UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended AUGUST 31, 1996
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 Incorporation or Organization)(I.R.S. Employer
Identification No.)
3315 NORTH FARMLAND TRAFFICWAY, KANSAS CITY, MISSOURI 64116-0005
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 816-459-6000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ X ]
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 I
ITEMS 1 AND 2. BUSINESS AND PROPERTIES
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing
cooperative headquartered in Kansas City, Missouri that is primarily owned by
its members and operates on a cooperative basis. Founded originally in 1929,
Farmland has grown from revenues of $310,000 during its first year of operation
to over $9.7 billion during 1996. 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 and Properties - Business - Patronage Refunds and
Distribution of Annual Earnings" included herein.
Farmland was formally incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Farmland Trafficway, Kansas City, Missouri
64116 (telephone 816-459-6000). Unless the context requires otherwise, (i)
"Farmland" or the "Company" herein refers to Farmland Industries, Inc. and its
consolidated subsidiaries, (ii) all references herein to "year" or "years" are
to fiscal years ended August 31, (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, 1996, Farmland's requirements for voting membership were
as follows: the voting member must (1) own a minimum of $1,000 of Farmland's
common stock; and (2) transact business with Farmland on a patronage basis; and
(3) not be a significant direct competitor with Farmland in any of Farmland's
major business lines; and (4) (a) be a natural person, a family farm corporation
or a family farm partnership that (i) derives a majority of earned income from a
farming operation (excluding any earned income of a spouse from other sources)
and (ii) is a vendor of livestock to Farmland and/or a contract producer of
livestock for Farmland; or (b) be an association of producers of agricultural
products that (i) is organized and conducts business on a cooperative basis;
(ii) distributes its earnings based on patronage; and (iii) is controlled
directly by its voting producer members.
ASSOCIATE MEMBERS
To qualify for associate membership in Farmland, all of the following
conditions must be met: the associate member must (1) own a minimum of $1,000
of Farmland's associate member common stock; and (2) not be a significant direct
competitor of Farmland in any of the business line(s) in which the associate
member expects to conduct patronage business with Farmland; and (3)(a) be a
natural person, a family farm corporation, or a family farm partnership that (i)
derives a majority of earned income from a farming operation (excluding any
earned income of a spouse from other sources) and (ii) is a vendor of livestock
to Farmland and/or a contract producer of livestock for Farmland; or (b) be an
association conducting business on a cooperative basis; or (c) be a business
entity owned 100%, directly or indirectly, by Farmland or its members or
associate members; or (d) be a hog-and/or cattle-feeding business entity that
agrees to provide Farmland with the information it needs to pass on patronage
refunds from Farmland's hog- and/or cattle-marketing operations to those
agricultural producer-members of Farmland who have conducted business with the
entity.
PATRONAGE AGREEMENTS WITH PATRONS
All existing patronage agreements with patrons will remain in force until
such time as either (a) the patron has been inactive with Farmland during any
single fiscal year; or (b) the patronage agreement is canceled by mutual
consent. No new patronage agreements will be authorized without prior approval
by the Board of Directors.
As of August 31, 1996, Farmland's membership, associate membership and
patrons eligible for patronage refunds consisted of approximately 1,800
cooperative associations of farmers and ranchers and 11,800 pork or beef
producers or associations of such producers. See ''Business and Properties -
Business - Patronage Refunds and Distribution of Annual Earnings''. included
herein
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, or (b) in exchange for such common stock
or associate member common stock to issue or record on the books of Farmland
capital credits in an equivalent amount. On the failure of any holder,
following any demand by Farmland therefor, to deliver the certificate or
certificates evidencing any common stock or associate member common stock,
Farmland may cancel the same on its books and issue or record on the books of
Farmland an equivalent amount of capital credits in lieu thereof.
BUSINESS
GENERAL
The Company is one of the largest cooperatives in the United States in
terms of revenues. In 1996, Farmland had exports to approximately 70 countries,
and derived approximately 42% of its grain revenues from export sales.
Substantially all of the Company's foreign grain sales are paid in U.S. Dollars.
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal product
divisions: petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, by-products of petroleum refining
and car, truck and tractor tires, batteries and accessories. Principal products
of the crop production division are nitrogen-, phosphate- and potash-based
fertilizers ("plant nutrients"), and, through the Company's ownership in WILFARM
(a 50%-owned venture formed in 1995) ("WILFARM"), a complete line of
insecticides, herbicides and mixed chemicals. Principal products of the feed
division include swine, dairy, pet, beef, poultry, mineral and specialty feeds,
feed ingredients and supplements, animal health products and livestock services.
Over 50% of the Company's farm supply products sold in 1996 was produced in
plants owned by the Company or operated by the Company under long-term lease
arrangements. Approximately 60% of the Company's farm supply products sold in
1996 were sold at wholesale to farm cooperative associations which are members
of Farmland. These farm cooperatives distribute products primarily to farmers
and ranchers in states which comprise the corn belt and the wheat belt and who
utilize the products in the production of farm crops and livestock.
On the output side, the Company's operations include the processing of
pork and beef, the marketing of fresh pork, processed pork and fresh beef and
the storage, marketing and processing of grain. In 1996, approximately 66% of
the hogs processed, 14% of the beef cattle processed and 45% of the grain
marketed by the Company were supplied to the Company by its members.
Substantially all of the Company's pork and beef products sold in 1996 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 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.
The Company competes for market share with numerous participants with
various levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
competitors include major oil companies, independent refiners, other
cooperatives and product brokers. Competitors in the crop production industry
include global producers (some of which are cooperatives) of nitrogen and
phosphate fertilizers and product importers and brokers. The feed, pork and
beef industries are comprised of a large variety of competitive participants.
BUSINESS RISK FACTORS
INCOME TAX MATTERS
In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"), a
wholly owned subsidiary engaged in oil and gas exploration and production
operations, and exited its oil and gas exploration and production activities.
The gain from the sale of Terra amounted to $237.2 million for tax reporting
purposes.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of the
$237.2 million gain resulting from its sale, in July 1983, of the stock of Terra
and the IRS's contention that Farmland incorrectly treated the Terra sale gain
as income against which certain patronage-sourced operating losses could be
offset. The statutory notice further asserts that Farmland incorrectly
characterized for tax purposes gains aggregating approximately $14.6 million,
and a loss of approximately $2.3 million, from dispositions of certain other
assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court in
September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $209.2 million,
before tax benefits of the interest deduction, through August 31, 1996), or
$295.0 million in the aggregate at August 31, 1996. 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 accumulating statutory
interest thereon (approximately $6.6 million), or $11.6 million in the aggregate
at August 31, 1996. The asserted federal and state income tax liabilities and
accumulated interest thereon 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 by the United States Tax
Court would be charged to current earnings and would have a material adverse
effect on the Company. In the event of such an adverse determination of the
Terra tax issue, certain financial covenants of the Company's Credit Agreement
(the "Agreement"), dated May 15, 1996, become less restrictive. Had the United
States Tax Court decided in favor of the IRS on all unresolved issues, and had
all related additional federal and state income taxes and accumulated interest
thereon been due and payable on August 31, 1996, Farmland's borrowing capacity
under the Agreement was adequate at that time to finance the liability.
However, Farmland's ability to finance such an adverse decision depends
substantially on the financial effects of future operating events on its
borrowing capacity under the Agreement. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Financial Condition,
Liquidity and Capital Resources" included herein.
GENERAL FACTORS AFFECTING THE BUSINESS
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 and other
factors. 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. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations for Years Ended August 31, 1994, 1995 and
1996" and "Business and Properties - Business - Petroleum - Raw Materials"
and" - Crop Production - Raw Materials" included herein.
LIMITED ACCESS TO EQUITY CAPITAL MARKETS
As a cooperative, the Company cannot sell its common equity to traditional
public or private markets. Instead, equity is raised largely from cooperative
voting members, associate members and patrons. Farmland's equity results from
payment of the noncash portion of patronage refunds with common stock, associate
member common stock and capital credits and from net income on transactions with
nonmembers (retained earnings). See ''Business and Properties - Business -
Patronage Refunds and Distribution of Annual Earnings'' and '' - Equity
Redemption Plans" included herein.
ENVIRONMENTAL MATTERS
The Company is subject to various stringent federal, state and local
environmental laws and regulations in the United States which regulate the
Company's petroleum operations, farm supply manufacturing and distribution
operations, its food processing and marketing operations and its grain marketing
operations, or which may impose liability for the cleanup of environmental
contamination. The Company has incurred and will continue to incur substantial
capital expenditures and operating costs related to these laws and regulations.
The Company cannot, however, predict the impact of new or amended laws or
regulations, nor can it predict with certainty how existing laws and regulations
will be enforced or interpreted. See ''Business and Properties - Business -
Matters Involving the Environment'' included herein.
Many of the Company's current and former facilities have been in operation
for many years and, over such time, the Company and other predecessor operators
of such facilities have generated, used, stored, or disposed of substances or
wastes that are or might be considered hazardous under applicable environmental
laws. As a result of such operations, the soil and groundwater at or under
certain of the Company's current and former facilities have been contaminated.
Material expenditures may be required by the Company in the future to remediate
contamination from past or future releases of hazardous substances or wastes.
The Company wholly or jointly owns or operates 34 grain elevators and 58
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 also has been
identified as a potentially responsible party (a ''PRP'') under the federal
Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five
such sites. CERCLA 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 of, or
arranged for the disposal of hazardous substances found at the property.
The Company is investigating or remediating contamination at 28 properties.
During 1994, 1995 and 1996, the Company paid approximately $1.4 million,
$3.2 million and $1.8 million, respectively, for environmental investigation
and remediation.
The Company currently is aware of probable obligations for environmental
matters at 39 properties. As of August 31, 1996, the Company has an
environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated costs for remediation of contaminated property of
$18.9 million. The Company periodically reviews and, as appropriate, revises
its environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management 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, 1996. In the opinion of
management, it is reasonably possible for such costs to be approximately an
additional $20.6 million. See "Business and Properties - Business - Matters
Involving the Environment" included herein.
PETROLEUM
MARKETING
The principal product of this business segment is refined fuels.
Approximately 58% of refined fuels products sold in 1996 resulted from
transactions with Farmland's members. The balance of the Company's refined
fuels products sales were principally to retailing chains in urban areas. Other
petroleum products include lube oil, grease, by-products of petroleum refining
and car, truck and tractor tires, batteries and accessories. Sales of petroleum
products as a percent of the Company's consolidated sales for 1994, 1995 and
1996 were 13%, 12% and 11%, respectively.
Competitive methods in the petroleum industry include service, product
quality and prices. 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 mid-continent refiner and as a wholesale distributor of petroleum products.
PRODUCTION
The Company owns a refinery at Coffeyville, Kansas. Production volume for
1994, 1995 and 1996 was as follows:
Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per year
1994 1995 1996
(barrels)
Coffeyville, Kansas 63,872 66,367 64,276
The Coffeyville refinery produced approximately 25 million barrels of
motor fuels, heating fuels and other petroleum products in 1994, 26 million
barrels in 1995, and 25 million barrels in 1996. Production at the refinery
reflects a decrease in 1996 compared with 1995 primarily because production was
suspended for 35 days for scheduled maintenance during that year. Approximately
65% of petroleum product sales in 1996 represented products produced at this
location.
In July 1994, the Company acquired a mothballed refinery in Texas for
reassembly at the Coffeyville refinery site. Reassembly was completed during
the fourth quarter of 1996 which expanded crude oil processing capacity to
95,000 barrels per day.
RAW MATERIALS
Farmland's refinery at Coffeyville, Kansas presently 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. In 1996, the Company's pipeline/trucking gathering system
collected approximately 25% 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. In October 1996, Farmland entered into various
20-year agreements with Tessenderlo KERLEY Inc. ("TKI") whereby TKI will build,
own and operate a sulfur processing plant at the Coffeyville refinery (the
Company anticipates the plant will be completed by the first quarter of 1998).
Under the agreements, Farmland will provide high sulfur gas streams to TKI's
plant. High sulfur gas streams, a by-product of Farmland's refinery, will be
utilized by TKI's plant as a source of feedstock to manufacture sulfur. TKI's
facility will have the capacity to process 100 tons sulfur per day. The
refinery operations currently include a sour gas stripper and sulfur plant but
additional sulfur handling capacity will be required to accommodate any
additional expansion of refinery capacity.
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. See "Business and
Properties - Business - Business Risk Factors - General Factors Affecting the
Business" included herein.
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. 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 plant nutrients and, through the
Company's ownership in WILFARM, 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 1994, 1995 and 1996 were
17%, 16% and 14%, 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. The Company maintains a significant capital
investment in distribution assets and a seasonal investment in inventory to
enhance its manufacturing and distribution operations. The Company owns or
leases plant nutrient custom dry blending, liquid mixing, storage and
distribution facilities at 177 locations throughout its trade territory to
conform delivery capacity more closely to customer demands for delivery
services.
The Company's sales of crop production products are primarily at wholesale
to local cooperative associations who are members of Farmland. In view of this
member/customer relationship, management believes that, with respect to such
customers, the Company has a slight competitive advantage.
Domestic competition, mainly from other regional cooperatives and
integrated crop production companies, is intense due to customers' sophisticated
buying tendencies and production strategies that focus on costs and service.
Also, foreign competition exists from producers of crop production products
manufactured in countries with lower cost natural gas supplies (the principal
raw material in nitrogen-based fertilizer products). In certain cases, foreign
producers of fertilizer for export to the United States may be subsidized by
their respective governments.
PRODUCTION
The Company manufactures nitrogen-based crop production products. Based
on total production capacity, the Company is one of the largest producers of
anhydrous ammonia fertilizer in the United States. The Company owns and
produces nitrogen-based products at four anhydrous ammonia plants and operates
three anhydrous ammonia plants under long-term lease arrangements.
The Company owns and produces phosphate-based products at one plant and
has 50% ownership interests in two ventures which produce phosphate-based
products.
Nitrogen fertilizer production information for 1994, 1995 and 1996 is as
follows:
Actual Annual Production Anhydrous
Ammonia
Plant Location 1994 1995 1996
(tons)
Lawrence, Kansas............ 443,000 430,000 431,000
Dodge City, Kansas.......... 257,000 276,000 285,000
Fort Dodge, Iowa............ 256,000 258,000 263,000
Beatrice, Nebraska.......... 277,000 281,000 276,000
Enid, Oklahoma (2 plants)(A) 985,000 998,000 1,005,000
Pollock, Louisiana(A)....... 526,000 497,000 508,000
(A) Leased plants
Natural gas is the major raw material used in production of synthetic
anhydrous ammonia. Synthetic anhydrous ammonia is the basic component of other
commercially produced nitrogen-based crop production products including urea,
urea ammonium nitrate ("UAN") solutions and other products. The Company
produces such value-added nitrogen-based products at four plants. Production of
such value-added products from anhydrous ammonia for 1994, 1995 and 1996 was as
follows:
Actual Annual Production
Plant Location 1994 1995 1996
(tons)
Lawrence, Kansas............ 654,000 719,000 710,000
Enid, Oklahoma (2 plants)(A) 433,000 473,000 475,000
Dodge City, Kansas.......... 163,000 202,000 187,000
Beatrice, Nebraska.......... 162,000 165,000 161,000
(A) Leased plants
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 land in Florida which contains an estimated 40 million
tons of phosphate rock and a phosphate chemical plant located in Joplin,
Missouri. 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 1994, 1995 and 1996 was as follows:
Actual Annual Production
1994 1995 1996
(tons)
Ammonium Phosphate........... 75,000 64,000 65,000
Feed Grade Phosphate......... 157,000 159,000 160,000
The Company and Norsk Hydro a.s. are each 50% owners of a joint venture,
Farmland Hydro, L.P. ("Hydro"), which is a manufacturer of phosphate fertilizer
products for distribution principally 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. Hydro's plant produces
phosphoric acid products such as super acid, diammonium phosphate and
monoammonium phosphate. Annual production in tons of such products for 1994,
1995 and 1996 was 1,437,000, 1,471,000 and 1,494,000, respectively. The
phosphate rock required to operate Hydro'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 are each 50% owners of a joint
venture, SF Phosphates Limited Company ("SF Phosphates"), which operates a
phosphate mine located in Vernal, Utah, a phosphate chemical plant located in
Rock Springs, Wyoming and a 96-mile pipeline connecting the mine to the plant.
The plant produces monoammonium phosphate and super acid with annual production
in tons for 1994, 1995 and 1996 of 465,000, 451,000 and 506,000, respectively.
Under the joint venture agreement, the Company and J.R. Simplot Company purchase
the production of the joint venture in proportion to their ownership. Based on
current recovery methods and the levels of plant production in recent years, the
Company estimates that the phosphate rock reserves owned by SF Phosphates are
adequate to provide the phosphate rock requirements of the plant for
approximately 75 years.
The Company and Mississippi Chemical Company are each 50% owners of a
joint venture formed to develop, construct and operate a 1,850 metric ton per
day ammonia production facility in The Republic of Trinidad and Tobago. The
plant construction is 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. Construction is tentatively scheduled to be completed in
1998. See "Business and Properties - Business - Capital Expenditures and
Investments in Ventures" included herein.
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. See
"Business and Properties - Business - Business Risk Factors - General Factors
Affecting the Business" included herein.
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 a delivering
pipeline's capacity was 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 pipeline
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 and animal
health products. The primary component of feed products is grain and grain by-
products, which are generally available in the region in which the company
operates.
This business segment's sales were approximately 8%, 6% and 6% of
consolidated sales for the years 1994, 1995 and 1996, respectively.
Approximately 56% of the feed business segment's sales in 1996 was attributable
to products manufactured in the Company's feed mills. The Company operates feed
mixing plants at 22 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 for 1994, 1995 and 1996 was as follows:
Actual Annual Production
1994 1995 1996
(tons)
25 feed mills 1,118,000 1,112,000 1,103,000
(combined)............
The Company conducts research in genetic selection, breeding, animal
health and nutrition at its research facility in Bonner Springs, Kansas.
Through local cooperative associations of farmers and ranchers, the Company
participates in livestock and hog services designed to produce lean, feed-
efficient animals and help livestock producers select feed formulations which
maximize weight gain.
FOOD PROCESSING AND MARKETING
PORK
PROCESSING
The Company's pork processing and marketing operations are conducted
through a 99%-owned subsidiary, Farmland Foods, Inc. ("Foods"), which operates
11 food processing facilities including facilities at Topeka, Kansas, Albert
Lea, Minnesota and Dubuque, Iowa which were purchased during 1996. Meat
processing facilities at Springfield, Massachusetts, Carey, Ohio, and New
Riegel, Ohio produce Italian-style specialty meats and ham products. Plants in
Wichita and Topeka, Kansas and Albert Lea, Minnesota process fresh pork into a
variety of products including ham, bacon and sausage. Additionally, the
Wichita, Kansas facility processes pork, beef and chicken into hot dogs, dry
sausage and other luncheon meats. Facilities in Denison, Iowa, Monmouth,
Illinois, Dubuque, Iowa and Crete, Nebraska function as pork abattoirs and have
additional capabilities for processing pork into bacon, ham and smoked meats.
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 plant located in Carroll, Iowa is primarily a packaging
facility for canned or cook-in-bag products.
Production for 1994, 1995 and 1996 is as follows:
Actual Weekly Production
1994 1995 1996
(pounds)
Crete, Nebraska.............. 2,800,000 3,100,000 3,300,000
Denison, Iowa................ 2,700,000 2,800,000 2,700,000
Wichita, Kansas.............. 1,900,000 2,200,000 2,600,000
Monmouth, Illinois........... 1,400,000 1,900,000 1,900,000
Carroll, Iowa................ 1,100,000 1,400,000 1,200,000
Springfield, Massachusetts... 750,000 725,000 782,619
Carey/New Riegel, Ohio....... 275,000 425,000 434,996
Dubuque, Iowa(A)............. n/a n/a 1,200,000
Albert Lea, Minnesota (A).... n/a n/a 1,300,000
Topeka, Kansas (a) .......... n/a n/a 810,000
(A) Actual weekly averages since acquisition of the plant by the Company.
Actual Weekly Head Slaughtered
1994 1995 1996
Crete, Nebraska.............. 46,000 46,000 43,000
Denison, Iowa................ 40,000 41,000 37,000
Monmouth, Illinois........... 27,000 33,000 31,000
MARKETING
The Company's products 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 a variety of brand names including: Farmland,
Farmstead, OhSe, Maple River, Carando, Roegelein, Regal and Marco Polo.
Product distribution is through national and regional retail food chains, food
service accounts, distributors and through international marketing brokers.
Pork marketing is a highly competitive industry with many suppliers of
fresh and processed pork products competing for shelf space in retail food
stores. Other meat products such as beef, poultry and fish also compete
directly with pork products. Competitive methods in this segment include price,
product quality, product differentiation and customer service.
BEEF
PROCESSING
The Company's beef processing and marketing operations are conducted
through National Beef Packing Company, L.P. ("NBPC"), which was formed in April
1993, and at September 1, 1996, was 75%-owned by Farmland. The processing
facilities for these beef operations are located in Liberal, Kansas and Dodge
City, Kansas. These facilities function as beef abattoirs and process fresh
beef into primal cuts for additional processing into fabricated or boxed beef.
During 1994, 1995 and 1996, the two plants slaughtered an aggregate of 1.7
million, 1.9 million and 2.1 million cattle, respectively.
MARKETING
Products in the Company's beef processing and marketing operations include
fresh beef, boxed beef and packing house by-products. Product distribution is
through national and regional retail and food service customers as well as under
the Farmland Black Angus Beef label. In addition, certain beef products are
distributed in international markets.
Beef marketing is a highly competitive industry with many suppliers of
fresh and boxed beef. Other meat products such as pork, poultry and fish also
compete directly with beef products. Competitive methods in this industry
include price, product quality and customer service.
GRAIN
MARKETING
The Company markets wheat, milo, corn, soybeans, barley and oats, with
corn and 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, the 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, 1995 and 1996, the Company
maintained hedges on approximately 95.3%, 97.9% and 94.8%, respectively, of its
grain positions. Based on total assets at the beginning and end of 1996, the
average market value of grain positions not hedged during the year amounted to
less than 1% of the Company's average total assets. While hedging activities
reduce the risk of loss from changing market values of grain, such activities
also limit the gain potential which otherwise could result from changes in
market prices of grain.
In 1996, approximately 42% of grain revenues were from export sales or
sales to domestic customers for export. In 1994 and 1995, export sales or sales
to domestic customers for export accounted for approximately 37% and 47%,
respectively, of consolidated grain revenues. 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.
Heartland Wheat Growers, L.P. (79%-owned by Farmland and 21%-owned by five
cooperative members of Farmland), which processes wheat into gluten for use
primarily in commercial baking and pet food markets and starch for numerous
industrial purposes, started commercial operations during May 1996. The plant
has capacity to process 4.3 million bushels of wheat annually; actual production
for 1996 was approximately 0.6 million bushels of wheat.
PROPERTY
The Company owns or leases 33 inland elevators and one export elevator in
North America with a total capacity of approximately 179.2 million bushels of
grain, six of which elevators (with an aggregate capacity of 55.5 million
bushels of grain) are temporarily closed due to current demand for grain holding
and storage facilities.
TRADIGRAIN
Eight international grain trading subsidiaries of Farmland (collectively
referred to as "Tradigrain") import, export and ship all major grains from the
major producing countries to final consumers which are either governmental
entities, private companies or other major grain companies.
Tradigrain's purchases of grain are made on a cash basis against
presentation of documents. Its sales of grain are mostly done against confirmed
letters of credit at sight or on 180/360 days deferred basis. For purposes of
the Company's Consolidated Financial Statements, on Tradigrain transactions, the
Company recognizes as revenues net margin on grain merchandised rather than the
gross value of such products merchandised.
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, breeding and feeding practices of
livestock and pets.
Expenditures related to Company-sponsored product research and process
improvements amounted to $2.7 million, $2.3 million and $2.4 million for 1994,
1995 and 1996, respectively.
CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES
In 1996, the Company made capital expenditures and investments in ventures
totaling $233.5 million. See "Business and Properties - Business - Petroleum",
" - Crop Production", " - Feed"," - Food Processing and Marketing" and " -
Grain" included herein.
The Company plans expenditures for capital additions, improvements and
investments in ventures of an aggregate of approximately $278.3 million during
the years 1997 and 1998 (of which $61.0 million was committed as of August 31,
1996) as described in the following paragraphs. Of this amount, the Company
plans expenditures of $248.6 million for capital additions and improvements and
$29.7 million for investments in ventures.
Capital expenditures and investments planned for the crop production
business segment total approximately $127.7 million and include: an investment
in a 50%-owned venture organized to construct and operate an anhydrous ammonia
plant in The Republic of Trinidad and Tobago, construction of a 525,000 ton
per year UAN facility in Ft. Dodge, Iowa and expenditures for operating
efficiencies, environmental and safety issues and for operating necessities or
betterments.
Capital expenditures and investments planned for the feed business segment
total approximately $11.5 million for feed mill efficiencies, operating
necessities and replacements.
Capital expenditures and investments planned for the petroleum business
segment total approximately $39.4 million and are for operating necessities,
increased operating efficiency and for environmental and safety issues.
Capital expenditures and investments of approximately $72.8 million are
planned for the food processing and marketing business segment. These
expenditures are primarily for operating necessities and improvements.
Capital expenditures and investments of approximately $6.3 million planned
for the grain business segment are mainly for expansion and replacements.
Capital expenditures and investments of approximately $20.6 million are
planned for the other operations and corporate groups. These expenditures
include upgrades of management information services. The remaining expenditures
are planned for operating necessities and improvements.
The Company intends to fund its capital program with cash from operations
or through borrowings. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Financial Condition, Liquidity and Capital
Resources" included herein.
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials, as the Company uses hazardous
substances and generates hazardous wastes in the ordinary course of its
manufacturing processes. The Company recognizes liabilities related to
remediation of contaminated properties when the related costs are probable and
can be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. Such liabilities include estimates
of the Company's share of costs attributable to potentially responsible parties
(''PRPs'') which are insolvent or otherwise unable to pay. All liabilities are
monitored and adjusted regularly as new facts or changes in law or technology
occur.
The Company wholly or jointly owns or operates 34 grain elevators and 58
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 also has been identified as
a PRP under CERCLA at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five such
sites. CERCLA may impose joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property, and companies that generated, disposed of, or arranged
for the disposal of hazardous substance found at the property. The Company is
investigating or remediating contamination at 28 properties under CERCLA and/or
the state and federal hazardous waste management laws. During 1994, 1995 and
1996, the Company paid approximately $1.4 million, $3.2 million and $1.8
million, respectively, for environmental investigation and remediation.
The Company currently is aware of probable obligations for environmental
matters at 39 properties. As of August 31, 1996, the Company has an
environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated cost for remediation of contaminated property of
$18.9 million. The Company periodically reviews and, as appropriate, revises its
environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management 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, 1996. In the opinion of
management, it is reasonably possible for such costs to be approximately an
additional $20.6 million.
Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the
Company has four closure and four post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Such closure and post-closure
costs are estimated to be $5.2 million at August 31, 1996 (and is in addition to
the $20.6 million discussed in the prior paragraph). 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.
The Company and the Environmental Protection Agency (''EPA'') reached an
agreement to settle three proceedings brought by Region VII of the EPA with
respect to alleged violations under the Clean Air Act, the Emergency Planning
and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The major
terms of the settlement are: (1) the Company does not acknowledge liability or
fault; (2) the Company will spend approximately $4.3 million to implement
Supplemental Environmental Projects; and (3) the Company will pay penalties of
approximately $1.5 million. The penalties have been included in the Company's
August 31, 1996 environmental accrual of $18.9 million.
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,
1995 and 1996, the Company had capital expenditures of approximately $2.6
million, $4.7 million and $10.7 million, respectively, to prevent future
discharges into the environment. The majority of such expenditures were for
improvements at the Coffeyville refinery. Management believes the Company
currently is in substantial compliance with existing environmental rules and
regulations.
GOVERNMENT REGULATION
The Company's business is conducted within a legal environment created by
numerous federal, state and local laws which have been enacted to protect the
public's interest by promoting fair trade practices, safety, health and welfare.
The Company's operating procedures conform to the intent of these laws and
management believes that the Company currently is in compliance with all such
laws, the violation of which could have a material adverse effect on the
Company.
Certain policies may be implemented from time to time by the United States
Department of Agriculture, 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
food processing and marketing operations.
The Federal Agriculture Improvement and Reform Act of 1996 ("FAIR")
represents the most significant change in government farm programs in more than
60 years. FAIR greatly accelerates the trend toward greater market orientation
and reduced Government influence on the agricultural sector. As a result, the
Company expects the number of acres under cultivation to increase. This
increase could favorably impact demand of producers for the Company's plant
nutrients and crop protection products and fuels. Whether demand for the
Company's products is favorably impacted depends in a large part on whether U.S.
agriculture becomes more competitive in world markets as this industry moves
toward greater market orientation, the extent which governmental actions expand
international trade agreements and whether markets access opportunities for U.S.
agriculture is increased.
Management is not aware of any newly implemented or pending policies, other
than as discussed above, having a significant impact or which may have a
significant impact on operations of the Company.
EMPLOYEE RELATIONS
At August 31, 1996, the Company had approximately 14,700 employees.
Approximately 50% of the Company's employees were represented by unions having
national affiliations. The Company considers its relationship with employees to
be generally satisfactory. No labor strikes or work stoppages within the last
three fiscal years have had a materially adverse effect on the Company's
operating results. Current labor contracts expire on various dates through
February 1999.
PATRONAGE REFUNDS AND DISTRIBUTION OF ANNUAL 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. Member-sourced earnings are the earnings
attributed to transactions with members. Each member's portion of the annual
patronage refund is determined by the earnings of Farmland attributed to the
quantity or value of business transacted by the member with Farmland during the
year for which the patronage is paid.
Generally, the members receive a portion of the annual patronage refund in
cash and, for the balance of the patronage refund (the "non-cash portion"), the
members receive Farmland common shares, associate member common shares or
capital credits (the equity type received is determined by the membership
status). The non-cash portion of the patronage refund 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 1994, 1995 and 1996, Farmland returned the following
patronage refunds:
Cash or Cash
Equivalent Non-Cash Total
Portion of Portion of Patronage
Patronage Patronage Refunds
Refunds Refunds
(Amounts in thousands)
1994......... $ 26,552 $ 44,032 $ 70,584
1995......... $ 33,038 $ 61,356 $ 94,394
1996......... $ 32,719 $ 60,776 $ 93,495
Nonmember-sourced income (earnings attributed to transactions with persons
not eligible to receive patronage refunds, i.e. nonmembers) and nonpatronage
income or loss (income or loss from activities not directly related to the
cooperative marketing or purchasing activities of Farmland) is subject to income
taxes computed on the same basis as such taxes are computed on the income or
loss of other corporations.
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, the "Plans") may be changed at any time or from time to
time at the sole and absolute discretion of the Board of Directors. The Plans
are also not binding upon the Board of Directors or the Company, and the Board
of Directors reserves the right to redeem, or not redeem, any equities of the
Company without regard to whether such action or inaction is in accordance 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,
the Company's results of operations, financial position, cash flow, capital
requirements, long-term financial planning needs, income and other tax
considerations 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 owners will be protected.
BASE CAPITAL PLAN
For the purposes of acquiring and maintaining adequate capital to finance
the business of the Company, the Board of Directors has established a base
capital plan ("Base Capital Plan").
The Base Capital Plan provides a mechanism for determining the Company's
total capital requirements and each voting member's and associate member's share
thereof (the base capital requirement). As part of the Base Capital Plan, the
Board of Directors may, in its discretion, provide for redemption of Farmland
common stock or associate member common stock held by voting members or
associate members whose holdings of common shares or associate member shares
exceed the voting members' or associate members' base capital requirement. The
Base Capital Plan provides a mechanism under which the cash portion of the
patronage refund payable to voting members or associate members will depend upon
the degree to which such voting members or associate members meet their base
capital requirements.
ESTATE SETTLEMENT PLAN
The estate settlement plan provides that equity holdings of deceased
natural persons (except for equity purchased and held for less than five years)
will be redeemed at par value. This provision is subject to a limitation of
$1.0 million in any one fiscal year without further authorization by the Board
of Directors for such year.
SPECIAL EQUITY REDEMPTION PLANS
From time to time, the Company has redeemed portions of its outstanding
equity under various special equity redemption plans. The special equity
redemption plans (collectively, the "Plans") may be changed at any time or from
time to time at the sole and absolute discretion of the Board of Directors. The
Plans are also not binding upon the Board of Directors or the Company, and the
Board of Directors reserves the right to redeem, or not redeem, any equities of
the Company without regard to whether such action or inaction is in accordance
compliance with the Plans.
The special equity redemption plans are designed to return cash to members
or former members of Farmland or Foods by 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. The order in which each
type of equity is redeemed is determined by the Board of Directors.
Presented below are the amounts of equity approved for redemption by the
Board of Directors under the Base Capital Plan, the estate settlement plan,
special equity redemption plans and redemptions of Foods equities for each of
the years in the five-year period ended 1996. Substantially all amounts
approved for redemptions are paid in cash in the year following approval.
<TABLE>
<CAPTION>
Base Capital Plan Estate Settlement Special Equity Total Plan
Redemptions Plan Redemptions Redemption(A) Redemptions
(Amounts in Thousands)
<S> <C> <C> <C> <C>
1992........... $ 6,707 $ 234 $ 6,755 $ 13,696
1993........... $ -0- $ 127 $ 12 $ 139
1994........... $ 8,740 $ 126 $ 4,108 $ 12,974
1995........... $ 14,159 $ 128 $ 13,451 $ 27,738
1996........... $ 14,024 $ 138 $ 11,277 $ 25,439
</TABLE>
(A) Included in 1995 and 1996 are redemptions of preferred stock.
ITEM 3. LEGAL PROCEEDINGS
The Company believes there is no litigation existing or pending against
Farmland or any of its subsidiaries that, based on the amounts involved or the
defenses available to the Company, would have a material adverse effect on the
financial position of the Company except for the pending tax litigation relating
to Terra Resources, Inc. ("Terra"), a former subsidiary of the Company, as
explained in Note 7 of the Notes to Consolidated Financial Statements. See
"Business and Properties - Business - Business Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Financial Condition, Liquidity and Capital Resources" included herein.
In accordance with Securities and Exchange Commission regulations, the Company
reports that, during the fourth quarter, it resolved (see "Business and
Properties - Business - Matters Involving the Environment" included herein) the
following civil and administrative proceedings in which violations of
environmental laws were alleged and civil penalties in excess of $100,000 were
sought.
1. COFFEYVILLE CERCLA/EPCRA PENALTIES. Administrative complaint issued
August 10, 1993, by Region VII of the EPA seeking $350,000 in civil
penalties for alleged violations of notification requirements under the
CERCLA and the Emergency Planning and Community Right to Know Act.
2. COFFEYVILLE RCRA DOCKET NO. VII-94-H-0018. Administrative compliant
issued August 2, 1994, by Region VII of the EPA seeking $1.4 million in
civil penalties for alleged violations of the RCRA and of regulations
issued thereunder.
3. COFFEYVILLE CLEAN AIR ACT CIVIL PENALTY. Federal civil complaint filed
August 15, 1996, by the U.S. Department of Justice for alleged violations
of the Clean Air Act.
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. The Company believes that
it is unlikely that a public market for these equities will develop, in the
foreseeable future, for the following reasons:
1.the common stock, associate member common stock and capital credits are
nondividend bearing;
2.the right of any holder of common stock, associate member common stock and
capital credits to receive patronage refunds (including any cash patronage
refunds) from Farmland is dependent on the holder being a voting member,
an associate member or a patron. See "Business and Properties - The
Company" included herein;
3.the amount of patronage refunds (including any cash patronage refunds) a
holder, who is eligible to receive patronage refunds, may receive is
dependent on the earnings of Farmland attributable to the quantity or
value of business such holder transacts with Farmland and the amount by
which the equity of Farmland held by a holder varies from such holder's
base capital requirement. See "Business and Properties -
Business - Patronage Refunds and Distribution of Annual Earnings" included
herein; and
4.Farmland intends to redeem its equities in accordance with provisions of
the Plans which provisions may be changed at any time or from time to time
at the sole and absolute discretion of the Board of Directors and which
may be amended or otherwise changed at any time by the Board of Directors.
See "Business and Properties - Business - Equity Redemption Plans"
included herein.
At August 31, 1996 there are approximately 3,200 holders of common shares,
660 holders of associate member shares, and 10,700 holders of capital credits
based on holders of record.
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, 1996 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, 1995 and 1996 and for each of the years in the three-year period
ended August 31, 1996 (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" and the Consolidated Financial Statements
and related notes.
<TABLE>
<CAPTION>
Year Ended August 31
1992 1993 1994 1995 1996
(Amounts in Thousands except ratios)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:(1)(2)
Net Sales........................... $ 3,429,307 $ 4,722,940 $ 6,677,933 $ 7,256,869 $ 9,788,587
Operating Income of Industry
Segments.......................... 160,912 86,579 154,799 293,381 238,825
Interest Expense.................... 27,965 36,764 51,485 53,862 62,445
Income (Loss) From
Continuing Operations ............ 61,046 (30,400) 73,876 162,799 126,418
Net Income (Loss)................... $ 62,313 $ (30,400) $ 73,876 $ 162,799 $ 126,418
DISTRIBUTION OF NET INCOME (LOSS):
Patronage Refunds:
Allocated Equity.................. $ 1,038 $ 1,155 $ 44,032 $ 61,356 $ 60,776
Cash and Cash Equivalents......... 17,918 495 26,580 33,061 32,719
Earned Surplus and Other
Equities.......................... 43,357 (32,050) 3,264 68,382 32,923
$ 62,313 $ (30,400) 73,876 $ 162,799 $ 126,418
BALANCE SHEETS:
Working Capital..................... $ 208,629 $ 260,519 $ 290,704 $ 319,513 $ 322,050
Property, Plant and
Equipment, Net.................... 446,002 504,378 501,290 592,145 717,224
Total Assets........................ 1,526,392 1,719,981 1,926,631 2,185,943 2,568,446
Long-Term Borrowings (excluding
current maturities)............... 296,297 482,112 506,531 469,718 616,258
Capital Shares and Equities......... 588,129 561,707 585,013 687,287 755,331
</TABLE>
[FN]
(1) See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition, Liquidity and Capital
Resources", included herein, for a discussion of the pending income tax
litigation relating to Terra, a former subsidiary of the Company.
(2) Acquisitions and Dispositions:
(a) In December 1993, the Company acquired all the common stock of seven
(subsequently increased to eight) 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.
(b) During 1993, the Company and partners NBPC. Farmland retained a 58%
ownership interest in NBPC by investing $10.5 million in cash. The
partnership interest was increased to 68% effective March 31, 1995 and
to 75% effective September 1, 1996). On April 15, 1993, NBPC acquired
the business of Idle Wild Foods, Inc. ("Idle Wild"), a beef packing
plant and feedlot located in Liberal, Kansas. NBPC acquired the
assets by assuming liabilities of Idle Wild with a fair value of
approximately $130.6 million. 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 excess of liabilities assumed over the fair value
of the net identifiable assets acquired has been recorded as goodwill.
(c) 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.
(d) 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 $51.3 million 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
($21.0 million) acquired has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years.
(e) The following unaudited financial information for the years ended
August 31, 1992 and 1993 present 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.
August 31 (Unaudited)
1992 1993
(Amounts in Thousands)
Net Sales............................ $ 5,441,303 $ 5,357,867
Income (Loss) Before Extraordinary
Item................................$ 47,225 $ (44,040)
ITEM 7. 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 subordinated debt and
demand loan 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, 1996, the outstanding balance of demand
certificates increased by $26.6 million and the outstanding balance of
subordinated debt certificates increased by $24.1 million.
In May 1996, Farmland entered into a five year Credit Agreement (the
"Agreement") with various participating banks. The Agreement provides a $1.1
billion facility, subject to compliance with financial covenants as set forth in
the Agreement, consisting of an annually renewable short-term credit of up to
$650.0 million and a long-term credit of up to $450.0 million.
Farmland pays commitment fees under the Agreement equal to 1/10 of 1%
annually on the unused portion of the short-term credit and 1/4 of 1% annually
on the unused portion of the long-term credit. In addition, Farmland must comply
with the Agreement's financial covenants regarding working capital, the ratio of
certain debts to average cash flow, and the ratio of equity to total
capitalization, all as defined therein. The short-term credit provisions of the
Agreement are subject to review and renewal annually by the lenders and the
Company. The next renewal date is in May 1997. The Agreement matures in May
2001.
At August 31, 1996, under the Agreement the Company had short-term
borrowings of $236.6 million, long-term borrowings of $175.0 million and $69.5
million was being utilized to support letters of credit issued on behalf of
Farmland by participating banks. As of August 31, 1996, under the short-term
credit provisions, the Company had capacity to finance additional working
capital of $386.7 million and, under the long-term credit provisions, the
Company had capacity to borrow up to an additional $232.2 million.
NBPC maintains borrowing agreements with a group of banks which provide
financing support for its beef packing operations. Such borrowings are
nonrecourse to Farmland or Farmland's other affiliates (except to the extent of
$10.0 million). At August 31, 1996, $90.0 million was available under this
facility of which $47.0 million was borrowed and $0.6 million was utilized to
support letters of credit. In addition, NBPC has incurred certain long-term
borrowings from Farmland. NBPC has pledged certain assets to Farmland and such
group of banks to support its borrowings.
Tradigrain has borrowing agreements with various international banks which
provide financing and letters of credit to support current international grain
trading transactions. Obligations of Tradigrain under these loan agreements are
nonrecourse to Farmland or Farmland's other affiliates. At August 31, 1996,
such borrowings totaled $78.8 million.
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements, at August 31, 1996, $18.0 million was
borrowed.
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.
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 shares, associate member
common shares, capital credits or cash. For this purpose, net income or loss is
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 shares, associate member
shares, capital credits 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 1994, 1995 and 1996, the earned surplus account exceeded
the required amount by $2.3 million, $62.8 million and $45.5 million,
respectively.
Generally, a portion of the patronage refund is distributed in cash and the
balance (the allocated equity portion) is distributed in common shares,
associate member common shares or capital credits (depending on the membership
status of the recipient), or the Board of Directors may determine to distribute
the allocated equity portion in any other form or forms of equities. The
allocated equity portion of the patronage refund is determined annually by the
Board of Directors, but the allocated equity portion of the patronage refund is
not deductible for federal income tax purposes when it is issued unless at least
20% of the amount of the patronage refund is paid in cash. The allocated equity
portion of the patronage refund is a source of funds from operations which is
retained for use in the business and increases Farmland's equity base. Common
shares and associate member common shares may be redeemed by cash payments from
Farmland to holders thereof who participate in Farmland's base capital plan.
Common stock, associate member common stock, capital credits and other equities
of Farmland and Foods may be redeemed under other equity redemption plans. The
base capital plan and other equity redemption plans are described under
"Business and Properties - Business - Equity Redemption Plans" included herein.
Cash provided by operating activities totaled $182.1 million in 1996
compared with $47.5 million in 1995. This increase is primarily the result of
the cash effect of changes in working capital as cash generated through a
reduction in inventories and an increase in accounts payable were partially
offset by increased levels of accounts receivable and other current assets.
Other major sources of cash include $53.2 million from distributions from
joint ventures, sale of investments and collection of long-term notes
receivable, $50.7 million from investors in demand loan and subordinated debt
certificates and $71.1 million from bank loans and other notes.
Major uses of cash during 1996 include $192.0 million for capital additions
and other long-term assets, $51.9 million for acquisition of investments and
notes receivable, $39.5 million for acquisition of pork processing businesses
and facilities, $32.8 million for patronage refunds and dividends distributed
from 1995 earnings and $27.5 million for the redemption of allocated equities
under the Farmland base capital plan and special allocated equity redemption
plan.
In July 1983, Farmland sold the stock of Terra, a wholly owned subsidiary
engaged in oil and gas exploration and production operations, and exited its oil
and gas exploration and production activities. The gain from the sale of Terra
amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the IRS issued a statutory notice to Farmland asserting
deficiencies in federal income taxes (exclusive of statutory interest thereon)
in the aggregate amount of $70.8 million. The asserted deficiencies relate
primarily to the Company's tax treatment of the $237.2 million gain resulting
from its sale, in July 1983, of the stock of Terra and the IRS's contention that
Farmland incorrectly treated the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset. The statutory notice
further asserts that Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million, and a loss of approximately $2.3
million, from dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court in
September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $209.2 million,
before tax benefits of the interest deduction, through August 31, 1996), or
$295.0 million in the aggregate at August 31, 1996. 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 accumulating statutory
interest thereon (approximately $6.6 million), or $11.6 million in the aggregate
at August 31, 1996. The asserted federal and state income tax liabilities and
accumulated interest thereon 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 by the United States Tax
Court would be charged to current earnings and would have a material adverse
effect on the Company. In the event of such an adverse determination of the
Terra tax issue, certain financial covenants of the Company's Credit Agreement
(the "Agreement") become less restrictive. Had the United States Tax Court
decided in favor of the IRS on all unresolved issues, and had all related
additional federal and state income taxes and accumulated interest thereon been
due and payable on August 31, 1996, Farmland's borrowing capacity under the
Agreement was adequate at that time to finance the liability. However,
Farmland's ability to finance such an adverse decision depends substantially
on the financial effects of future operating events on its borrowing capacity
under the Agreement.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. The Company believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave LLP, the Company's special tax counsel, it is
more likely than not that the courts will ultimately conclude that the
Company's treatment of the Terra sale gain was substantially, if not entirely,
correct. Such counsel has further advised, however, that none of the issues
involved in this dispute is free from doubt, and there can be no assurance
that the courts will ultimately rule in favor of the Company on any of these
issues.
RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1994, 1995 AND 1996
The Company's revenues, margins and net income depend, to a large extent,
on conditions in agriculture and may be volatile due to factors beyond the
Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In addition,
various federal and state regulations to protect the environment encourage
farmers to reduce the use of fertilizers and other chemicals. Global variables
which affect supply, demand and price of crude oil, refined fuels, natural gas
and other commodities may impact the Company's operations. Historically,
changes in the costs of raw materials used in the manufacture of the Company's
finished products have not necessarily resulted in corresponding changes in the
prices at which such products have been sold by the Company. Management cannot
determine the extent to which these factors may impact future operations of the
Company. The Company's cash flow and net income may continue to be volatile as
conditions affecting agriculture and markets for the Company's products change.
The increase (decrease) in sales and operating income by business segment
in each of the years in the three-year period ended 1996, compared with the
respective prior year, is presented in the below table.
Management's discussion of industry segment sales, operating income or loss
and other factors affecting the Company's net income during 1994, 1995 and 1996
follows the table.
<TABLE>
<CAPTION>
Change in Sales Change in Net Income
1994 1995 1996 1994 1995 1996
Compared Compared Compared Compared Compared Compared
with 1993 with 1994 with 1995 with 1993 with 1994 with 1995
(Amounts in Millions)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) OF INDUSTRY SEGMENT
SALES AND OPERATING INCOME OR LOSS:
Petroleum.................. $ (32) $ 21 $ 181 $ 32 $ (35) $ 13
Crop Production............ 278 8 165 74 73 (20)
Feed....................... 49 (60) 102 (4) (7) 3
Food Processing
and Marketing ............. 943 337 528 4 56 (11)
Grain Marketing............ 674 279 1,566 (34) 52 (37)
Other...................... 43 (6) (10) (4) -0- (3)
$ 1,955 $ 579 $ 2,532 $ 68 $ 139 $ (55)
<CAPTION>
<S> <C> <C> <C>
CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease....................... $ (9) $ (14) $ (11)
Interest expense (increase) decrease................................. (15) (2) (8)
Other income and deductions increase (decrease)...................... 14 (6) 10
Equity in net income of investees increase (decrease)................ 23 11 18
Minority owners' interest in net income of subsidiaries
(increase) decrease ............................................... 5 (14) 2
Provision for loss on disposition of assets
(increase) decrease ............................................... 29 -0- -0-
Income taxes (increase) decrease..................................... (11) (25) 8
Net income increase (decrease)....................................... $ 104 $ 89 $ (36)
</TABLE>
In computing the operating income or loss of an industry segment, none of
the following have been added or deducted: corporate expenses (included in the
Consolidated Statements of Operations as selling, general and administrative
expenses) which cannot be identified or allocated, practicably, to an industry
segment, interest expense, interest income, equity in net income (loss) of
investees, other income (deductions) and income taxes.
PETROLEUM
SALES
Sales of the petroleum business increased $181.5 million in 1996 compared
with 1995. This increase was primarily the result of increased fuel (gasoline,
distillate, diesel and propane) prices and unit sales of approximately 11% and
9.5%, respectively.
Sales of the petroleum business increased $21.3 million in 1995 compared
with 1994, or 2.5%. Sales of gasoline increased $42.1 million due to 9.6% higher
unit sales and 2.4% higher prices. Sales of distillates and propane decreased
$14.3 million and $3.0 million, respectively, and sales of other petroleum
products decreased $3.5 million. Unit sales of distillates and propane
decreased as a result of the mild winter and a wet spring.
Sales of petroleum products reflect a decrease of $31.9 million in 1994
compared with 1993 primarily due to lower prices of refined fuels and propane.
The effect of lower prices was to reduce reported sales by approximately $62.4
million. Part of this decrease was offset by the effect of a 6% increase in
refined fuels and propane unit sales.
OPERATING INCOME
The petroleum business had operating income of $5.0 million in 1996
compared to an operating loss of $8.0 million in 1995. This improvement was
primarily attributable to higher unit margins resulting from seasonal demand
pressure on product price movements. In addition, petroleum realized some
margin improvement resulting from increased production capacity at the Company's
refinery.
The petroleum business incurred an operating loss of $8.0 million in 1995
compared with operating income of $27.2 million in 1994. This was attributable
to increased crude oil costs (approximately 9%) without corresponding increases
in finished product selling prices.
Results from petroleum operations increased $31.7 million in 1994 compared
with 1993 primarily because unit margins on diesel fuels with low levels of
sulfur (required by the Environmental Protection Agency ("EPA") for diesel fuel
sold after September 30, 1993) were higher than the prior year. These margins,
which were significantly higher immediately after the crossover to the low
sulfur level diesel fuels, decreased to normal levels later in 1994. In
addition, margins on other refined fuels improved in 1994 compared with 1993
because the cost per barrel of crude oil decreased and because production at the
Coffeyville, Kansas refinery was substantially higher than in the prior year.
CROP PRODUCTION
SALES
Crop production sales, consisting primarily of plant nutrients, increased
$164.9 million or 14.1% in 1996 compared with 1995. This increase was primarily
a net result of increased unit sales of phosphate and nitrogen fertilizers and
higher phosphate prices, partly offset by a slight decline of nitrogen prices.
Sales of the crop production business increased $8.0 million in 1995
compared with 1994. Sales of plant nutrients increased $117.9 million due to
higher selling prices. Unit sales of plant nutrients decreased slightly from
the record level of 7.4 million tons set in 1994. Sales of crop protection
products reflect a decrease of $109.9 million as a result of placing the
Company's crop protection operations in a 50%-owned joint venture on January 1,
1995.
Crop production sales in 1994 increased $278.5 million compared with 1993
due to higher plant nutrient prices and unit sales. The average price per ton
of nutrient increased approximately 13.3% and unit sales increased approximately
1.1 million tons or 18%.
OPERATING INCOME
Operating income of the Company's crop production business reflects a
decrease of $19.7 million in 1996 compared with 1995. However, the aggregate
contribution to net income from all crop production operations (including joint
ventures) was at about the same level in 1996 as in 1995.
The Company's crop production operations reflect a decrease primarily
because of lower fertilizer margins. The approximately $6.0 million, or 2.8%,
decrease in nitrogen fertilizer margins was the result of lower average unit
selling prices combined with higher raw material costs. Unit margins from the
Company's phosphate fertilizer operations decreased approximately $17.0
million. The effect of these decreases were largely offset by an increase of
approximately $17.1 million in the Company's share of net income from joint
ventures engaged in phosphate fertilizer manufacturing operations and an
increase of approximately $2.4 million in the Company's share of net income from
WILFARM (a joint venture engaged in the distribution of crop protection
products).
Operating income of the crop production business increased $72.7 million
in 1995 compared with 1994. In addition, the Company's share of the net income
of joint ventures engaged in phosphate manufacturing increased $4.6 million and
the Company's share of net income of WILFARM was $2.2 million. The increased
operating results from crop production operations was principally attributable
to the effect of higher selling price on unit margins and contributed
significantly to the Company's increased net income in 1995.
Operating income of the crop production business in 1994 increased $74.4
million compared with 1993. This increase resulted from higher unit sales and
unit margins. Unit margins in 1994 were approximately twice the level of 1993
which increased operating income in this segment approximately $66.8 million.
Unit sales increased over one million tons (18%) which increased operating
income by approximately $10.8 million. In addition, included in the statement
of operations in the caption "Equity in income (loss) of investees", is $15.3
million in 1994 representing the Company's share of net income from fertilizer
joint ventures. This is an increase of $23.4 million compared with 1993.
Demand for plant nutrients in 1994 was stronger than in 1993 due to an increase
in the number of acres under cultivation, principally corn acreage (corn acreage
harvested was relatively low in 1993 due to wet weather and the resulting floods
in the Company's trade territory). In addition, demand for plant nutrients was
stimulated by favorable weather conditions during the fall and spring
application seasons. The increased demand for plant nutrients translated into
higher unit sales and margins and contributed significantly to the Company's
increased net income in 1994.
FEED
SALES
Sales of feed products increased 21.9% to $569.9 million in 1996 compared
with $467.7 million in 1995. The increase is primarily attributable to higher
unit prices which reflects higher cost of raw materials. In addition, unit
sales of formula feed and feed ingredients increased approximately 2% and 10%,
respectively.
Sales of the feed business decreased $60.1 million in 1995 compared with
1994. This decrease reflects lower unit sales in traditional markets for beef,
dairy and swine feed partly offset by increased commercial (bulk) feed sales.
Unit sales of dairy feed decreased because the number of dairy cattle on feed
programs in the Company's trade territory decreased in 1995. Beef and swine
feed unit sales decreased because the relatively low market prices available to
livestock producers encouraged such producers to reduce input costs wherever
possible and such efforts were aided by the mild winter during which pastures in
most of the Company's trade area remained open and provided suitable grazing for
beef cattle.
Sales of feed products increased $48.7 million in 1994 compared with 1993.
Unit sales of formula feed and feed ingredients each increased approximately 10%
which generated a $39.6 million increase in sales. The balance of the sales
increase resulted primarily from higher feed ingredient prices.
OPERATING INCOME
Operating income of the feed business increased $2.9 million in 1996
compared with 1995. This increase is attributable primarily to increased unit
margins on feed grade phosphate and to increased sales of feed ingredients.
Operating income of the feed business decreased $7.0 million in 1995
compared with 1994. This decease is attributable to decreased unit sales in
traditional markets with cooperatives combined with a net loss on sales to
commercial accounts.
Operating income of the feed business segment decreased $3.7 million in
1994 compared with 1993. Gross margins decreased approximately $0.5 million
reflecting lower margins on feed ingredients and pet food of $0.8 million and
$0.4 million, respectively, partly offset by $0.7 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.
FOOD PROCESSING AND MARKETING
SALES
Sales of the food processing and marketing business increased $528.1
million in 1996 compared with 1995. Beef sales increased $308.7 million due
primarily to the effect of including operations of the Hyplains Beef L.C.
("Hyplains") beef plant in the Company's financial statements for a full year in
1996. The Company acquired a majority ownership in this plant in March 1995.
Pork sales increased $219.4 million primarily as a result of higher unit sales
of branded products mostly as a result of acquisitions (OhSe and Farmstead
brands).
Sales of the food processing and marketing business increased $337.3
million in 1995 compared with 1994. Sales of beef increased $350.6 million.
Approximately $235.0 million of this increase resulted from NBPC's purchase of
assets from Hyplains (formerly 50%-owned by Farmland). The balance of the
increased sales of beef resulted primarily from increased volume (approximately
16%) at NBPC's plant. Sales of pork decreased $13.3 million reflecting the net
effect of lower wholesale pork prices, partly offset by higher unit sales.
Sales of the food processing and marketing business increased $943.0
million in 1994 compared with 1993. Sales of beef increased $747.0 million
principally because NBPC has been included in the Company's 1994 results for the
full year. NBPC was acquired in April 1993. Pork sales increased
$195.9 million, due mostly to including operations of the Monmouth, Illinois
plant in the Company's results for a full year in 1994. This plant was acquired
in February 1993. In addition, sales of specialty meats of the Company's
Carando division increased $13.0 million.
OPERATING INCOME
Operating income of the food processing and marketing business of $66.0
million represents an $11.1 million decrease compared to 1995. This decrease
primarily results from decreased margins on fresh pork and increased pork
administrative expenses, partially offset by increased beef unit sales.
Operating income of the food processing and marketing business increased
$56.5 million in 1995 compared with 1994. This increase includes increased
operating income of $43.5 million in beef operations and $13.0 million in pork
operations. In addition, the Company's share of net income of Hyplains in 1995
(for the period prior to its acquisition by NBPC) increased $5.2 million
compared with 1994. These increases reflect increased unit margins (mostly a
result of lower cattle and hog market prices) and an increased number of cattle
and hogs processed.
Operating income in the food processing and marketing segment of $20.6
million in 1994 reflects an increase of $4.1 million compared with 1993. The
increase includes $13.0 million higher operating income of the pork business
partly offset by an $8.9 million decrease of operating income of the beef
business. Operating income from pork processing and marketing operations
increased primarily due to higher volume and higher margins on fresh pork,
branded pork, hams and specialty meats of the Carando division. Operating
income of the beef business decreased owing to weak consumer demands for beef
and industry price competition.
GRAIN MARKETING
SALES AND OPERATING INCOME
Grain sales increased $1.6 billion, or 82%, principally owing to a 40%
increase in units sold combined with increased grain prices. Grain had a $19.0
million operating loss in 1996 compared with $17.9 million operating income in
1995. The operating loss was principally attributable to drought conditions in
certain major wheat producing regions of the United States which resulted in
both shortages of and significantly higher prices for wheat. Due to this
shortage, the Company had to source wheat (in order to meet contractual
obligations), from domestic geographic areas further from the Company's Gulf
coast export elevator than expected, resulting in higher than anticipated
purchase prices and transportation charges. The Company's policy is to hedge
its exposure to price fluctuations. However, in order to avoid influencing
price movement in certain commodity futures markets, significant contracts are
hedged over a period of time, but as soon as practical, after such contracts
are written. In 1996, the Company entered into a significant fixed price sales
contract. During the time required to fully hedge this contract, the market
for wheat was relatively volatile but generally trended upward. The joint
effect of these factors contributed to the loss in the Company's grain
operations.
Sales of grain increased $279.0 million in 1995 compared with 1994. This
increase resulted from higher grain prices and unit sales, primarily export
sales. Operating income of the grain business totaled $17.9 million in 1995
compared with a loss of $33.5 million in 1994. The increase in operating
results was attributable to approximately 59.0 million bushels higher export
volume by the North American grain division, increased volume of international
grain brokered by Tradigrain and as a result of more favorable unit margins
which developed as market prices increased in response to decreased worldwide
production in 1995.
Grain sales increased $673.6 million in 1994 compared with 1993 primarily
due to the acquisition of Wells-Bowman Trading Company and from operating
elevators in Utah and Idaho which were leased to the Company in 1994.
The grain marketing business had an operating loss of $33.5 million in
1994 compared with near break-even operations in 1993. The operating loss in
1994 resulted primarily from negative unit margins on international grain
transactions and higher domestic operating expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $24.6
million, or 7.1%, in 1996 compared with 1995. Approximately $13.5 million of
the increase was directly connected to business segments (primarily the pork and
grain businesses) and has been included in the determination of the operating
income of business segments. The increase of general corporate expenses, not
identified to business segments ($11.1 million), includes higher expenses from
improving the management information systems and higher employee related costs.
SG&A increased $39.1 million in 1995 compared with 1994. Approximately
$25.3 million of the increase was directly connected to business segments
(primarily the grain and pork businesses) and has been included in the
determination of the operating income of business segments. The increase of
general corporate expenses, not identified to business segments ($13.8 million),
reflects higher variable compensation, pension and other employee costs and
higher costs for legal services.
SG&A increased $81.5 million in 1994 compared with 1993. However, as a
percent of sales, these expenses were slightly lower in 1994 than in 1993.
Approximately $17.6 million of the increase resulted from acquisitions of
subsidiaries 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.
OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense increased $8.6 million in 1996 compared with 1995,
reflecting higher average borrowings, partly offset by a slight decline in the
average interest rate.
Interest expense increased $2.4 million in 1995 compared with 1994,
reflecting a higher average interest rate (approximately 1/2% higher), partly
offset by a lower amount of average borrowings.
Interest expense reflects an increase of $14.7 million in 1994 compared
with 1993. The increase is primarily attributable to including the interest
costs of NBPC's beef operations in the Company's financial statements for a full
year in 1994, the acquisition of National Carriers, Inc. and Tradigrain in May
1994 and by higher interest rates.
CAPITAL EXPENDITURES
See "Business and Properties - Business - Capital Expenditures and
Investments in Ventures" included herein.
OTHER, NET
In May 1996, the Company sold its interest in a communications joint
venture, Broadcast Partners. The sale resulted in a gain before income taxes of
$10.9 million, which has been included in the caption "Other income
(deductions): Other, net" in the Company's 1996 Consolidated Statement of
Operations. See Note 16 of the Notes to Consolidated Financial Statements
included herein.
In June 1993, the Company filed a lawsuit against 43 insurance carriers
and other parties (the "Defendants") seeking declaratory judgments regarding the
Defendants' insurance coverage obligations for environmental remediation costs.
In 1994, 1995 and 1996, the Company negotiated settlements with 20, 2 and 3
insurance companies, respectively, and, as part of the settlements, the Company
provided the Defendants with releases of various possible environmental
obligations. As a result of these settlements, the Company received cash
payments of $13.6 million, $0.3 million and $0.5 million in 1994, 1995 and 1996,
respectively, and has included such amounts in the caption "Other income
(deductions): Other, net" in the Company's and Consolidated Statement of
Operations for the year then ended. See Note 16 of the Notes to Consolidated
Financial Statements included herein.
MATTERS INVOLVING THE ENVIRONMENT
See "Business and Properties - Business - Business Risk Factors" and " -
Matters Involving the Environment" included herein.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, ''Accounting for Certain
Investments in Debt and Equity Securities'' (''Statement 115''), which was
issued by the Financial Accounting Standards Board (''FASB'') in May 1993.
Statement 115 expands the use of fair value accounting and the reporting for
investments in equity securities that have readily determinable fair values and
for all investments in debt securities. The effect of the Company's
implementation of Statement 115 at September 1, 1994 was insignificant.
In the first quarter of 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, ''Employer's Accounting for
Postemployment Benefits'' (''Statement 112''), which was issued by FASB in
November 1992. Statement 112 establishes standards of accounting and reporting
for the estimated cost of benefits provided to former or inactive employees. The
effect of the Company's implementation of Statement 112 at September 1, 1994 was
insignificant.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed of"
("Statement 121") was issued by FASB in March 1995 and is effective for fiscal
years beginning after December 15, 1995 (the Company's 1997 fiscal year).
Statement 121 establishes accounting standards for the impairment of long-lived
assets, certain identifiable intangible, and goodwill related to those assets to
be held and used and for long-lived assets and certain identifiable intangibles
to be disposed of. Management expects that the adoption of Statement 121 will
not have a significant impact on the Company's Consolidated Financial
Statements.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement in this
Form 10-K to make applicable and take advantage of the new "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statement made by, or on behalf of, the Company. The factors
identified in this cautionary statement important factors (but not necessarily
all important factors) that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company.
Where any such forward-looking statement includes a statement of the
assumptions or basis underlying such forward-looking statement, the Company
cautions that, while it believes such assumptions or basis to be reasonable and
makes them in good faith, assumed facts or basis almost always vary from actual
results, and the differences between assumed facts or basis and actual results
can be material, depending upon the circumstances. Where, in any forward-
looking statement, the Company, or its management, expresses an expectation or
belief as to future results, such expectation or belief is expressed in good
faith and believed to have a reasonable basis, but there can be no assurance
that the statement of expectation or belief will result or be achieved or
accomplished. The words "believe", "expect" and "anticipate" and similar
expressions identify forward-looking statements.
Taking into account the foregoing, the following are identified as
important factors that could cause actual results to differ materially from
those expressed in any forward-looking statement made by, or on behalf of, the
Company:
1.Weather patterns (flood, drought, frost, etc.) or crop failure.
2.Federal or state regulations regarding agricultural programs and production
efficiencies.
3.Federal or state regulations regarding the amounts of fertilizer and other
chemical applications used by farmers.
4.Factors affecting the export of U.S. agricultural produce (including foreign
trade and monetary policies, laws and regulations, political and governmental
changes, inflation and exchange rates, taxes, operating conditions and world
demand).
5.Factors affecting supply, demand and price of crude oil, refined fuels,
natural gas and other commodities.
6.Regulatory delays and other unforeseeable obstacles beyond the Company's
control that may affect growth strategies through acquisitions and
investments in joint ventures.
7.Competitors in various segments which may be larger than the Company, offer
more varied products or possess greater resources.
8.Unusual or unexpected events such as, among other things, litigation
settlements, adverse rulings or judgments, and environmental remediation
costs in excess of reserves.
9.The factors identified in "Business and Properties - Business - Business Risk
Factors".
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ...............................16
Consolidated Balance Sheets, August 31, 1995 and
1996 .......................................................18
Consolidated Statements of Operations for each of
the years in the three-year period ended August
31, 1996 ...................................................26
Consolidated Statements of Cash Flows for each of
the years in
the three-year period ended August 31, 1996 ................30
Consolidated Statements of Capital Shares and
Equities for each of the years in the three-year
period ended August 31, 1996 ...............................36
Notes to Consolidated Financial Statements .................42
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, 1995 and 1996, 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, 1996.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farmland Industries,
Inc. and subsidiaries as of August 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1996, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
October 18, 1996
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Accounts receivable - trade........................................ $ 446,232 $ 624,002
Inventories (Note 3)............................................... 772,528 736,620
Other current assets............................................... 60,883 101,748
Total Current Assets.......................................... $ 1,279,643 $ 1,462,370
Investments and Long-Term Receivables (Note 4)....................... $ 185,687 $ 241,124
Property, Plant and Equipment (Notes 5 and 6):
Property, plant and equipment, at cost............................. $ 1,334,849 $ 1,506,460
Less accumulated depreciation and amortization..................... 742,704 789,236
Net Property, Plant and Equipment.................................. $ 592,145 $ 717,224
Other Assets......................................................... $ 128,468 $ 147,728
Total Assets......................................................... $ 2,185,943 $ 2,568,446
FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
August 31
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Demand loan certificates............................................... $ 13,524 $ 40,099
Short-term notes payable (Note 6)...................................... 346,133 315,428
Current maturities of long-term debt (Note 6).......................... 42,394 41,080
Accounts payable - trade............................................... 245,905 392,436
Accrued payroll........................................................ 50,337 48,893
Other current liabilities.............................................. 261,837 302,384
Total Current Liabilities......................................... $ 960,130 $ 1,140,320
Long-Term Liabilities (Note 6):
Long-term borrowings (excluding current maturities).................... $ 469,718 $ 616,258
Other long-term liabilities............................................ 36,315 35,983
Total Long-Term Liabilities....................................... $ 506,033 $ 652,241
Deferred Income Taxes (Note 7)........................................... $ 12,501 $ 6,709
Minority Owners' Equity in Subsidiaries (Note 8)......................... $ 19,992 $ 13,845
Capital Shares and Equities (Note 9):
Preferred shares, $25 par value--Authorized 8,000,000 shares, 50,565
shares issued and outstanding
(98,113 shares in 1995).............................................. $ 2,453 $ 1,264
Common shares, $25 par value--Authorized 50,000,000
shares, 16,580,112 shares issued and outstanding
(15,416,370 shares in 1995)......................................... 385,409 414,503
Associate member common shares (nonvoting), $25 par value --Authorized
2,000,000 shares, 623,058 shares
issued and outstanding (445,323 shares in 1995)...................... 11,133 15,576
Earned surplus and other equities...................................... 288,292 323,988
Total Capital Shares and Equities............................ $ 687,287 $ 755,331
Contingent Liabilities and Commitments (Notes 6, 7 and 10)
Total Liabilities and Equities............................................. $ 2,185,943 $ 2,568,446
<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 1995 1996
(Amounts in Thousands)
<S> <C> <C> <C>
Sales........................................................ $ 6,677,933 $ 7,256,869 $ 9,788,587
Cost of sales................................................ 6,284,084 6,699,178 9,272,002
Gross income................................................. $ 393,849 $ 557,691 $ 516,585
Selling, general and administrative expenses................. $ 305,279 $ 344,364 $ 368,954
Other income (deductions):
Interest expense.......................................... $ (51,485) $ (53,862) $ (62,445)
Interest income........................................... 6,170 8,334 5,021
Other, net (Note 16)...................................... 20,111 11,600 24,257
Total other income (deductions).............................. $ (25,204) $ (33,928) $ (33,167)
Income before income taxes and equity in net income of
investees and minority owners'
interest in net (income) loss of subsidiaries............ $ 63,366 $ 179,399 $ 114,464
Income tax expense (Note 7)................................. 4,890 29,628 21,755
Income before equity in net income of investees and minority
owners' interest in net
(income) loss of subsidiaries............................ $ 58,476 $ 149,771 $ 92,709
Equity in net income of investees
(Note 4).................................................. 10,878 22,785 41,092
Minority owners' interest in net (income)
loss of subsidiaries...................................... 4,522 (9,757) (7,383)
Net income .................................................. $ 73,876 $ 162,799 $ 126,418
Distribution of net income (Note 9):
Patronage refunds:
Farm supply patrons....................................... $ 59,685 $ 74,557 $ 83,739
Pork marketing patrons.................................... 10,927 16,087 6,998
Beef marketing patrons.................................... -0- 2,488 2,753
Grain marketing patrons................................... -0- 1,285 -0-
Livestock production...................................... -0- -0- 5
$ 70,612 $ 94,417 $ 93,495
Earned surplus and other equities (Note 9)................ 3,264 68,382 32,923
$ 73,876 $ 162,799 $ 126,418
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
1994 1995 1996
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................... $ 73,876 $ 162,799 $ 126,418
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................ 62,960 69,138 77,741
Gain on disposition of investments........................... -0- -0- (11,300)
(Gain) loss on disposition of fixed assets................... (1,794) 1,882 (967)
Patronage refunds received in equities....................... (2,171) (2,025) (2,244)
Proceeds from redemption of patronage equities............... 573 3,776 5,112
Equity in net income of investees............................ (10,878) (22,785) (41,092)
Deferred income tax (benefit) expense........................ (5,034) 6,161 11,034
Minority owners' equity in net
income (loss) of subsidiaries.............................. (4,522) 9,757 7,383
Other........................................................ 5,292 412 (2,335)
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable........................................ (12,079) (70,413) (175,991)
Inventories................................................ (4,692) (186,570) 47,220
Other assets............................................... (34,873) 38,889 (40,774)
Accounts payable........................................... 17,884 782 140,721
Other liabilities.......................................... 32,617 35,684 41,194
Net cash provided by operating activities...................... $ 117,159 $ 47,487 $ 182,120
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses...................................... $ (35,790) $ -0- $ (39,536)
Proceeds from sale of investments
and collection of notes receivable........................... 34,577 39,780 31,003
Acquisition of investments and notes receivable................ (22,117) (26,789) (51,923)
Capital expenditures........................................... (69,776) (124,722) (168,272)
Acquisition of other long-term assets.......................... (11,117) (2,141) (23,768)
Proceeds from sale of fixed assets............................. 14,785 3,828 5,996
Distribution from joint venture............................... -0- 513 22,239
Proceeds from sale of assets to
joint venture partner....................................... 2,310 -0- -0-
Other.......................................................... 5,547 -0- (6,803)
Net cash used in investing activities.......................... $ (81,581) $ (109,531) $ (231,064)
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31
1994 1995 1996
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand loan $ (6,702) $ (9,634) $ 26,575
certificates................................
Proceeds from bank loans and notes payable.. 888,088 522,916 597,959
Payments of bank loans and notes payable....(924,731) (513,672) (526,814)
Proceeds from issuance of subordinated debt 57,636 46,715 67,965
certificates................................
Payments for redemption of subordinated
debt certificates......................... (33,034) (26,866) (43,803)
Net increase (decrease) in checks
and drafts outstanding.................... -0- 37,088 (6,144)
Payments for redemption of equities......... (3,244) (12,431) (27,470)
Payments of patronage refunds and dividends. -0- (26,648) (32,781)
Other, increase (decrease).................. 2,120 492 (6,543)
Net cash provided by (used in) financing $(19,867) $ 17,960 $ 48,944
activities..................................
Net increase (decrease) in cash and cash $ 15,711 $(44,084) $ -0-
equivalents.................................
Cash and cash equivalents at beginning of 28,373 44,084 -0-
year........................................
Cash and cash equivalents at end of year....$ 44,084 $ -0- $ -0-
SUPPLEMENTAL SCHEDULE OF CASH PAID FOR
INTEREST AND INCOME TAXES:
Interest....................................$ 43,419 $ 50,551 $ 58,125
Income taxes (net of refunds)...............$ 9,746 $ 30,422 $ 27,943
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Equities and minority owners' interest
called
for redemption............................$ 12,935 $ 27,738 $ 25,214
Transfer of assets in exchange for
investment in
joint ventures............................$ 309 $ 2,061 $ -0-
Appropriation of current year's net income
as patronage refunds......................$ 70,612 $ 94,417 $ 93,495
Acquisition of businesses:
Fair value of net assets acquired.........$131,847 $ -0- $ 52,401
Goodwill.................................. 1,094 -0- 3,181
Minority owners' investment............... (843) -0- -0-
Cash Paid................................. (35,790) -0- (39,536)
Liabilities assumed.........................$ 96,308 $ -0- $ 16,046
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES
<TABLE>
<CAPTION>
Years Ended August 31, 1994, 1995 and 1996
Associate Earned Total
Member Surplus and Capital
Preferred Common Common Other Shares and
Shares Shares Shares Equities Equities
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1993......................... $ 3,708 $ 379,996 $ 8,196 $ 169,807 $ 561,707
Issue, redemption and cancellation of equities..... -0- (355) 17 (3,397) (3,735)
Appropriation of current year's net income......... -0- -0- -0- 73,876 73,876
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (26,552) (26,552)
Base capital redemptions transferred
to current liabilities........................... -0- (8,628) (112) -0- (8,740)
Other equity redemptions transferred
to current liabilities........................... (6) (9) -0- (3,440) (3,455)
Transferred to liabilities......................... -0- -0- -0- (8,084) (8,084)
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- (7,442) 1,167 6,275 -0-
BALANCE AT AUGUST 31, 1994......................... $ 3,702 $ 363,562 $ 9,268 $ 208,481 $ 585,013
Issue, redemption and cancellation of equities..... -0- (51) 332 (990) (709)
Appropriation of current year's net income......... -0- -0- -0- 162,799 162,799
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (33,061) (33,061)
Base capital redemptions transferred
to current liabilities........................... -0- (13,939) (220) -0- (14,159)
Other equity redemptions transferred
to current liabilities........................... (1,249) (30) -0- (11,477) (12,756)
Prior year patronage refund allocation............. -0- 35,940 1,508 (37,284) 164
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- (73) 245 (172) -0-
BALANCE AT AUGUST 31, 1995......................... $ 2,453 $ 385,409 $11,133 $ 288,292 $ 687,287
Issue, redemption and cancellation of equities..... 1 (166) (6) 29 (142)
Appropriation of current year's net income......... -0- -0- -0- 126,418 126,418
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (32,719) (32,719)
Base capital redemptions transferred
to current liabilities........................... (1,190) (13,922) (103) -0- (14,025)
Other equity redemptions transferred
to current liabilities........................... -0- (6,578) (287) (3,272) (11,327)
Prior year patronage refund allocation............. -0- 49,644 6,493 (56,294) (157)
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- 116 (1,654) 1,538 -0-
BALANCE AT AUGUST 31, 1996 $ 1,264 $ 414,503 $15,576 $ 323,988 $ 755,331
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Farmland Industries, Inc., a Kansas corporation, is organized and operated
as a cooperative and its mission is to be a producer-driven, customer-focused
and profitable agricultural supply to consumer foods cooperative system.
General -- The consolidated financial statements include the accounts of
Farmland Industries, Inc. and all of its majority-owned subsidiaries ("Farmland"
or the "Company", unless the context requires otherwise). All significant
intercompany accounts and transactions have been eliminated. When necessary,
the financial statements include amounts based on informed estimates and
judgments of management. The Company's fiscal year ends August 31.
Accordingly, all references to "year" or "years" are to fiscal years ended
August 31.
Cash and Cash Equivalents -- Investments with maturities of less than three
months are included in "Cash and cash equivalents."
Investments -- Investments in companies over which the Company exercises
significant influence (20% to 50% voting control) are accounted for by the
equity method. Other investments are stated at cost, less any provision for
impairment (other than temporary impairment).
Accounts Receivable -- The Company uses the allowance method to account for
doubtful accounts and notes. Pursuant to the Company's right to offset, as
contained in its bylaws, uncollectible accounts and notes receivable from
members are written off against the common shares held by members before such
uncollectible accounts are charged to operations.
Inventories -- Grain inventories are valued at market adjusted for net
unrealized gains or losses on open commodity contracts. Crude oil, refined
petroleum products, cattle and beef inventories are valued at the lower of
last-in, first-out ("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.
Property, Plant and Equipment -- Assets, including assets under capital
leases, are stated at cost. Depreciation and amortization are computed
principally using the straight-line method over the estimated useful lives of
the assets and the remaining terms of the capital leases, respectively.
Goodwill -- The excess of cost over the fair market value of assets of
businesses purchased is amortized on a straight-line basis over a period of 15
to 25 years. The Company assesses the recoverability of goodwill by determining
whether the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows. Goodwill is
reflected in the accompanying Consolidated Balance Sheets net of accumulated
amortization of $6.9 million and $10.3 million, respectively at August 31, 1995
and 1996.
Sales -- The Company's policy is to recognize sales at the time product is
shipped. Net margins on international grain merchandised, rather than the gross
value of such products merchandised, are included in net sales. The gross value
of international grain merchandised in 1994, 1995 and 1996 was $590.2 million,
$1.6 billion and $2.6 billion, respectively.
Environmental Expenditures -- 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 as new facts or changes in law or technology occur.
Environmental expenditures are capitalized when such costs provide future
economic benefits.
Federal Income Taxes -- Farmland is subject to income taxes on all income
not distributed to patrons as patronage refunds. Farmland files consolidated
federal and state income tax returns.
Reclassification -- Certain prior-year amounts have been reclassified to
conform with the current year presentation.
(2) ACQUISITIONS
In December 1993, the Company acquired all the common stock of seven
international grain trading companies (collectively referred to as
"Tradigrain"). The purchase price for Tradigrain ($31.4 million) was paid in
cash.
The acquisition of Tradigrain has been accounted for by the purchase method
of accounting and, accordingly, the operating results have been included in the
Company's Consolidated Financial Statements from the date 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 effect of the acquisition of Tradigrain on
the Consolidated Financial Statements is not significant.
(3) INVENTORIES
Major components of inventories are as follows:
August 31
1995 1996
(Amounts in Thousands)
Finished and in-process products..... $ 682,801 $ 620,794
Materials............................ 39,399 58,526
Supplies............................. 50,328 57,300
$ 772,528 $ 736,620
The carrying values of crude oil and refined petroleum inventories stated
under the lower of LIFO cost or market at August 31, 1995 and 1996 were
$82.6 million and $111.8 million, respectively. Replacement cost approximated
the LIFO carrying values of inventories at both August 31, 1995 and 1996.
The carrying values of beef inventories stated under the lower of LIFO or
market at August 31, 1995 and 1996 were $30.2 million and $32.3 million,
respectively. At both August 31, 1995 and 1994, market value was lower than
LIFO and, accordingly, such inventories were valued at market.
(4) INVESTMENTS AND LONG-TERM RECEIVABLES
Investments and long-term receivables are as follows:
August 31
1995 1996
(Amounts in Thousands)
Investments accounted for by the equity method $ 88,786 $ 147,028
Investments in and advances to other cooperatives 47,328 44,944
National Bank for Cooperatives ............ 27,000 24,913
Other investments and long-term receivables 18,355 22,796
Notes receivable from ventures, 20% to 50% owned 4,218 1,443
$185,687 $241,124
National Bank for Cooperatives ("CoBank") requires its borrowers 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, 1995 and 1996, Farmland's investment in CoBank
approximated its requirement. CoBank maintains a statutory lien on the
investment held by the Company in CoBank.
Summarized financial information of investees accounted for by the equity
method is as follows:
August 31
1995 1996
(Amounts in Thousands)
Current Assets............................. $243,259 $228,883
Long-Term Assets........................... 238,297 319,166
Total Assets............................ $481,556 $548,049
Current Liabilities........................ $ 205,713 $191,632
Long-Term Liabilities...................... 94,029 57,208
Total Liabilities....................... $299,742 $248,840
Net Assets................................. $181,814 $299,209
Year Ended August 31
1994 1995 1996
(Amounts in Thousands)
Net sales..................... $ 803,516 $1,212,592 $1,154,195
Net income.................... $ 24,285 $ 46,803 $ 83,075
Farmland's equity in net
income.....................$ 10,878 $ 22,785 $ 41,092
The Company's investments accounted for by the equity method consist
principally of 50% equity interests in three manufacturers of crop production
products, Farmland Hydro, L.P., SF Phosphates Limited Company and Farmland
MissChem, Limited (expected to commence production in 1998) and a 50% equity
interest in a distributor of crop protection products, WILFARM, LLC.
Effective September 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities." The cumulative effect of this change in the use of fair
value accounting and reporting for certain investments in debt and equity
securities was immaterial.
(5) PROPERTY, PLANT AND EQUIPMENT
A summary of cost for property, plant and equipment is as follows:
August 31
1995 1996
(Amounts in Thousands)
Land and improvements...... $ 42,355 $ 50,800
Buildings.................. 245,460 278,097
Machinery and equipment.... 765,383 880,152
Automotive equipment....... 67,124 67,754
Furniture and fixtures..... 54,888 61,426
Capital leases............. 49,241 50,562
Leasehold improvements..... 21,763 24,539
Other...................... 7,124 8,837
Construction in progress... 81,511 84,293
$1,334,849 $1,506,460
During 1994, 1995 and 1996, the Company capitalized construction period
interest of $0.4 million, $0.7 million and $1.6 million, respectively.
(6) BANK LOANS, SUBORDINATED DEBT CERTIFICATES AND NOTES PAYABLE
Bank loans, subordinated debt certificates and notes payable are as
follows:
August 31
1995 1996
(Amounts in Thousands)
Subordinated capital investment
certificates
--6% to 9.5%, maturing 1997 through 2004 $ 225,132 $ 245,792
Subordinated monthly income certificates
--6.25% to 10.5%, maturing 1997 through 2006 74,863 78,313
Syndicated Credit Facility
--5.73% to 6.05%, maturing 2001....... 85,000 175,000
Other bank notes--7.2% to 10.75%,
maturing 1997 through 2001............ 71,498 88,704
Industrial revenue bonds--6.75% to
9.25%, maturing 1997 through 2007............ 21,750 18,930
Promissory notes--7% to 8.5%,
maturing 1997 through 2002............ 17,210 16,917
Other--5% to 14.92%..................... 16,659 33,682
512,112 657,338
Less current maturities................. 42,394 41,080
$ 469,718 $ 616,258
The Company has a $1.1 billion Credit Agreement ("the Agreement"). The
Agreement provides short-term credit of up to $650.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $450 million. At
August 31, 1996, the Company had $236.6 million of short-term borrowings under
the Agreement, $175.0 million of revolving term borrowings and $69.5 million was
being utilized to support letters of credit issued on behalf of the Company by
participating banks.
The Company pays commitment fees under the Agreement of 1/10 of 1% annually
on the unused portion of the short-term commitment and 1/4 of 1% annually on the
unused portion of the revolving term commitment. In addition, the Company must
comply with the Agreement's financial covenants regarding working capital, the
ratio of certain debt to average cash flow and the ratio of equity to total
capitalization, all as defined therein. The short-term provisions of the Credit
Agreement are reviewed and/or renewed annually. The next review date is in May
1997. The revolving term provisions of this agreement expire in May 2001.
The Company maintains other borrowing arrangements with banks and financial
institutions. At August 31, 1996, $18.0 million was borrowed under such
agreements.
National Beef Packing Company, L.P. ("NBPC") maintains a $90.0 million
borrowing agreement with a group of banks which provides financing support for
its beef packing operations. Such borrowings are nonrecourse to Farmland or
Farmland's other affiliates (except to the extent of $10 million). At
August 31, 1996, $47.0 million was borrowed under this agreement and $0.6
million was utilized to support letters of credit. In addition, NBPC has
incurred certain long-term borrowings from Farmland. NBPC has pledged certain
assets to Farmland and such group of banks to support its borrowings.
Tradigrain has borrowing agreements with various international banks which
provide financing and letters of credit to support current international grain
trading transactions. At August 31, 1996, such short-term borrowings totaled
$78.8 million. Obligations of Tradigrain under these loan agreements are
nonrecourse to Farmland or Farmland's other affiliates.
Subordinated debt certificates have been issued under several different
indentures. Certain subordinated capital investment certificates may be
redeemed prior to maturity at the option of the owner in accordance with the
indenture. Subject to limitations in the Agreement, the Company has an option
to redeem certain subordinated capital investment certificates in advance of
scheduled maturities. Additionally, the Company may redeem subordinated capital
investment certificates and subordinated monthly interest certificates upon
death of the holder.
Outstanding subordinated debt certificates are subordinated to senior
indebtedness ($522.6 million at August 31, 1996) and additional financings
(principally long-term operating leases). See Note 10.
Under industrial revenue bonds and other agreements, property, plant and
equipment with a carrying value of $20.5 million have been pledged.
Borrowings from CoBank, totaling $94.3 million at August 31, 1996, are
partially secured by liens on the equity investment held by the Company in
CoBank. See Note 4.
Bank loans, subordinated debt certificates and notes payable mature during
the fiscal years ending August 31 in the following amounts:
(Amounts in Thousands)
1997................. $ 41,080
1998................. 132,769
1999................. 22,016
2000................. 31,070
2001................. 226,551
2002 and after....... 203,852
$ 657,338
At August 31, 1995 and 1996, the Company had demand loan certificates and
short-term bank debt outstanding of $365.3 million (weighted average interest
rate of 6.4%) and $355.5 million (weighted average interest rate of 6.29%),
respectively.
(7) INCOME TAXES
A. TERRA RESOURCES, INC.
In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"),
a wholly owned subsidiary engaged in oil and gas exploration and production
operations, and exited its oil and gas exploration and production activities.
The gain from the sale of Terra amounted to $237.2 million for tax reporting
purposes.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory
notice to Farmland asserting deficiencies in federal income taxes (exclusive of
statutory interest thereon) in the aggregate amount of $70.8 million. The
asserted deficiencies relate primarily to the Company's tax treatment of the
$237.2 million gain resulting from its sale, in July 1983, of the stock of Terra
and the IRS's contention that Farmland incorrectly treated the Terra sale gain
as income against which certain patronage-sourced operating losses could be
offset. The statutory notice further asserts that Farmland incorrectly
characterized for tax purposes gains aggregating approximately $14.6 million,
and a loss of approximately $2.3 million, from dispositions of certain other
assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court
contesting the asserted deficiencies in their entirety. The case was tried on
June 13-15, 1995. The parties submitted post-trial briefs to the court in
September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $209.2 million,
before tax benefits of the interest deduction, through August 31, 1996), or
$295.0 million in the aggregate at August 31, 1996. 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 accumulating statutory
interest thereon (approximately $6.6 million), or $11.6 million in the aggregate
at August 31, 1996. The asserted federal and state income tax liabilities and
accumulated interest thereon 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 by the United States Tax
Court would be charged to current earnings and would have a material adverse
effect on the Company. In the event of such an adverse determination of the
Terra tax issue, certain financial covenants of the Company's Credit Agreement
(the "Agreement"), dated May 15, 1996, become less restrictive. Had the United
States Tax Court decided in favor of the IRS on all unresolved issues, and had
all related additional federal and state income taxes and accumulated interest
thereon been due and payable on August 31, 1996, Farmland's borrowing capacity
under the Agreement was adequate at that time to finance the liability.
However, Farmland's ability to finance such an adverse decision depends
substantially on the financial effects of future operating events on its
borrowing capacity under the Agreement.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. The Company believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave LLP, the Company's special tax counsel, it is
more likely than not that the courts will ultimately conclude that the Company's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of the Company on any of these issues.
B. OTHER INCOME TAX MATTERS
Income tax expense is comprised of the following:
Year Ended August 31
1994 1995 1996
(Amounts in Thousands)
Federal:
Current............... $ 10,076 $ 18,533 $ 7,322
Deferred.............. (3,217) 4,255 9,430
$ 6,859 $ 22,788 $ 16,752
State:
Current.............. $ 1,965 $ 3,356 $ 1,292
Deferred............. (755) 665 1,664
$ 1,210 $ 4,021 $ 2,956
Foreign:
Current.............. $ (2,117) $ 1,578 $ 2,107
Deferred............. (1,062) 1,241 (60)
$ (3,179) $ 2,819 $ 2,047
Total income tax expense $ 4,890 $ 29,628 $ 21,755
During the year ended August 31, 1994, a charge in lieu of taxes, resulting
from initial recognition of acquired tax benefits that are allocated to reduce
goodwill related to the acquired entity, decreased Farmland's deferred tax
benefit by $3.0 million.
Income (loss) before income tax expense from foreign sources amounted to
($14.3 million), $19.3 million and $13.5 million for 1994 , 1995 and 1996,
respectively.
Income tax expense attributable to income from continuing operations
differs from the "expected" income tax expense using statutory rate of 35% as
follows:
Year Ended August 31
1994 1995 1996
(Amounts in Thousands)
Computed "expected" income tax
expense on income
before income taxes ........ 35.0 % 35.0% 35.0 %
Increase (reduction) in income
tax expense attributable to:
Patronage refunds............. (33.3) (18.3) (20.4)
State income tax expense net of
federal income tax effect .. 1.1 2.2 2.5
Other, net.................... 3.8 (2.4) 1.9
Income tax expense............ 6.6 % 16.5% 19.0 %
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at August 31, 1995
and 1996 are as follows:
August 31
1995 1996
(Amounts in Thousands)
Deferred tax liabilities:
Property, plant and
equipment, principally due
to differences
in depreciation............ $ 26,009 $40,182
Prepaid pension cost ....... 19,807 21,500
Other ...................... 15,065 2,080
Total deferred tax $ 60,881 $63,762
liabilities ................
Deferred tax assets:
Safe harbor leases ......... $ 5,096 $ 4,699
Accrued expenses ........... 29,394 47,140
Accounts receivable,
principally due to
allowance for
doubtful accounts.......... 2,300 1,971
Other ...................... 11,590 3,243
Total deferred tax assets .. $ 48,380 $57,053
Net deferred tax liability.... $ 12,501 $ 6,709
A valuation allowance for deferred tax assets was not necessary at August
31, 1995 or 1996.
(8) MINORITY OWNERS' EQUITY IN SUBSIDIARIES
A summary of the equity of subsidiaries owned by others is as follows:
August 31
1995 1996
(Amounts in Thousands)
National Beef Packing Company, L.P. and $12,473 $6,455
G.P. $ .................................
Farmland Foods, Inc. .................... 4,682 4,594
Other subsidiaries....................... 2,837 2,796
$19,992 $13,845
(9) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES
A summary of preferred stock is as follows:
August 31
1995 1996
(Amounts in Thousands)
Preferred shares, $25 par value -
Authorized 8,000,000 shares: 6% - 608
shares issued and outstanding, 6% -
608 shares issued and
outstanding, (608 shares in 1995)... $ 15 $ 15
5-1/2% - 2,412 shares issued and
outstanding
(2,436 shares in 1995).............. 61 60
Series F - 47,545 shares issued and
outstanding
(95,069 shares in 1995).............. 2,377 1,189
$ 2,453 $ 1,264
The 5-1/2% and 6% preferred stocks have preferential liquidation rights
over the Series F nondividend bearing preferred stock. Dividends on the 5-1/2%
and 6% preferred stock are cumulative if declared by the Farmland Board of
Directors and only to the extent earned each year. Upon liquidation, holders of
all preferred stock are entitled to the par value thereof and, with respect to
the 5-1/2% and 6% preferred stock, any declared or unpaid earned dividends.
A summary of earned surplus and other equities is as follows:
August 31
1995 1996
(Amounts in Thousands)
Earned surplus......................... $ 197,666 $ 230,340
Patronage refund payable in equities... 61,356 60,776
Capital credits........................ 27,645 31,237
Additional paid-in surplus............. 1,603 1,616
Currency translation adjustment........ 22 19
$ 288,292 $ 323,988
In accordance with the bylaws of Farmland, the member-sourced portion of
its net income or loss and the resulting patronage refund payable to members and
patrons are determined annually.
Farmland maintains a base capital plan. The plan's objectives are as
follows: 1) to achieve proportionality between the dollar amount of business a
member or associate member of Farmland ("Participant") transacts with Farmland
and the equity of Farmland which the Participant should hold (hereinafter
referred to as the Participant's "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 amount of such equity held by the Participant exceeds the
Participant's Base Capital Requirement. This 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.
The Base Capital Requirement is determined annually by the Farmland Board
of Directors at its sole discretion. At August 31, 1995 and 1996, common stock
and associate member common stock with an aggregate par value of $14.2 million
and $14.0 million, respectively, were approved for redemption by the Board of
Directors under the base capital plan and such amounts have been included in
"Other current liabilities" in the Consolidated Balance Sheets at August 31,
1995 and 1996, respectively.
Farmland maintains an estate settlement plan for redemption of equities
held by estates of deceased individuals (except purchased equities held less
than five years) and special equity redemption plans. 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.
At August 31, 1995 and 1996, certain equities of Farmland with a face
amount of $12.8 million and $11.3 million, respectively, and capital equity fund
certificates held by certain members of Farmland Foods, Inc. in the amount of
$0.8 million and $0.1 million, respectively, have been approved by the Board of
Directors for redemption under the estate settlement and special allocated
equity redemption plan and such amounts have been included in "Other current
liabilities" in the Consolidated Balance Sheets at August 31, 1995 and 1996,
respectively.
Capital credits are issued: 1) for payment of patronage refunds to patrons
who do not satisfy requirements for membership or associate membership; and,
2) upon conversion of common stock or associate member common stock held by
persons who do not meet qualifications for membership or associate membership in
Farmland.
Additional paid-in surplus results from members donating Farmland equity to
Farmland.
None of the aforementioned equities are held by or for the account of
Farmland or in any sinking or other special fund of Farmland and none have been
pledged by Farmland.
(10) CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various equipment and real properties under long-term
operating leases. For 1994, 1995 and 1996, rental expenses totaled $41.8
million, $44.6 million and $43.6 million, respectively. Rental expense is
reduced for mileage credits received on leased railroad cars ($1.9 million in
1994, $1.8 million in 1995 and $1.4 million in 1996).
The leases have various remaining terms ranging from one year to fourteen
years. Some leases are renewable, at the Company's option, for additional
periods. The minimum required payments for these leases during the fiscal years
ending August 31 are as follows:
(Amounts in Thousands)
1997...........................$ 46,750
1998........................... 50,498
1999........................... 43,847
2000........................... 39,296
2001........................... 36,143
2002 and after................. 92,296
$ 308,830
Commitments for capital expenditures and investments in joint ventures
aggregated $61.0 million at August 31, 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 accrued
liability for probable and reasonably determinable obligations for resolution of
environmental matters at NPL and other sites was $18.5 million and $18.9 million
at August 31, 1995 and 1996, respectively.
The ultimate costs of resolving certain 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, 1996. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $20.6 million.
In the ordinary course of conducting international grain trading,
Tradigrain, as of August 31, 1996, was contingently liable in respect of $114.2
million of guarantees, performance and bid bonds, and letters of credit.
The Company is involved in various lawsuits arising in the normal course of
business. 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.
(11) EMPLOYEE BENEFIT PLANS
The Farmland Industries, Inc. Employee Retirement Plan (the "Plan") is a
defined benefit plan covering substantially all employees of the Company who
meet minimum age and length-of-service requirements. Benefits payable under the
Plan are based on years of service and the employee's average compensation
during the highest four of the employee's last ten years of employment.
The assets of the Plan are maintained in a trust fund. The majority of the
Plan's assets are invested in common stocks, corporate bonds, United States
Government securities and short-term investment funds.
The Company's funding policy is to make the maximum annual contribution to
the Plan's trust fund that can be deducted for federal income tax purposes. The
Company charges pension cost as accrued based on actuarial valuation of the
Plan.
<TABLE>
Components of the Company's pension cost are as follows:
<CAPTION>
August 31
1994 1995 1996
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 8,663 $10,336 $10,886
Interest cost on projected benefit obligation. 15,292 16,707 18,843
Actual return on Plan assets.................. (10,949) (27,422) (46,630)
Net amortization and deferral................. (7,860) 8,677 24,634
Pension expense............................... $ 5,146 $8,298 $ 7,733
</TABLE>
The discount rate, the rate of increase in future compensation levels used
in determining the actuarial present value of the projected benefit obligations
and the expected long-term rate of return on assets were 8.0%, 4.5% and 8.5%,
respectively, at August 31, 1994, 1995 and 1996.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's Consolidated Balance Sheets at August 31, 1995 and
1996. Such prepaid pension cost is based on the Plan's funded status as of May
31, 1995 and 1996.
August 31
1995 1996
(Amounts in Thousands)
Actuarial present value of benefit obligations:
Vested benefits.............................. $ 170,105 $180,253
Nonvested benefits........................... 11,584 12,024
Accumulated benefit obligation............... $ 181,689 $192,277
Increase in benefits due to future
compensation increases.........................56,353 56,030
Projected benefit obligation................. $ 238,042 $248,307
Estimated fair value of Plan assets.......... 259,262 301,504
Plan assets in excess of projected benefit
obligation....................................$ 21,220 $ 53,197.
Unrecognized net loss from past experience
different from that assumed and effects of
changes in assumptions....................... 27,750 450
Unrecognized prior service cost.............. 1,089 871
Prepaid pension cost at end of year............ $ 50,059 $ 54,518
(12) INDUSTRY SEGMENT INFORMATION
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and
marketing cooperative.
The Company's farm supply operations consist of three principal product
divisions: petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, jet fuels, by-products of
petroleum refining and car, truck and tractor tires, batteries and accessories.
Principal products of the crop production division are nitrogen-, phosphate- and
potash-based fertilizers, and, through the Company's ownership in the WILFARM
joint venture, a complete line of insecticides, herbicides and mixed chemicals.
Principal products of the feed division include swine, dairy, pet, beef,
poultry, mineral and specialty feeds, feed ingredients and supplements, animal
health products and livestock services.
On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain.
Other operations primarily includes livestock production and services such
as computer services, accounting, financial, management, printing and
transportation.
The operating income (loss) of each industry segment includes the revenue
generated on transactions involving products within that industry segment less
identifiable and allocated expenses. In computing operating income (loss) of
industry segments, none of the following items 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. Corporate assets include cash, investments in other
cooperatives, the Company's corporate headquarters and certain other assets.
Following is a summary of industry segment information as of and for the
years ended August 31, 1994, 1995 and 1996 Export sales to unaffiliated
customers from U.S. operations for the years ended August 31, 1994, 1995 and
1996 were $842.5 million, $1.3 billion and $2.0 billion, respectively.
<TABLE>
<CAPTION>
Unallocated
Corporate
Items
Cooperative Farm Supply Cooperative Marketing and Inter-
Crop and Processing Other 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- 19,467 (38,902) -0-
Total sales and
transfers........$860,322 $1,172,870 $529,936 $2,358,606 $1,627,156 $ 167,945 $ (38,902) $6,677,933
Operating income
(loss) of industry
segments.........$ 27,172 $ 126,047 $ 17,019 $ 20,608 $ (33,637) $ (2,410) $ 154,799
Equity in net income
(loss) of investees
(Note 4).........$ (41) $ 15,466 $ 155 $ (4,404) $ -0- $ (298) $ 10,878
General corporate
expenses.......... (66,229)
Other corporate
income............ 26,281
Interest expense... (51,485)
Minority interest... 4,522
Income tax expense.. (4,890)
Net income.......... $ 73,876
Identifiable assets at
August 31, 1994..$306,366 $ 357,178 $ 92,767 $ 395,159 $ 341,367 $ 62,301 $1,555,138
Investment in and
advances to
investees........$ 746 $ 76,439 $ 1,761 $ 13,927 $ -0- $ 8,560 $ 101,433
Corporate assets.... 270,060
Total assets........ $1,926,631
Provision for
depreciation and
amortization.....$ 9,911 $ 14,700 $ 3,815 $ 16,776 $ 4,011 $ 7,982 $ 5,765 $ 62,960
Capital expenditures
(including $16.9
million of capital
assets of
businesses
acquired)........$ 14,399 $ 14,136 $ 4,508 $ 19,040 $ 6,256 $ 26,051 $ 2,274 $ 86,664
1995
Sales to unaffiliated
customers........$876,776 $1,171,389 $467,695 $2,692,892 $1,906,191 $ 141,926 $ -0- $7,256,869
Transfers between
segments......... 2,877 6,547 940 3,100 -0- 29,100 (42,564) -0-
Total sales and
transfers........$879,653 $1,177,936 $468,635 $2,695,992 $1,906,191 $ 171,026 $ (42,564) $7,256,869
Operating income
(loss) of industry
segments.........$ (8,029) $ 198,720 $ 10,061 $ 77,060 $ 17,942 $ (2,373) $ 293,381
Equity in net income
(loss) of investees
(Note 4).........$ 168 $ 22,096 $ 130 $ 823 $ 688 $ (1,120) $ 22,785
General corporate
expenses.......... (80,054)
Other corporate
income............ 19,934
Interest expense... (53,862)
Minority interest... (9,757)
Income tax expense.. (29,628)
Net income.......... $ 162,799
Identifiable assets at
August 31, 1995..$313,478 $ 410,979 $ 93,438 $ 491,257 $ 525,032 $ 59,108 $1,893,292
Investment in and
advances to
investees........$ 953 $ 80,805 $ 1,497 $ 325 $ 120 $ 9,304 $ 93,004
Corporate assets.... 199,647
Total assets........ $2,185,943
Provision for
depreciation and
amortization.....$ 9,858 $ 15,530 $ 4,319 $ 21,891 $ 5,156 $ 5,308 $ 7,076 $ 69,138
Capital
expenditures $ 27,638 $ 23,845 $ 5,766 $ 32,219 $ 905 $ 7,504 $ 28,986 $ 126,863
1996
Sales to
affiliated
customers......$1,058,258 $1,336,307 $569,869 $3,220,996 $3,472,009 $ 131,148 $ -0- $9,788,587
Transfers between
segments......... 3,351 1,402 923 2,959 -0- 33,255 (41,890) -0-
Total sales and
transfers........$1,061,609 $1,337,709 $570,792 $3,223,955 $3,472,009 $ 164,403 $ (41,890) $9,788,587
Operating income
(loss)
of industry
segments.........$ 4,990 $ 179,008 $ 12,952 $ 65,953 $ (18,993) $ (5,085) $ 238,825
Equity in net
income (loss) of
investees
(Note 4).........$ (98) $ 41,899 $ 382 $ -0- $ (10) $ (1,081) $ 41,092
General corporate
expenses......... (91,194)
Other corporate
income........... 29,278
Interest expense.. (62,445)
Minority interest.. (7,383)
Income tax expense. (21,755)
Net income......... $ 126,418
Identifiable assets at
August 31, 1996..$433,352 $ 438,559 $107,267 $ 618,122 $ 492,919 $ 64,403 $2,154,622
Investment in and
advances to
investees........$ 611 $ 136,959 $ 3,399 $ 18 $ 468 $ 7,016 $ 148,471
Corporate assets... 265,353
Total assets....... $2,568,446
Provision for
depreciation and
amortization.....$ 11,024 $ 16,797 $ 4,625 $ 26,438 $ 5,729 $ 6,171 $ 6,957 $ 77,741
Capital
expenditures
(Including $29.9
million of
capital
assets of
businesses
acquired)........$ 42,075 $ 37,296 $ 5,083 $ 84,493 $ 15,084 $ 10,603 $ 27,342 $ 221,976
</TABLE>
(13) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company extends credit to its customers on terms generally no more
favorable than standard terms of sale for the industries it serves. A
substantial portion of the Company's receivables are concentrated in the
agricultural industry. Collection of these receivables may be dependent upon
economic returns from farm crop and livestock production. The Company's
credit risks are continually reviewed and management believes that adequate
provisions have been made for doubtful accounts.
The Company maintains investments in and advances to cooperatives,
cooperative banks and joint ventures from which it purchases products or
services. A substantial portion of the business of these investees is
dependent upon the agribusiness economic sector. See Note 4.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
Estimates of fair values are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could affect the estimates.
Except as follows, the fair market value of the Company's financial
instruments approximates the carrying value:
<CAPTION>
August 31, 1995 August 31, 1996
Carrying Carrying
Amount Fair Value Amount Fair Value
(Amounts in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Notes receivable from investees,
20% to 50% owned............................ $ 4,218 $ 3,747 $ 1,443 $ 1,454
National Bank for Cooperatives................ 27,000 **** 24,913 ****
Other cooperatives:
Equities.................................... 27,728 **** 27,187 ****
Notes receivable............................ 19,600 17,327 17,757 17,073
FINANCIAL LIABILITIES:
Subordinated capital investment certificates
and subordinated monthly
income certificates........................... $ (299,995) $ (304,450) $ (324,105) $ (317,476)
</TABLE>
****Investments in National Bank for Cooperatives and other cooperatives'
equities which have been purchased are carried at cost and equities received as
patronage refunds are carried at par value, less provisions for other than
temporary impairment. The Company believes it is not practicable to estimate
the fair value of these equities because there is no established market for
these equities and estimated future cash flows, which are largely dependent on
the future equity redemptions policy of each cooperative, are not determinable.
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 a discount rate equal to the interest rate on subordinated debt
certificates with similar maturities currently offered for sale by the Company.
The carrying amounts of the Company's other debt borrowings approximate their
fair market value.
(15) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in two manufacturers of phosphate products,
Farmland Hydro, L.P. and SF Phosphates Limited Company, and a 50% interest in a
distributor of crop production products, WILFARM, LLC. During 1994, 1995 and
1996, the Company purchased $83.1 million, $106.2 million and $117.4 million,
respectively, of product from these ventures. Accounts payable includes $4.8
million and $2.9 million due to these ventures at August 31, 1995 and 1996,
respectively. The Company also has notes receivable from these ventures in the
amount of $16.6 million and $12.9 million at August 31, 1995 and 1996,
respectively.
(16) OTHER INCOME
In May 1996, the Company sold its interest in a communications joint
venture, Broadcast Partners. The sale resulted in a gain before income taxes of
$10.9 million, which has been included in the caption "Other income
(deductions): Other, net" in the Company's 1996 Consolidated Statement of
Operations.
In June 1993, the Company filed a lawsuit against 43 insurance carriers and
other parties (the "Defendants") seeking declaratory judgments regarding the
Defendants' insurance coverage obligations for environmental remediation costs.
The Company negotiated settlements with 20, 2 and 3 insurance companies in 1994,
1995 and 1996, respectively. As part of the settlements, the Company provided
the Defendants with releases of various possible environmental obligations. As
a result of these settlements, the Company received cash payments in 1994, 1995
and 1996 of $13.6 million, $0.3 million and $0.5 million, respectively, and
included such amounts in the caption "Other income (deductions): Other, net" in
the Consolidated Statement of Operations for the years ended.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
<TABLE>
<CAPTION>
The directors of Farmland are as follows:
Total
Years
Expiration of
Age as of Positions of Present Service
August 31, Held With Term as as Board
Name 1996 Farmland Director Member Business Experience During Last Five Years
<S> <C> <C> <C> <C> <C>
Albert J. Shivley 53 Chairman of 1998 12 General Manager--American Pride Co-op
the Board Association, Brighton, Colorado, a local
cooperative association of farmers and
ranchers.
H. D. Cleberg 57 President and 1997 6 Mr. Cleberg has been with Farmland since
Chief 1968. He was named as president-elect in
Executive February 1991 and became President in April
Officer 1991. From September 1990 to January 1991 he
served as Senior Vice President and Chief
Operating Officer, Agricultural Group. From
April 1989 to August 1990 he served as
Executive Vice President, Operations.
Otis H. Molz 65 Vice Chairman 1997 13 Producer--Deerfield, Kansas. Mr. Molz has
and Vice served as Chairman of the Board of the
President National Bank for Cooperatives since January
1993. He served as Chairman of the Board of
Directors of Farmland Industries, Inc. from
December 1991 to December 1992. He served as
First Vice President of the National Bank for
Cooperatives from January 1990 to January of
1993. He was Second Vice Chairman from
January 1, 1989 to January 1, 1990.
Lyman Adams, Jr. 45 1998 4 General Manager--Cooperative Grain and
Supply, Hillsboro, Kansas, a local
cooperative association of farmers and
ranchers.
Ronald J. Amundson 52 1997 8 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association
of farmers and ranchers.
Baxter Ankerstjerne 60 1996 6 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 55 1997 5 Producer--Texline, Texas.
Richard L. Detten 62 1996 9 Producer--Ponca City, Oklahoma.
Steven Erdman 46 1998 4 Producer--Bayard, Nebraska.
Warren Gerdes 48 1998 3 General Manager--Farmers Cooperative Elevator
Company, Buffalo Lake, Minnesota, a local
cooperative association of farmers and
ranchers.
Ben Griffith 47 1998 7 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.
Gail D. Hall 54 1997 8 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local
cooperative association of farmers and
ranchers.
Jerome Heuertz 55 1997 2 General Manager--Farm Service Cooperative,
Council Bluffs, Iowa, a local cooperative
association of farmers and ranchers.
Barry Jensen 51 1996 6 Producer--White River, South Dakota.
Mr. Jensen currently serves as a Director,
and was President from May 1989 to May 1993,
of Farmers Co-op Oil Association, Winner,
South Dakota, a local cooperative association
of farmers and ranchers.
Ron Jurgens 58 1998 1 General Manager-Agri Co-op in Holdrege,
Nebraska, a local cooperative association of
farmers and ranchers.
Greg Pfenning 47 1997 4 Producer--Hobart, Oklahoma. Director of
Hobart & Roosevelt Cooperative, a local
cooperative association of farmers and
ranchers.
Vonn Richardson 63 1996 9 Producer--Plains, Kansas. President of The
Plains Equity Exchange and Cooperative Union,
Plains, Kansas, a local cooperative
association of farmers and ranchers.
Monte Romohr 43 1996 6 Producer--Gresham, Nebraska. From March 1988
to March 1991, Mr. Romohr served as President
of Farmers Co-op Business Association,
Shelby, Nebraska, a local cooperative
association of farmers and ranchers.
Joe Royster 44 1996 3 General Manager--Dacoma Farmers Cooperative,
Inc., Dacoma, Oklahoma, a local cooperative
association of farmers and ranchers.
Raymond J. Schmitz 65 1996 9 Producer--Baileyville, Kansas.
Frank Wilson 50 1998 1 General Manager-Elkhart Farmers Co-op
Association, Elkhart, Texas, a local
cooperative association of farmers and
ranchers.
Robert Zinkula 66 1996 6 Producer--Mount Vernon, Iowa. Secretary and
Treasurer of Linn Cooperative Oil Company,
Marion, Iowa, a local cooperative association
of farmers and ranchers.
</TABLE>
Directors are elected for a term of three years by the shareholders of
Farmland at its annual meeting. The expiration dates for such three-year terms
are sequenced so that about one-third of the Board of Directors is elected each
year. H. D. Cleberg is serving as director-at-large; the remaining 21 directors
were elected from nine geographically defined districts. The executive
committee consists of Ronald Amundson, Ben Griffith, Otis Molz, Monte Romohr,
Albert Shivley and H. D. Cleberg. With the exception of H. D. Cleberg,
President and Chief Executive Officer, members of the executive committee serve
as chairman of standing committees of the Board of Directors as follows: Ronald
Amundson, corporate responsibility committee; Ben Griffith, audit committee;
Otis Molz, compensation committee; Monte Romohr, finance committee; and Albert
Shivley, nominating committee.
The executive officers of Farmland are:
<TABLE>
<CAPTION>
Age as of
August 31,
Name 1996 Principal Occupation and Other Positions
<S> <C> <C>
J. F. Berardi 53 Executive Vice President and Chief Operating Officer, Grain Businesses - Mr.
Berardi joined Farmland March 1992, serving as Executive Vice President and
Chief Financial Officer. He was appointed to his present position in July 1996.
He 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.
T. M. Campbell 46 Executive Vice President and Chief Financial Officer - Mr. Campbell jointed
Farmland August 1992, serving as Vice President and Treasurer. He was appointed
to his present position in August 1996. He served as Vice President and
Assistant Treasurer of Harcourt Brace Jovanovich, Inc., a diversified Fortune
200 company, from 1986 to 1992.
H. D. Cleberg 57 President and Chief Executive Officer - Mr. Cleberg has been with Farmland since
1968. He was appointed to his present position effective April 1991. From
September 1990 to March 1991 he served as Senior Vice President and Chief
Operating Officer. From April 1989 to August 1990 he served as Executive Vice
President, Operations. Prior to April 1989 he held several executive management
positions with Farmland.
S. P. Dees 53 Executive Vice President, Business Development and International Marketing - Mr.
Dees joined Farmland in 1984, serving as Vice President and General Counsel, Law
and Administration. He was appointed to his present position in September 1995.
From September 1993 to September 1995 he served as Executive Vice President,
Farmland and Director General of Farmland Industrias, S.A. de C.V. From October
1990 to September 1993 he served as Executive Vice President, Administrative
Group and General Counsel.
G. E. Evans 52 Executive Vice President and Chief Operating Officer, Livestock and Meat
Businesses - Mr. Evans has been with Farmland since 1971. He was appointed to
his present position in September 1995. From January 1992 to September 1995 he
served as Senior Vice President, Agricultural Production Marketing/Processing.
From April 1991 to January 1992 he served as Senior Vice President, Agricultural
Inputs. He served as Executive Vice President, Agricultural Marketing from
October 1990 to March 1991.
R. W. Honse 53 Executive Vice President and Chief Operating Officer, Ag Input Businesses - Mr.
Honse has been with Farmland since 1983. He was appointed to his present
position in September 1995. From January 1992 to September 1995, he served as
Executive Vice President, Agricultural Inputs Operations. From October 1990 to
January 1992 he served as Executive Vice President, Agricultural Operations.
B. L. Sanders 55 Senior Vice President and Corporate Secretary - Dr. Sanders has been with Farmland
since 1968. He was appointed to his present position in September 1991. From
April 1990 to September 1991 he served as Vice President, Strategic Planning and
Development. From October 1987 to March 1990 he served as Vice President,
Planning.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation awarded to, earned
by, or paid to the Chief Executive Officer and the Company's next four most
highly compensated executive officers for services rendered to the Company in
all capacities during 1994, 1995 and 1996.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Year Employee Other Annual LTIP
Name and Principal Position Ending Salary Variable Compensation Payouts
August 31 Compensation
Plan
<S> <C> <C> <C> <C> <C>
H. D. Cleberg, 1994 $ 439,728 $ 338,481 $ -0- $ -0-
President and 1995 $ 456,218 $ 346,944 $ -0- $ -0-
Chief Executive Officer 1996 $ 497,713 $ 356,485 $ -0- $ 1,296,482
G. E. Evans, 1994 $ 278,304 $ 217,761 $ -0- $ -0-
Executive Vice President and 1995 $ 283,988 $ 217,761 $ -0- $ -0-
Chief Operating Officer 1996 $ 298,848 $ 216,121 $ -0- $ 648,241
Livestock and Meat Businesses
R. W. Honse, 1994 $ 251,532 $ 205,206 $ -0- $ -0-
Executive Vice President and 1995 $ 280,248 $ 210,337 $ -0- $ -0-
Chief Operating Officer 1996 $ 303,364 $ 216,121 $ -0- $ 648,241
Ag Input Businesses
J. F. Berardi, 1994 $ 216,252 $ 146,576 $ -0- $ -0-
Executive Vice President and 1995 $ 226,914 $ 150,241 $ -0- $ -0-
Chief Operating Officer, 1996 $ 244,770 $ 154,372 $ -0- $ 549,204
Grain Businesses
S. P. Dees, 1994 $ 205,066 $ 119,093 $ 124,138(a) $ -0-
Executive Vice President 1995 $ 211,000 $ 122,070 $ 127,878(a) $ -0-
Business Development and 1996 $ 236,765 $ 125,427 $ 5,357(a) $ 459,171
International Marketing
<FN>
(a)Mr. Dees received a differential remuneration and reimbursements in 1994,
1995 and 1996 for taxes in connection with foreign
assignments. Mr. Dees' foreign assignment ended in September 1995.
</TABLE>
An Annual Employee Variable Compensation Plan, a Management Long-Term
Incentive Plan and an Executive Deferred Compensation Plan have been established
by the Company to meet the competitive salary programs of other companies, and
to provide a method of compensation which is based on the Company's performance.
Under the Company's Annual Employee Variable Compensation Plan, all regular
salaried employees' total compensation is based on a combination of base and
variable pay. The variable compensation payment is dependent upon the
employee's position, the performance of the Company for the fiscal year or other
performance criteria of the individual's operating unit. Variable compensation
is awarded only in years that the Company achieves a threshold performance level
as 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. Distributions under this plan are made
annually after the close of each fiscal year.
During 1996, under the Company's Management Long-Term Incentive Plan for
1996 through 1998, certain management employees became eligible for future
payments (contingent on satisfying the terms and conditions of the Plan as set
forth below herein) including those executives set forth below.
<TABLE>
<CAPTION>
(A) (B) (C) Estimated Future Payouts Under Non-Stock
Price Based Plans
Number of Shares, Performance or Other (D) (E) (F)
Name Units or Other Period Until Maturation Threshold Target (2) Maximum (2)
Rights (1) or Payout
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
H. D. Cleberg 1996 - 1998 $ 392
G. E. Evans 1996 - 1998 $ 196
R. W. Honse 1996 - 1998 $ 196
J. F. Berardi 1996 - 1998 $ 153
S. P. Dees 1996 - 1998 $ 139
<FN>
(1) Rights in the incentive pool are expressed as a minimum percentage
of the total pool. See discussion contained below herein.
(2) Not applicable as payouts are based on a percentage of aggregate
income; the plan does not specify a target or maximum payment. See
discussion contained below herein.
</TABLE>
Under the Management Long-Term Incentive Plan, certain of the Company's
management employees are paid cash incentive amounts determined by a formula
which takes into account the level of management and the aggregate income of the
Company over a three year period. The Management Long-Term Incentive Plan
provides for three year performance and reward cycles and, in general,
participants must be active employees of the Company at the end of the cycle in
order to receive payment of the award with respect to such cycle. Periods
currently covered by the Management Long-Term Incentive Plan are: 1995 through
1997 ("1997 Plan"); 1996 through 1998 ("1998 Plan") and 1997 through 1999 ("1999
Plan"). The income threshold ("Threshold") for the three year period of the
1997 Plan, the 1998 Plan and 1999 Plan is $235,043,000, $393,481,000 and
$541,768,000, respectively. For each plan, if the aggregate income is less than
the Threshold or if the sum of the cash returned to members during the 1997
Plan, the 1998 Plan and the 1999 Plan, as patronage refunds, redemptions under
the base capital plan, estate settlement plans and special allocated equity
redemption plans is less than $61,938,000, $90,000,000 and $147,285,000,
respectively, subject to the following sentence, no payment will occur with
respect to such plan. The Board of Directors may, in its sole discretion, amend
or discontinue the Management Long-Term Incentive Plan, adjust or cancel any
awards otherwise payable thereunder should the Company incur a loss in the final
year of any performance cycle or impact the goals and rewards of the plan by
approving for inclusion or exclusion in the calculation of performance results
the financial results of extraordinary events occurring during the cycle.
Subject to the preceding sentence, if aggregate income equals or exceeds the
Threshold and the cash returned to members equals or exceeds the specified
amounts, then .83% of aggregate income for the 1997 Plan, the 1998 Plan and the
1999 Plan is allocated to an incentive pool for each such plan from which awards
to management will be paid. Absent a significant change in their status, in
which event such percentages may be adjusted, of the amount, if any, allocated
to the incentive pool Messrs. Cleberg, Evans, Honse, Berardi and Dees will
receive at least : 12%, 6% 6%, 5.6% and 4.25%, respectively, for the 1997 Plan;
12%, 6%, 6%, 6% and 4.25%, respectively, for the 1998 Plan; and 11.2%, 5.6%,
5.6%, 5.6% and 4.0%, respectively, for the 1999 Plan.
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 years 1994, 1995 and 1996 are
included in the cash compensation table.
The Company established the Farmland Industries, Inc. Employee Retirement
Plan (the "Plan") in 1986 for all employees whose customary employment is at the
rate of at least 1,000 hours per year. Participation in the Plan is optional
prior to age 34, but mandatory thereafter. Approximately 6,890 active and 7,640
inactive employees were participants in the Plan on August 31, 1996. 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, and all
funds of the Plan are held by a bank trustee in accordance with the terms of the
trust agreement. It is the present intent to continue this plan indefinitely.
The Company's funding policy is to make the maximum annual contributions to the
Plan's trust fund that can be deducted for federal income tax purposes. Company
contributions made to the Plan for the years ended August 31, 1994, 1995 and
1996 were $2.9 million, $5.3 million and $12.2 million, respectively.
Payments to participants in the Plan are based upon length of participation
and compensation reported to the Plan for the four highest of the last ten years
of employment. Compensation for this purpose includes base salary and
compensation earned under the Company's Annual Employee Variable Compensation
Plan discussed above. However, at the present time, the maximum compensation
(per participant) which may be covered by a qualified pension plan is limited to
$150,000 ($160,000 for the plan year beginning in 1997) annually and the maximum
retirement benefit which may be paid by such plan is limited to $120,000
($125,000 for the limitation year beginning in 1997) annually by the Internal
Revenue Code ("IRC").
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 IRC on the amount of
annual salary which can be included in the computation of retirement income
(currently $150,000) or the amount of annual retirement benefit which may be
paid by a qualified retirement plan (currently $120,000).
The Board of Directors has appointed an Administrative Committee to
administer the SERP. The Company purchased cash value life insurance polices on
the lives of certain plan participants to recover its cost of providing benefits
under the SERP. The Company owns these insurance policies and has the sole
right to name policy beneficiaries. The total SERP premiums charged to
operations for the years ended August 31, 1994, 1995 and 1996 were $0.4 million,
$0.6 million and $-0-, respectively.
The Company's obligation to pay supplemental retirement benefits under the
SERP is limited to the aggregate cash value of the life insurance policies
designated by the Administrative Committee as policies of the SERP. If the
benefit payments under this Plan for a year would, when added to all prior
benefit payments made from this Plan, exceed (a) the total cash value, on August
31 of the preceding year, of the policies designated by the Administrative
Committee, increased by (b) any previous reductions in cash value caused by
withdrawals from the policies by the Corporation, each Participant's payment
shall be reduced.
The following table sets forth, for compensation levels up to $150,000, the
estimated annual benefits payable at age 62 for members of the Retirement Plan,
which benefits are not reduced by virtue of Social Security payments. The
following table also sets forth, for compensation levels exceeding $150,000, the
combined estimated annual benefits payable under the Retirement Plan and SERP
for each of the first 10 years following retirement (no SERP payouts are to be
made after 10 years) assuming: retirement occurs on or after age 62; the
portion of the employee's benefit lost (due to the IRC limitations), which would
have been provided by the employer's contribution to the Retirement Plan, is
85%; the employee lives for 10 years after retirement; and, the aggregate
payments under the SERP are less than the cash value of life insurance policies
designated (see above) as SERP policies.
<TABLE>
<CAPTION>
Final Average Years of Service
Wage 15 20 25 30
<S> <C> <C> <C> <C>
$ 100,000 $ 26,250 $ 35,000 $ 43,750 $ 52,500
125,000 32,812 43,750 54,687 65,625
150,000 39,375 52,500 65,625 78,750
200,000 46,813 62,417 78,021 93,625
250,000 54,250 72,333 90,417 108,500
300,000 61,688 82,250 102,813 123,375
350,000 69,125 92,167 115,209 138,250
400,000 76,563 102,083 127,604 153,125
450,000 84,000 112,000 140,000 168,000
500,000 91,437 121,917 152,396 182,875
600,000 106,313 141,750 177,188 212,626
700,000 121,188 161,584 201,980 242,376
800,000 136,063 181,417 226,771 272,126
900,000 150,938 201,251 251,564 301,876
1,000,000 165,813 221,083 276,355 331,626
</TABLE>
The following table sets forth the credited years of service for certain
executive officers of the Company at August 31, 1996.
Name Years of Creditable Service
H. D. Cleberg 31
G. E. Evans 22
R. W. Honse 22
J. F. Berardi 4
S. P. Dees 12
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons, none of whom, except as indicated below, is either
currently or formerly an officer or employee of the Company or any of its
subsidiaries, served as members of the Company's compensation committee during
1996. Messrs. Lyman Adams, Jody Bezner, Warren Gerdes, Gail Hall and Otis Molz.
Mr. Molz was Chairman of the Board of the Company from December 1991 to December
1992. No executive officer of the Company (i) served as a member of a
compensation committee (or other board committee performing equivalent functions
or, in the absence of such committee, the entire board of directors) of another
entity, one of whose executive officers served on the compensation committee of
the Company, (ii) served as a director of another entity, one of whose executive
officers served on the compensation committee of the Company, or (iii) served as
a member of a compensation committee (or other board committee performing
equivalent functions or, in the absence of such committee, the entire board of
directors) of another entity, one of whose executive officers served as a
director of the Company.
COMPENSATION OF DIRECTORS
Directors' compensation consists of payment of three hundred dollars
($300.00) per day of attendance at the Board of Directors or committee meetings,
plus reimbursement of necessary expenses incurred in connection with their
official duties.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Farmland's equity consists of preferred shares, common shares, associate
common shares and capital credits. Only the common shares have voting rights.
At August 31, 1996, no person was known by Farmland to be the beneficial
owner of more than five percent of Farmland's common shares.
At August 31, 1996, none of the directors of Farmland and the executive
officers listed under the first table under "Executive Compensation" above,
either individually or as a group, beneficially owned in excess of one percent
of any class of Farmland's equity.
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 and Exhibits
(1) FINANCIAL STATEMENTS
Consolidated Balance Sheets, August 31, 1995 and 1996
Consolidated Statements of Operations for each of the years
in the three-year period ended August 31, 1996
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended August 31, 1996
Consolidated Statements of Capital Shares and Equities for
each of the years in the three-year period ended August 31,
1996
Notes to Consolidated Financial Statements
(2) EXHIBITS
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 1, 1994. (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.(i)A Trust Indenture dated November 20, 1981, as amended January 4, 1982,
including specimen of Demand Loan Certificates. (Incorporated by
Reference - Form S-1, No. 2-75071, effective January 7, 1982)
4.(i)B Trust Indenture dated November 8, 1984, as amended January 3, 1985,
including specimen of 10-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3, 1985
covering Farmland Industries, Inc.'s 10-Year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form SE,
dated December 3, 1991)
4.(i)C Trust Indenture dated November 8, 1984, as amended January 3, 1985,
including specimen of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3, 1985
covering Farmland Industries, Inc.'s 5-Year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form SE,
dated December 3, 1991)
4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985
and November 20, 1985, including specimen of 10-year Subordinated Monthly
Income Capital Investment Certificates. (Incorporated by Reference -
Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)E Trust Indenture dated November 11, 1985 including specimen of the
5-year Subordinated Monthly Income Capital Investment Certificates.
(Incorporated by Reference - Form S-1, No. 33-1970, effective December
31, 1985)
4.(ii)A Credit Agreement between Farmland Industries, Inc. and various banks
dated May 15, 1996, (Incorporated by Reference - Form 10-Q filed July 15,
1996)
The Registrant agrees to furnish to the Commission upon request
copies of any instrument defining the rights of holders of long-term
debt of the Registrant and its consolidated subsidiaries that does
not exceed 10 percent of the total assets of the Registrant and its
consolidated subsidiaries.
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First National
Bank of Chicago, not individually but solely as Trustee for AT&T
Commercial Finance Corporation, The Boatmen's National Bank of St. Louis,
Firstier Bank, N.A. and Norwest Bank Minnesota, National Association and
Farmland Industries, Inc. in the amount of $73,153,000. (Incorporated by
Reference - Form SE, filed December 3, 1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National Bank
of Commerce as Trustee for General Electric Credit Corporation as
Beneficiary and Farmland Industries, Inc. in the amount of
$51,909,257.90. (Incorporated by Reference - Form S-1, No. 2-60372,
effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Annual Employee Variable Compensation Plan (September 1, 1996-August
31, 1997)
10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1994)(Incorporated by Reference - Form 10-K,
filed November 28, 1995)
10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999)
10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
10.(iii)C(1) Resolution Approving the Revision of Appendix A and
Appendix
10.(iii)D Farmland Industries, Inc. Executive Deferred Compensation Plan (As
Amended and Restated Effective November 1, 1996)
21. Subsidiaries of the Registrant
24. Power of Attorney
27. Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the
period covered by this report.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, FARMLAND INDUSTRIES, INC. HAS DULY CAUSED THIS REPORT ON
FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED ON NOVEMBER 27, 1996.
FARMLAND INDUSTRIES, INC.
BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Executive Vice President and
Chief Financial Officer
BY /s/ ROBERT B. TERRY
Robert B. Terry
Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
FORM 10-K HAS BEEN SIGNED FOR THE FOLLOWING PERSONS ON BEHALF OF FARMLAND
INDUSTRIES, INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED PURSUANT TO
VALID POWER OF ATTORNEY EXECUTED ON OCTOBER 23, 1996.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman of Board November 27, 1996
Albert J. Shivley and Director
* President, November 27, 1996
H. D. Cleberg Chief Executive Officer
and Director
(Principal Executive Officer)
* Vice Chairman of Board November 27, 1996
Otis H. Molz and Director
* Director November 27, 1996
Lyman Adams, Jr.
* Director November 27, 1996
Ronald J. Amundson
* Director November 27, 1996
Baxter Ankerstjerne
* Director November 27, 1996
Jody Bezner
* Director November 27, 1996
Richard L. Detten
* Director November 27, 1996
Steven Erdman
* Director November 27, 1996
Warren Gerdes
* Director November 27, 1996
Ben Griffith
* Director November 27, 1996
Gail D. Hall
* Director November 27, 1996
Jerome Heuertz
* Director November 27, 1996
Barry Jensen
* Director November 27, 1996
Ron Jurgens
* Director November 27, 1996
Greg Pfenning
* Director November 27, 1996
Vonn Richardson
* Director November 27, 1996
Monte Romohr
* Director November 27, 1996
Joe Royster
* Director November 27, 1996
Raymond J. Schmitz
* Director November 27, 1996
Frank Wilson
* Director November 27, 1996
Robert Zinkula
/s/ TERRY M. CAMPBELL Executive Vice President November 27, 1996
Terry M. Campbell and Chief Financial Officer
(Principal Financial Officer)
/s/ MERL DANIEL Vice President and Controller November 27, 1996
Merl Daniel (Principal Accounting Officer)
*BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Attorney-in-Fact
</TABLE>
Exhibit 99
EXHIBIT INDEX
The following exhibits are filed as a part of this Form S-1 Registration
Statement. Certain of these exhibits are incorporated by reference as
indicated. Items marked with an asterisk (*) are filed herein.
Exhibit No. Description of Exhibits
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 1, 1994. (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.(i)A Trust Indenture dated November 20, 1981, as amended January 4, 1982,
including specimen of Demand Loan Certificates. (Incorporated by
Reference - Form S-1, No. 2-75071, effective January 7, 1982)
4.(i)B Trust Indenture dated November 8, 1984, as amended January 3, 1985,
including specimen of 10-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3, 1985
covering Farmland Industries, Inc.'s 10-Year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form SE,
dated December 3, 1991)
4.(i)C Trust Indenture dated November 8, 1984, as amended January 3, 1985,
including specimen of 5-year Subordinated Capital Investment
Certificates. (Incorporated by Reference - Form S-1, No. 2-94400,
effective December 31, 1984)
4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust
Indenture dated November 8, 1984 as amended January 3, 1985
covering Farmland Industries, Inc.'s 5-Year Subordinated Capital
Investment Certificates. (Incorporated by Reference - Form SE,
dated December 3, 1991)
4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985
and November 20, 1985, including specimen of 10-year Subordinated Monthly
Income Capital Investment Certificates. (Incorporated by Reference -
Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)E Trust Indenture dated November 11, 1985 including specimen of the
5-year Subordinated Monthly Income Capital Investment Certificates.
(Incorporated by Reference - Form S-1, No. 33-1970, effective December
31, 1985)
4.(ii)A Credit Agreement between Farmland Industries, Inc. and various banks
dated May 15, 1996, (Incorporated by Reference - Form 10-Q filed July 15,
1996)
The Registrant agrees to furnish to the Commission upon request
copies of any instrument defining the rights of holders of long-term
debt of the Registrant and its consolidated subsidiaries that does
not exceed 10 percent of the total assets of the Registrant and its
consolidated subsidiaries.
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First National
Bank of Chicago, not individually but solely as Trustee for AT&T
Commercial Finance Corporation, The Boatmen's National Bank of St. Louis,
Firstier Bank, N.A. and Norwest Bank Minnesota, National Association and
Farmland Industries, Inc. in the amount of $73,153,000. (Incorporated by
Reference - Form SE, filed December 3, 1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National Bank
of Commerce as Trustee for General Electric Credit Corporation as
Beneficiary and Farmland Industries, Inc. in the amount of
$51,909,257.90. (Incorporated by Reference - Form S-1, No. 2-60372,
effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
*10.(iii)A Annual Employee Variable Compensation Plan (September 1, 1996-
August 31, 1997)
10.(iii)BFarmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1994) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
* 10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999)
10.(iii)CFarmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference - Form 10-K, filed
November 28, 1995)
* 10.(iii)C(1) Resolution Approving the Revision of Appendix A and Appendix
*10.(iii)D Farmland Industries, Inc. Executive Deferred Compensation Plan (As
Amended and Restated Effective November 1, 1996)
*21. Subsidiaries of the Registrant
*24. Power of Attorney
*27. Financial Data Schedule
EXHIBIT 10.(iii)A
FY 97 STANDARD VARIABLE COMPENSATION PLAN
(SEPTEMBER 1, 1996 - AUGUST 31, 1997)
OBJECTIVE
To pay additional cash beyond base salary to eligible employees
of Farmland Industries, Inc. or one of its units, contingent upon
the company's financial performance. Farmland Industries, Inc.
("Corporate") must achieve a threshold or minimum income before
extraordinary items, or no payout occurs, regardless of
individual business/service unit results.
This plan includes three important exhibits which are an integral
part of the plan structure. Please be aware of and consult them.
They include the following:
Exhibit A- Corporate and Unit financial performance criteria
and levels
Exhibit B - A summary schedule of payout opportunities by
earnings level
Exhibit C- Descriptions and definitions of accounting terms
and methodologies relevant to this plan
PLAN STRUCTURE
The plan provides a one-time cash payment following the
conclusion of FY 97 to eligible employees for the attainment of
corporate and unit objectives. The corporate standard measure is
Return On Equity (ROE). The standard business unit measures, in
addition to corporate ROE, are Return On Assets (ROA), earnings
after interest, and cash flow, in approximately equal weighting.
With Senior Management approval, including the Chief Executive
Officer, a business unit may be based completely on corporate
ROE. Alternatively, a business unit may be based on corporate
ROE and on fewer than all three of the standard unit measures,
with full Senior Management approval. These splits do NOT apply
if the business unit variable payout is based solely upon
corporate ROE.
Corporate employee payout under this plan results entirely from
corporate ROE. Business unit employees shall also be based 100%
on corporate results unless they are either (A) direct members of
a unit head's management team, or (B) direct reports to a member
of the management team, and with management responsibilities
themselves, either for other employees or for major processes.
If in (A), the split for payout is 30% corporate and 70% business
unit; if in (B), the split is 50 % corporate and 50% business
unit.
A further requirement for payout to Farmland Industries, Inc.
Vice Presidents and above serving on the Management Council is
that cash patronage payments to members must occur; if not, this
group will receive no payout under the terms of this plan.
ELIGIBILITY
The following types of employees are ineligible for payout under
the Standard Variable Compensation Plan:
Employees whose terms and conditions of employment are subject
to collective bargaining.
Employees hired after 5/31/97. (Waived if the employee is a
former regular full time employee during FY 97. Payout is
prorated.)
Regular part time employees with less than 500 hours of
service during FY 97
Temporary employees with less than 1000 hours of service
during FY 97
Employees terminated for cause prior to 8/31/97
Employees who terminate voluntarily prior to 8/31/97
(Employees who terminate to accept a position with a member
cooperative may be eligible for a prorated payout.)
Employees included in variable compensation plans other than
the standard variable compensation plan. Exceptions must be
approved by Senior Management of the affected area and by the
VP, Human Resources.
Certain classes of employees who terminate prior to the end of
the fiscal year will receive payout based on their eligible
earnings during the year:
Death/Disability
Retirement
Reduction in Force
Focus Team member obtaining outside employment
Layoff
Leave of Absence
Hired after 9/1/96 but before 5/31/97
Involuntary separations, other than for reasons included in the
list above, which are not for performance or for cause, may
result in prorated payout.
Employees who voluntarily terminate prior to 08/31/97 for the
purpose of assuming a position with an MCA cooperative may be
eligible to receive a payout. To secure eligibility, the
employee must notify Corporate Human Resources, in writing, at
the time of separation and ensure that the MCA cooperative
notifies Farmland's Corporate Human Resources Department, in
writing, to verify employment from the point of separation
through the conclusion of the plan year.
Employees on formal disciplinary or performance probation are
ineligible for that portion of the fiscal year.
Employees who transfer from one business/service unit to another
receive a prorated award based on the goals attained and eligible
gross wages paid or the salary range midpoint in each unit.
DETERMINATION
OF PAYOUT
Payout is determined as a percentage of eligible gross wages or
salary paid during the fiscal year. Business unit or corporate
performance measurements are labeled "threshold", "target", and
"maximum".
Threshold - The minimal performance level required for the plan
to pay out. No payout occurs for achievement below threshold.
Target - Identifies the actual performance objective.
Maximum - A performance level exceeding target at which the
payout as a percentage of eligible gross wages or salary is
frozen. No payout occurs beyond these percentages regardless of
performance.
Payout for performance between threshold and target or target and
maximum is prorated.
APPROVED:
H.D. Cleberg
President and CEO
EXHIBIT A
FY 97 PERFORMANCE CRITERIA AND GOALS
CORPORATE:
Threshold Target Maximum
Return on Equity 8% 14% 20%
**Business Unit:
Threshold Target Maximum
Cash Flow
Return on Assets
Earnings after interest
** If Business unit measures are used, then key unit personnel are paid
variable pay on the following basis:
A. Direct members of the unit head's management team - 30% corporate/
70% unit
B. Direct reports to members of the management team who have
management responsibilities, either for Farmland employees, for
major processes, or both - 50% corporate/50% business unit.
EXHIBIT B
FY 97 STANDARD VARIABLE COMPENSATION PLAN
<TABLE>
<CAPTION>
THRESHOLD TARGET MAXIMUM EARNINGS V COMP CALCULATION POINT **
<S> <C> <C> <C> c>
3 5 8 All Non-Exempt/Truck Drivers Any Earnings
3 5 8 Below $35,000 Exempt Actual Earnings
3 6 10 $ 35,000 - $ 38,499 $ 36,750
4 7 12 $ 38,500 - $ 42,349 $ 40,425
5 8 15 $ 42,350 - $ 48,699 $ 45,525
5 10 18 $ 48,700 - $ 55,999 $ 52,350
6 12 22 $ 56,000 - $ 64,399 $ 60,200
7 15 27 $ 64,400 - $ 74,059 $ 69,230
8 18 33 $ 74,060 - $ 85,169 $ 79,615
10 22 40 $ 85,170 - $ 97,949 $ 91,560
12 25 46 $ 97,950 - $112,639 $105,295
12 25 46 $112,640 - $129,539 $121,090
12 25 46 $129,540 - $148,969 $139,255
14 28 52 $148,970 + Actual Earnings (Non - FII Exec)
<FN>
** I.E., for any exempt employee whose earnings fall within a particular
range, the payout is calculated on this middle value.
<CAPTION>
EXECUTIVES
THRESHOLD TARGET MAXIMUM EARNINGS V COMP CALCULATION POINT**
<S> <C> <C> <C> <C>
18 36 67 Designated FII Executives
22 45 83 Designated FII Executives
25 50 92 President and CEO
$ 90,000 - $107,999 $ 99,000
$108,000 - $129,599 $118,800
$129,600 - $155,519 $142,560
$155,520 - $186,619 $171,070
$186,620 - $223,939 $205,280
$223,940 - $268,729 $246,335
$268,730 - $322,479 $295,605
$322,480 - $386,979 $354,730
$386,980 - $464,379 $425,680
$464,380 - $557,259 $510,820
$557,260 - $668,709 $612,985
$668,710 - $802,449 $735,605
$802,450 + Actual Earnings
<FN>
** I.E., for any exempt employee whose earnings fall within a particular range,
the payout is calculated on this middle value.
</TABLE>
EXHIBIT C
ACCOUNTING TERMS AND METHODOLOGY
DEFINITIONS
INCOME is defined as income before taxes and extraordinary items as reported for
Key Results purposes.
EQUITY is the prior year's ending equity. Equity includes all capital shares
and equities (preferred, common and associate member shares, patronage refunds
for reinvestment, and earned surplus). It does not include minority owners
equity in subsidiaries.
RETURN ON EQUITY (ROE) is the ratio determined by dividing Income by Equity.
CASH FLOW will be measured by using the Net Cash Generated formula of net income
plus beginning assets minus ending assets. The assets are those reported for
Key Results purposes, and at the business unit level, exclude such items as
prepayments and redating of inventory.
AVERAGE ASSETS are the key results assets averaged by adding the previous year-
end assets, September through July ending assets multiplied by two, the current
year ending assets and dividing by 24.
RETURN ON AVERAGE ASSETS is the ratio of income divided by the Average Assets.
EARNINGS AFTER INTEREST is the Key Results income for the operating unit after
interest, other income and joint venture income.
TREATMENT OF THE VARIABLE COMPENSATION EXPENSE
The ROE targets have been expressed after the recognition of the variable
compensation expense. In calculating the level at which variable compensation
will be paid, the variable compensation expense is added back to Income. For
example, assume Equity is $762,011,000 and the ROE for threshold is expressed as
8%. This would correspond to Income of $60,960,880 (.08 times $762,011,000).
However, the $60,960,880 includes variable compensation expense (variable
compensation expense is budgeted at target and an accrual is made each month).
EXAMPLE OF REQUIRED INCOME*
(ASSUMING PRIOR YEAR ENDING EQUITY OF $762,011,000 MILLION)
ROE Required Income
Threshold 8.0% $ 60,960,880
Target 14.0% $ 106,681,540
Maximum 20.0% $ 152,402,200
* Actual FY 96 ending ROE has yet to be determined. When it is, these
income figures will be subject to some modification.
DETERMINATION OF EXTRAORDINARY ITEM
If Farmland achieves its performance goals, but experiences a loss year due to
extraordinary items, the Board of Directors of Farmland Industries, Inc.
maintains the discretion to authorize, adjust, or deny payout of the management
portion of the Variable Compensation Plan (See the definition of management
employees in the main plan document and in Exhibit "A"). This also applies to
management level employees who participate in customized plans. Employees on
sales incentive plans, with base pay administered at a lower level, are NOT
affected by this provision unless specific portions of their plans are tied to
corporate performance.
GUIDELINES FOR "EXTRAORDINARY" DESIGNATION
The Chief Financial Officer and the Chief Executive Officer must approve the
classification of any item as "extraordinary." Transactions deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
The punitive portion of litigation results in favor of or against Farmland,
excluding redemptive payments on normal business matter where the intent is
to substantially restore net income to where it would have been had the
incident not occurred.
Non-recurring (one-time) adjustments to income or expense such as the gain
from settlement of the retirement plan. Any such items would generally be
reported as extraordinary items on Farmland financial statements under
generally accepted accounting principles.
The gain or loss on the disposal of a major asset, group of assets, or
investments.
The gain or loss from any new business activity or business unit added
subsequent to the approval of the Business Plan, provided that the
acquisition was such that it required specific Board of Director approval
outside of the business plan.
The impact of adjustments resulting from LIFO inventory computations or
reserves.
Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative before
review by the Chief Financial Officer and the Chief Executive Officer.
Exhibit 10.(iii)B(1)
EXHIBIT E
Performance criteria for FY 1997 - FY 1999 cycle include the following:
Aggregate Income, defined as the targeted income, before taxes and extraordinary
items (1), for the entire three-year period, as shown in the table below.
Performance goals and amounts funding the payout pool include the following:
Performance Aggregate Income % of Net Earnings to
Level Pool
Below Target Below 0%
$541,768,000
Target $541,768,000 .83% of earnings
Above Target Above .83% of earnings
$541,768,000
During the FY 97 - 99 cycle, Farmland Industries, Inc. must return to its
members at least $147,285,000 in cash,(2) or no payout will occur under this
plan.
In order to ensure the integrity of Farmland's financial strength, a limit on
funded indebtedness as a percent of capitalization is incorporated into this
plan. In the event that the indebtedness ratio is above the level which is
established by bank covenants at the end of the cycle, not payout will occur
under this plan.
(1) The Chief Financial Officer and the Chief Executive Officer must approve
the classification of any item as "extraordinary." Transaction deemed as
"extraordinary" and therefore excluded in the determination of Income for
variable compensation include:
. The punitive portion of litigation results in favor of or against
Farmland, excluding redemptive payments on normal business matter
where the intent is to substantially restore net income to where it
would have been had the incident not occurred.
. Nonrecurring (one-time) adjustments to income or expense such as the
gain from settlement of the retirement plan. Any such items would
generally be reported as extraordinary items on Farmland financial
statements under generally accepted accounting principles.
. The gain or loss on the disposal of a major asset, group of assets, or
investments.
. The impact of adjustments resulting from LIFO inventory computations
or reserves.
. Other items as approved.
Specific requests by an operating unit for treatment of an item as
"extraordinary" must be approved by the Senior Management representative
before review by the Chief Financial Officer and Chief Executive Officer.
(2) Cash Returned to Members includes cash patronage, equity redemptions,
additional equity redemptions due to tax savings on net operating losses
(NOL), ownerships retirements, capital credits, preferred stock dividends,
preferred stock redemptions, and estate settlements.
Exhibit 10.(iii)C(1)
PROPOSED RESOLUTION APPROVING REVISION OF
APPENDIX A OF THE FARMLAND INDUSTRIES, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
RESOLUTION
WHEREAS, Section 4 of the Farmland Industries, Inc. Supplemental Executive
Retirement Plan provides that Appendix A of the Plan may be revised from time to
time by the Board of Directors of Farmland Industries, Inc.
NOW THEREFORE BE IT RESOLVED, that in accordance with that provision, the
Appendix A , the list of Participants in the Plan, shall be revised by making
the following additions and deletions:
Additions: William J. Adams
Bruce A. Benschoter
G. Gary Cannavo
David A. Fulton
George W. Haney
Holly D. McCoy
Kent G. Nunn
Gregg L. Parvin
Paul J. Prijatel
Jeffrey R. Roberts
Leon Stonechipher
Robert B. Terry
Curtis V. Walther
Jerry B. Waters
Bryce C. Wells
Deletions: Harold A. Carter
Edwin D. Wallace
Carl Morris
APPENDIX A
TO
FARMLAND INDUSTRIES, INC. SUPPLEMENTAL
EXECUTIVE RETIREMENT PLAN
Allen, William Shepard, R.
Adams, William J. Stonecipher, Leon
Baldwin, Mark Sweat, Mike
Benschoter, Bruce A. Terry, Robert B.
Berardi, John Vickers, Keith
Campbell, Terry Walther, Curtis V.
Cannavo, Gary Waters, Jerry B.
Cleberg, Harry Wells, Bryce
Daniel, Merl
Daugherty, Tim
Dees, Steve
Douglass, Robert
Evans, Gary
Filson, Dave
Fulton, David A.
Grazier, George
Haney, George W.
Hodges, Chris
Honse, Robert
Kimble, Donald
McCoy, Holly D.
Morrison, Gary
Nunn, Kent G.
Otwell, Kenneth
Pardun, Ray
Parvin, Gregg L.
Prijatel, Paul John
Richter, George
Rieman, Stan
Roberts, Jeffrey R.
Sadler, Michael
Sander, D.
Sanders, Bernard
Schrodt, Fred
EXHIBIT 10.(iii)D
FARMLAND INDUSTRIES, INC.
EXECUTIVE DEFERRED COMPENSATION PLAN
(As Amended and Restated Effective November 1, 1996)
Section 1. Establishment
FARMLAND INDUSTRIES, INC. hereby establishes, effective as of January 1,
1971, or at such time as determined by the Board of Directors, a deferred
compensation plan for executives as described herein, which shall be known as
the "FARMLAND INDUSTRIES, INC. EXECUTIVE DEFERRED COMPENSATION PLAN"
(hereinafter called the "Plan").
Section 2. Definitions
2.1 Definitions. Whenever used herein, the following terms shall have the
meanings set forth below:
(a) The term "Company" means Farmland Industries, Inc., a Kansas
corporation, and any successor thereto that adopts the Plan.
(b) The term "Board" means the Board of Directors of the Company.
(c) The term "Committee" means the Compensation Committee of the
Board.
(d) The term "Employer" means (i) the Company; (ii) any affiliate of
the Company which is not designated by the Board as ineligible to
become a party to and participate in the Plan, and which
affirmatively adopts the Plan; and (iii) any other corporation or
unincorporated trade or business, provided such other entity is
designated by the Board as eligible to become a party to and
participate in the Plan, and such other entity affirmatively
adopts the Plan. For purposes of this Subsection, the term
"affiliate" means a corporation or unincorporated trade or
business which is a member, with the Company, of the same
controlled group of corporations, the same group of trades or
businesses under common control, or the same affiliated service
group (within the meaning of Internal Revenue Code Section
414(b), 414(c) or 414(m), respectively).
(e) The term "Executive" means an employee of an Employer who is in a
select group of management or highly compensated employees, and
who is exempt from the minimum wage and maximum hour requirements
of the Fair Labor Standards Act, as described in 29 U.S.C.
Section 213(a) and regulations promulgated thereunder.
(f) The term "Participant" means an Executive who meets the
qualifications established by the Board for participation in the
Plan and who has an account under the Plan.
(g) The term "Compensation" with respect to an Executive means the
sum of (i) the Executive's base salary rate in effect on October
31 of the calendar year preceding the calendar year with respect
to which the relevant irrevocable deferral election relates, and
(ii) the Executive's target variable compensation, as determined
by the Employer, for the year with respect to which the relevant
irrevocable deferral election relates, irrespective of whether
the target variable compensation is ultimately paid. For this
purpose, "base salary rate" means an Executive's stated salary
rate as reported to the Company's human resources
representatives, plus geographic differential pay, bridge
differential pay (e.g., payments due to or in accordance with
downgrades resulting from restructuring or developmental moves,
temporary assignments of relatively long duration, etc.), and
industry differential pay. The Committee shall resolve all
questions concerning amounts which should be considered "base
pay," pursuant to its authority granted in Section 10.
(h) The term "Beneficiary" means the person or persons designated
pursuant to Section 7 who are to receive upon a Participant's
death the distribution that otherwise would have been paid to the
Participant.
(i) The term Retirement @ means the date on which a Participant is
entitled to receive an early, normal or late retirement annuity
under the Employers qualified defined benefit pension plan, or
similar retirement benefit under another of the Employer's
qualified retirement plans. The term shall not mean entitlement
to a termination benefit under the Employer's retirement plan(s)
where the benefit would be paid prior to the Participant's
attainment of age 55.
2.2 Gender and Number. Except when otherwise indicated by the context,
any masculine terminology used herein shall also include the feminine gender,
and the definition of any term herein in the singular shall also include the
plural.
Section 3. Eligibility for Participation
An Executive shall be eligible to participate in the Plan if he:
(a) has Compensation of at least $85,000 per year; and
(b) is expected to be among the top paid two percent of all employees
(or the top paid employee, where there are 50 or fewer employees)
of his Employer as measured by the Executive's Compensation for
the year with respect to which the relevant deferral election
relates. For purposes of this Subsection 3.1(b), where the
Executive is employed by the Company or an affiliate (within the
meaning of Subsection 2.1(d)), this determination shall be made
as though his Employer employed all employees of the Company and
its affiliates.
An Executive shall be eligible to participate in the Plan on the date that
he satisfies the requirements set forth in (a) and (b) above and executes an
irrevocable deferral election described in Section 4.1 of this Plan. The
Committee shall have the power, authority, and discretion to resolve any and all
questions concerning eligibility, and its decisions shall be binding on all
parties. The Company shall periodically compile a list of those Executives who
are eligible to participate in the Plan. Such lists shall be compiled as
necessary to allow proper administration of the Plan.
If at a future date a Participant no longer meets the requirements for
participation in this Plan, the Participant shall become an inactive
Participant, retaining all of the rights afforded to Participants by this Plan,
except the right to make additional deferrals pursuant to Subsection 4.1. Such
an individual shall remain an inactive Participant unless and until he again
becomes an active Participant.
Section 4. Deferral of Income
4.1 Deferral Procedure. At the times and in the manner specified below,
an active Participant or an eligible Executive may make an irrevocable election
in writing to defer a portion of his remuneration until a specified date,
subject to limitations described below, in any future calendar year:
(a) Prior to December 31 of any calendar year, any amount, in
multiples of $100 per pay period, of his Compensation to be paid
in the following calendar year.
(b) Prior to August 31 of any calendar year, any additional amount,
in multiples of $100 per pay period, of his Compensation to be
paid during the remainder of the calendar year from September 1
until December 31.
(c) Prior to December 31 of any calendar year, all or part, stated as
a percentage or in some other clearly identifiable manner, of any
award payable between January 1 and August 31 of the following
calendar year from an Employer-sponsored incentive plan, provided
that the amount of the incentive award has not been precisely
determined at the time of the irrevocable election.
(d) Prior to August 31 of any calendar year, all or part, stated as a
percentage or in some other clearly identifiable manner, of any
award payable between September 1 and December 31 of that
calendar year from an Employer-sponsored incentive plan, provided
that the amount of the incentive award has not been precisely
determined at the time of the irrevocable election.
Amounts deferred pursuant to Subsections (a) and (b) above shall be
deducted on a uniform basis for each remaining pay period during the pertinent
calendar year. Subject to limitations described below, at the time of each
deferral election the active Participant or eligible Executive shall elect both
the time at which, and the form in which, he wishes to receive payment of the
sum of the deferred amount and the accrued interest on such amount.
4.2 Electing the Time of Payment. The active Participant or eligible
Executive may, in his deferral election, elect to receive payment of the
deferred amount (with interest) at Retirement, or on a specified deferral ending
date in a calendar year after the calendar year with respect to which the
deferral election relates; provided, however, that with respect to a deferral
election executed on or after November 1, 1996, the active Participant or
eligible Executive may elect to receive payment of the deferred amount (plus
interest) (i) at Retirement; (ii) on a specified deferral ending date which must
be the first day of a calendar quarter in any calendar year after the calendar
year to which the deferral election relates; or (iii) if the election form so
provides, the earlier of Retirement and a specified deferral ending date
described in (ii) above.
EXAMPLE: Participant A completes a deferral election on December
1, 1996, for deferral of a portion of his Compensation payable
for 1997. Participant A elects to receive his deferred
compensation on July 1, 1998. The election is permissible
because his deferral ending date is a date certain, after the
1997 calendar year, which is the first day of a calendar quarter.
Participant B similarly completes a deferral election form, but
elects to receive her deferred compensation on retirement. The
election is permissible.
Participant C similarly completes a deferral election form and,
like Participant A, selects a deferral ending date of July 1,
1988. But Participant C further elects to receive his deferred
compensation on the earlier of his retirement or the July 1,
1988, deferral ending date. The election is permissible.
4.3 Electing the Form of Payment. The active Participant or eligible
Executive may elect to receive payment of the deferred amount (and interest
thereon) in a single sum or in ten equal annual installments; provided,
however, that with respect to deferral elections made on or after November 1,
1996, if payment of the deferred amount pursuant to Subsection 6.3 occurs while
the Participant is still employed by the Employer, the deferred amount (and
interest thereon) shall be paid in a single sum, notwithstanding the election to
receive the deferred amount in ten equal annual installments. A Participant
will be deemed to still be employed by his Employer on the deferral payment date
if the Participant was employed by the Company or one of its affiliates (as
defined in Subsection 2.1(d)) when he made his deferral election, and on the
deferral payment date is employed by the Company or one of its affiliates.
EXAMPLE: Participant A elects to receive payment of his deferred
amount in ten annual installments. On his deferral payment date,
however, he is still employed by his Employer. Payment of his
deferred amount will be made in a single sum, even though he
elected to receive his payment in ten annual installments.
That's because the Plan will not make payment in installments to
a Participant who is still employed by his Employer.
Participant B elects to receive payment of her deferred amount in
ten annual installments. On her deferral payment date, she is
not employed by her Employer (that is, she is either retired or
employed elsewhere). Payment of her deferred amount will be made
in ten annual installments.
Section 5. Crediting of Deferred Compensation
5.1 Participants' Accounts. The Company shall establish a bookkeeping
account for each Participant, which shall be credited as of each date the
Participant's Compensation or incentive pay award is deferred in the manner he
elects pursuant to Section 4 of this Plan. Benefit payments under the terms of
this Plan shall be the financial responsibility of the Participant's Employer
and shall be paid based upon the bookkeeping accounts maintained by the Company.
5.2 Amounts Deferred. Amounts deferred during the current calendar year,
and amounts deferred in prior years (and any interest credited thereto in a
prior year as herein provided) shall be credited with simple interest for the
period that such amounts were actually deferred during the year at a rate equal
to the highest rate of interest on certificates of investment sold by the
Company during the year. This interest adjustment shall be made at the end of
each calendar year. However, where deferred amounts are distributed other than
in the month of January, the amounts deferred during the calendar year in which
the distribution occurs (and amounts deferred in prior years, and interest
credited thereto for prior years) will be credited with interest from January 1
of the calendar year in which the distribution occurs to the date of
distribution, at a rate equal to the highest rate of interest on certificates of
investment sold by the Company between such January 1 and the date of
distribution.
EXAMPLE: Assume that in December, 1995, a newly eligible Participant
deferred $12,000 of Compensation payable over 24 pay periods in 1996
($500 per pay period), with the first pay period being January 15,
1996. In January, 1997, the Participant takes a single sum
distribution of his deferred amounts. The highest rate of interest on
certificates of investment sold by the Company during 1996 was 12.52
percent. At the end of the 1996 calendar year, the Participant's
account is credited with $12,000 in deferred compensation. Interest
is then credited by calculating the rate creditable to each $500
contribution to the Plan over the course of the calendar year. The
maximum period for which interest is creditable is 11.5 months (since
the first pay period was January 15). The 12.52 percent interest rate
is multiplied by the quotient of 11.5 and 12, to obtain a maximum
annual yield of 12 percent for the $500 deferral made on January 15
(that is, the 12.52 percent rate is adjusted to account for the fact
that interest will not be credited for a full 12 months, but for 11.5
months at most). This 12 percent is then divided by the 24 pay
periods, to obtain the rate (.5 percent) creditable for each payroll
period.
The first deferral of $500 is thus credited with the full 12 percent
interest (.5 percent times 24 pay periods); the January 31 deferral is
credited with 11.5 percent interest (.5 percent times 23 pay periods);
the February 15 deferral is credited with 11 percent interest,
etcetera.
Note that if the Participant had maintained a $12,000 account balance
at the beginning of 1996, and took no distribution of that balance in
1996, his beginning 1996 account balance would be credited at the
close of the 1996 calendar year with the full 12.52 percent interest
rate, resulting in an interest credit of $1,502. His account would be
increased to $13,502, plus deferrals made in 1996, and the interest on
those deferrals.
Because the Participant took a single sum distribution of his account
balance in January, 1997, no interest is creditable to his account for
1997, and this is true even if his distribution date is as late as
January 31. However, if the Participant took his distribution on,
say, July 1, 1997, his beginning 1997 account balance, and deferrals
made in 1997, would be credited with interest, in the manner described
above, to the date of distribution. The interest rate would be the
highest rate of interest on certificates of investment sold by the
Company between January 1, 1997, and the date of distribution.
Section 6. Distribution of Deferred Compensation
6.1 Distribution of Amounts Deferred Pursuant to an Irrevocable Election
Executed Prior to September 15, 1987. All amounts in a Participant's account
which were deferred pursuant to an irrevocable election executed prior to
September 15, 1987 (plus accumulated interest) shall be distributed to him (or
to his Beneficiary) in the manner set forth below upon the occurrence of one of
the following:
(a) Retirement of the participant; or
(b) Death or disability (as "disability" is defined in the Social
Security Act) of the Participant at any age.
In the event a Participant's employment with his Employer is terminated by
voluntary resignation or discharge by the Employer, no payments under this
Subsection 6.1 shall be made to the Participant until he attains age 65, except
as provided in Subsection 6.5.
At such time as an event set forth above occurs, the dollar value of
amounts deferred by a Participant pursuant to an irrevocable election executed
prior to September 15, 1987 (plus accumulated interest) shall be determined as
of the December 31 coincident with or next following the date of occurrence, and
shall be distributed to the Participant (or to his Beneficiary, in case of his
death) as follows: One-tenth of the value thereof shall be paid by the Company
as soon as practicable during the calendar year next following the calendar year
during which an event set forth above occurs, and the same amount as soon as
practicable after the beginning of each succeeding calendar year thereafter
until one hundred percent (100%) of such value has been distributed. With each
of the ten annual payments, an additional amount shall be paid which shall be
obtained by multiplying the net balance in the Participant's account by a
percentage equal to the highest rate of interest on certificates of investment
sold by the Company during the calendar year preceding payment, before charging
the account with the distribution for such year. Upon completion of the
installment payments (with interest) provided herein, the Participant's account
shall be closed.
In the event that a Participant who has retired pursuant to Subsection
6.1(a) is later re-employed by an Employer, any distribution that he was
receiving under this Plan shall be suspended until such time as he again
experiences a distributable event described in Subsection 6.1(a) or 6.1(b). Re-
employment by an entity other than the Participant's Employer shall not result
in the suspension of payments under the Plan.
6.2 Distribution of Amounts Deferred Pursuant to an Irrevocable Election
Executed After September 15, 1987 but Before November 1, 1996. Any active
Participant or eligible Executive deferring Compensation pursuant to an
irrevocable election executed after September 15, 1987, but before November 1,
1996, shall be entitled to receive payment of the amount deferred upon the
earliest occurrence of one of the following:
(a) The deferral ending date specified in the Participant's or
Executive's written irrevocable election for deferral of
Compensation, executed pursuant to Section 4 of this Plan;
(b) Death of the Participant;
(c) Disability (as that term is defined in the Social Security Act)
of the Participant; or
(d) Retirement of the Participant.
6.3 Distribution of Amounts Deferred Pursuant to an Irrevocable Election
Executed on or After November 1, 1996. Any active Participant or eligible
Executive making an irrevocable deferral election, pursuant to Section 4 of this
Plan, on or after November 1, 1996, shall be entitled, subject to limitations
described below with respect to annual installment payments, to receive payment
of the deferred amount (and interest thereon) on the date specified in the
deferral election (i.e., upon Retirement or the specific deferral ending date
selected by the Participant or Executive in the deferral election, or, if the
election so reflects, on the earlier of those two dates). However, in the event
the Participant's Retirement, death or disability (as defined in the Social
Security Act) precedes a specific deferral ending date reflected in the deferral
election, the Participant (or, in the case of his death, his Beneficiary) shall
be entitled to payment of the deferred amount (and interest thereon) upon his
Retirement, death or disability, notwithstanding the specific deferral ending
date specified in the deferral election. The Committee or its designee may
require proof to its satisfaction of the Participant's death or disability.
Where an active Participant or eligible Executive elects, in his deferral
election, to receive payment of the deferred amount in a single sum, payment of
the amount deferred (and interest thereon) shall be made in a single sum on, or
as soon as practicable following, the Participant's Retirement, specific
deferral ending date, death or disability. Where the Participant or Executive
elects, in his deferral election, to receive payment of the deferred amount in
ten equal annual installments, payment of the installments shall begin in the
month of January coincident with or first following his Retirement, specific
deferral ending date (or, if the election so provides, the earlier of those two
dates), death or disability; provided, however, that in the case of the
Participant's death or disability, the Participant (or, in the case of his
death, his Beneficiary) may elect to receive payment of the amount deferred (and
interest thereon) in a single sum on, or as soon as practicable following, the
death or disability. Notwithstanding the foregoing, the Plan shall pay deferred
amounts (and interest thereon) in a single sum, irrespective of the
Participant's or Executive's election to the contrary, under the circumstances
described in Subsection 4.3 (i.e., where payment occurs while the Participant is
still employed).
6.4 Additional Distribution. If amounts deferred under this Plan are not
counted as compensation in determining benefits under the Employer's qualified
defined benefit pension plan, a supplemental payment of equivalent actuarial
value shall be made by the Employer if necessary, with each distribution (which
will be in addition to the amounts distributed under Subsections 6.1, 6.2 and/or
6.3 hereof) to compensate the Participant for any reduction in benefits suffered
under any of the Employer's qualified defined benefit pension plans as a result
of deferring Compensation under this Plan.
(a) The retirement adjustment amount paid will be the difference
between (i) the pension benefit calculated by using the four
highest total wage amounts for the latest ten years, including
amounts deferred; and (ii) the pension benefit calculated in a
normal manner. Amounts deferred will, however, be included in
the calculation of (i) above only to the extent that inclusion of
those amounts does not cause the wages taken into account in
calculating the retirement benefit to exceed the limitation on
compensation under Section 401(a)(17) of the Internal Revenue
Code of 1986 (as it may be amended from time to time).
(b) Amounts deferred under this Plan, and amounts paid out under this
Plan, will not be included in the calculation of the employee's
wage base under the pension plan.
The Employer shall also make supplemental payments for any similar
reduction in benefits under any of the Company's other plans providing
retirement, death, or disability benefits either now in existence or adopted
after the effective date of this Plan.
6.5 Distribution for Hardship. In the event of great financial hardship
or emergency occurring in the personal affairs of the Participant, or his
Beneficiary in the case of the Participant's death, the President of the
Company, with the approval of the Committee, may accelerate the payout of the
Participant's deferred account.
A great financial hardship or emergency will be deemed to have occurred in
the event of (i) the Participant's death, (ii) unemployment of the Participant
or employment at a salary fifty percent (50%) or less than his prior
Compensation with the Employer, (iii) serious illness of the Participant or his
Beneficiary, (iv) bankruptcy of the Participant, or (v) other events of a
similar magnitude.
6.6 Cost. Payment of a Participant's deferred compensation under this
Plan, and interest thereon, shall be the responsibility and liability of the
Employer which employed that Participant for the period(s) with respect to which
the Participant's deferral(s) relate.
Section 7. Designation of Beneficiaries
A Participant may designate a Beneficiary or Beneficiaries who are to
receive upon his death the distributions that otherwise would have been paid to
him. All designations shall be in writing and shall be effective only if and
when delivered to the Secretary of the Company, or his authorized designee,
during the lifetime of the Participant. If a Participant designates a
Beneficiary without providing in the designation that the Beneficiary must be
living at the time of each distribution, the designation shall vest in the
Beneficiary all of the distributions, whether payable before or after the
Beneficiary's death, and any distributions remaining upon the Beneficiary's
death shall be made to the Beneficiary's estate.
A Participant may, from time to time during his lifetime, change his
Beneficiary or Beneficiaries by a written instrument delivered to the Secretary
of the Company or his authorized designee. The term "Beneficiary" may include a
trust, so long as the trust survives the Participant's death.
In the event that a Participant does not designate a Beneficiary or
Beneficiaries as aforesaid, or if for any reason such designation shall be
ineffective in whole or in part, the distribution that otherwise would have been
paid to such Participant shall be paid to his estate, and in such event the term
"Beneficiary" shall include his estate.
Section 8. Dissolution, Liquidation, Merger,
Consolidation and Sale of Assets
8.1 Dissolution or Liquidation of the Company. Notwithstanding anything
herein to the contrary, upon the dissolution or liquidation of the Company or an
Employer, the account of each affected Participant shall be valued as of the
date preceding dissolution or liquidation, each affected Participant's
employment with his Employer shall be deemed to have terminated on the date
preceding such dissolution or liquidation, and the account of each affected
Participant shall be distributed in the form of a lump sum payment equal to the
value of the account as of such date. In connection with such liquidation or
dissolution, the Company may place in trust, escrow or other fund, an amount
equal to the total dollar amount of the accounts of all affected Participants in
the Plan, together with any sum required under Subsection 6.4, and the same
shall be distributed in the same manner as provided in Subsections 6.1, 6.2
and/or 6.3 hereof.
8.2 Merger, Consolidation, and Sale of Assets. Notwithstanding anything
herein to the contrary, in the event that an Employer desires to consolidate
with, merge into, or transfer all or substantially all of its assets to another
entity (hereinafter referred to as a "Successor Employer"), the Company and such
Successor Employer may agree that the Successor Employer shall assume the
Employer's obligation under this Plan in whole or in part. In connection with
such an assumption, the Company may in its sole discretion amend the Plan so
that the value of the accounts of affected Participants is determined and frozen
as of the date of the consolidation, merger, or transfer of assets; provided
that in the event such assets are frozen, the Successor Employer shall credit
the account of each Participant with an amount determined by applying the prime
interest rate then in effect to the balance in the Participant's account before
charging the account with any distribution.
Notwithstanding anything herein to the contrary, in the event that an
Employer is sold to another corporation or other party(ies) ("New Shareholder"),
the Company may agree with such Employer or New Shareholder that the Employer
shall assume obligations under this Plan in whole or in part and, in connection
with such assumption, that the value of the accounts of Participants shall be
determined and frozen as of the date of the sale of such Employer; provided that
in the event that such accounts are frozen and the obligations under this Plan
are assumed by such Employer, the Employer shall credit an affected account
following such sale with an interest rate to be fixed by such Employer from time
to time before charging such account with any distribution.
Section 9. Rights of Participants
No Participant or Beneficiary shall have any interest in any fund or in any
specific asset or assets of an Employer by reason of any account maintained for
him under the Plan. See Subsections 5.1 and 6.6 regarding the Employer's
liability for payment of compensation deferred under this Plan.
It is intended that an Employer has merely a contractual obligation to make
payments when due hereunder and it is not intended that an Employer hold any
funds in reserve or trust to secure payments hereunder. No Participant may
assign, pledge, or encumber his interest under the Plan, or any part thereof,
except that a Participant may designate a Beneficiary as provided in the Plan.
Notwithstanding any other provisions of the Plan, benefits shall be paid in
accordance with any qualified domestic relations orders.
Section 10. Administration
The President of the Company or his authorized designee shall be
responsible for the general administration of the Plan. The President may from
time to time establish rules for the administration of the Plan that are not
inconsistent with the provisions of the Plan. The Committee shall have the
power to interpret and construe the terms of this Plan, and the determination of
the Committee as to any dispute question arising under the Plan, shall be final,
binding and conclusive upon all persons.
Section 11. Amendments
The Board in its absolute discretion, without notice, at any time and from
time to time, may modify or amend, in whole or in part, any or all of the
provisions of the Plan, or suspend or terminate it entirely. No such
modification, amendment, suspension, or termination may, without the consent of
a Participant (or his Beneficiary in the case of his death) reduce the right of
a Participant (or his Beneficiary) to the payment or distribution of any amount
based upon the value in his accounts under the Plan for any calendar year ended
prior to the effective date of such modification, amendment, suspension, or
termination.
Section 12. Applicable Laws
The Plan shall be construed, administered, and governed in all respects
under and by the laws of the State of Missouri.
Section 13. Incompetency
Every person receiving or claiming payments under this Plan shall be
conclusively presumed to be mentally competent until the date on which the
President of the Company receives a written notice, in a form and manner
acceptable to the President, that such person is incompetent and that a
guardian, conservator, or other person legally vested with the care of his
estate has been appointed. In the event a guardian or conservator of the estate
of any person receiving or claiming payments under this Plan shall be appointed
by a court of competent jurisdiction, benefit payments may be made to such
guardian or conservator, provided that proper proof of appointment and
continuing qualification are furnished in a form and manner acceptable to the
President. Any such payment so made shall be a complete discharge of any
liability therefor.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Farmland Foods, Inc., a 99%-owned subsidiary, was incorporated under the laws of
the State of Kansas. Farmland Foods, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
FDL Foods, Inc., a wholly-owned subsidiary was incorporated under the laws of
the State of Iowa. FDL Foods, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Farmland Insurance Agency, a wholly-owned subsidiary, was incorporated under the
laws of the State of Missouri. Farmland Insurance Agency has been included in
the Consolidated Financial Statements filed in this registration.
Farmers Chemical Company, a wholly-owned subsidiary, was incorporated under the
laws of the State of Kansas. Farmers Chemical Company has been included in the
Consolidated Financial Statements filed in this registration.
Farmland Securities Company, a wholly-owned subsidiary, was incorporated under
the laws of the State of Delaware. Farmland Securities Company has been
included in the Consolidated Financial Statements filed in this registration.
Cooperative Service Company, a wholly-owned subsidiary, was incorporated under
the laws of the State of Nebraska. Cooperative Service Company has been
included in the Consolidated Financial Statements filed in this registration.
Double Circle Farm Supply Company, a wholly-owned subsidiary, was incorporated
under the laws of the State of Nevada. Double Circle Farm Supply Company has
been included in the Consolidated Financial Statements filed in this
registration.
National Beef Packing Company, L.P., a 76%-owned subsidiary was formed under the
laws of the State of Delaware. National Beef Packing Company has been included
in the Consolidated Financial Statements filed in this registration.
NBPCo, L.L.C., a wholly-owned subsidiary, was formed under the laws of the State
of Kansas. NBPCo, L.L.C. has been included in the Consolidated Financial
Statements filed in this registration.
Farmland Financial Services Company, a wholly-owned subsidiary, was incorporated
under the laws of the State of Kansas. Farmland Financial Services Company has
been included in the Consolidated Financial Statements filed in this
registration.
Farmland Transportation, Inc., a wholly-owned subsidiary, was incorporated under
the laws of the State of Missouri. Farmland Transportation, Inc. has been
included in the Consolidated Financial Statements filed in this registration.
Environmental and Safety Services, Inc., a wholly-owned subsidiary, was
incorporated under the laws of the State of Missouri. Environmental and Safety
Services, Inc. has been included in the Consolidated Financial Statements filed
in this registration.
Farmland Industries, Ltd., a wholly-owned subsidiary, was incorporated under the
laws of the United States Virgin Islands. Farmland Industries, Ltd. has been
included in the Consolidated Financial Statements filed in this registration.
FI Mankato Energy, Inc., a wholly-owned subsidiary, was incorporated under the
laws of the State of Minnesota. Mankato Energy, Inc. has been included in the
Consolidated Financial Statements filed in this registration.
FII Communications, L.L.C., a wholly-owned subsidiary, was incorporated under
the laws of the State of Missouri. FII Communications, L.L.C. has been included
in the Consolidated Financial Statements filed in this registration.
Heartland Data Services, Inc., a wholly-owned subsidiary, was incorporated under
the laws of the State of Kansas. Heartland Data Services, Inc. has been
included in the Consolidated Financial Statements filed in this registration.
Equity Country, Inc., a wholly-owned subsidiary, was incorporated under the laws
of the State of Delaware. Equity Country, Inc. has been included in the
Consolidated Financial Statements filed in this registration.
Ceres Realty Corporation, a wholly-owned subsidiary, was incorporated under the
laws of the State of Missouri. Ceres Realty Corporation has been included in
the Consolidated Financial Statements filed in this registration.
Heartland Wheat Growers, L.P., a 79%-owned subsidiary, was formed under the laws
of the State of Kansas. Heartland Wheat Growers, L.P. has been included in the
Consolidated Financial Statements filed in this registration.
Heartland Wheat Growers, Inc., a 79%-owned subsidiary, was incorporated under
the laws of the State of Kansas. Heartland Wheat Growers has been included in
the Consolidated Financial Statements filed in this registration.
Farmland Industrias S.A. de C.V., a wholly-owned subsidiary, was formed under
the laws of Mexico. Farmland Industrias S.A. de C.V. has been included in the
Consolidated Financial Statements filed in this registration.
National Carriers, Inc., a 79%-owned subsidiary, was incorporated under the laws
of the State of Kansas. National Carriers, Inc. has been included in the
Consolidated Financial Statements filed in this registration.
Supreme Land, Inc., a wholly-owned subsidiary, was incorporated under the laws
of the State of Kansas. Supreme Land, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain, Inc., a wholly-owned subsidiary, was incorporated under the laws of
the State of Tennessee. Tradigrain, Inc. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the laws of
Switzerland. Tradigrain S.A. of Switzerland has been included in the
Consolidated Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the laws of
Argentina. Tradigrain S.A. of Argentina has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain S.A., a wholly-owned subsidiary, was formed under the laws of France.
Tradigrain S.A. of France has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain GmbH, a wholly-owned subsidiary, was formed under the laws of
Germany. Tradigrain GmbH has been included in the Consolidated Financial
Statements filed in this registration.
Tradigrain Shipping S.A., a wholly-owned subsidiary, was formed under the laws
of Switzerland. Tradigrain Shipping S.A. has been included in the Consolidated
Financial Statements filed in this registration.
Tradigrain LTD., a wholly-owned subsidiary, was formed under the laws of Great
Britain. Tradigrain LTD. has been included in the Consolidated Financial
Statements filed in this registration.
Exhibit 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
below constitutes and appoints Robert B. Terry and Terry M. Campbell, and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him in his name, place and stead, in any
and all capacities, to sign any and all Farmland Industries, Inc.'s 1996
annual report prepared, pursuant to Sections 13 or 15d of the Securities Act
of 1934, (including any amendments thereto), and file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as they might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
ALBERT J. SHIVLEY Chairman of Board October 23, 1996
Albert J. Shivley and Director
H. D. CLEBERG President, October 23, 1996
H. D. Cleberg Chief Executive Officer
and Director
(Principal Executive Officer)
OTIS H. MOLZ Vice Chairman of Board October 23, 1996
Otis H. Molz and Director
LYMAN ADAMS, JR. Director October 23, 1996
Lyman Adams, Jr.
RONALD J. AMUNDSON Director October 23, 1996
Ronald J. Amundson
BAXTER ANKERSTJERNE Director October 23, 1996
Baxter Ankerstjerne
JODY BEZNER Director October 23, 1996
Jody Bezner
RICHARD L. DETTEN Director October 23, 1996
Richard L. Detten
STEVEN ERDMAN Director October 23, 1996
Steven Erdman
WARREN GERDES Director October 23, 1996
Warren Gerdes
BEN GRIFFITH Director October 23, 1996
Ben Griffith
GAIL D. HALL Director October 23, 1996
Gail D. Hall
JEROME HEUERTZ Director October 23, 1996
Jerome Heuertz
BARRY JENSEN Director October 23, 1996
Barry Jensen
RON JURGENS Director October 23, 1996
Ron Jurgens
GREG PFENNING Director October 23, 1996
Greg Pfenning
VONN RICHARDSON Director October 23, 1996
Vonn Richardson
MONTE ROMOHR Director October 23, 1996
Monte Romohr
JOE ROYSTER Director October 23, 1996
Joe Royster
RAYMOND J. SCHMITZ Director October 23, 1996
Raymond J. Schmitz
FRANK WILSON Director October 23, 1996
Frank Wilson
ROBERT ZINKULA Director October 23, 1996
Robert Zinkula
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from the Form 10-K
for the fiscal year ending August 31, 1996 and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> AUG-31-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 624,002
<ALLOWANCES> 0
<INVENTORY> 736,620
<CURRENT-ASSETS> 1,462,370
<PP&E> 1,506,460
<DEPRECIATION> 789,236
<TOTAL-ASSETS> 2,568,446
<CURRENT-LIABILITIES> 1,140,320
<BONDS> 616,258
0
1,264
<COMMON> 414,503
<OTHER-SE> 339,564
<TOTAL-LIABILITY-AND-EQUITY> 2,568,446
<SALES> 9,651,297
<TOTAL-REVENUES> 9,788,587
<CGS> 9,213,952
<TOTAL-COSTS> 9,272,002
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,445
<INCOME-PRETAX> 114,464
<INCOME-TAX> 21,755
<INCOME-CONTINUING> 126,418
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 126,418
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
