058 -0-
----------- ----------- ----------- ----------- ----------
BALANCE AT AUGUST 31, 1993 . . . . . . . . . $ 3,708 $ 379,996 $ 8,196 $ 169,807 $ 561,707
Issue, redemption and cancellation of equities (6) (364) 17 (3,475) (3,828)
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 . . . . . . . . -0- -0- -0- (3,362) (3,362)
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
========== =========== =========== ========== ===========
<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. ("Farmland"), 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 and all its majority-owned subsidiaries (the
"Company"). All significant intercompany accounts and transactions have been
eliminated.
Cash and Cash Equivalents -- Investments with maturities of less than three
months are included in "Cash and cash equivalents."
Investments -- Investments in companies 20% to 50% owned are accounted for
by the equity method. Other investments are stated at cost.
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 Farmland common stock 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. When
practicable, the Company hedges certain inventories, advance sales and purchase
contracts with fixed prices and anticipated purchases of raw materials.
Property, Plant and Equipment -- These assets are stated at cost and
depreciated principally on a straight-line basis over the estimated useful life
of the individual assets (3 to 40 years). Leasehold improvements are amortized
on a straight-line basis over the terms of the individual leases (15 to 21
years).
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.
Sales -- The Company's policy is to recognize sales at the time product is
shipped. Net margins on international grain merchandised and sales commissions
on brokered agricultural chemicals, rather than the value of such products, are
included in net sales.
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.
Research and Development Costs -- Total research and development costs for
the Company for the years ended August 31, 1994, 1993 and 1992 were $2,702,000,
$3,303,000 and $3,338,000, respectively.
Federal Income Taxes -- Farmland and its cooperative subsidiaries are
subject to income taxes on all income not distributed to patrons as patronage
refunds. Farmland and all its subsidiaries file consolidated federal and state
income tax returns. Effective September 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." The
Company accounted for income taxes using the deferred method under APB Opinion
11 for the year ended August 31, 1993 and 1992.
(2) Acquisitions and Dispositions
Effective June 30, 1992, Farmland acquired substantially all the business
and assets of Union Equity Co-Operative Exchange ("Union Equity") in exchange
for 2,051,880 shares of Farmland common stock with a par value of $51,297,000
and Farmland's assumption of substantially all of Union Equity's liabilities.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Union Equity have been included in the Company's
Consolidated Financial Statements from June 30, 1992. The excess of the
purchase price over the fair value of the net identifiable assets acquired
($20,976,000) has been recorded as goodwill and is being amortized on a
straight-line basis over 25 years.
During 1993, Farmland and partners organized NBPC. Farmland retained a 58%
ownership interest in NBPC by investing $10,500,000 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
$130,605,000 (including bank loans which are nonrecourse to NBPC's partners).
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of NBPC have been included in the Company's Consolidated
Financial Statements from April 15, 1993. The liabilities assumed over the fair
value of the net identifiable assets acquired 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 10,113,000
shares of its voting common stock from Farmland for a purchase price comprised
of $1,541,000 in cash, equities of Farmland (with a par value of $2,406,000)
held by CFA and a $6,166,000 subordinated promissory note payable to Farmland
bearing interest of 5.3%. In addition, during 1993, CFA: 1) repaid its
operating loan from Farmland ($25,181,000); and, 2) purchased the lending
operations and assets of Farmland Financial Services Company for a cash payment
of $60,505,000 and a $2,128,000, 6% subordinated note payable to Farmland.
Farmland repaid $87,227,000 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, Farmland'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 the years ended August
31, 1993 and 1992, presents pro forma results of operations of the Company as if
the disposition of CFA and the acquisitions of Union Equity and NBPC had
occurred at the beginning of each period presented. The pro forma financial
information includes adjustments for amortization of goodwill, additional
depreciation expense and increased interest expense on debt assumed in the
acquisitions. The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had the Company been a single
entity which excluded CFA and included Union Equity and NBPC for the full years
1993 and 1992.
<TABLE>
<CAPTION>
August 31 (Unaudited)
------------------------
1993 1992
----------- ----------
(Amounts in Thousands)
<S> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $ 5,357,867 $ 5,441,303
=========== ===========
Income (loss) before extraordinary item . . $ (44,040) $ 47,225
=========== ===========
</TABLE>
In October 1993, the Company acquired approximately 53% of the common stock
of National Carriers, Inc. ("NCI") and increased its ownership of NCI to 79% in
August 1994. NCI is a trucking company located in Liberal, Kansas. NCI
provides substantially all the trucking service needs of NBPC. The purchase
price of NCI ($4,423,000) was paid in cash.
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 ($31,367,000) 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 1993
----------- ----------
(Amounts in Thousands)
<S> <C> <C>
Grain . . . . . . . . . . . . . . . . . . $ 136,353 $ 91,990
Beef . . . . . . . . . . . . . . . . . . 24,267 27,754
Materials . . . . . . . . . . . . . . . . . 51,428 43,857
Supplies . . . . . . . . . . . . . . . . . 39,885 41,388
Finished and in-process products . . . . . 286,381 291,701
----------- ----------
$ 538,314 $ 496,690
=========== ===========
</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 1993 were $86,179,000 and $84,088,000, respectively. Had the lower of
first-in, first-out ("FIFO") cost or market been used to value these products,
the carrying values of inventories at August 31, 1994 and 1993 would have been
lower by $4,145,000 and $5,754,000, respectively.
Net income for 1994, 1993 and 1992 was $1,609,000 lower, $4,119,000 higher
and $1,935,000 lower, respectively, as a result of using LIFO as compared with
FIFO, including a $3,164,000 recovery in 1994 of an $8,346,000 lower of cost or
market adjustment in 1993. Liquidation of prior year inventory layers in 1992
reduced income before income taxes and patronage refunds by $3,302,000.
The carrying values of beef inventories stated under LIFO at August 31,
1994 and 1993 were $24,267,000 and $27,754,000, respectively. The LIFO method
of accounting for beef inventories had no effect on the carrying value of
inventories or on the results reported in 1994 and 1993, as market value of
these inventories was lower than LIFO or FIFO cost.
(4) Investments and Long-Term Receivables
<TABLE>
Investments and long-term receivables are as follows:
<CAPTION>
August 31
-----------------------
1994 1993
---------- ----------
(Amounts in Thousands)
<S> <C> <C>
Investments accounted for by the equity method $ 52,478 $ 37,456
Notes receivable from ventures, 20% to 50% owned 48,955 60,204
National Bank for Cooperatives . . . . . . . . 28,786 31,824
Investments in and advances to other cooperatives 42,662 37,690
Other investments and long-term receivables . . 16,720 16,138
---------- ----------
$ 189,601 $ 183,312
=========== ==========
</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, Farmland's investment in CoBank approximated
its requirement. This investment has been pledged to secure borrowings from
CoBank under the syndicated loan agreement.
<TABLE>
Summarized financial information of investees accounted for by the equity
method is as follows:
<CAPTION>
August 31
------------------------
1994 1993
----------- ----------
(Amounts in Thousands)
<S> <C> <C>
Current Assets . . . . . . . . . . . . $ 105,981 $ 66,532
Long-Term Assets . . . . . . . . . . . 252,704 223,937
----------- ----------
Total Assets . . . . . . . . . . . . $ 358,685 $ 290,469
Current Liabilities . . . . . . . . . . $ 111,077 $ 79,224
Long-Term Liabilities . . . . . . . . . 144,255 141,991
----------- ----------
Total Liabilities . . . . . . . . . $ 255,332 $ 221,215
Net Assets . . . . . . . . . . . . . . $ 103,353 $ 69,254
=========== ===========
<CAPTION>
Year Ended August 31
------------------------------
1994 1993 1992
-------- -------- -------
(Amounts in Thousands)
<S> <C> <C> <C>
Net sales . . . . . . . . . . . $ 803,516 $ 601,194 $ 218,913
========= ========= ========
Net income (loss) . . . . . . . $ 24,285 $ (22,755) $ (5,046)
========= ========= ========
Farmland's equity in net
income (loss) . . . . . . . . $ 10,878 $ (12,394) $ (2,341)
========= ========= ========
</TABLE>
The Company's investments accounted for by the equity method consist
principally of 50% equity interests in Hyplains Beef, L.L.C. and in two
p h o s phate fertilizer manufacturing ventures (Farmland Hydro, L.P. and
SF Phosphates Limited Company).
On November 15, 1991, Farmland and Norsk Hydro a.s. ("Hydro") formed a
joint venture company, Farmland Hydro, to manufacture phosphate fertilizer
products for distribution to international markets. As part of the joint
venture agreement, Farmland sold a 50% interest in its Green Bay, Florida
phosphate fertilizer plant and certain phosphate rock reserves located in Hardee
County, Florida to Hydro for an amount approximately equal to Farmland's
carrying value of the assets. Subsequently, Farmland and Hydro contributed the
assets to the joint venture. Farmland operates the plant under a management
agreement with the joint venture and Hydro provides international marketing
services. See Note 15 of the Notes to Consolidated Financial Statements.
Farmland and J. R. Simplot formed a joint venture (SF Phosphates, Limited
Company) to operate a phosphate mine located in Vernal, Utah, a fertilizer plant
located in Rock Springs, Wyoming, and a 96-mile pipeline that connects the mine
with the fertilizer plant. The purchase of the mine, plant and pipeline from
Chevron Corporation was completed in April 1992.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities," was issued by the Financial
Accounting Standards Board ("FASB") in May 1993 and is effective for fiscal
years beginning after December 15, 1993 (the Company's 1995 fiscal year).
Statement 115 expands the use of fair value accounting and the reporting for
certain investments in debt and equity securities. In the opinion of
management, the adoption of Statement 115 will not have a significant impact on
the Company's Consolidated Financial Statements.
(5) Property, Plant and Equipment
<TABLE>
A summary of cost for property, plant and equipment is as follows:
<CAPTION>
August 31
-----------------------
1994 1993
---------- -----------
(Amounts in Thousands)
<S> <C> <C>
Land and improvements . . . . . . . . . . . . . $ 13,614 $ 11,825
Site improvements . . . 28,647 26,877
Buildings . . . . . . . . . . . . . . . . . . . 224,767 215,420
Machinery and equipment . . . . . . . . . . . . 716,683 678,784
Automotive equipment . . . . . . . . . . . . 65,986 46,807
Furniture and fixtures . . . . . . . . . . . . 48,613 45,405
Livestock . . . . . . . . . . . . . . . . . . . 3,926 4,373
Mining properties . . . . . . . . . . . . . . . 3,119 3,119
Leasehold improvements . . . . . . . . . . . . 15,085 12,149
Capital lease . . . . . . . . . . . . . . . . . 50,956 52,342
Construction in progress . . . . . . . . . . . 30,763 57,242
--------- ----------
$1,202,159 $1,154,343
========== ==========
</TABLE>
For the years ended August 31, 1994, 1993 and 1992, the Company capitalized
construction period interest of $357,000, $1,611,000 and $330,000, 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 1993
---------- ----------
(Amounts in Thousands)
<S> <C> <C>
National Bank for Cooperatives
--5.61% to 9.2%, maturing 1995 through 2001 . . $ 74,278 $ 66,098
Other bank notes--5.74% to 7.75%,
maturing 1995 through 2001 . . . . . . . . . . 117,813 138,244
Subordinated certificates of investment
and capital investment
certificates--7.25% to 10.5%,
maturing 1995 through 2014 . . . . . . . . . . 210,054 192,857
Subordinated monthly interest certificates
--7.25% to 12%, maturing 1995 through 2014 . . 70,057 62,913
Industrial revenue bonds--5.75% to 8.0%,
maturing 1995 through 2007 . . . . . . . . . . 25,055 27,880
Promissory notes--7% to 10%,
maturing 1995 through 2001 . . . . . . . . . . 18,684 13,805
Other--5% to 13% . . . . . . . . . . . . . . . . . 29,705 16,011
---------- ----------
$ 545,646 $ 517,808
Less current maturities . . . . . . . . . . . . . . 27,840 31,947
---------- ----------
$ 517,806 $ 485,861
========== ==========
</TABLE>
In 1994, Farmland entered into a $650,000,000 syndicated credit facility
provided by eight domestic and international banking institutions. This
agreement provides short-term credit of up to $450,000,000 to finance seasonal
operations and inventory, and revolving term credit of up to $200,000,000. At
August 31, 1994, short-term borrowings under this facility were $217,399,000,
revolving term borrowings were $95,000,000 and $62,600,000 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 $150,000,000, consolidated net worth of not
less than $475,000,000 and funded indebtedness and senior funded indebtedness of
not more than 52% and 43% of capitalization, respectively. All computations are
b a s e d on consolidated financial data adjusted to exclude nonrecourse
subsidiaries (as defined in the credit agreement). Computed in accordance with
the agreement, at August 31, 1994, working capital was $207,383,000, net worth
was $585,013,000 and funded indebtedness and senior funded indebtedness were
47.03% and 23.34% of capitalization, respectively.
Farmland and subsidiaries maintain other borrowing arrangements with banks
and financial institutions. Under such agreements, at August 31, 1994,
$35,495,000 was borrowed from banks and letters of credit issued by banks
amounted to $2,200,000. Financial covenants of these arrangements are not more
restrictive than the Company's syndicated credit facility.
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 August 31, 1994, NBPC's available bank credit of $61,596,000 had
been borrowed. All assets of NBPC (carried at $150,409,000) are pledged to
support its borrowings. At August 31, 1994, Farmland had issued letters of
credit in the amount of $15,000,000 to support NBPC's bank credit agreements.
Tradigrain 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 the Company.
The subordinated debt certificates have been issued under several different
indentures. Farmland may redeem subordinated certificates of investments and
capital investment certificates in advance of scheduled maturities. Farmland
m a y redeem subordinated certificates of investments, capital investment
certificates and subordinated monthly interest certificates upon death of the
holder.
The outstanding subordinated debt certificates are subordinated to senior
indebtedness. At August 31, 1994, senior indebtedness included $450,827,000 for
money borrowed, and other instruments (principally long-term operating leases)
provide for aggregate payments over nine years of approximately $126,505,000.
Under industrial revenue bonds and other agreements, property, plant and
equipment with a carrying value of $29,267,000 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)
1995 . . . . . . . . . . . . . . . . . . $ 27,840
1996 . . . . . . . . . . . . . . . . . . 44,884
1997 . . . . . . . . . . . . . . . . . . 182,996
1998 . . . . . . . . . . . . . . . . . . 54,057
1999 . . . . . . . . . . . . . . . . . . 32,921
2000 and after . . . . . . . . . . . . . 202,948
----------
$ 545,646
==========
(7) Income Taxes
a. Terra Resources, Inc.
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 the $237.2 million gain resulting
from its sale 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 and that Farmland was not
entitled to a claimed intercorporate dividends-received deduction with respect
to a $24.8 million distribution received in 1983 from Terra.
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. Prior to trial, the IRS withdrew its challenge to Farmland's
claimed intercorporate dividends-received deduction and several other minor
issues were resolved. The parties will submit post-trial briefs to the court in
September and 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 $173.4 million,
before tax benefits of the interest deduction, through June 30, 1995), or $259.2
million in the aggregate at June 30, 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
f i nancing 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. 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, 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.
b. Other Income Tax Matters
The Company adopted FASB Statement 109 effective September 1, 1993. The
cumulative effect of this change in accounting for income taxes was immaterial.
Prior years' financial statements have not been restated to apply the provisions
of Statement 109.
<TABLE>
Income tax expense (benefit) attributable to income from continuing
operations is comprised of the following:
<CAPTION>
Year Ended August 31
----------------------------------
1994 1993 1992
-------- ------- --------
(Amounts in Thousands)
<S> <C> <C> <C>
Federal:
Current . . . . . . . . . . $ 10,076 $ (2,502) $ 6,600
Deferred . . . . . . . . . (3,217) (2,944) 1,490
--------- -------- --------
$ 6,859 (5,446) $ 8,090
-------- -------- --------
State:
Current . . . . . . . . . . $ 1,965 $ (468) $ 1,106
Deferred . . . . . . . . . (755) (519) 262
--------- -------- --------
$ 1,210 $ (987) $ 1,368
-------- -------- --------
Foreign:
Current . . . . . . . . . . $ (2,117) $ -0- $ -0-
Deferred . . . . . . . . . (1,062) -0- -0-
--------- ------- --------
$ (3,179) $ -0- $ -0-
--------- ------- --------
$ 4,890 $ (6,433) $ 9,458
========= ======== ========
</TABLE>
<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 and 1992), as follows:
<CAPTION>
Year Ended August 31
------------------------------
1994 1993 1992
------- -------- --------
<S> <C> <C> <C>
Computed "expected" income tax
expense (benefit)
on income (loss) before
income taxes 35.0 % (34.0) % 34.0 %
Increase (reduction) in income
tax expense (benefit)
attributable to:
Patronage refunds . . . . . . . . . . . (33.3) (4.0) (9.2)
Utilization of member-sourced losses . -0- -0- (11.4)
Patronage-sourced items for
which no benefit is available . . -0- 26.5 -0-
State income tax expense (benefit)
net of
federal income tax effect . . . . . 1.1 (2.2) 1.2
Benefit associated with exempt income of
foreign sales corporation . . . . . -0- (1.4) (1.5)
Other, net . . . . . . . . . . . . . . 3.8 (2.7) .3
------ ------ ------
Income tax expense (benefit) . . . . . . . 6.6 % (17.8) 13.4 %
====== ====== ======
</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
is as follows:
August 31, 1994
------------
(Amounts in Thousands)
Deferred tax liabilities:
Property, plant and equipment principally
due to differences in depreciation . . . $ 20,242
Prepaid pension cost . . . . . . . . . . . 21,124
Other . . . . . . . . . . . . . . . . . . . 14,021
----------
Total gross deferred liabilities . . . . $ 55,387
----------
Deferred tax assets:
Safe harbor leases . . . . . . . . . . . . $ 5,391
Accrued expenses . . . . . . . . . . . . . 27,017
Accounts receivable, principally due to
allowance for doubtful accounts . . . . 4,394
Other . . . . . . . . . . . . . . . . . . . 12,245
----------
Total gross deferred assets . . . . . . $ 49,047
----------
Net deferred tax liability . . . . . . . . . . $ 6,340
==========
A valuation allowance for deferred tax assets was not necessary at August
31, 1994.
The significant components of deferred income tax benefit attributable to
income from continuing operations for the year ended August 31, 1994 are as
follows:
August 31, 1994
------------
(Amounts in Thousands)
Deferred tax benefit . . . . . . . . . . . . . $ (8,044)
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
----------
$ (5,034)
===========
<TABLE>
Deferred income taxes for the year ended August 31, 1993 and 1992 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 August 31
1993 1992
----------- ----------
(Amounts in Thousands)
<S> <C> <C>
Depreciation . . . . . . . . . . . . . . . $ 473 $ 1,562
Safe harbor lease rentals . . . . . . . . . (378) (478)
Provision for loss on proposed sale of assets (3,454) -0-
Unfunded pension expense . . . . . . . . . (355) (129)
Reinstatement of deferred income taxes previously
offset by net operating loss carryforward
for financial reporting purposes . . . -0- 1,294
Other, net . . . . . . . . . . . . . . . . 251 (497)
----------- -----------
$ (3,463) $ 1,752
=========== ===========
</TABLE>
At August 31, 1994, Farmland and its consolidated subsidiaries have
alternative minimum tax credit carryforwards of approximately $7,025,000.
The tax benefit for the year ended August 31, 1993 results from the
carryback of nonpatronage-sourced losses to reduce the amount of federal and
state income taxes paid during prior years.
During the year ended August 31, 1994, Farmland utilized nonmember-sourced
loss carryforwards amounting to $7,525,000 to reduce goodwill for financial
reporting purposes by $3,010,000.
During the year ended August 31, 1992, all of Foods' nonmember-sourced loss
carryforwards were utilized and deferred income taxes amounting to $1,294,000
were reinstated. During the year ended August 31, 1992, Farmland utilized
nonmember-sourced loss carryforwards amounting to $3,168,000 to reduce income
tax expense for financial reporting purposes by $1,267,000. Utilization of
these loss carryforwards has been presented as an extraordinary item in the
accompanying consolidated statement of operations for the year ended August 31,
1992.
In connection with the acquisition of Union Equity, Farmland acquired
member-sourced and nonmember-sourced loss carryforwards from Union Equity
amounting to approximately $18,600,000 and $10,600,000, respectively. For the
year ended August 31, 1992, Farmland was able to utilize member-sourced and
nonmember-sourced loss carryforwards amounting to $18,600,000 and $2,800,000,
respectively. The benefit of the utilization of the nonmember-sourced loss
carryforward amounting to $1,134,000 has been recorded as a reduction of
goodwill in the accompanying consolidated balance sheet as of August 31, 1992.
See Note 2 of the Notes to Consolidated Financial Statements.
(8) Minority Owners' Equity in Subsidiaries
<TABLE>
A summary of the equity of subsidiaries owned by others is as follows:
<CAPTION>
August 31
---------------------
1994 1993
-------- --------
(Amounts in Thousands)
<S> <C> <C>
Farmland Foods, Inc. . . . . . . . . . . . . . . $ 5,618 $ 6,401
National Beef Packing Company, L.P. and G.P. . . 2,925 7,865
Heartland Wheat Growers, L.P. and G.P. . . . . . 2,100 -0-
Other subsidiaries . . . . . . . . . . . . . . . 1,090 1,097
-------- --------
$ 11,733 $ 15,363
======== ========
</TABLE>
(9) Preferred Stock, Earned Surplus and Other Equities
<TABLE>
A summary of preferred stock is as follows:
<CAPTION>
August 31
---------------------
1994 1993
-------- --------
(Amounts in Thousands)
<S> <C> <C>
Preferred shares, $25 par value -
Authorized 8,000,000 shares:
6% - 608 shares issued and outstanding
(624 shares in 1993) . . . . . . . . . . . . $ 15 $ 15
5-1/2% - 2,592 shares issued and outstanding
(2,832 shares in 1993) . . . . . . . . . . . 65 71
Series F - 144,869 shares issued and outstanding
(144,869 shares in 1993) . . . . . . . . . . 3,622 3,622
-------- --------
$ 3,702 $ 3,708
======== ========
</TABLE>
The 5-1/2% and 6% preferred stocks have preferential liquidation rights
over the Series F preferred stock. Dividends on the 5-1/2% and 6% preferred
stock are cumulative if declared by the Farmland Board of Directors and only to
the extent earned each year. Series F preferred stock is nondividend bearing.
Upon liquidation, holders of all preferred stock are entitled to the par value
thereof and, with respect to the 5-1/2% and 6% preferred stock, any declared or
unpaid earned dividends.
<TABLE>
A summary of earned surplus and other equities is as follows:
<CAPTION>
August 31
---------------------
1994 1993
-------- ----------
(Amounts in Thousands)
<S> <C> <C>
Earned surplus . . . . . . . . . . . . . . . . $ 130,250 $ 123,974
Patronage refund payable in equities . . . . . 44,032 -0-
Nonmember capital . . . . . . . . . . . . . . . 103 104
Capital credits . . . . . . . . . . . . . . . . 32,547 38,105
Unallocated equity . . . . . . . . . . . . . . -0- 6,021
Additional paid-in surplus . . . . . . . . . . 1,603 1,603
Currency translation adjustment . . . . . . . . (54) -0-
----------- ----------
$ 208,481 $ 169,807
=========== ==========
</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. The bylaws provide that the amount of the
patronage refund payable be reduced if immediately after the payment of such
patronage refund, the amount of earned surplus would be less than 30% of the
previous year-end balance of members' equity accounts (defined for this purpose
as the sum of common stock, associate member common stock, capital credits,
nonmember capital and patronage refunds payable in equities). The reduction of
patronage refunds is limited to the lesser of 15% or the amount required to
increase the balance of the earned surplus account to the required 30%. As of
August 31, 1994 and 1993, earned surplus exceeded the required amount by
approximately $2,329,000 and $3,874,000, respectively. The patronage refund
payable for 1994 is $70,584,000. The cash portion is $26,552,000 and is
included in "Other current liabilities" in the consolidated balance sheet at
August 31, 1994. The balance ($44,032,000) of the patronage refund is payable
in equities of Farmland and is included in the consolidated balance sheet as
"Earned surplus and other equities." No patronage refunds were paid by Farmland
for 1993. The patronage refund for 1992 was $17,449,000, all of which was paid
in cash.
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 par value of Farmland equity 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 par value of the Participant's
investment exceeds the Participant's Base Capital Requirement. This plan
provides that the relationship between the par value of a Participant's
investment in Farmland 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, common stock and
associate member common stock with a par value of $8,740,000 have been 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.
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 a special equity redemption plan 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, certain equities of Farmland with a face amount of
$3,448,000 and capital equity fund certificates held by certain members of
Farmland Foods, Inc. in the amount of $747,000 have been approved by the Board
of Directors for redemption under the estate settlement and special equity
redemption plan. Accordingly, such amounts have been included in "Other current
liabilities" in the consolidated balance sheet at August 31, 1994.
Nonmember capital represents patronage refunds distributed in the form of
book credits.
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.
Unallocated equity represents the cumulative difference between the amount
of member-sourced income for financial reporting and income tax reporting
purposes.
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 the years ended August 31, 1994, 1993 and 1992, rental
expenses totaled $41,794,000, $41,104,000 and $43,300,000, respectively. Rental
expense is reduced for mileage credits received on leased railroad cars
($1,866,000 in 1994, $1,939,000 in 1993 and $663,000 in 1992).
The leases have various remaining terms ranging from one year to fifteen
years. Some leases are renewable, at Farmland's option, for additional periods.
The minimum amount Farmland must pay for these leases during the fiscal years
ending August 31 are as follows:
(Amounts in Thousands)
1995 . . . . . . . . . . . . $ 49,883
1996 . . . . . . . . . . . . 40,275
1997 . . . . . . . . . . . . 36,154
1998 . . . . . . . . . . . . 29,440
1999 . . . . . . . . . . . . 22,209
2000 and after . . . . . . . 69,008
--------
$ 246,969
========
Farmland and its subsidiaries are involved in various lawsuits incidental
to the businesses. In the opinion of management, the ultimate resolution of
these litigation issues will not have a material adverse effect on the Company's
Consolidated Financial Statements.
The Company has certain throughput agreements, take-or-pay agreements,
minimum quantity agreements, and minimum charge agreements for various raw
material supplies and services through 1996. The Company's minimum obligations
under such agreements are $1,248,000 in 1995 and $924,000 in 1996.
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 $7,164,000 and such amount has been
accrued.
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, 1994. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $32,000,000.
CFA has loans receivable from customers engaged in pork production
operations and from cooperative associations which are guaranteed by Farmland.
At August 31, 1994, such guarantees amounted to $5,868,000. In addition,
Farmland has issued letters of credit to support borrowing arrangements of a
subsidiary as described in Note 6.
At August 31, 1994, the Company was committed to expenditures for
acquisition and completion of construction of plant and equipment aggregating
approximately $19,000,000.
(11) Employee Benefit Plans
The Farmland Industries, Inc. Employee Retirement Plan ("the Plan") is a
defined benefit plan covering substantially all employees of Farmland and its
subsidiaries who meet minimum age and length-of-service requirements. Benefits
payable under the Plan are based on years of service and the employee's average
compensation during the highest four of the employee's last ten years of
employment.
The 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.
<TABLE>
The Company charges pension cost as accrued based on actuarial valuation of
the Plan.
Components of the Company's pension cost are as follows:
<CAPTION>
August 31
------------------------------
1994 1993 1992
------- -------- --------
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned
during the period . . . . . . . . . $ 8,663 $ 7,449 $ 6,519
Interest cost on projected
benefit obligation . . . . . . . . . 15,292 12,134 11,332
Actual return on Plan assets . . . . . (10,949) (15,842) (20,591)
Net amortization and deferral . . . . (7,860) (374) 4,027
-------- --------- --------
Pension expense . . . . . . . . . . $ 5,146 $ 3,367 $ 1,287
======= ======== ========
</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 at August 31, 1994 were 8.0% and 4.5%, respectively (8.5% and 5% at
August 31, 1993, and 9% and 5% at August 31, 1992, respectively). The expected
long-term rate of return on assets at August 31, 1994, 1993 and 1992 were 8.5%,
8.5% and 9%, respectively.
<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
1993. Such prepaid pension cost is based on the Plan's funded status as of May
31, 1994 and 1993.
<CAPTION>
August 31
-----------------------
1994 1993
---------- ----------
(Amounts in Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits . . . . . . . . . . . . . . . . $ 148,648 $ 123,061
Nonvested benefits . . . . . . . . . . . . . . 9,163 7,102
---------- ---------
Accumulated benefit obligation . . . . . . . . $ 157,811 $ 130,163
Increase in benefits due to future
compensation increases . . . . . . . . . . . 53,533 51,633
---------- ----------
Projected benefit obligation . . . . . . . . . $ 211,344 $ 181,796
Estimated fair value of Plan assets . . . . . . 226,681 212,647
---------- ----------
Plan assets in excess of projected
benefit obligation . . . . . . . . . . . . . $ 15,337 $ 30,851
Unrecognized net loss from past experience different
from that assumed and effects of changes
in assumptions . . . . . . . . . . . . . . 37,332 21,754
Unrecognized net transition asset being
recognized over 10 years . . . . . . . . . (933) (1,866)
Unrecognized prior service cost . . . . . . . . 1,308 2,590
---------- ----------
Prepaid pension cost at end of year . . . . . . . . $ 53,044 $ 53,329
========== ==========
</TABLE>
The Company provides group life insurance benefits for retired employees
who were hired before January 1, 1988 and reach normal retirement age while
working for the Company. Prior to 1994, the Company charged operations for the
amount of an annual insurance premium paid for group life insurance covering
both retired and active employees. In 1994, the cost of providing group life
insurance for retired employees was not separable from the cost of providing
group life insurance for active employees. For the years ended August 31, 1993
and 1992, such insurance premium were $1,178,000 and $783,000, respectively.
In fiscal year 1994, the Company adopted Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and the effect was insignificant.
Statement of Financial Accounting Standards No. 112, "Employer's Accounting
for Postemployment Benefits," was issued by the FASB in November 1992 and is
effective for fiscal years beginning after December 15, 1993 (the Company's 1995
fiscal year). Statement 112 establishes standards of accounting and reporting
for the estimated cost of benefits provided to former or inactive employees.
Management expects that the adoption of Statement 112 will not have a
significant impact on the Company's Consolidated Financial Statements.
(12) Industry Segment Information
The Company's business is conducted within three general operating areas:
cooperative farm supply operations, cooperative marketing operations and other
operations. As a farm supply cooperative, the Company engages in manufacturing
and wholesale distribution of input products of agricultural production. The
Company's principal farm supply products are petroleum, crop production and
feed.
Petroleum products include gasoline, distillate, diesel fuel, propane, lube
oils, grease and automotive parts and accessories. Products in the crop
production area include nitrogen, phosphate and potash fertilizers, herbicides,
insecticides and other farm chemicals. Feed products include a complete line of
formulated feeds. Supply products are sold primarily at wholesale to local farm
cooperatives.
Marketing operations include pork and beef processing, marketing and the
distribution of fresh meat products, ham, bacon, sausage, deli meats, Italian
specialty meats and boxed beef, and the marketing and storage of grain.
Other operations include convenience fuel and food stores, farm supply
stores, finance company operations and services such as accounting, financial,
management, environmental and safety, and transportation. See Note 2 of the
Notes to Consolidated Financial Statements.
The operating income (loss) of each industry segment includes the revenue
generated on transactions involving products within that industry segment less
identifiable and allocated expenses. In computing operating income (loss) of
industry segments none of the following items has 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. Operating income (loss) of industry segments for the years
ended August 31, 1993 and 1992 have been restated for comparative purposes to
exclude certain costs which were not identified to business segments in 1994 but
which were identified to business segments in 1993 and 1992. Corporate assets
include cash, investments in other cooperatives, the corporate headquarters of
Farmland and certain other assets.
<TABLE>
Following is a summary of industry segment information as of and for the
years ended August 31, 1994, 1993 and 1992:
<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>
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- -0- (19,435) -0-
--------- ---------- -------- ---------- ---------- --------- --------- ---------
Total sales and
transfers . . . . . . . $860,322 $1,172,870 $529,936 $2,358,606 $1,627,156 $148,478 $ (19,435) $6,677,933
=========== ========== ======= ======== ========== ========= =========== ========
Operating income
(loss) of industry
segments . . . . . . $ 27,172 $ 126,047 $ 17,019 $ 20,634 $ (33,455) $ (2,368) $ 155,049
Equity in income (loss)
of investees (Note 4) $ (41) $ 15,466 $ 155 $ (4,404) $ -0- $ (298) $ 10,878
General corporate expenses (66,479)
Other corporate income 26,281
Interest expense . . . (51,485)
Minority interest . . . 4,522
-------------
Income before income
taxes and
extraordinary item . $ 78,766
==========
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 $ -0- $ 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 $16,888,000
of capital assets
of business acquired) $ 14,399 $ 14,136 $ 4,508 $ 19,040 $ 6,256 $ 26,051 $ 2,274 $ 86,664
========= ========= ======== ========= ========== ======= ========= ==========
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 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) (3,253) (29,430)
General corporate
expenses . . . . . . (57,721)
Other corporate income 13,725
Interest expense . . . (36,764)
Minority interest . . . (828)
----------
(Loss) before income
taxes and
extraordinary item . $ (36,833)
Identifiable assets at
August 31, 1993 . . . $308,731 $ 324,956 $ 94,948 $ 391,152 $ 254,734 $ 5,986 $1,410,507
====== ========== ======= =========== ========= ========
Investment in and advances to
investees . . . . . . $ 526 $ 72,166 $ 1,572 $ 18,686 - $ 3,553 $ 1,606 $ 98,109
Corporate assets . . . 211,365
----------
Total assets . . . . . $1,719,981
Provision for depreciation and
amortization . . . . $ 13,546 $ 13,843 $ 4,487 $ 10,807 $ 2,637 $ 3,369 $ 9,041 $ 57,730
======= ========== ======= =========== ======== ======= ======== ==========
Capital expenditures
(including
$48,362,000 of
capital assets
of business acquired) $ 35,629 $ 17,972 $ 6,590 $ 73,561 $ 1,894 $ 3,613 $ 7,341 $ 146,600
======= ========== ======= ========== ========== ======= ======= ===========
1992
Sales to unaffiliated
customers . . . . . . $979,542 $ 897,820 $445,338 $ 850,103 $ 155,169 $101,335 $ -0- $3,429,307
Transfers between
segments . . . . . . 5,727 9,744 2,531 4,064 -0- -0- (22,066) -0-
-------- ---------- -------- ---------- -------- ------- -------- ----------
Total sales and
transfers . . . . . .$985,269 $ 907,564 $447,869 $ 854,167 $ 155,169 $101,335 $(22,066) $3,429,307
======= ========== ======== ========== ========== ======== ========= ===========
Operating income (loss)
of industry segments $ 8,241 $ 111,907 $ 21,346 $ 25,162 $ (726) $ (5,018) $ 160,912
======= ========== ======= ========== ========== ======== =========
Equity in loss of investees
(Note 4) . . . . . . $ (31) $ (1,362) $ 15 $ (963) $ (2,341)
General corporate expenses (66,982)
Other corporate income 6,880
Interest expense . . . (27,965)
----------
Income before income taxes
and extraordinary item $ 70,504
Identifiable assets at
August 31, 1992 . . . $289,021 $ 313,943 $ 76,300 $ 201,726 $ 173,376 $207,274 $1,261,640
======== ========== ======== ========= ========== ========
Investment in and advances
to investees . . . . $ 139 $ 66,899 $ 1,143 $ 6,004 $ 1,197 $ 4,408 $ 79,790
Corporate assets . . . 184,962
---------
Total assets . . . . . $1,526,392
Provision for depreciation
and amortization . . . $ 12,269 $ 14,888 $ 3,013 $ 9,051 $ 613 $ 4,513 $ 6,437 $ 50,784
======== ========== ======= =========== ========= ======= ======== ===========
Capital expenditures (including
$47,977,000 of capital assets
of business acquired) $ 25,089 $ 17,119 $ 5,115 $ 14,862 $ 48,440 $ 11,141 $ 6,165 $ 127,931
======== ========== ======== =========== ========== ======= ======= ===========
</TABLE>
(13) Significant Group Concentration of Credit Risk
Farmland extends credit to its customers on terms no more favorable than
standard terms of the industries it serves. A substantial portion of Farmland's
receivables are concentrated in the agricultural industry. Collections on these
receivables may be dependent upon economic returns from farm crop and livestock
production. The Company's credit risks are continually reviewed and management
believes that adequate provisions have been made for doubtful accounts.
Farmland maintains investments in and advances to cooperatives, cooperative
banks and joint ventures from which it purchases products or services. A
substantial portion of the business of these investees is dependent upon the
agribusiness economic sector. See Note 4 of the Notes to Consolidated Financial
Statements.
(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, 1993
-------------------- -------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------- ------ ------- ----
(Amounts in Thousands)
<S> <C> <C> <C> <C>
Financial Assets:
Investment and long-term
receivables:
Notes receivable from investees,
20% to 50% owned . . . $ 48,955 $ 45,41 $ 60,204 $ 58,111
National Bank for
Cooperatives . . . . . 28,786 **** 31,824 ****
Other cooperatives:
Equities . . . . . . 28,132 **** 22,877 ****
Notes receivable . . 14,530 13,385 14,813 13,408
Financial Liabilities:
Long-term debt:
Subordinated certificates of investment,
capital investment certificates and
subordinated monthly
interest certificates . $ 280,111 $ 284,523 $ 255,770 $ 287,168
</TABLE>
The estimated fair value of notes receivable has been determined by
discounting future cash flows using a market interest rate.
The estimated fair value of the subordinated debt certificates was
calculated using the discount rate for subordinated debt certificates with
similar maturities currently offered for sale.
****Investments in National Bank for Cooperatives and other cooperatives'
equities which have been purchased are carried at cost and securities received
as patronage refunds are carried at par value, less provisions for other than
temporary impairment. The Company believes it is not practicable to estimate
the fair value of these securities because there is no established market for
these securities and it is inappropriate to estimate future cash flows which are
largely dependent on future patronage earnings of the cooperatives.
(15) Related Party Transactions
Farmland Hydro, L.P., Hyplains Beef, L.C. (50%-owned investees) and
N a t ional Beef Packing Company, L.P. (a 58%-owned consolidated limited
partnership) have credit agreements with various banks. Borrowings under these
agreements are nonrecourse to Farmland and its other affiliates. Cash
distributions by these entities to their owners are restricted by these credit
agreements. To support the efforts of these entities to meet compliance
provisions of their credit agreements, Farmland advances funds and provides
management and administrative services to these entities, in certain instances,
on terms less advantageous to Farmland than transactions conducted by Farmland
in the ordinary course of its business. At August 31, 1994, Farmland's equity
investments in and advances to these entities amounted to $132,613,000.
(16) Other Income
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding
Defendants' insurance coverage obligations for environmental remediation costs.
In fiscal year 1994, the Company negotiated settlements with 20 insurance
companies and as part of the settlements, the Company provided Defendants with
releases of various possible environmental obligations. As a result of these
settlements, the Company received cash payments of $13,566,000 in 1994 and has
included such amount in the caption "Other income" in the consolidated statement
of operations for the year 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 $20,022,000 provision for loss on the sale of the refinery.
Accordingly, the net carrying value of property, plant and equipment has been
reduced by $20,022,000 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
$6,155,000 from the sale. Accordingly, at August 31, 1993, the carrying value
of the dragline was written down by $6,155,000 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 $3,253,000 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>
Expira-
tion Total
of Years of
Age as of Positions Present Service as
August 31, Held With Term as Board
Name 1994 Farmland Director Member Business Experience During Last Five Years
----- -- ---- ---- --- ---------------------------------------
<S> <C> <C> <C> <C> <C>
Albert J. Shivley 51 Chairman of 1995 10 General Manager--American
Pride Co-op Association,
the Board Brighton, Colorado, a local
cooperative
association of
farmers and ranchers.
H. D. Cleberg 55 President 1994 4 Mr. Cleberg has been with
Farmland since 1968. He was
and Chief named as president-elect in February
1991 and became
Executive President in April 1991. From
September 1990 to January
Officer 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 63 Vice 1994 11 Producer--Deerfield, Kansas. Mr.
Molz has served as
Chairman and Chairman of the Board of the National
Bank for
Vice Cooperatives since January 1993. He
served as Chairman
President 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. 43 1995 2 General Manager--Cooperative
Grain and Supply,
Hillsboro, Kansas, a local cooperative
association of
farmers and ranchers.
Ronald J. Amundson 50 1994 6 General Manager--Central Iowa
Cooperative, Jewell, Iowa,
a local cooperative association of farmers
and ranchers.
Baxter Ankerstjerne 58 1996 4 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 53 1994 3 Producer--Texline, Texas.
Richard L. Detten 60 1996 7 Producer--Ponca City, Oklahoma.
Steven Erdman 44 1995 2 Producer--Bayard, Nebraska
Warren Gerdes 46 1995 * General Manager--Farmers
Cooperative Elevator Company,
Buffalo Lake, Minnesota, a local
cooperative association
of farmers and ranchers.
Ben Griffith 45 1995 5 General Manager--Central
Cooperatives, Inc., Pleasant
Hill, Missouri, a local cooperative
association of
farmers and ranchers.
Gail D. Hall 52 1994 6 General Manager--Lexington
Cooperative Oil Company,
Lexington, Nebraska, a local cooperative
association of
farmers and ranchers.
Barry Jensen 49 1996 4 Producer--White River, South
Dakota. Since May 1989 Mr.
Jensen has served as President of Farmers
Co-op Oil
Association, Winner, South Dakota, a local
cooperative
association of farmers and ranchers.
Robert Merkle 65 1994 12 Producer--Ashkum, Illinois and a
Director of Tri Central
Co-op, Ashkum, Illinois, a local
cooperative association
of farmers and ranchers.
Greg Pfenning 45 1994 2 Producer--Hobart, Oklahoma.
Director of Hobart &
Roosevelt Cooperative, a local cooperative
association
of farmers and ranchers.
Vonn Richardson 61 1996 7 Producer--Plains, Kansas.
President of The Plains
Equity Exchange and Cooperative Union,
Plains, Kansas, a
local cooperative association of farmers
and ranchers.
Monte Romohr 41 1996 4 Producer--Gresham, Nebraska.
In March 1988, Mr. Romohr
became President of Farmers Co-op
Business Association,
Shelby, Nebraska, a local cooperative
association of
farmers and ranchers.
Joe Royster 42 1996 1 General Manager--Dacoma Farmers
Cooperative, Inc.,
Dacoma, Oklahoma, a local cooperative
association of
farmers and ranchers.
Paul Ruedinger 64 1995 11 Producer--Van Dyne, Wisconsin.
Raymond J. Schmitz 63 1996 7 Producer--Baileyville, Kansas
Theodore J. Wehrbein 49 1995 8 Producer--Plattsmouth, Nebraska.
Past Director of
Nehawka Farmers Cooperative Company,
Nehawka, Nebraska,
a local cooperative association of farmers
and ranchers.
Robert Zinkula 64 1996 4 Producer--Mount Vernon, Iowa.
Secretary and Treasurer
of Linn Cooperative Oil Company, Marion,
Iowa, a local
cooperative association of farmers and
ranchers.
-----------------
*Elected to the Farmland Industries, Inc. Board of Directors in April 1994.
</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, Robert Merkle, Otis Molz, Albert Shivley, and H. D. Cleberg. The
audit committee consists of Ben Griffith, Richard Detten, Steven Erdman, Barry
Jensen and Joe Royster.
The executive officers of Farmland are:
<TABLE>
<CAPTION>
Age as of
August 31,
Name 1994 Principal Occupation and Other Positions
---- ------------ ----------------------------------------
<S> <C> <C>
J. F. Berardi 51 Executive Vice President and Chief Financial Officer - Mr. Berardi
joined Farmland March 1, 1992 to serve in his present position.
Mr. Berardi served as Executive Vice President and Treasurer
of Harcourt Brace Jovanovich, Inc., a diversified Fortune 200
company, and was a member of its Board of Directors from 1988 until
1990. From 1986 to 1989 Mr. Berardi served as Senior Vice President and
Chief Financial Officer of Harcourt Brace Jovanovich, Inc.
H. D. Cleberg 55 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 April1 1989
to August 1990 he served as Executive Vice President, Operations.
From October 1987 to March 1989 he served as Vice President and
General Manager, Fertilizer and Ag Chemicals Operations, and from
July 1986 to September 1987 he served as President, Farmland Foods.
Prior to July 1986 he held several executive management positions,
most recently Vice President, Field Services and Operations Support.
S. P. Dees 51 Executive Vice President, Farmland and Director General of Farmland
Industrias, S.A. de C.V. - Mr. Dees was appointed to his present
position in September 1993. From October 1990 to September 1993 he
served as Executive Vice President, Administrative Group and General
Counsel. Mr. Dees joined Farmland in October 1984, serving as Vice
President and General Counsel, Law and Administration until September
1990. He was a partner in the law firm of Stinson, Mag and Fizzell,
Kansas City, Missouri, from 1971 until his employment by Farmland.
G. E. Evans 50 Senior Vice President, Agricultural Production Marketing/Processing -
Mr. Evans has been with Farmland since 1971. He was appointed to his
present position in January 1992. From April 1991 to January 1992 he
served as Senior Vice President, Agricultural Inputs. He served as
Executive Vice President, Agricultural Marketing from October 1990 to
March 1991. He served as Executive Vice President, Operations from
January 1990 to September 1990. He served as Vice President,
Farmland Industries and President, Farmland Foods from October 1987
to December 1989. He served as Vice President and General Manager,
Feed Operations from June 1986 to September 1987, and from May 1983
to June 1986 he served as Vice President, Feed Operations.
R. W. Honse 51 Executive Vice President, Agricultural Inputs Operations - Mr. Honse has
been with Farmland since September 1983. He was appointed to his
present position in January 1992, and served as Executive Vice
President, Agricultural Operations from October 1990 to January 1992.
From April 1989 to September 1990, he served as Vice President and
General Manager, Crop Production Operations. From July 1986 to March
1989 he served as General Manager of the Florida phosphate fertilizer
complex.
B. L. Sanders 53 Vice President and Corporate Secretary - Dr. Sanders has been with
Farmland since 1968. He was appointed to his present position in
September 1991. From April 1990 to September 1991 he served as Vice
President, Strategic Planning and Development. From October 1987 to
March 1990 he served as Vice President, Planning. From July 1986 to
S e ptember 1987 he served as Director, Management Information
Services. From July 1984 to June 1986 he served as Executive
Director, Corporate Strategy and Research and from 1968 to June 1984,
as Executive Director, Economic and Market Research.
</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 1994, 1993 and 1992.
<TABLE>
<CAPTION>
Annual Compensation
Employee
Year Variable Other
Name and Ending Compensation Annual
Principal Position August 31 Salary Plan Compensation
------------------ ----- -------- ---------- -------
<S> <C> <C> <C> <C>
H. D. Cleberg, . . . . . . . . . . 1994 $ 439,728 $ 338,481
President and . . . . . . . . . . 1993 $ 433,506
Chief Executive Officer 1992 $ 408,972 $ 185,745
G. E. Evans, . . . . . . . . . . 1994 $ 278,304 $ 217,761
Senior Vice President 1993 $ 278,304
Agricultural Production 1992 $ 255,900 $ 114,257
Marketing/Processing
R. W. Honse, . . . . . . . . . . 1994 $ 251,532 $ 205,206
Executive Vice President 1993 $ 231,964
Agricultural Inputs Operations 1992 $ 204,686 $ 94,433
J. F. Berardi, . . . . . . . . . . 1994 $ 216,252 $ 146,576
Executive Vice President 1993 $ 206,016
and Chief Financial Officer 1992 $ 100,008 $ 28,075
S. P. Dees, . . . . . . . . . . 1994 $ 205,066 $ 119,093 $ 124,138(a)
Executive Vice President 1993 $ 205,366
Farmland and Director 1992 $ 195,738 $ 51,521
General of Farmland
Industrias, S.A. de C.V.
--------------------
<FN>
(a) Mr. Dees received a differential remuneration and reimbursements for
taxes in connection with foreign assignments.
</TABLE>
An Annual Employee Variable Compensation Plan, a Long-Term Management
I n centive 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, 1994, 1993 and 1992 amounted to $17,779,000, $-0- and
$10,033,000, respectively. Distributions under this plan are made annually
after the close of each fiscal year.
Under the Long-Term Management Incentive Plan, the Company's executive
management employees are paid cash bonus amounts determined by a formula which
takes into account the level of management and the average annual net income of
the Company over a three-year period. The current Long-Term Management
Incentive Plan is effective September 1, 1994 through August 31, 1996. For the
year ended August 31, 1994, the Company accrued $1,607,000 under this plan. The
Company's performance did not reach a level where incentive was earned under the
Long-Term Management Incentive Plan that covered the three-year period ended
August 31, 1993. As a result, operations in 1993 were credited by $2,463,000 to
reverse provisions for management incentive awards previously charged against
operations in 1992 and 1991 ($1,171,000 and $1,292,000, respectively).
The Company's Executive Deferred Compensation Plan permits executive
employees to defer part of their salary and/or part or all of their bonus
compensation. The amount to be deferred and the period for deferral is
specified by an election made semi-annually. Payments of deferred amounts shall
begin at the earlier of the end of the specified deferral period, retirement,
disability or death. The employee's deferred account balance is credited
annually with interest at the highest rate of interest paid by the Company on
any subordinated debt certificate sold during the year. Payment of an
employee's account balance shall, at the employee's election, be a lump sum or
in ten annual installments. Amounts deferred pursuant to the plan for the
accounts of the named individuals during the fiscal years 1994, 1993 and 1992
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 1000 hours per year. Participation in the Plan is optional
prior to age 34, but mandatory thereafter. Approximately 6,560 active and 6,540
inactive employees were participants in the Plan on August 31, 1994. 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 year ended
August 31, 1994 were $2,885,000. No contributions were made to the Plan in 1993
and 1992.
Payments to participants in the Plan are based upon length of participation
and compensation (limited to $150,000 annually for any employee) reported to the
Plan for the four highest of the last ten years of employment. See Note 11 of
the Notes to Consolidated Financial Statements.
In 1982, the Tax Equity and Fiscal Responsibility Act (TEFRA) imposed a
maximum retirement benefit which may be paid by a qualified retirement plan. At
the present time, that limit is $118,000.
The following table sets forth the estimated annual benefits payable at age
65 for members of the Retirement Plan, which benefits are not reduced by virtue
of Social Security payments:
<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
175,000 . . . 45,937 61,250 76,562 91,875
200,000 . . . . 52,500 70,000 87,500 105,000
225,000 . . . . 59,062 78,750 98,437 118,125*
250,000 . . . . 65,625 87,500 109,375 131,250*
275,000 . . . . .72,187 96,250 120,312* 144,375*
300,000 . . . . 78,750 105,000 131,250* 157,500*
<FN>
------------------------
*Exceeds the actual amount which can be paid pursuant to the present limitations
of TEFRA.
</TABLE>
Subject to the $150,000 maximum limit on annual compensation which may be
covered by a qualified pension plan, amounts included in the cash compensation
table do not vary substantially from the compensation covered by the pension
plan.
The following table sets forth the credited years of service for the
executive officers of the Company at August 31, 1994.
Name Years of Creditable
Service
---- ------------------
H. D. Cleberg . . . . . . . . . . . . 29
G. E. Evans . . . . . . . . . . . . . 20
R. W. Honse . . . . . . . . . . . . . 20
J. F. Berardi . . . . . . . . . . . . 1
S. P. Dees . . . . . . . . . . . . . . 9
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 ($118,000).
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 for all participants for the eight months ended August 31,
1994 was $621,012 of which $383,736 was charged to operations.
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.
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 1993
Consolidated Statements of Operations for each of the years
in the three-year period ended August 31, 1994
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended August 31, 1994
Consolidated Statements of Capital Shares and Equities for
each of the years in the three-year period ended August 31,
1994
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
Farmland Industries, Inc. and Subsidiaries for each of the
years in the three-year period ended August 31, 1994:
II--Amounts Receivable from Related Parties
V--Property, Plant and Equipment
VI--Accumulated Depreciation and Amortization of
Property, Plant and Equipment
IX--Short-term Borrowings
X--Supplementary Income Statement Information
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated
Financial Statements or related notes.
(3) Exhibits
Articles of Incorporation and Bylaws:
3.A Articles of Incorporation and Bylaws of Farmland Industries,
Inc. effective December 1, 1993. (Incorporated by Reference
- Form 10-K, filed November 29, 1994)
Instruments Defining the Rights of Security Holders, Including
Indentures:
4.A(1) Trust Indenture dated November 20, 1981, as amended
January 4, 1982, including specimen of Demand Loan
Certificates. (Incorporated by Reference - Form S-1,
No.2-75071, effective January 7, 1982)
4.A(2) Trust Indenture dated November 8, 1984, as amended
J a n u ary 3, 1985, including specimen of 20-year
S u b o r dinated Capital Investment Certificates.
(Incorporated by Reference - Form S-1, No.2-94400,
effective December 31, 1984)
4.A(2)(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985, covering Farmland Industries, Inc.'s 20-Year
S u b o r d inated Capital Investment Certificates
(Incorporated by Reference - Form SE, filed December 3,
1991)
4.A(3) Trust Indenture dated November 8, 1984, as amended
J a n u ary 3, 1985, including specimen of 10-year
S u b o r dinated Capital Investment Certificates.
(Incorporated by Reference - Form S-1, No.2-94400,
effective December 31, 1984)
4.A(3)(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1985, covering Farmland Industries, Inc.'s 10-Year
S u b o r dinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, filed December 3,
1991)
4.A(4) Trust Indenture dated November 8, 1984, as amended
J a n u a ry 3, 1985, including specimen of 5-year
S u b o r dinated Capital Investment Certificates.
(Incorporated by Reference - Form S-1, No.2-94400,
effective December 31, 1984)
4.A(4)(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3,
1 9 85, covering Farmland Industries, Inc.'s 5-Year
S u b o r dinated Capital Investment Certificates.
(Incorporated by Reference - Form SE, filed December 3,
1991)
4.A(5) Trust Indenture dated November 8, 1984, as amended
January 3, 1985 and November 20, 1985, including
specimen of 10-year Subordinated Monthly Income Capital
Investment Certificates. (Incorporated by Reference -
Form S-1, No. 2-94400, effective December 31, 1984)
4.A(6) Trust Indenture dated November 11, 1985 including
specimen of the 5-year Subordinated Monthly Income
Capital Investment Certificates. (Incorporated by
Reference - Form S-1, No. 33-1970, effective
December 31, 1985)
I n struments Defining Rights of Owners of Indebtedness not
Registered:
4.B(1) 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
C o o peratives, 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.B(2) List identifying contents of all omitted schedules
referenced in and not filed with, the Syndicated Credit
F a cility, dated May 19, 1994. (Incorporated by
Reference - Form 10-Q, filed July 14, 1994)
Material Contracts:
Lease Contracts:
10.A(1) The First National Bank of Chicago, not individually but
s o l e l y 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. consummated a
leveraged lease in the amount of $73,153,000 dated
September 6, 1991. (Incorporated by Reference - Form SE,
filed December 3, 1991.)
10.A(2) The First National Bank of Commerce as Trustee for
General Electric Credit Corporation as Beneficiary and
Farmland Industries, Inc. consummated a leveraged lease
in the amount of $51,909,257.90 dated March 17, 1977.
(Incorporated by Reference - Form S-1, No.2-60372,
effective December 22, 1977).
Management Remunerative Plans Filed Pursuant to Item 14C of this
Report.
10.(iii)(A)(1) Annual Employee Variable Compensation Plan
( S e ptember 1, 1994 - August 31, 1995)
(Incorporated by Reference - Form 10-K, filed
November 29, 1994)
10.(iii)(A)(2) Farmland Industries, Inc. Management Long-Term
Incentive Plan (Effective September 1, 1993).
(Incorporated by Reference - Form 10-K, filed
November 29, 1993)
10.(iii)(A)(3) Farmland Industries, Inc. Executive Deferred
Compensation Plan (Incorporated by Reference -
Form SE, filed November 23, 1987)
21. Subsidiaries of the Registrant (Incorporated by Reference - Form
10-K, filed November 29, 1994)
24. Power of Attorney (Incorporated by Reference - Form 10-K, filed
November 29, 1994)
(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.
(C) Exhibits
The exhibits required by Item 601 of Regulation S-K are filed herewith
or have been filed with the Securities and Exchange Commission and are
incorporated by reference as part of this Form 10-K/A. See Item
14(A)(3).
(D) Financial Statement Schedules required by Regulation are filed herewith:
See Item 14(A)(2).
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE II--AMOUNTS RECEIVABLE FROM RELATED PARTIES
For the Years Ended August 31, 1994, 1993 and 1992
<TABLE>
<CAPTION>
Balance at Deductions Balance at
the Beginning Amounts Amounts the End
Name of Debtor of the Period Additions Collected Written Off of the Period
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
AUGUST 31, 1994
S.F. Industries (a) . . . . . . . . . $ 450 $ 2,000 $ 2,450 $ -0- $ -0-
Hyplains Beef (b) . . . . . . . . . . $ 6,126 $ 17,744 $ -0- $ -0- $ 23,870
AUGUST 31, 1993
S.F. Industries . . . . . . . . . . . $ 950 $ -0- $ 500 $ -0- $ 450
Hyplains Beef . . . . . . . . . . . . $ 4,348 $ 1,778 $ -0- $ -0- $ 6,126
AUGUST 31, 1992
S.F. Industries . . . . . . . . . . . $ -0- $ 3,950 $ 3,000 $ -0- $ 950
Hyplains Beef . . . . . . . . . . . . $ -0- $ 4,348 $ -0- $ -0- $ 4,348
<FN>
(a) Farmland has a $5,000,000 commitment to S.F. Industries, L.L.C. to
fund working capital requirements, interest on the working capital
loan, calculated at the LIBOR rate plus .50% is payable on the last
day of September, December, March and June.
(b) Farmland purchases cattle for the day-to-day operations of its 50%
owned venture, Hyplains Beef L.C. This receivable is non-interest
bearing and payments are made on a daily basis as funds become
available to Hyplains.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
For the Year Ended August 31, 1994
<TABLE>
<CAPTION>
Other
Balance Charges Balance
September 1, Additions Retirements Add/ August 31,
Classification 1993 at Cost or Sales (Deduct) 1994
-------------- ------------ ---------- ----------- --------- ------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land and Land Improvements . . . . . . . $ 11,825 $ 2,214 $ 16 $ (409) $ 13,614
Site Improvements . . . . . . . . . . . . 26,877 1,524 129 375 28,647
Buildings . . . . . . . . . . . . 215,420 7,814 1,523 3,056 224,767
Machinery and Equipment . . . . . . . . . 678,784 61,997 12,976 (11,122) 716,683
Automotive Equipment . . . . . . . . . . 46,807 8,349 8,617 19,447 65,986
Furniture and Fixtures . . . . . . . . . 45,405 7,982 4,236 (538) 48,613
Livestock . . . . . . . . . . . . 4,373 1,968 1,639 (776) 3,926
Mining Properties . . . . . . . . . . . . 3,119 -0- -0- -0- 3,119
Leasehold Improvements . . . . . . . . . 12,149 2,716 -0- 220 15,085
Capital Lease . . . . . . . . . . . . 52,342 1,691 2,955 (122) 50,956
Construction and Acquisitions
in Progress (a) . . . . . . . . . . 57,242 (26,479) -0- -0- 30,763
--------- -------- --------- -------- ----------
Total Property, Plant
and Equipment . . . . . . . . $ 1,154,343 $ 69,776 $ 32,091 $ 10,131 $ 1,202,159
============= =========== =========== =========== ==========
<FN>
(a) Construction and acquisitions in progress reflects the net change for the
period after transfers to other classifications.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
For the Year Ended August 31, 1993
<TABLE>
<CAPTION>
Other
Balance Charges Balance
September 1, Additions Retirements Add/ August 31,
Classification 1992 at Cost or Sales (Deduct) 1993
-------------- ------------ ---------- ----------- ----------- ------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land and Land Improvements . . . . . . . $ 11,437 $ 880 $ 1,043 $ 551 $ 11,825
Site Improvements . . . . . . . . . . . . 15,308 10,087 96 1,578 26,877
Buildings . . . . . . . . . . . . 193,215 34,531 9,806 (2,520) 215,420
Machinery and Equipment . . . . . . . . . 593,014 77,998 11,409 19,181 678,784
Automotive Equipment . . . . . . . . . . 46,324 6,459 2,032 (3,944) 46,807
Furniture and Fixtures . . . . . . . . . 37,850 7,251 1,491 1,795 45,405
Livestock . . . . . . . . . . . . -0- -0- -0- 4,373 4,373
Mining Properties . . . . . . . . . . . . 26,569 217 -0- (23,667) 3,119
Leasehold Improvements . . . . . . . . . 10,215 5,745 158 (3,653) 12,149
Fertilizer Properties . . . . . . . . . . 48,695 -0- -0- (48,695) -0-
Capital Lease . . . . . . . . . . . . -0- -0- -0- 52,342 52,342
Construction and Acquisitions
in Progress(a) . . . . . . . . . . 53,812 3,432 -0- (2) 57,242
--------- ------- ------- -------- --------
Total Property, Plant
and Equipment . . . . . . . . $ 1,036,439 $ 146,600 $ 26,035 $ (2,661) $ 1,154,343
============= ========== ========= =========== ==========
<FN>
(a) Construction and acquisitions in progress reflects the net change for the
period after transfers to other classifications.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE V--PROPERTY, PLANT AND EQUIPMENT
For the Year Ended August 31, 1992
<TABLE>
<CAPTION>
Other
Balance Charges Balance Balance
September 1, Additions Retirements Add/ August 31,
Classification 1991 at Cost or Sales (Deduct) 1992
-------------- ------------ ---------- ----------- ----------- ------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land and Land Improvements . . . . . . . $ 12,560 $ 2,618 $ 3,534 $ (207) $ 11,437
Site Improvements . . . . . . . . . . . . 19,751 425 6,146 1,278 15,308
Buildings . . . . . . . . . . . . 154,062 50,132 10,217 (762) 193,215
Machinery and Equipment . . . . . . . . . 711,751 35,653 151,368 (3,022) 593,014
Automotive Equipment . . . . . . . . . . 44,328 8,071 5,852 (223) 46,324
Furniture and Fixtures . . . . . . . . . 37,166 5,462 5,264 486 37,850
Mining Properties . . . . . . . . . . . . 82,672 -0- 54,826 (1,277) 26,569
Leasehold Improvements . . . . . . . . . 9,465 749 -0- 1 10,215
Fertilizer Properties . . . . . . . . . . 49,544 -0- 849 -0- 48,695
Construction and Acquisitions
in Progress(a) . . . . . . . . . . 35,207 24,821 4,574 (1,642) 53,812
--------- ------- ------- -------- --------
Total Property, Plant
and Equipment . . . . . . . . $ 1,156,506 $ 127,931 $ 242,630 $ (5,368) $ 1,036,439
============ ========== ========== ======== =========
<FN>
(a) Construction and acquisitions in progress reflects the net change for the
period after transfers to other classifications.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
For the Year Ended August 31, 1994
<TABLE>
<CAPTION> Additions
Charged to Other
Balance Profit and Retirements, Charges Balance
September 1, Loss of Renewals and Add/ August 31,
Classification 1993 Income Replacements (Deduct) 1994
-------------- ------------ ---------- ------------ --------- ------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land Improvements . . . . . . . . . . . . $ 154 $ 1 $ -0- $ -0- $ 155
Site Improvements . . . . . . . . . . . . 12,707 1,337 91 (7) 13,946
Buildings . . . . . . . . . . . . 76,426 8,950 820 2,740 87,296
Machinery and Equipment . . . . . . . . . 453,705 28,449 4,472 (2,215) 475,467
Automotive Equipment . . . . . . . . . . 36,062 4,356 3,623 9,626 46,421
Furniture and Fixtures . . . . . . . . . 27,855 7,361 3,227 162 32,151
Livestock . . . . . . . . . . . . 1,768 1,396 1,013 (362) 1,789
Mining Properties . . . . . . . . . . . . 192 19 -0- -0- 211
Leasehold Improvements . . . . . . . . . 3,847 1,323 -0- 213 5,383
Capital Lease . . . . . . . . . . . . 37,249 3,350 2,429 (120) 38,050
Construction and Acquisitions
in Progress (a) . . . . . . . . . . -0- -0- -0- -0- -0-
--------- ------- ------ ------- ---------
Totals . . . . . . . . . . . . $ 649,965 $ 56,542 $ 15,675 $ 10,037 $ 700,869
=========== ========== ========== ======= =========
<FN>
(a) Construction and acquisitions in progress reflects the net change for the
period after transfers to other classifications.
</TABLE>
Note: The following percentages are used for computing depreciation:
Land Improvements . . . . . 6 to 10%
Site Improvements . . . . . 3 to 30%
Buildings . . . . . . . . . 2 to 10%
Machinery and Equipment . . 3 to 20%
Automotive Equipment . . . . 10 to 33%
Furniture and Fixtures . . . 10 to 20%
Livestock . . . . . . . . . 25 to 50%
Mining Properties . . . . . 4 to 21%
Leasehold Improvements . . . 4 to 6%
Fertilizer Properties . . . 6 to 7%
Capital Lease . . . . . . . 6 to 7%
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
For the Year Ended August 31, 1993
<TABLE>
<CAPTION> Additions
Charged to Other
Balance Profit and Retirements, Charges Balance
September 1, Loss of Renewals and Add/ August 31,
Classification 1992 Income Replacements (Deduct) 1993
-------------- ------------ ---------- ------------ --------- --------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land Improvements . . . . . . . . . . . . $ 153 $ 1 $ -0- $ -0- $ 154
Site Improvements . . . . . . . . . . . . 10,377 2,439 94 (15) 12,707
Buildings . . . . . . . . . . . . 69,907 7,832 875 (438) 76,426
Machinery and Equipment(a) . . . . . . . 418,331 28,72 10,499 17,153 453,705
Automotive Equipment . . . . . . . . . . 32,827 4,366 1,474 343 36,062
Furniture and Fixtures . . . . . . . . . 21,537 6,398 1,333 1,253 27,855
Livestock . . . . . . . . . . . . 1,768 1,768
Mining Property . . . . . . . . . . . . . 192 192
Leasehold Improvements . . . . . . . . . 3,211 872 11 (225) 3,847
Fertilizer Properties . . . . . . . . . . 34,094 3,199 78 (37,215) -0-
Capital Lease . . . . . . . . . . . . 37,249 37,249
Construction and Acquisitions
in Progress (b) . . . . . . . . . . -0- -0- -0- -0- -0-
--------- ------- ------- ------- ---------
Totals . . . . . . . . . . . . $ 590,437 $ 53,827 $ 14,364 $ 20,065 $ 649,965
========== ========== ========== ========== =========
<FN>
(a) Based on negotiations with potential purchasers, the carrying values of
the Coffeyville, Kansas refinery and a dragline were reduced by adjusting
accumulated depreciation by $17,622,000 and $6,155,000, respectively.
(b) Construction and acquisitions in progress reflects the net change for the
period after transfers to other classifications.
</TABLE>
Note: The following percentages are used for computing depreciation:
Land Improvements . . . . . 6 to 10%
Site Improvements . . . . . 3 to 30%
Buildings . . . . . . . . . 2 to 10%
Machinery and Equipment . . 3 to 20%
Automotive Equipment . . . . 10 to 33%
Furniture and Fixtures . . . 10 to 20%
Livestock . . . . . . . . . 25 to 50%
Mining Properties . . . . . 4 to 21%
Leasehold Improvements . . . 4 to 6%
Fertilizer Properties . . . 6 to 7%
Capital Lease . . . . . . . 6 to 7%
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE VI--ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY,
PLANT AND EQUIPMENT
For the Year Ended August 31, 1992
<TABLE>
<CAPTION> Additions
Charged to Other
Balance Profit and Retirements, Charges Balance
September 1, Loss of Renewals and Add/ August 31,
Classification 1991 Income Replacements (Deduct) 1992
-------------- ------------ ---------- ------------ ----------- ------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Land Improvements . . . . . . . . . . . . $ 153 $ 1 $ -0- $ (1) $ 153
Site Improvements . . . . . . . . . . . . 13,666 676 3,968 3 10,377
Buildings . . . . . . . . . . . . 72,369 5,810 8,261 (11) 69,907
Machinery and Equipment . . . . . . . . . 488,684 29,592 98,262 1,683) 418,331
Automotive Equipment . . . . . . . . . . 32,293 3,149 2,626 11 32,827
Furniture and Fixtures . . . . . . . . . 22,075 3,738 5,486 1,210 21,537
Leasehold Improvements . . . . . . . . . 2,375 836 -0- -0- 3,211
Fertilizer Properties . . . . . . . . . . 34,066 3,591 3,563 -0- 34,094
Construction and Acquisitions in
Progress(a) . . . . . . . . . . . 113 -0- -0- (113) -0-
--------- ------- ------ -------- ----
Totals . . . . . . . . . . . . $ 665,794 $ 47,393 $ 122,166 $ (584) $ 590,437
============ ========== ========== ========= =========
<FN>
(a) Construction and acquisitions in progress reflects the net change for the
period after transfers to other classifications.
</TABLE>
Note: The following percentages are used for computing depreciation:
Land Improvements . . . . . . 6 to 10%
Site Improvements . . . . . . 3 to 30%
Buildings . . . . . . . . . . 2 to 10%
Machinery and Equipment . . . 3 to 20%
Automotive Equipment . . . . 10 to 33%
Furniture and Fixtures . . . 10 to 20%
Leasehold Improvements . . . . 4 to 6%
Fertilizer Properties . . . . 6 to 7%
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
SCHEDULE IX--SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Weighted
Maximum Average Average
Amount Amount Interest
Balance Weighted Outstanding Outstanding Rate
Category of Aggregate End of Average During During During the
Short-Term Borrowings Period Interest Rate the Period the Period Period (1)
--------------------- ------------ ----------- ----- ----------- -------------
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
August 31, 1994:
Demand Loan Certificates . . . . . . . . $ 23,158 4.3% $ 39,873 $ 28,299 3.9%
Bank Debt $ . 281,886 5.2% $ 417,446 $ 302,500 4.2%
August 31, 1993:
Demand Loan Certificates . . . . . . . . $ 29,860 3.8% $ 46,403 $ 35,002 4.3%
Bank Debt . . . . . . . . . . . . $ 268,783 4.1% $ 370,726 $ 348,230 4.2%
August 31, 1992:
Demand Loan Certificates . . . . . . . . $ 43,084 5.5% $ 58,684 $ 50,516 6.3%
Bank Debt . . . . . . . . . . . . $ 200,072 4.5% $ 200,822 $ 174,397 5.3%
<FN>
(1)The weighted average interest rate was calculated by dividing an interest
amount on short-term borrowings by the average daily balance of short-term
borrowings during the period.
</TABLE>
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
Charged to Costs and Expenses
For the Year Ended August 31
---------------------------------------------------
1994 1993 1992
------------- ------------- -------------
(Amounts in Thousands)
<S> <C> <C> <C>
1. Maintenance and repairs . . $ 58,730 $ 61,273 $ 50,252
<FN>
Note: All other items required by Schedule X are excluded as such items are
less than one (1) percent of total sales for each of the years
presented.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Act, Farmland Industries,
Inc. has duly caused this Form 10-K/A to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Kansas City, State of
Missouri on September 18, 1995.
FARMLAND INDUSTRIES, INC.
By H. D. CLEBERG
--------------------------------------
H. D. Cleberg
President and Chief Executive Officer
By JOHN F. BERARDI
--------------------------------------
John F. Berardi
Executive Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Form
10-K/A has been signed for the following persons on the date indicated pursuant
to valid Power of Attorney executed on October 19, 1994.
Signature Title Date
--------- ----- ----
ALBERT J. SHIVLEY Chairman of Board, September 18, 1995
---------------------------------
Albert J. Shivley Director
OTIS H. MOLZ Vice Chairman September 18, 1995
--------------------------------- of Board,
Otis H. Molz Director
LYMAN ADAMS, JR. Director September 18, 1995
---------------------------------
Lyman Adams
RONALD J. AMUNDSON Director September 18, 1995
---------------------------------
Ronald J. Amundson
BAXTER ANKERSTJERNE Director September 18, 1995
---------------------------------
Baxter Ankerstjerne
JODY BEZNER Director September 18, 1995
---------------------------------
Jody Bezner <PAGE>
RICHARD L. DETTEN Director September 18, 1995
---------------------------------
Richard L. Detten
WILLARD ENGEL Director September 18, 1995
---------------------------------
Willard Engel
STEVEN ERDMAN Director September 18, 1995
---------------------------------
Steven Erdman
BEN GRIFFITH Director September 18, 1995
---------------------------------
Ben Griffith
GAIL D. HALL Director September 18, 1995
---------------------------------
Gail D. Hall
BARRY JENSEN Director September 18, 1995
---------------------------------
Barry Jensen
ROBERT MERKLE Director September 18, 1995
---------------------------------
Robert Merkle
GREG PFENNING Director September 18, 1995
---------------------------------
Greg Pfenning
VONN RICHARDSON Director September 18, 1995
---------------------------------
Vonn Richardson
MONTE ROMOHR Director September 18, 1995
---------------------------------
Monte Romohr
JOE ROYSTER Director September 18, 1995
---------------------------------
Joe Royster
PAUL RUEDINGER Director September 18, 1995
---------------------------------
Paul Ruedinger
RAYMOND J. SCHMITZ Director September 18, 1995
---------------------------------
Raymond J. Schmitz
THEODORE J. WEHRBEIN Director September 18, 1995
---------------------------------
Theodore J. Wehrbein
ROBERT ZINKULA Director September 18, 1995
---------------------------------
Robert Zinkula
