FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
May 31, 1995 Number 2-67985
FARMLAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Kansas 44-0209330
(State of Incorporation) (I.R.S. Employer Identification No.)
3315 North Oak Trafficway, Kansas City, Missouri
(Address of principal executive offices)
64116
(Zip Code)
816-459-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes {X} No { }
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
May 31 August 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 0 $ 44,084
Accounts receivable . . . . . . . . . . . . . . . . . . 428,516 394,906
Inventories (note 2) . . . . . . . . . . . . . . . . . 673,052 538,314
Prepaid expenses . . . . . . . . . . . . . . . . . . . 17,234 15,159
Other current assets . . . . . . . . . . . . . . . . . 70,397 103,980
Total Current Assets . . . . . . . . . . . . . . . . . . . . $ 1.189,199 $ 1,096,443
Investments and Long-Term Receivables . . . . . . . . . . . $ 178,145 $ 189,601
Property, Plant and Equipment:
Property, plant and equipment, at cost . . . . . . . . $ 1,312,640 $ 1,202,159
Less accumulated depreciation and amortization . . . . 737,049 700,869
Net Property, Plant and Equipment . . . . . . . . . . . . . . $ 575,591 $ 501,290
Other Assets . . . . . . . . . . . . . . . . . . . . . . $ 135,569 $ 139,297
Total Assets . . . . . . . . . . . . . . . . . . . . . . $ 2,078,504 $ 1,926,631
<FN>
See Accompanying notes to condensed consolidated financial statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
May 31 August 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Accounts and notes payable . . . . . . . . . . . . . . $ 516,964 $ 548,476
Current maturities of long-term debt . . . . . . . . . 41,719 27,840
Customers' advances on product purchases . . . . . . . 61,597 24,438
Other current liabilities . . . . . . . . . . . . . . . 236,372 204,985
Total Current Liabilities . . . . . . . . . . . . . . . . . . $ 856,652 $ 805,739
Long-Term Debt (excluding current maturities) . . . . . . . . $ 481,547 $ 517,806
Deferred Income Taxes (note 1) . . . . . . . . . . . . . . . $ 12,487 $ 6,340
Minority Owners' Equity in Subsidiaries . . . . . . . . . . . $ 14,048 $ 11,733
Net Income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 129,043 $ -0-
Capital Shares and Equities:
Common shares, $25 par value - Authorized
50,000,000 shares . . . . . . . . . . . . . . . . $ 398,619 $ 363,562
Other equities . . . . . . . . . . . . . . . . . . . . 186,108 221,451
Total Capital Shares and Equities . . . . . . . . . . . . . . $ 584,727 $ 585,013
Total Liabilities and Equities . . . . . . . . . . . . . . . $ 2,078,504 $ 1,926,631
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Nine Months Ended
May 31
May 31 1994
1995 Restated
(Amounts in Thousands)
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 5,325,044 $ 4,981,747
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 4,930,754 4,700,939
Gross income . . . . . . . . . . . . . . . . . . . . . . . . $ 394,290 $ 280,808
Selling, general & administrative expenses . . . . . . . . . $ 238,539 $ 218,372
Other income (deductions):
Interest expense . . . . . . . . . . . . . . . . . . . $ (39,431) $ (38,310)
Other, net . . . . . . . . . . . . . . . . . . . . . . 14,249 10,037
Total other income (deductions) . . . . . . . . . . . . . . . $ (25,182) $ (28,273)
Income before income taxes and equity in net income
of investees and minority owners' interest in
net (income) loss of subsidiaries . . . . . . . . . . . $ 130,569 $ 34,163
Income tax expense (note 1) . . . . . . . . . . . . . . . . . 21,439 2,255
Income before equity in net income of investees
and minority owners' interest in
net (income) loss of subsidiaries . . . . . . . . . . . $ 109,130 $ 31,908
Equity in net income of investees (note 4) . . . . . . . . . 22,410 6,242
Minority owners' interest in net (income)
loss of subsidiaries . . . . . . . . . . . . . . . . . (2,497) 5,158
Net income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 129,043 $ 43,308
<FN>
See Accompanying notes to condensed consolidated financial statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
May 31
May 31 1994
1995 Restated
(Amounts in Thousands)
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,017,385 $ 1,980,844
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . 1,861,428 1,859,360
Gross income . . . . . . . . . . . . . . . . . . . . . . . . $ 155,957 $ 121,484
Selling, general & administrative expenses . . . . . . . . . $ 86,512 $ 83,146
Other income (deductions):
Interest expense . . . . . . . . . . . . . . . . . . . $ (12,298) $ (11,199)
Other, net . . . . . . . . . . . . . . . . . . . . . . 4,172 3,377
Total other income (deductions) . . . . . . . . . . . . . . . $ (8,126) $ (7,822)
Income before income taxes and equity in net income
of investees and minority owners' interest in
net (income) loss of subsidiaries . . . . . . . . . . . $ 61,319 $ 30,516
Income tax expense (note 1) . . . . . . . . . . . . . . . . . 10,733 2,014
Income before equity in net income of investees
and minority owners' interest in
net (income) loss of subsidiaries . . . . . . . . . . . $ 50,586 $ 28,502
Equity in net income of investees (note 4) . . . . . . . . . 13,335 5,941
Minority owners' interest in net (income)
loss of subsidiaries . . . . . . . . . . . . . . . . . (3,039) 1,932
Net income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 60,882 $ 36,375
<FN>
See Accompanying notes to condensed consolidated financial statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
May 31 May 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,043 $ 43,308
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . 49,437 49,591
Equity in net income of investees . . . . . . . . . . . . . . (22,410) (6,242)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 7,346 (3,734)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . (15,031) (54,617)
Inventories . . . . . . . . . . . . . . . . . . . . . . . (121,440) 23,380
Other assets . . . . . . . . . . . . . . . . . . . . . . 12,046 (39,007)
Accounts payable . . . . . . . . . . . . . . . . . . . . (29,039) 54,916
Advances on product purchases . . . . . . . . . . . . . . 37,159 5,448
Other current liabilities . . . . . . . . . . . . . . . . 39,890 48,420
Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 87,001 $ 121,463
Cash flows from investing activities:
Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . $ (86,527) $ (47,782)
Proceeds from disposal of investments
and notes receivable . . . . . . . . . . . . . . . . . . . . . 37,626 27,056
Acquisition of investments and notes receivable . . . . . . . . . . (18,968) (14,935)
Acquisition of businesses . . . . . . . . . . . . . . . . . . . . (2,200) (33,251)
Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . 2,321 14,399
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 295 -0-
Net cash used in investing activities . . . . . . . . . . . . . . . . . . $ (67,453) $ (54,513)
Cash flows from financing activities:
Net decrease of demand loan certificates . . . . . . . . . . . . . $ (7,137) $ (1,484)
Proceeds from bank loans and notes payable . . . . . . . . . . . . 370,686 1,183,819
Payments on bank loans and notes payable . . . . . . . . . . . . . (460,762) (1,287,651)
Proceeds from issuance of subordinated debt certificates . . . . . 34,461 43,868
Payments for redemption of subordinated debt certificates . . . . . (18,632) (29,026)
Increase of checks and drafts outstanding . . . . . . . . . . . . . 56,306 -0-
Payments for redemption of equities . . . . . . . . . . . . . . . . (12,335) (158)
Payments of patronage refunds and dividends . . . . . . . . . . . . (26,308) -0-
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 2.309
Net cash used in financing activities . . . . . . . . . . . . . . . . . . $ (63,632) $ (88,323)
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . $ (44,084) $ (21,373)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . 44,084 28,373
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ -0- $ 7,000
<FN>
See accompanying notes to condensed consolidated financial statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENTS
The information included in these condensed consolidated financial statements
of Farmland and subsidiaries (the "Company") reflects all adjustments
(consisting only of normal recurring accruals) which, in the opinion of
management, are necessary for a fair statement of the results for the interim
periods presented.
In accordance with the bylaws of Farmland Industries, Inc. ("Farmland") and
its cooperative subsidiaries, the member-sourced portion of income is determined
annually and distributed to members of Farmland as patronage refunds. The
member-sourced portion of such income is determined on the basis of the quantity
or value of business done by Farmland during the year with or for patrons
entitled to receive patronage refunds. As this determination is made only after
the end of the fiscal year, and since the appropriation of earned surplus is
dependent on the determination of the amount of patronage refunds, and in view
of the fact that the portion of the annual patronage refund to be paid in cash
and Farmland equity (common stock, associate member common stock or capital
credits) is determined (by the Farmland Board of Directors at its discretion)
after the amount of the annual patronage refund has been determined, Farmland
makes no provision for patronage refunds in its interim financial statements.
Therefore, the amount of net income has been reflected as a separate item in the
accompanying May 31, 1995 condensed consolidated balance sheet.
As patronage refunds are an integral part of the computation of income taxes,
the Company historically has not provided for income taxes in its interim period
financial statements. However, in accordance with generally accepted
accounting principles, the Company commenced (effective with the 1995 fiscal
year) including a provision for estimated income taxes in its interim financial
statements. For the nine months and three months ended May 31, 1995, the
Company estimated an effective tax rate based on historic effective rates. The
actual effective rate for 1995 may be subject to revision. Based on the actual
effective tax rate for the 1994 fiscal year, interim condensed consolidated
financial statements for the nine months and three months ended May 31, 1994
have been restated to include an interim income tax expense of $379,000 and
$1,119,000, respectively.
(2) INVENTORIES
Major components of inventories at May 31, 1995, and August 31, 1994, are as
follows:
<TABLE>
<CAPTION>
May 31 August 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Finished and in-process products $ 362,923 $ 286,381
Materials . . . . . . . . . . . 62,498 51,428
Supplies . . . . . . . . . . . . 44,988 39,885
Beef . . . . . . . . . . . . . 36,194 24,267
Grain . . . . . . . . . . . . . 166,449 136,353
$ 673,052 $ 538,314
</TABLE>
Grain inventories are valued at market adjusted for the net unrealized gains
or losses on open grain contracts. Crude oil, refined petroleum products,
cattle and beef by-products are valued at the lower of last-in, first-out (LIFO)
cost or market. Other inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. Supplies are valued at cost.
In applying the lower of cost or market valuation method in the case of
petroleum LIFO inventory, the general practice is modified to conform to the
integral view of interim financial statements. Accordingly, a seasonal market
value decline below cost of LIFO inventories, at an interim date, which is
reasonably expected to be restored by year-end, is not recognized in interim
results of operations since no loss is expected to be incurred in the annual
period. At May 31, 1995, the carrying value of petroleum inventories stated
under the LIFO method was $113,345,000. This exceeded the market value of such
inventory by $1,936,000. However, based on historical prices of energy products
and seasonal market price variations, the market value decline below cost is
expected to be a temporary seasonal price fluctuation.
Had the lower of first-in, first-out (FIFO) cost or market been used to
value these petroleum products, inventories at May 31, 1995 would have been
lower by $3,276,000.
The carrying value of beef inventories stated under the LIFO method was
$28,612,000 at May 31, 1995. The LIFO method of accounting for beef inventories
had no effect on the carrying value of inventories or on the income reported for
the nine months and three months ended May 31, 1995 because market value of
these inventories was lower than LIFO or FIFO cost.
(3) CONTINGENCIES
On July 28, 1983, Farmland sold the stock of Terra Resources, Inc.
("Terra"), a wholly-owned subsidiary engaged in oil and gas exploration and
production operations, and exited its oil and gas exploration and production
activities. The gain from the sale of Terra amounted to $237,200,000 for tax
reporting purposes. During 1983, and prior to the sale of the Terra stock,
Farmland received certain distributions from Terra totaling $24,800,000. For
tax purposes, Farmland claimed intercorporate dividends-received deductions for
the entire amount of such distributions.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70,775,000. The
asserted deficiencies relate primarily to the Company's tax treatment of the
sale of the Terra stock. The IRS asserts that Farmland incorrectly treated the
Terra sale gain as income against which certain patronage-sourced operating
losses could be offset, and that, as a nonexempt cooperative, Farmland was not
entitled to an intercorporate dividends-received deduction in respect of the
1983 distribution by Terra. It further asserts that Farmland incorrectly
characterized for tax purposes gains aggregating approximately $14,600,000, and
a loss of approximately $2,300,000, from the disposition of certain other
assets. On June 11, 1993, Farmland filed a petition in the United States Tax
Court contesting the asserted deficiencies in their entirety. The case
was tried on June 13-15, 1995. Prior to trial, the IRS withdrew its challenge
to Farmland's claimed intercorporate dividends-received deductions and
several other minor issues were resolved. The parties will submit
post-trial briefs to the court in September and November 1995. It
is possible that a Tax Court decision in the case may not be issued until
a year or more after all briefs have been filed. Appeals of the decision
could extend ultimate disposition of the case until 1998 or 1999.
If the IRS ultimately prevails on all of the adjustments asserted in the
statutory notice, Farmland would have additional federal and state income tax
liabilities aggregating approximately $85,800,000 plus accumulating statutory
interest thereon through June 30, 1995, of approximately $173,414,000 (before
tax benefits of the interest deduction). In addition, such adjustments would
affect the computation of Farmland's taxable income for its 1989 tax year and,
as a result, could increase Farmland's federal and state income taxes for that
year by approximately $5,000,000 plus applicable statutory interest thereon.
No provision has been made in the consolidated financial statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. Farmland continues to believe that it has meritorious
positions with respect to all of these claims and will continue to vigorously
pursue their favorable resolution.
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.
Counsel has further advised, however, that none of the issues involved in these
disputes is free from doubt, and that there can be no assurance that the courts
will ultimately rule in favor of Farmland on any of these issues.
Should the IRS ultimately prevail on all of its asserted claims, the claimed
federal and state income taxes as well as accrued interest would become
immediately due and payable, and would be charged to current operations. In
such case, the Company would be required to renegotiate its agreements with its
banks to maintain compliance with various provisions of such agreements,
including working capital and funded indebtedness provisions. However, no
assurance can be given that such renegotiation would be successful.
Alternatives could include other financing arrangements or the possible sale of
assets.
The Company has been designated by the Environmental Protection Agency as a
potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), at various National
Priority List ("NPL") sites. In addition, the Company is aware of possible
obligations associated with environmental matters at other sites, including
sites where no claim or assessment has been made. The Company's probable and
reasonably determinable obligations for resolution of environmental matters at
NPL and other sites are estimated to be $8,439,000 and such amount has been
accrued at May 31, 1995.
The ultimate costs of resolving environmental matters are not quantifiable
because many such matters are in preliminary stages and the timing and extent of
actions which governmental authorities may ultimately require are unknown. It
is possible that the costs of such resolution may be greater than the
liabilities which, in the opinion of management, are probable and reasonably
determinable at May 31, 1995. In the opinion of management, it is reasonably
possible for such costs to approximate up to $32,000,000 and to extend over 30
years.
(4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY
METHOD
Summarized financial information of investees accounted for by the equity
method for nine months ended May 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
May 31 May 31
1995 1994
(Amounts in Thousands)
<S> <C> <C>
Net sales . . . . . . . . . . $ 888,028 $ 585,263
Net Income . . . . . . . . . $ 44,512 $ 14,053
Farmland's equity in net income $ 22,410 $ 6,242
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company maintains two primary sources for debt capital: a continuous
public offering of its debt securities and bank lines of credit.
The Company's debt securities are offered on a best-efforts basis by
Farmland Securities Company and American Heartland Investments, Inc. and may be
offered by other selected broker-dealers. The types of securities offered
include certificates payable on demand and five- and ten-year subordinated debt
certificates. The total amount of such debt outstanding and the flow of funds
to, or from, the Company as a result of this public offering is influenced by
the rate of interest which Farmland establishes for each type of debt
certificate offered and by options of Farmland to call and redeem certain of its
outstanding debt certificates. During the nine months ended May 31, 1995, the
outstanding balance of demand loan and subordinated debt certificates increased
$8.7 million.
Farmland's primary source of bank credit is through a $650.0 million
syndicated credit facility provided by nine domestic and international banking
institutions. This agreement provides short-term credit of up to $450.0 million
to finance seasonal operations and inventory, and revolving term credit of up to
$200.0 million. At May 31, 1995, short-term borrowings under this facility were
$183.4 million, revolving term borrowings were $50.0 million and $37.9 million
was being utilized to support letters of credit issued on behalf of Farmland by
participating banks.
Farmland pays commitment fees of 1/8 of 1% annually on the unused portion of
the short-term commitment and 1/4 of 1% annually on the unused portion of the
revolving term commitment. In addition, Farmland must maintain consolidated
working capital of not less than $150.0 million, consolidated net worth of not
less than $475.0 million and funded indebtedness and senior funded indebtedness
of not more than 52% and 43% of capitalization, respectively. All computations
are based on consolidated financial data adjusted to exclude nonrecourse
subsidiaries (as defined in the credit agreement). At May 31, 1995, Farmland
was in compliance with all covenant provisions of the agreement.
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements, at May 31, 1995, $47.2 million was
borrowed. Financial covenants of these arrangements are not more restrictive
than the Company's syndicated credit facility.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operations. However, alternative financing
arrangements are continuously evaluated.
National Beef Packing Company, L.P. ("NBPC"), 68%-owned by Farmland,
maintains borrowing agreements with banks which provides financing support for
NBPC's beef packing operations. Borrowings under this credit agreement are
nonrecourse to Farmland or Farmland's other affiliates. At May 31, 1995, $90.0
million was available under this agreement of which $65.7 million was borrowed
and $1.3 million was utilized to support letters of credit. Assets of NBPC with
a carrying value of $155.4 million are pledged to support its bank borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. Obligations of Tradigrain under these
loan agreements are nonrecourse to Farmland or Farmland's other affiliates.
Major uses of cash during the nine months ended May 31, 1995 include net
payments of $90.1 million to reduce the outstanding balance of bank loans and
other notes payable, $86.5 million for capital expenditures, $26.3 million for
patronage refunds and dividends distributed from income of the 1994 fiscal year,
$19.0 million for acquisition of investments and notes receivable and $12.3
million for the redemption of equities under the Farmland base capital plan and
special redemption plan. Major sources of cash include $87.0 million from
operations, $56.3 million from an increase in the balance of checks and drafts
outstanding and $37.6 million from the disposition of investments and notes
receivables.
The Internal Revenue Service issued a statutory notice to Farmland asserting
significant deficiencies in federal income taxes and statutory interest thereon.
Farmland filed a petition in the United States Tax Court contesting the asserted
deficiencies in their entirety. See note 3 of the notes to the condensed
consolidated financial statements.
RESULTS OF OPERATIONS
GENERAL
The Company's revenues depend to a large extent on conditions in agriculture
and may be volatile due to factors beyond the Company's control, such as
weather, crop failures, federal agricultural programs, production efficiencies,
and direct imports or exports. In addition, global variables which affect
supply, demand and price of crude oil and refined fuels impact the Company's
petroleum operations. Management cannot determine the extent to which future
operations of the Company may be impacted by these factors. The Company's cash
flow and net income may continue to be volatile as conditions affecting
agriculture and markets for the Company's products change.
Operating results for any quarter are not necessarily indicative of the
results expected for the full year. The principal businesses of the Company are
highly seasonal. Historically, the majority of sales of farm supply products
occur in the spring. Revenues in the beef business and in grain marketing
historically have been concentrated in the summer and summer is the lowest sales
period for pork products. In view of the seasonality of the Company's
businesses, it must be emphasized that the results for the nine months and three
months ended May 31, 1995 should not be annualized to project a full year's
results.
NINE MONTHS ENDED MAY 31, 1995 COMPARED WITH NINE MONTHS ENDED MAY 31, 1994
SALES
Sales for the nine months ended May 31, 1995 increased 6.9% compared with
the corresponding period of the prior year. The increase includes $373.4
million higher sales of agricultural output products (grain and food), $23.0
million lower sales of farm production input products (crop production products,
petroleum and feed) and $7.1 million lower sales of other products and services.
Sales of agricultural output products increased due to higher grain prices
and volume, higher beef volume and as a result of an acquisition on March 31,
1995 by National Beef Packing Company, L.P. (68%-owned by Farmland) of the
assets of Hyplains Beef, LLC.
Sales of agricultural input products decreased due to lower sales in the
feed and crop production business segments, partly offset by increased sales in
the petroleum business segment.
Sales of the feed business segment decreased because volume and prices of
formula feed and feed ingredients decreased. Sales of the crop production
business segment reflect a net decrease due to placing the Company's crop
protection operations in a 50%-owned joint venture on January 1, 1995.
Subsequent to the formation of this venture, sales of these products have not
been included in the Company's financial statements. The effect of decreased
sales of crop protection products was mostly offset by an $85.6 million increase
in sales of crop nutrients. This increase resulted from higher prices, partly
offset by a slight decrease in volume which reflects the wet spring season and
delayed planting activities. Sales of petroleum products increased primarily
because of higher gasoline volume and prices. This effect was partly offset by
lower distillate and propane unit sales and by lower prices of all other refined
products and propane.
NET INCOME
Net income for the nine months ended May 31, 1995 increased $85.7 million
compared with the corresponding period of the prior year. The increase includes
higher operating profits in crop production, food processing and marketing and
grain marketing of $70.6 million, $45.0 million and $31.5 million, respectively.
In addition, the net results of joint ventures engaged in crop production and
beef operations increased $11.5 million and $4.2 million, respectively. The
effect of these increases on net income was reduced by an operating loss in the
petroleum business segment of $9.7 million in the nine months ended May 31, 1995
compared with an operating profit of $24.4 million in the corresponding period
of the prior year and decreased operating profit of $5.9 million in the feed
business. In addition, general corporate expenses increased $9.2 million,
income taxes increased $19.2 million and the deduction for minority owners
interest increased $7.7 million which is principally a result of increased
income of the beef business.
Operating profit of the Company's crop production business increased
primarily as a result of increased prices, partly offset by a slight decrease in
unit sales. In addition, net income from joint ventures engaged in fertilizer
operations increased because of higher volume and prices. Operating profit of
the food processing and marketing business increased because live hog and cattle
costs decreased without a corresponding decline in wholesale prices. In
addition, the number of hogs and cattle processed increased. Operating results
in the grain marketing business increased due to higher volume and more
favorable unit margins on all types of grains handled. The petroleum business
segment had an operating loss for the nine months ended May 31, 1995, because
the spread between refined product selling prices and the related costs of crude
oil during most of this period was less than the cost of refining the crude oil.
Selling, general and administrative expenses increased in the nine months
ended May 31, 1995 compared with the corresponding period of the prior year.
Approximately $11.0 million of the increase is directly connected to business
segments (primarily the grain and pork businesses) and has been included in the
determination of the operating profit of business segments. General corporate
expenses, not identified to business segments, increased reflecting higher cost
of variable compensation plans and employee pension expenses.
The estimated effective tax rate for the nine months and three months ended
May 31, 1995 is based on historical effective rates. The actual effective tax
rate may be subject to subsequent revision. The effective tax rate for fiscal
year 1994 has been used to provide income taxes for the nine months and three
months ended May 31, 1994.
THREE MONTHS ENDED MAY 31, 1995 COMPARED WITH THREE MONTHS ENDED MAY 31, 1994
The changes in sales and net income for the three months ended May 31, 1995,
compared to the corresponding period of the prior year are primarily as
discussed in the nine months comparison.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of fiscal year 1995, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 112, "Employer's Accounting
for Postemployment Benefits." Statement 112 establishes standards of accounting
and reporting for the estimated cost of benefits provided to former employees.
The effect of implementation of Statement 112 at September 1, 1994 was
insignificant.
In the first quarter of fiscal year 1995, the Company adopted the provisions
of Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." Statement 115 expands the use of
fair value accounting and the reporting for investments in equity securities
that have readily determinable fair values and for all investments in debt
securities. The effect of implementation of Statement 115 at September 1, 1994
was insignificant.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
The exhibit listed below is filed as part of Form 10-Q for the quarter ended
May 31, 1995.
Exhibit No. Exhibit
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended May 31, 1995.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FARMLAND INDUSTRIES, INC.
(Registrant)
By: /s/ JOHN F. BERARDI
John F. Berardi
Executive Vice President
and Chief Financial Officer
Date: July 13, 1995
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The schedule contains summary financial information extracted from Form 10-Q
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