UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File
February 29, 1996 Number 2-67985
FARMLAND INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
Kansas 44-0209330
(State of Incorporation) (I.R.S. Employer Identification No.)
3315 North Farmland Trafficway, Kansas City, Missouri
(Address of principal executive offices)
64116-0005
(Zip Code)
816-459-6000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31 February 29
1995 1996
((Amounts in Thousands)
<S>
Current Assets: <C> <C>
Accounts receivable - trade $ 446,232 $ 553,670
Inventories (Note 2) .................................................... 772,528 1,011,892
Other current assets .................................................... 60,883 81,289
Total Current Assets...............................................$ 1,279,643 $ 1,646,851
Investments and Long-Term Receivables.....................................$ 185,687 $ 203,570
Property, Plant and Equipment:
Property, plant and equipment, at cost ..................................$ 1,334,849 $ 1,431,182
Less accumulated depreciation and amortization .......................... 742,704 $ 770,345
Net Property, Plant and Equipment .......................................$ 592,145 $ 660,837
Other Assets .............................................................$ 128,468 $ 154,570
Total Assets .............................................................$ 2,185,943 $ 2,665,828
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
August 31 February 29
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Checks and drafts outstanding ..................................$ 37,088 $ 92,660
Accounts and notes payable .............................................. 633,249 857,343
Customers' advances on product purchases ................................ 13,862 182,748
Other current liabilities ............................................... 275,931 210,643
Total Current Liabilities..........................................$ 960,130 $ 1,343,394
Long-Term Liabilities:
Long-term debt (excluding current maturities) ...........................$ 461,436 $ 501,415
Other long-term liabilities ............................................. 44,597 $ 38,669
Total Long-Term Liabilities........................................$ 506,033 $ 540,084
Deferred Income Taxes.....................................................$ 12,501 $ 19,007
Minority Owners' Equity in Subsidiaries...................................$ 19,992 $ 11,178
Net Income (Note 1).......................................................$ -0- $ 65,137
Capital Shares and Equities:
Common shares, $25 par value - Authorized
50,000,000 shares..................................................$ 385,409 $ 434,889
Other equities .................................................... 301,878 252,139
Total Capital Shares and Equities..................................$ 687,287 $ 687,028
Contingent Liabilities and Commitments (Note 3)
Total Liabilities and Equities............................................$ 2,185,943 $ 2,665,828
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
February 28 February 29
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Sales ...........................................................$ 3,307,659 $ 4,356,078
Cost of sales ................................................. 3,069,326 4,102,967
Gross income .................................................$ 238,333 $ 253,111
Selling, general & administrative expenses.......................$ 152,027 $ 172,460
Other income (deductions):
Interest expense ...........................................$ (27,133) $ (29,594)
Other, net ................................................. 10,077 7,724
Total other income (deductions)..................................$ (17,056) $ (21,870)
Income before income taxes, equity in net income
of investees and minority owners' interest in
net (income) loss of subsidiaries ..........................$ 69,250 $ 58,781
Income tax (expense)............................................. (10,706) (12,767)
Income before equity in net income of investees
and minority owners' interest in
net (income) loss of subsidiaries ..........................$ 58,544 $ 46,014
Equity in net income of investees (Note 4)....................... 9,075 20,269
Minority owners' interest in net (income) loss
of subsidiaries ............................................ 542 (1,146)
Net income .................................................$ 68,161 $ 65,137
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
February 28 February 29
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Sales ............................................................$ 1,691,492 $ 2,199,129
Cost of sales .................................................. 1,587,437 2,093,377
Gross income ..................................................$ 104,055 $ 105,752
Selling, general & administrative expenses........................$ 76,681 $ 91,199
Other income (deductions):
Interest expense ............................................$ (13,690) $ (15,305)
Other, net .................................................. 5,435 3,539
Total other income (deductions)...................................$ (8,255) $ (11,766)
Income before income taxes, equity in net income
of investees and minority owners' interest in
net loss of subsidiaries ....................................$ 19,119 $ 2,787
Income tax (expense).............................................. (1,938) (605)
Income before equity in net income of investees
and minority owners' interest in
net loss of subsidiaries ....................................$ 17,181 $ 2,182
Equity in net income of investees ................................ 2,705 10,437
Minority owners' interest in net loss
of subsidiaries ............................................ 330 234
Net income ..................................................$ 20,216 $ 12,853
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
February 28 February 29
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Cash flows from operating activities:
Net income ...........................................................$ 68,161 $ 65,137
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization ......................................... 32,637 36,428
Equity in net income of investees ..................................... (9,075) (20,269)
Other, net ............................................................ 4,782 4,373
Changes in assets and liabilities:
Accounts receivable .............................................. (53,835) (102,517)
Inventories ...................................................... (108,543) (232,518)
Other current assets ............................................. (4,060) (20,578)
Accounts payable ................................................. (42,501) 91,329
Customers' advances on product purchases ......................... 174,138 168,886
Other current liabilities ........................................ 68,380 18,386
Cash flows from operating activities........................................$ 130,084 $ 8,657
Cash flows from investing activities:
Capital expenditures ..................................................$ (56,574) $ (100,552)
Proceeds from disposal of investments
and notes receivable ............................................. 27,218 7,771
Acquisition of investments and notes receivable ....................... (16,262) (13,068)
Acquisition of businesses ............................................ -0- (32,438)
Other ............................................................ 2,196 6,409
Net cash used in investing activities.......................................$ (43,422) $ (131,878)
Cash flows from financing activities:
Net increase (decrease) of demand loan certificates ...................$ (6,994) $ 1,519
Proceeds from bank loans and notes payable ............................ 251,374 458,654
Payments on bank loans and notes payable .............................. (380,179) (332,896)
Proceeds from issuance of subordinated debt certificates .............. 16,157 26,545
Payments for redemption of subordinated debt certificates ............. (10,638) (20,949)
Increase of checks and drafts outstanding ............................. 38,040 55,572
Payments for redemption of equities ................................... (12,198) (27,280)
Payments of patronage refunds and dividends ........................... (26,308) (32,662)
Other ............................................................ -0- (5,282)
Net cash provided by (used in) financing activities.........................$ (130,746) $ 123,221
Net decrease in cash and cash equivalents...................................$ (44,084) $ -0-
Cash and cash equivalents at beginning of period............................ 44,084 -0-
Cash and cash equivalents at end of period..................................$ -0- $ -0-
<FN>
See Accompanying Notes to Condensed Consolidated Financial Statements
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(1) INTERIM FINANCIAL STATEMENTS
Unless the context requires otherwise, (i) "Farmland" or the "Company"
herein refers to Farmland Industries, Inc. and its consolidated subsidiaries,
(ii) all references herein to "year" or "years" are to fiscal years ended August
31 and (iii) all references herein to "membership" are to persons eligible to
receive patronage refunds from Farmland including voting members, associate
members and other patrons with which Farmland has a currently effective
patronage refund agreement.
Operating results for any quarter are not necessarily indicative of the
results expected for the full year. The principal businesses of the Company are
highly seasonal and subject to price volatility. Historically, the majority of
farm supply products are sold in the spring. Sales in the beef business and in
grain marketing historically have been concentrated in the summer. Summer is
the lowest sales period for pork products. In view of the seasonality of the
Company's businesses, it must be emphasized that the results for the six months
and three months ended February 29, 1996 should not be annualized to project a
full year's results.
The information included in these Condensed Consolidated Financial
Statements of Farmland reflects all adjustments (consisting only of normal
recurring accruals) which, in the opinion of management, are necessary for a
fair statement of the results for the interim periods presented.
In accordance with the bylaws of Farmland and its cooperative
subsidiaries, the member-sourced portion of income before income taxes is
determined annually and distributed to members of Farmland as patronage refunds.
The member-sourced portion of such income is determined on the basis of the
quantity or value of business done by Farmland during the year with or for
persons entitled to receive patronage refunds. As this determination is made
only after the end of the fiscal year, and since the appropriation of earned
surplus is dependent on the determination of the amount of patronage refunds,
and in view of the fact that the portion of the annual patronage refund to be
paid in cash and Farmland equity (common stock, associate member common stock or
capital credits) is determined (by the Farmland Board of Directors at its
discretion) after the amount of the annual patronage refund has been determined,
Farmland makes no provision for patronage refunds in its interim financial
statements. Therefore, the amount of net income has been reflected as a
separate item in the accompanying February 29, 1996 Condensed Consolidated
Balance Sheet.
(2) INVENTORIES
Major components of inventories at August 31, 1995 and February 29, 1996
are as follows:
<TABLE>
<CAPTION>
August 31 February 29
1995 1996
(Amounts in Thousands)
<S> .............................<C> <C>
Finished and in-process products...$ 682,801 $ 908,945
Materials.......................... 39,399 49,825
Supplies........................... 50,328 53,122
$ 772,528 $ 1,011,892
</TABLE>
Grain inventories are valued at market adjusted for the net unrealized
gains or losses on open grain contracts. Crude oil, refined petroleum products,
cattle and beef by-products are valued at the lower of last-in, first-out (LIFO)
cost or market. Other inventories are valued at the lower of first-in,
first-out (FIFO) cost or market. Supplies are valued at cost.
In applying the lower of cost or market valuation method in the case of
petroleum LIFO inventory, the general practice is modified to conform to the
integral view of interim financial statements. Accordingly, at an interim
period-end, a seasonal market value decline below cost of LIFO inventories which
is reasonably expected to be restored by year-end is not recognized in interim
results of operations since no loss is expected to be incurred in the annual
period. At February 29, 1996, the carrying values of crude oil and refined
petroleum inventories stated under the LIFO method was $96.9 million. This
exceeded the market value of such inventory by $4.6 million. However, based on
historical prices of energy products and seasonal market price variations, the
market value decline below cost is expected to be a temporary seasonal price
fluctuation and, accordingly, such decline has not been recognized in the
accompanying Condensed Consolidated Financial Statements. If the lower of
first-in, first-out (FIFO) cost or market had been used to value these products,
the carrying values of inventories at February 29, 1996 would have been lower by
$5.3 million.
(3) CONTINGENCIES
(A) TAX LITIGATION
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 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 $196.5 million
before tax benefits of the interest deduction, through March 31, 1996), or
$282.3 million in the aggregate at March 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 applicable statutory interest
thereon. Finally, the additional federal and state income taxes and accrued
interest thereon, which would be owed based on an adverse decision, would become
immediately due and payable unless the Company appealed the decision and posted
the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision would be charged to
current operations and would have a material adverse effect on the Company and
may affect its ability to pay, when due, principal and interest on the Company's
indebtedness. In order to pay any such tax claim, the Company would have to
consider new financing arrangements, including the incurrence of indebtedness
and the sale of assets. Moreover, the Company would be required to renegotiate
the Credit Agreement with its bank lenders, as well as other existing financing
agreements with certain other parties, not only to permit such new financing
arrangements, but also to cure events of default under the Credit Agreement and
certain of such other existing agreements and to maintain compliance with
various requirements of the Credit Agreement and such other existing financing
agreements, including working capital and funded indebtedness provisions, in
order to avoid default thereunder. No assurance can be given that such
financing arrangements or such renegotiation would be successfully concluded.
No provision has been made in the consolidated financial statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. Farmland believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave LLP, Farmland's special tax counsel, it is
more likely than not that the courts will ultimately conclude that Farmland's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of Farmland on any of these issues.
(B) ENVIRONMENTAL MATTERS
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 sites.
The Company currently is aware of probable obligations for environmental
matters at 38 properties. At February 29, 1996, the Company has made an
environmental accrual of $18.6 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 other
environmental matters are not quantifiable, and therefore have not been accrued,
because such matters are in preliminary stages and the timing, extent and costs
of various actions which governmental authorities may require are currently
unknown. Management also is aware of other environmental matters for which
there is a reasonable possibility that the Company will incur costs to resolve.
It is possible that the costs of resolution of the matters described in this
paragraph may exceed the liabilities which, in the opinion of management, are
probable and which costs are reasonably estimable at February 29, 1996. In the
opinion of management, it is reasonably possible for such costs to be
approximately an additional $19.4 million.
Under the Resource Conservation Recovery Act of 1976 ("RCRA"), the
Company has five closure and five post-closure plans in place for six locations.
Closure and post-closure plans also are in place for three landfills and two
injection wells as required by state regulations. Operations are being
conducted at these locations and the Company does not plan to terminate such
operations in the foreseeable future. Therefore, the Company has not accrued
these environmental exit costs. The Company accrues these liabilities when
plans for termination of plant operations have been made. Such closure and
post-closure costs are estimated to be $5.2 million at February 29, 1996 (and is
in addition to the $18.6 million accrual and the $19.4 million discussed in the
prior paragraphs).
The Company is currently involved in three administrative proceedings
brought by Region VII of the Environmental Protection Agency (''EPA'') with
respect to alleged violations under the Clean Air Act, the Emergency Planning
and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The
Company is currently negotiating with the EPA concerning these matters and
believes that such negotiations may result in compromise settlements, including
the possible implementation of a Supplemental Environmental Project. Absent
such settlement, the Company may contest the EPA's allegations. Management's
estimate of probable civil fines and penalties for these three proceedings has
been included in the environmental accrual discussed above. See "Legal
Proceedings", contained in the Company's Annual Report on Form 10-K for the year
ended August 31, 1995 ("1995 Form 10-K").
(4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY
METHOD
Summarized financial information of investees accounted for by the
equity method for the six months ended February 28, 1995 and February 29, 1996
is as follows:
<TABLE>
<CAPTION>
February 28 February 29
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Net sales ......................$ 515,424 $ 367,928
Net income ......................$ 17,957 $ 40,634
Farmland's equity in net income ..$ 9,075 $ 20,269
</TABLE>
The Company's investments accounted for by the equity method consist
principally of 50% equity interests in two phosphate fertilizer manufacturing
ventures (Farmland Hydro, L.P. and SF Phosphates Limited Company) and, through
March 31, 1995, a 50% interest in Hyplains Beef, L.C. ("Hyplains") (such
interest having been contributed by the Company to National Beef Packing
Company, L.P. ("NBPC"), a majority-owned subsidiary, in return for an additional
10% ownership interest in NBPC).
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its debt securities (the
''continuous debt program'') and bank lines of credit.
The Company's debt securities issued under the continuous debt program
generally are offered on a best-efforts basis through the Company's wholly owned
broker-dealer subsidiary, Farmland Securities Company, and through American
Heartland Investments, Inc. (which is not affiliated with Farmland), and also
may be offered by selected unaffiliated broker-dealers. The types of securities
offered in the continuous debt program include certificates payable on demand
and five- and ten-year subordinated debt certificates. The total amount of such
debt outstanding and the flow of funds to, or from, the Company as a result of
the continuous debt program are influenced by the rate of interest which
Farmland establishes for each type of debt certificate offered and by options of
Farmland to call for redemption certain of its outstanding subordinated debt
certificates. During the six months ended February 29, 1996, the outstanding
balance of demand loan and subordinated debt certificates increased $7.1
million.
Farmland has a $650.0 million Credit Agreement. The Credit Agreement
provides short-term credit of up to $450.0 million to finance seasonal
operations and inventory, and revolving term credit of up to $200.0 million. At
February 29, 1996, short-term borrowings under the Credit Agreement were
$341.6 million, revolving term borrowings were $100.0 million and $45.3 million
was being utilized to support letters of credit issued on behalf of Farmland by
participating banks.
The Company and the bank participants annually renew the short-term
commitments of the Credit Agreement. The next renewal date is in May 1996.
Management believes that the short-term commitment will be renewed. The
revolving term loan facility expires in May 1997 but is expected to be revised
and extended in connection with the May 1996 annual review of the short-term
commitment portion of the Credit Agreement.
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements at February 29, 1996, $43.7 million was
borrowed.
NBPC maintains a $90.0 million borrowing agreement 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 million). At February 29, 1996, $59.0 million was borrowed
and $1.0 million was utilized to support letters of credit. In addition, NBPC
has incurred certain long-term borrowings from Farmland. NBPC has pledged
certain assets to Farmland and such group of banks to support its borrowings.
Tradigrain, which is comprised of seven international grain trading
subsidiaries of Farmland, has borrowing agreements with various international
banks which provide financing and letters of credit to support current
international grain trading transactions. At February 29, 1996, such short-term
borrowing by Tradigrain totaled $107.4 million. Obligations of Tradigrain under
these loan agreements are nonrecourse to Farmland or Farmland's other
affiliates.
Leveraged leasing has been used to finance railcars and a substantial
portion of the Company's fertilizer production equipment.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operating and capital plans. However,
additional financing arrangements are continuously evaluated.
Major uses of cash during the six months ended February 29, 1996 include:
$232.5 million to build inventories (mostly plant nutrients and grain
inventories); $133.0 million for capital expenditures and acquisition of pork
processing businesses; $102.5 million for additions to the accounts receivable
balance; $32.7 million for patronage refunds and dividends distributed from
income of the 1995 fiscal year; $27.3 million for the redemption of equities
under the Farmland base capital plan and special allocated equity redemption
plan; and $13.1 million for additional investment and long-term notes
receivable. Major sources of cash include: receipts of $168.9 million from
advanced payments by customers on product (principally plant nutrients) expected
to be shipped later in the current fiscal year; $132.9 million in net proceeds
from bank loans and other debt sources; $91.3 million from an increase of
accounts payable; $55.6 million from an increase in the balance of checks and
drafts outstanding; and $65.1 million and $36.4 million from net income and
depreciation, respectively.
In 1993, the IRS issued a statutory notice to Farmland asserting
significant deficiencies in federal income taxes and statutory interest thereon.
Farmland filed a petition in the United States Tax Court contesting the asserted
deficiencies in their entirety. See Note 3 of the Notes to the Condensed
Consolidated Financial Statements.
RESULTS OF OPERATIONS
GENERAL
Operating results for any quarter are not necessarily indicative of the
results expected for the full year. The principal businesses of the Company are
highly seasonal and subject to price volatility. Historically, the majority of
farm supply products are sold in the spring. Sales in the beef business and in
grain marketing historically have been concentrated in the summer. Summer is
the lowest sales period for pork products. In view of the seasonality of the
Company's businesses, it must be emphasized that the results for the six months
and three months ended February 29, 1996 should not be annualized to project a
full year's results.
RESULTS OF OPERATIONS FOR SIX MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO SIX
MONTHS ENDED FEBRUARY 28, 1995
SALES
Sales for the six months ended February 29, 1996 increased $1,048.4
million, or 31.7%, vis-a-vis the prior period owing principally to increased
sales of agricultural output products ($894.4 million) and farm production input
products ($149.3 million).
Sales of the food processing and marketing business increased $286.7
million, or 23.3%, vis-a-vis the prior period. Pork sales increased
$75.4 million owing to higher unit prices which were partially offset by lower
unit sales. Beef sales increased $211.3 million owing principally to the March
31, 1995 NBPC acquisition of the Hyplains beef plant.
Grain sales increased $608.2 million, or 76.0%, over the prior period owing
principally to a 46.7% increase in units sold and increased grain prices.
Sales of crop production, feed and petroleum products increased
$73.3 million, or 13.7%, $39.0 million, or 15.7%, and $37.0 million, or 8.5%,
respectively, owing principally to higher unit sales in plant nutrients, feed
and petroleum and higher prices in feed and petroleum.
NET INCOME
Net income for the six months ended February 29, 1996 decreased $3.0
million from the prior period owing principally to lower income in pork
processing and marketing which was partially offset by increased operating
income in the Company's crop production business.
Operating income of the Company's crop production business increased $17.5
million over the prior period primarily as a result of increased unit sales and
higher prices.
Operating income of the food processing and marketing business decreased
$9.9 million from the prior period owing principally to decreased pork margins
which were only partially offset by increased beef margins.
Operating income in the grain business decreased $1.0 million owing
principally to decreased unit margins which were partially offset by increased
unit sales volume.
The petroleum loss improved slightly ($0.4 million) from the prior period
as improved operating efficiencies were mostly offset by the extension of a
scheduled maintenance period.
Selling, general and administrative ("SG&A") expenses increased $20.4
million over the prior period owing principally to acquisition of the plant
formerly owned by Hyplains and to higher promotional, incentive and legal
expenses.
The estimated effective tax rate, based on the Company's estimate of the
full year's tax rate, increased to 21.3% from 17.8% in the prior period owing to
the availability of tax credits in the prior period. The actual effective tax
rate may be subject to subsequent refinement or revision.
The level of operating income in the crop production and food processing
and marketing businesses are, to a significant degree, attributable to the
spread between selling prices and raw material costs (natural gas in the case of
nitrogen-based plant nutrients and live hogs and cattle in the food processing
and marketing business). These price and cost factors are beyond the control of
the Company's management and have been volatile in the past. Accordingly,
management cannot determine the direction or magnitude to which these factors
will affect the Company's business. The Company's cash flow and income may be
volatile as conditions affecting agriculture, costs and markets for the
Company's products change.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO THREE
MONTHS ENDED FEBRUARY 28, 1995
SALES
Sales for the three months ended February 29, 1996 increased $507.6
million, or 30.0%, over the prior period owing principally to increased sales of
agricultural output products and farm production input products. Crop
production sales were lower for the quarter owing to delays caused by severe
winter weather. All other segment sales are as discussed above in the six
months comparison.
NET INCOME
Net income for the period was $12.9 million vis-a-vis $7.4 million in 1995
owing principally to the lower crop production sales.
RECENT ACCOUNTING PRONOUNCEMENTS
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 the Financial Accounting Standards Board 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.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
The exhibit listed below is filed as part of Form 10-Q for quarter ended
February 29, 1996.
27. Financial Data Schedule
(B) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED FEBRUARY 29,
1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FARMLAND INDUSTRIES, INC.
(Registrant)
By: /s/ JOHN F. BERARDI
John F. Berardi
Executive Vice President
and Chief Financial Officer
Date: April 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Form 10-Q for
the period ending February 29, 1996 and is qualified in its entirety by refeence
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> AUG-31-1996
<PERIOD-START> SEP-01-1995
<PERIOD-END> FEB-29-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 553,670
<ALLOWANCES> 0
<INVENTORY> 1,011,892
<CURRENT-ASSETS> 1,646,851
<PP&E> 1,431,182
<DEPRECIATION> 770,345
<TOTAL-ASSETS> 2,665,828
<CURRENT-LIABILITIES> 1,343,394
<BONDS> 540,084
0
2,454
<COMMON> 434,889
<OTHER-SE> 314,822
<TOTAL-LIABILITY-AND-EQUITY> 2,665,828
<SALES> 4,291,803
<TOTAL-REVENUES> 4,356,078
<CGS> 4,073,981
<TOTAL-COSTS> 4,102,967
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,594
<INCOME-PRETAX> 58,781
<INCOME-TAX> 12,767
<INCOME-CONTINUING> 65,137
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,137
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
