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
November 30, 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 November 30
1996 1996
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Accounts receivable - trade................................ $ 624,002 $ 622,573
Inventories (Note 2)....................................... 736,620 729,653
Other current assets....................................... 101,748 85,799
Total Current Assets.................................. $ 1,462,370 $ 1,438,025
Investments and Long-Term Receivables (Note 4)............... $ 241,124 $ 249,073
Property, Plant and Equipment:
Property, plant and equipment, at cost..................... $ 1,506,460 $ 1,526,552
Less accumulated depreciation and
amortization............................................ 789,236 800,706
Net Property, Plant and Equipment.......................... $ 717,224 $ 725,846
Other Assets................................................. $ 147,728 $ 154,789
Total Assets................................................. $ 2,568,446 $ 2,567,733
FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
August 31 November 30
1996 1996
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Checks and drafts outstanding................................... $ 30,944 $ 132,075
Demand loan certificates........................................ 40,099 37,970
Short-term notes payable ....................................... 315,428 199,355
Current maturities of long-term debt ........................... 41,080 39,529
Accounts payable - trade........................................ 392,436 368,463
Customers' allowances on product purchases...................... 17,007 119,064
Other current liabilities....................................... 303,326 216,667
Total Current Liabilities................................... $ 1,140,320 $ 1,113,123
Long-Term Liabilities:
Long-term borrowings (excluding current maturities)............. $ 616,258 $ 618,976
Other long-term liabilities..................................... 35,983 33,359
Total Long-Term Liabilities................................. $ 652,241 $ 652,335
Deferred Income Taxes............................................... $ 6,709 $ 10,575
Minority Owners' Equity in Subsidiaries............................. $ 13,845 12,614
Net Income (Note 1)................................................. $ 0 $ 23,892
Capital Shares and Equities:
Common shares, $25 par value--Authorized
50,000,000 shares.............................................. 414,503 467,874
Earned surplus and other equities............................... 340,828 287,320
Total Capital Shares and Equities........................... $ 755,331 $ 755,194
Contingent Liabilities and Commitments (Note 3)
Total Liabilities and Equities...................................... $ 2,568,446 $ 2,567,733
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended
November 30 November 30
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Sales.......................................................... $ 2,156,949 $ 2,389,279
Cost of sales.................................................. 2,009,590 2,272,215
Gross income................................................... $ 147,359 $ 117,064
Selling, general and administrative expenses................... $ 81,261 $ 94,312
Other income (deductions):
Interest expense............................................ $ (14,289) $ (16,019)
Other, net.................................................. 4,185 9,131
Total other income (deductions)................................ $ (10,104) $ (6,888)
Income before income taxes, equity in net income of investees
and minority owners' interest in
net (income) loss of subsidiaries.......................... $ 55,994 $ 15,864
Income tax expense............................................ (12,162) (3,051)
Income before equity in net income of investees and minority
owners' interest in net (income) loss
of subsidiaries............................................ $ 43,832 $ 12,813
Equity in net income of investees
(Note 4).................................................... 9,832 10,002
Minority owners' interest in net (income) loss
of subsidiaries............................................. (1,380) 1,077
Net income .................................................... $ 52,284 $ 23,892
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
November 30 1995 November 30 1996
(Amounts in Thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................................. $ 52,284 $ 23,892
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.......................................... 17,749 22,822
Equity in net income of investees...................................... (9,832) (10,002)
Other................................................................... 3,908 4,843
Changes in operating assets and operating liabilities,
net of acquisitions:
Accounts receivable.................................................. (73,314) (869)
Inventories.......................................................... (34,934) 6,827
Other assets......................................................... (26,599) 22,128
Accounts payable..................................................... 71,319 (23,973)
Advances on product purchases........................................ 69,613 102,057
Other liabilities.................................................... 3,726 (59,785)
Net cash provided by operating activities................................... $ 73,920 $ 87,940
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments and collection of
notes receivable.......................................................... $ 1,335 $ 1,968
Acquisition of investments and notes receivable............................. (11,878) (34,251)
Capital expenditures........................................................ (41,905) (30,163)
Acquisition of other long-term assets....................................... (3,046) (6,947)
Proceeds from sale of fixed assets.......................................... 799 4,182
Distributions from joint ventures........................................... 487 28,868
Other....................................................................... (2,145) (3,515)
Net cash used in investing activities....................................... $ (56,353) $ (39,858)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) in demand loan certificates.................................. $ (597) $ (2,129)
Proceeds from bank loans and notes payable.................................. 107,316 88,127
Payments of bank loans and notes payable.................................... (123,171) (191,217)
Proceeds from issuance of subordinated debt certificates.................... 11,525 30,216
Payments for redemption of subordinated debt certificates................... (11,487) (16,493)
Net increase in checks and drafts outstanding............................... 58,901 101,130
Payments for redemption of equities......................................... (23,380) (25,258)
Payments of patronage refunds and dividends................................. (32,594) (32,459)
Other, increase (decrease).................................................. (4,080) 1
Net cash used in financing activities....................................... $ (17,567) $ (48,082)
Net increase in cash and cash equivalents................................... $ -0- $ -0-
Cash and cash equivalents at beginning of period............................ -0- -0-
Cash and cash equivalents at end of period.................................. $ -0- $ -0-
<FN>
See accompanying Notes to 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 "members" 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 three
months ended November 30, 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 as patronage refunds to members of Farmland.
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
members. 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 in 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 November 30,
1996 Condensed Consolidated Balance Sheet.
(2) INVENTORIES
Major components of inventories at August 31, 1996 and November 30, 1996
are as follows:
<TABLE>
<CAPTION>
August 31 November 30
1996 1996
(Amounts in Thousands)
<S> <C> <C>
Finished and in-process products.............. $ 620,794 $ 592,283
Materials..................................... 58,526 74,459
Supplies...................................... 57,300 62,911
$ 736,620 $ 729,653
</TABLE>
(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 patronage
income against which certain patronage-sourced operating losses could be offset.
The statutory notice further asserts that, among other things, 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 $217.2 million,
before tax benefits of the interest deduction, through November 30, 1996), or
$303.0 million in the aggregate at November 30, 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 $7.1 million), or $12.1 million in the aggregate
at November 30, 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
the obligation related to such unresolved issues been due and payable on
November 30, 1996, Farmland's borrowing capacity under the Agreement would have
been adequate to finance the liability. However, Farmland's capacity to finance
such an adverse decision with borrowings under the Agreement will depend
substantially on the financial effects of future operating events and on its
ability to satisfy the financial covenants in 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. 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 National
Priority List ("NPL") sites.
The Company currently is aware of probable obligations for environmental
matters at 39 properties. At November 30, 1996, the Company has an
environmental accrual in its Condensed Consolidated Balance Sheet for probable
and reasonably estimated costs for remediation of contaminated property of
$16.6 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 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 November 30, 1996. In the opinion of
management, it is reasonably possible for such costs to be approximately an
additional $21.2 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 $5.1 million at August 31, 1996 (and is in addition to
the $16.6 million accrual and the $21.2 million discussed in the prior
paragraphs). 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.
(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 three months ended November 30, 1995 and November 30, 1996 is as
follows:
<TABLE>
<CAPTION>
November 30 November 30
1995 1996
(Amounts in Thousands)
<S> <C> <C>
Net sales..................................... $ 138,236 $ 229,080
Net income.................................... $ 19,362 $ 20,576
Farmland's equity in net income............... $ 9,832 $ 10,002
</TABLE>
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.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information contained herein and the Condensed Consolidated Financial
Statements and Accompanying Notes presented in this Form 10-Q should be read in
conjunction with information set forth in Part II, Items 7 and 8, in the
Company's Annual Report on Form 10-K for the year ended August 31, 1996.
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 three months ended November 30, 1996, the outstanding
balance of demand loan and subordinated debt certificates increased $11.7
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. Management believes that the
short-term commitment will be renewed. The Agreement matures in May 2001.
At November 30, 1996, under the Agreement the Company had short-term
borrowings of $151.6 million, long-term borrowings of $150.0 million and $61.1
million was being utilized to support letters of credit issued on behalf of
Farmland by participating banks. As of November 30, 1996, under the short-term
credit the Company had capacity to finance additional working capital of $480.1
million and under the long-term credit provisions the Company had capacity to
borrow up to an additional $257.2 million.
The Company maintains other borrowing arrangements with banks and financial
institutions. Under such agreements at November 30, 1996, $14.9 million was
borrowed.
National Beef Packing Company, L.P. ("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 November 30, 1996, $90.0
million was available under this facility of which $62.9 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, which conducts international grain trading operations, 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 November 30, 1996,
such borrowings totaled $47.7 million.
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 three months ended November 30, 1996 include:
$64.4 million for capital expenditures and acquisition of investments;
$32.5 million for patronage refunds and dividends distributed from income of the
1996 fiscal year; $25.3 million for the redemption of equities under the
Farmland base capital plan and for other allocated equity redemptions; and net
payments of bank loans and notes payable of $103.1 million. Major sources of
cash include: $87.9 million from operations (including receipts of $102.1
million from advanced payments by customers on product purchases, principally
plant nutrients which are expected to be shipped later in the current fiscal
year); $28.9 million in distributions from joint ventures; and $101.1 million
from an increase in the balance of checks and drafts outstanding.
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 (which is incorporated herein by reference).
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 three
months ended November 30, 1996 should not be annualized to project a full year's
results.
RESULTS OF OPERATIONS FOR THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED NOVEMBER 30, 1995
SALES
Sales for the three months ended November 30, 1996 increased $232.3
million, or 10.8%, compared with the prior period primarily reflecting $143.4
million higher sales of agricultural output products and $94.9 million higher
sales of farm production input products.
The increased sales of output businesses includes $131.1 million higher
sales of the food processing and marketing segment and $12.3 million higher
sales of grain. Approximately half of the sales increase in the food processing
and marketing business was attributable to acquisitions of additional pork
slaughter and processing facilities subsequent to the first quarter of 1996.
The remainder of this sales increase primarily results from increases in pork
and beef unit prices. The increased sales of grain reflects primarily higher
grain prices largely offset by a 9.5% decrease in unit sales.
On the input side of the Company's business, sales of the petroleum and
feed segments in the three months ended November 30, 1996 increased $124.1
million and $24.0 million, respectively, compared with the prior year, and sales
of the crop production segment decreased $53.2 million. The petroleum sales
increase was the result of increases in unit sales and prices and feed sales
increased primarily due to higher prices. Crop production sales decreased
primarily due to lower unit sales resulting from a relatively wet and cold fall
season in the geographic area served by the Company.
NET INCOME
Net income for the three months ended November 30, 1996 decreased $28.4
million compared with the prior period. This decrease was principally
attributable to lower operating income in crop production and food processing
and marketing of $25.2 million and $21.1 million, respectively. The impact of
these decreases on net income was partially offset by a $7.9 million increase in
petroleum's operating income and by a $9.1 million decrease in the provision for
income taxes.
Operating income in the crop production business decreased reflecting
primarily the adverse impact of higher natural gas prices on nitrogen unit
margins. The lower nitrogen unit margins, combined with lower unit sales of
nitrogen- and phosphate-based plant nutrients, resulted in lower operating
income.
Operating income of the food processing and marketing business for the
three months ended November 30, 1996 decreased $21.1 million compared to the
prior period. This decline resulted primarily from decreased margins and
increased selling and administrative costs related to operating the additional
pork slaughter and processing facilities.
Operating income for the petroleum business was $6.1 million for the three
months ended November 30, 1996 compared with an operating loss of $1.8 million
for the three months ended November 30, 1995. This improvement was due, in
part, to the adverse effect on last year's operating income of an extended
turnaround and, in part, to a short-term improvement in the spread between the
cost of crude oil and the selling price of refined products combined with higher
unit sales of refined products.
Selling, general and administrative ("SG&A") expenses increased
$13.1 million, or 16.1%, over the prior period. SG&A expenses directly
connected to business segments increased approximately $13.6 million (primarily
food processing and marketing relating to the acquisition of the additional pork
slaughtering and processing facilities) and these expenses have been included in
the determination of net income of the business segments. General corporate
expenses not identified to business segments decreased $0.5 million, or 2.6%.
The decrease in income before taxes is the primary reason for the $9.1
million decrease in the provision for income taxes.
The level of operating income in the crop production, petroleum 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, crude oil in the case of petroleum 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
are volatile. 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 generally and the costs and markets for the Company's products
change.
RECENT ACCOUNTING PRONOUNCEMENTS
In the first quarter of 1997, the Company adopted the provisions of
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"), which was issued by the Financial Accounting Standards Board
in March 1995. Statement 121 establishes accounting standards for the
impairment of long-lived assets, certain identifiable intangibles, and goodwill
related to those assets to be held and used and for long-lived assets and
certain identifiable intangibles to be disposed of. The effect of the Company's
implementation of Statement 121 at September 1, 1996 was insignificant.
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" included in the Company's Annual Report on Form 10-K for the year
ended August 31, 1996.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) EXHIBITS
The exhibits listed below are filed as part of Form 10-Q for quarter ended
November 30, 1996.
Exhibit No. Description of Exhibits
3.A Articles of Incorporation and Bylaws of Farmland
Industries, Inc. effective December 5, 1996.
27 Financial Data Schedule
(B) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED NOVEMBER 30,
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/ TERRY M. CAMPBELL
Terry M. Campbell
Executive Vice President
and Chief Financial Officer
Date: January 14, 1997
Exhibit 99
EXHIBIT INDEX
The exhibits listed below are filed as part of Form 10-Q for quarter ended
November 30, 1996.
Exhibit No. Description of Exhibits
3.A Articles of Incorporation and Bylaws of Farmland
Industries, Inc. effective December 5, 1996.
27 Financial Data Schedule
Exhibit 3.A
ARTICLES
OF
INCORPORATION
AND
BYLAWS
OF
FARMLAND INDUSTRIES, INC.
KANSAS CITY, MISSOURI
(Effective 12-5-96)
ARTICLES OF INCORPORATION
ARTICLE I - NAME
Section 1. Name. The name of this corporation shall be FARMLAND
INDUSTRIES, INC.
ARTICLE II - PURPOSES
Section 1. Purposes. The purposes for which the Association is organized
are to engage in any activity in connection with the marketing or selling of the
agricultural products of its members and other patrons; or with the harvesting,
threshing, milling, preserving, drying, processing, canning, packing, storing,
handling, shipping, or utilization thereof, including (without limitation) doing
a public warehouse business and storing agricultural products in interstate
commerce; or the manufacturing or marketing of the by-products thereof; or in
connection with the manufacturing, selling, or supplying to its members and
other patrons of machinery, equipment or supplies, or in connection with
agricultural education, research, legislation and economic and social
conditions; or in connection with the improvement of livestock breeds by means
of artificial breeding or otherwise; or in the financing of the above-enumerated
activities; or in any one or more of the activities specified herein.
ARTICLE III - PLACE OF BUSINESS
Section 1. Place. The place where its business is to be transacted is at
3315 North Oak Trafficway, Kansas City, Missouri, and at such other places
either within or outside the State of Kansas as may be provided by the bylaws or
as determined by the Board of Directors.
ARTICLE IV - TERM
Section 1. Term. The term for which this corporation is to exist is fifty
years. (By a Certificate of Renewal filed with the Secretary of State of Kansas
on September 7, 1973, the term was extended for a period of fifty years from and
after September 1, 1973.)
ARTICLE V - NUMBER OF DIRECTORS
Section 1. Number of Directors. The number of directors of this
corporation shall be twenty-two (22), and the term of office of each thereof
shall be three (3) years and until a successor is elected and has qualified.
ARTICLE VI - CAPITAL STOCK
Section 1. Authorized Capital Stock. The capital stock of this
Association shall be $1,500,000,000, consisting of 50,000,000 shares of common
stock of the par value of $25 per share, 2,000,000 shares of associate member
common stock of the par value of $25 per share and 8,000,000 shares of preferred
stock of the par value of $25 per share.
Section 2. Common Stock. The common stock of this Association may be
purchased, owned or held only by producers of agricultural products and
associations of such producers, who patronize the Association in accordance with
uniform terms and conditions and only such producers and associations of such
producers shall be regarded as eligible voting members of the Association. In
the event the Board of Directors of the Association shall determine that any
holder of the common stock of this Association 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 the Association, and the
Association shall have the right, at its option, (a) to purchase such common
stock at its book or par value, whichever is less, as determined by the Board of
Directors of the Association, or (b) in exchange for such common stock, to
record on the books of the Association an equivalent par value amount of
associate member common stock or to record on the books of the Association,
capital credits in an equivalent amount. On the failure of any holder, following
any demand by the Association therefor, to deliver any certificate or
certificates evidencing any common stock, the Association may cancel the same on
its books and record on the books of the Association an equivalent amount of
common stock, associate member common stock or capital credits, in lieu thereof.
The common stock of this Association may be transferred, and associate member
common stock and capital credits may be converted to common stock and
transferred, only with the consent of the Board of Directors of the Association
and on the books of the Association and then only to persons eligible to hold
the same; and no purported assignment or transfer of common stock shall pass to
any person not eligible to hold the same, any rights or privileges on account of
such stock to vote on the management or affairs of the Association. Each holder
of common stock shall be entitled to a minimum of one vote. Common shareholders
will receive one additional vote for each complete increment of $1,000 in common
stock above membership requirements and one additional vote for each complete
increment of dollar volume of business in an amount equal to the product of
$1,000 multiplied by a fraction the numerator of which is the total dollar
volume of patronage business of the Association during the preceding fiscal year
with common shareholders and the denominator of which is the total dollar amount
of the Association's common stock outstanding at the close of the preceding
fiscal year. No common shareholder shall be entitled to vote more than five
percent (5%) of the total votes of the Association available to be cast. This
Association shall have a lien on (and right of setoff against) all of its common
stock for all indebtedness of the holder(s), whether due or to become due,
thereof to the Association. No interest or dividend shall be paid on
outstanding common stock. The Board of Directors, in its sole discretion, may
at any time or times and on any basis deemed appropriate authorize the
retirement of any common stock, in whole or in part.
Section 3. Associate Member Common Stock. The associate member common
stock of the Association may be purchased, owned or held by any person having
the qualifications as may be established by the Board of Directors. Associate
member common stock shall have all of the rights and privileges attendant to
that of common stock, except that such associate member common stock shall not
entitle the holder thereof to vote, irrespective of the number of shares held,
for director(s) or to vote on the management or affairs of the Association. In
the event the Board of Directors of the Association shall determine that any
holder of the associate member common stock of the Association does not meet the
qualifications as may be established by the Board of Directors for holders
thereof, the Association shall have the right, at its option, (a) to purchase
such associate member common stock at its book or par value, whichever is less,
as determined by the Board of Directors of the Association, or (b) to convert
the associate member common stock held by any such person to capital credits by
notifying such holder, after which such associate member common stock shall be
cancelled on the books of the Association. The associate member common stock of
this Association may be transferred, and common stock and capital credits may be
converted to associate member common stock and transferred, only with the
consent of the Board of Directors of the Association and then only to persons
eligible to hold the same; and no purported assignment or transfer of associate
member common stock shall pass to any person not eligible to hold the same, any
rights or privileges on account of such stock. This Association shall have a
lien on (and right of setoff against) all of its associate member common stock
for all indebtedness of the holder(s), whether due or to become due, thereof to
the Association. No interest or dividend shall be paid on outstanding associate
member common stock. The Board of Directors, in its sole discretion, may at any
time or times and on any basis deemed appropriate authorize the retirement of
any associate member common stock, in whole or in part.
Section 4. Preferred Stock. The preferred stock shall be nonvoting and
may be (1) made subject to redemption at such time or times, and at such price
or prices, and (2) issued in such series, with such designations, preferences,
and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions as shall be stated and expressed in
the Articles of Incorporation of this Association, or in the resolution or
resolutions adopted by the Board of Directors thereof for the issue of such
stock; and the said Board of Directors is hereby granted authority (1) to
provide from time to time for the issue of preferred stock, in one or more
series, and with such designations, preferences, and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions, and (2) to make such stock, or any part thereof, subject to
redemption at such time or times, and at such price or prices, as the said Board
of Directors, in its sole discretion, may from time to time determine.
Section 5. Capital Credits. The Association may issue at any time, and
record or transfer on its books and records, one or more classes of capital
credits in the Association. Holders of capital credits shall not be entitled to
vote. The capital credits of this Association may be transferred, and common
stock and associate member common stock may be converted to capital credits and
transferred, only with the consent of the Board of Directors of the Association
and on the books of the Association. The Board of Directors, in its sole
discretion, may at any time or times and on any basis deemed appropriate
authorize the transfer or retirement of any capital credits, in whole or in
part. No interest or dividend shall be paid on outstanding capital credits.
This Association shall have a lien on (and right of setoff against) all of its
capital credits for all indebtedness of the holder(s), whether due or to become
due, thereof to the Association.
ARTICLE VII - INDEMNIFICATION
Section 1. Indemnification. The Association may agree to the terms and
conditions upon which any director, officer, employee or agent accepts his
office or position and in its bylaws, by contract or in any other manner may
agree to indemnify and protect any director, officer, employee or agent of the
Association, or any person who serves at the request of the Association as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, to the fullest extent permitted by the laws
of the State of Kansas.
Section 2. Limitation of Liability. Without limiting the generality of
the foregoing provisions of this ARTICLE VII, to the fullest extent permitted or
authorized by the laws of the State of Kansas, including without limitation the
provisions of subsection (b)(8) of Kan. Stat. Ann. Section 17-6002 (1981) as now
in effect and as it may from time to time hereafter be amended, no person who is
currently or shall hereinafter become a director of the Association shall have
personal liability to the Association for monetary damages for breach of
fiduciary duty as a director for any act or omission occurring subsequent to the
date this provision becomes effective. If the Kansas General Corporation Code is
amended after approval of this provision by the shareholders of the Association,
to authorize corporate action further limiting or eliminating the personal
liability of directors, then the liability of a director of the Association
shall be limited or eliminated to the fullest extent permitted by the Kansas
General Corporation Code, as so amended.
BYLAWS
ARTICLE I - CAPITAL STOCK
Section 1. Stock Certificates. Certificates of stock may be issued at the
discretion of the Board of Directors of the Association, but a record shall be
kept of each holder of fully-paid shares. The record shall state the par value
of the shares, the number of shares represented, and the name of the person to
whom issued. Any outstanding certificates of stock may be cancelled by the
Board of Directors of the Association provided that an equivalent record of
ownership is maintained.
Section 2. Certificates of Indebtedness. The Association shall have the
authority to issue certificates of indebtedness in such form and containing such
terms as may be approved by the Board of Directors, which certificates shall
bear such rate or rates of interest as the Board of Directors may from time to
time determine.
ARTICLE II - DISTRIBUTION OF EARNINGS (LOSSES)
Section 1. Current Year's Net Earnings (Losses) and Patronage Refund
Obligation. (a) The Association shall determine annually its earnings or loss
including the appropriate portions thereof constituting net earnings for
patronage refunds. It shall then allocate and distribute its net overall
earnings from its allocation units as patronage refunds to its Members and
Patrons with the amounts distributed being determined on the basis of their
patronage with such units during the year. The patronage-sourced portion of an
overall net loss shall be handled in accordance with Section 3.
(b) The Association's overall net earnings or loss shall be determined
using generally accepted accounting principles and shall be divided into (i) a
patronage-sourced portion, determined on the basis of the quantity or value of
business done by the Association with or for its Members or Patrons who are
eligible to receive patronage refunds and who acquire supplies or services from,
provide services to, or market products through the Association, and (ii) a non-
patronage-sourced portion which shall include amounts determined on the basis of
the quantity or value of business done with or for persons who are not eligible
to receive patronage refunds from the Association, plus such net amounts of
income, expenses or loss which are unrelated to the marketing, purchasing or
service operations carried on by the Association for its Members and Patrons on
a cooperative basis.
(c) If one or more of the Association's allocation units experience losses
during any fiscal year, the losses of such allocation unit(s) shall be ratably
allocated to and netted with the earnings of the remaining allocation units of
the Association in order to determine the Association's overall net earnings or
loss. The Association's Patrons and Members shall be notified in any fiscal
year for which such netting has occurred.
(d) Any patronage-sourced net earnings shall be further reduced (but not
below zero) by the ratably determined portion of dividends on stock applicable
to such net earnings that are paid or payable for the fiscal year. Losses shall
be handled as determined by the Board of Directors in accordance with Section 3.
(e) If at the conclusion of any fiscal year, the amount of retained
earnings (which shall include the current year's non-patronage-sourced net
earnings) is less than thirty percent (30%) of the face amount of capital
credits and par value of Member and Associate Member common stock issued and
outstanding, and patronage refunds for reinvestment balances as of the end of
the previous year then, in order to provide for the Association's reasonable
member reserves, there shall be transferred to retained earnings, from
patronage-sourced net earnings, as members' contribution to reserves, an amount
equal to the lesser of (i) fifteen percent (15%) of the current year's remaining
patronage-sourced net earnings, or (ii) such amount necessary to increase
retained earnings (which shall include the current year's non-patronage-sourced
net earnings) to thirty percent (30%) of the face amount of capital credits and
par value of Member and Associate Member common stock outstanding at the
conclusion of the previous fiscal year.
(f) Any amount then remaining shall constitute the net earnings of the
Association from which Members' and Patrons' patronage refunds shall be paid,
and such amount shall be apportioned among the Members and Patrons of the
appropriate allocation units on any equitable patronage basis approved by the
Board of Directors, and the amounts so determined, shall be paid as patronage
refunds in the form of cash, qualified or non-qualified written notices of
allocation, provided, however, that a payment by qualified written notice of
allocation shall be accompanied by no less than twenty percent (20%) of the
stated dollar amount thereof in cash with the balance at par value in Member
common stock, Associate Member common stock or capital credits at par value or
stated value as determined by the Board of Directors. The Board of Directors
shall determine the cash and non-cash amounts, if any, of a Member's or Patron's
patronage refund to be retained for purposes of collecting amounts due the
Association for any or all of such Member's or Patron's outstanding indebtedness
to the Association, provided that no retention of cash hereunder shall reduce
the cash portion of any Member's or Patron's patronage refund otherwise paid by
qualified written notice of allocation, to an amount which is less than twenty
percent (20%) of the total stated dollar amount thereof.
Section 2. Bylaw Consent. Each applicant for membership who continues as
a voting member after having been accepted to membership in the Association and
after receiving a copy of this bylaw consent provision, shall, by such act
alone, consent that the amount of any distributions paid by qualified written
notices of allocation, respecting such person's patronage with the Association
occurring after it has received a copy of the bylaw consent and while such
person remains a voting member thereafter, shall be taken into account by such
person at its stated dollar amount for the taxable year in which such
distribution(s) are received, in the manner provided by 26 U.S.C. 1385(a).
Section 3. Losses. The Board of Directors of this Association shall have
complete discretion to determine the handling and ultimate disposition of the
Association's patronage-sourced net losses (including allocation unit losses)
and the form, priority and manner in which such losses or portions thereof shall
be taken into account, retained, and ultimately disposed of or recovered. The
Board may retain such losses of the Association and subsequently (i) dispose of
them by offset against the net earnings of the Association of subsequent years,
(ii) apply such losses to prior years' patronage allocations at any time in
order to dispose of them by means of offset and cancellation against members'
and patrons' equity account balances, (iii) select and use any other method of
disposition of such losses as the Board of Directors, in its sole discretion,
shall from time to time determine.
Section 4. Definitions. (a) As used in this Article, the term "Member"
shall mean a holder of common stock or Associate Member common stock of the
Association; the term "Patron" shall include any person, firm or association
which is not also a Member or Associate Member of the Association, with whom the
Association has in effect an agreement pursuant to which it has agreed to pay
patronage refunds to such person on the basis of the quantity or value of the
Association's business done with or for such person during the fiscal year.
(b) As used in this Article, the term "allocation unit" shall mean any
business or other unit of the Association with respect to which patronage
refunds are to be paid (or patronage-sourced losses are to be taken into
account) on the basis of the quantity or value of business done during the year
with the Association by its Members and Patrons.
ARTICLE III - CAPITALIZATION
Section 1. Base Capital Plan. For the purposes of acquiring and
maintaining adequate capital to finance the business of the Association, the
Board of Directors may establish a Base Capital Plan. The Plan may provide a
mechanism for determining the Association's total capital requirements and each
member's or patron's share thereof (the base capital requirement). As part of
the Plan, the Board of Directors may, in its discretion, provide for redemption
of capital held by members or patrons in excess of their base capital
requirements and may provide a mechanism under which the cash portion of the
patronage refund payable to members or patrons will depend upon the degree to
which such members or patrons meet their base capital requirements. Such Plan
may be amended or modified from time to time or suspended by the Board of
Directors as it deems fit.
ARTICLE IV - MEMBERS' AND PATRONS' INVESTMENTS
Section 1. Common Stock, Associate Member Common Stock, Capital Credits.
As a condition of the right to receive patronage refunds as hereinbefore
provided, and as a condition of each purchase from, or other transaction with,
the Association, and in consideration of similar subscriptions by others, each
Member and Patron entitled to receive patronage refunds under the bylaws shall
and does hereby, as of the first day of each fiscal year of the Association,
irrevocably subscribe for and agree to purchase common stock, associate member
common stock or other capital credit(s) of the Association, at par, in an amount
of not more than eighty percent (80%) of the amount to be paid to such patron by
the Association as patronage refunds resulting from business transacted during
such year, as conclusively determined by the Board of Directors of the
Association at the time of payment of such refunds. Such subscriptions shall be
payable in cash on or before the last day of such fiscal year, without the
execution and delivery of any further agreement, and without any acceptance,
call or notice by the Association, but only out of such patronage refunds.
ARTICLE V - MEETINGS
Section 1. Annual Meeting. The annual meeting of the shareholders shall
be held each year at such time and at such place as may be fixed from time to
time by the Board of Directors.
Section 2. Special Meetings. The chairman of the board shall call a
special meeting of the shareholders upon a written request of at least ten
percent (10%) of the shareholders, or upon a majority vote of the directors. The
notice of the time, place, and purpose of such special meeting shall be issued
within fifteen (15) days from and after the presentation of such petition, and
such special meeting shall be held within thirty (30) days from and after the
date of presenting such petition.
Section 3. Notice of Meetings. Notice shall be given by the secretary of
all annual and special meetings of the shareholders by mailing a notice thereof
to each shareholder not less than fifteen (15) days preceding the date of the
proposed meeting.
Section 4. Presiding Officer. The chairman of the board of the
Association shall preside at all meetings of shareholders, and shall cast the
deciding vote in all cases of a tie.
Section 5. Absent Members Voting. Voting by proxy shall not be permitted,
but absent shareholders entitled to vote may vote on specific questions, other
than the removal of directors, by ballots transmitted to the secretary, and such
ballots shall be counted only in the meeting at the time at which such vote is
taken.
Section 6. Quorum. A quorum for the transaction of business shall consist
of at least two hundred (200) shareholders entitled to vote and at least one-
third of the total votes eligible to be cast. All absentee shareholders voting
and all absentee votes cast shall be counted as present in determining a quorum
for the consideration of a specified question on which absentee votes may be
cast.
ARTICLE VI - DIRECTORS AND OFFICERS
Section 1. Directors. The business and affairs of the Association shall
be managed under the direction and control of the Board of Directors, consisting
of twenty-two (22) members, elected at annual meetings by the shareholders
entitled to vote from their own numbers for three-year terms. Twenty-one members
of the Board of Directors shall be elected according to districts as hereinafter
provided and shall be known as district directors. The remaining member of the
Board of Directors shall be nominated and elected from the floor and shall be
known as a director-at-large.
Section 2. Election of Directors.
(a) The territory in which the Association operates shall, for the purpose
of electing district directors, be divided into districts, each of which shall
be entitled to the number of directors herein specified.
District 1 (Missouri and Kentucky) -- 1 director; District 2
(Kansas) -- 4 directors; District 3 (Colorado, Wyoming, Utah, Oregon
and Idaho) -- 1 director; District 4 (Nebraska) -- 4 directors;
District 5 (South Dakota, North Dakota and Montana) -- 1 director;
District 6 (Iowa, Illinois, Indiana and Ohio) -- 4 directors; District
7 (Oklahoma and Arkansas) -- 3 directors; District 8 (Michigan,
Minnesota, Wisconsin and Canada) -- 1 director; and District 9 (Texas
and New Mexico) -- 2 directors.
(b) The Board of Directors may from time to time assign to any of the
aforesaid districts any member or members residing in any state or states or
foreign country or foreign countries, other than the states named in the
foregoing paragraph. In any such case a member so assigned to any district
shall for all purposes be deemed to belong to such district and shall be
entitled to attend and participate in the hereinafter mentioned caucus of that
district.
(c) The various districts shall, by caucus, nominate their candidate or
candidates for director as herein provided. The following persons shall be
eligible for election as a director at the annual meeting of members: individual
shareholders; members, directors, officers, or employees of a shareholder;
owners, directors, managers or employees of a member of a shareholder; and,
employees of the Association. In the event the number of directors who are
employees of association shareholders entitled to vote totals ten or more at any
given time, no employee of an association shareholder may be elected or
appointed to the Board of Directors, provided however, this limitation shall not
disqualify any director in office from being eligible for election or re-
election as a director. No person shall be eligible for nomination as a director
if such person has attained 65 years of age. Five months prior to the annual
meeting the Chairman of the Board shall appoint a nominating committee for each
district in which the term of a director expires at the next annual meeting. The
District Nominating Committee shall consist of three persons (one person to be
appointed as Chairman) meeting the qualifications required to be a director as
set forth above. As promptly as possible after the appointment of District
Nominating Committees, the Secretary of the Association shall notify the
eligible voting members in each such district, by mail, of the members of the
District Nominating Committee. Each member may notify the Chairman of the
District Nominating Committee of the member's candidate or candidates for
director at least three months prior to the date of the annual meeting. The
District Nominating Committee shall mail its report to each eligible voting
member in each such district at least one month prior to the annual meeting and
shall render its report at the caucus of such district and in doing so, shall
provide at least one candidate, but not more than three candidates, for each
director term which is expiring. In addition to the names of candidate or
candidates provided by members for consideration by the District Nominating
Committee, such Committee may also consider as candidates persons the Committee
feels qualified. Any official delegate may make nominations at the district
caucus. Such district shall thereupon nominate its nominee or nominees for
directors and the names of said nominee or nominees shall be placed before the
members at the annual meeting for election. Should said nominee or nominees fail
to receive a majority of the votes cast by shareholders entitled to vote and
present and voting, nominations may be made from the floor, of nominee or
nominees from the district involved, and such shareholders shall thereupon vote
on said nominee or nominees. In each district caucus wherein directors are
nominated and in the election of directors at the annual meeting, shareholders
entitled to vote shall have the number of votes as determined under the Articles
of Incorporation, of the Association, for each director to be elected.
(d) A redistricting of the territory served by the Association, or a
reapportionment of the number of directors for each district, may be made by the
members at any annual meeting.
Section 3. Officers. The officers shall be elected by the Board of
Directors or appointed by the President. The officers elected by the Board of
Directors, each of whom shall serve at the will of the Board of Directors, shall
consist of a Chairman of the Board, Vice Chairman, President, Vice President,
Secretary, one or more Assistant Secretaries, Treasurer, one or more Assistant
Treasurers, and such other officers as the Board of Directors may from time to
time deem advisable. Only the Chairman of the Board, Vice Chairman, President,
and the elected Vice President need be members of the Board of Directors. No
person may hold the offices of Chairman of the Board and President at the same
time. The officers appointed by the President, each of whom shall serve at the
will of the President, shall be such Vice Presidents as the President may from
time to time deem advisable.
Section 4. Vacancies. Any vacancy on the Board of Directors shall be
filled by appointment by the remainder of the board until the next annual
meeting when a replacement for the unexpired term shall be elected.
Section 5. Meetings. The board shall meet upon the call of the chairman
of the board who shall determine the time and place of meetings, or upon call by
a majority of the directors; and meetings shall be held at least quarterly.
Section 6. Quorum. A majority of the qualified members shall constitute a
quorum both for the Board of Directors and the executive committee.
Section 7. Compensation. The compensation of the directors shall be Three
Hundred Dollars ($300.00) per day of Association business, plus necessary
expenses. In addition, annual retainers of $30,000 for the Chairman; $25,000
for each member of the Executive Committee, other than the Chairman and
President; and $20,000 for all other directors shall be paid.
Section 8. Removal. Any director of the Association may be removed for
cause, by vote of not less than two-thirds of the members present, at any annual
meeting or at any special meeting called for the purpose. A director shall be
informed in writing of the charges preferred against him at least fifteen (15)
days before the meeting and at such meeting shall have an opportunity to be
heard in person or by counsel and by witnesses thereto. Officers or agents of
the Board of Directors may be removed from office or employment at any time by
action of the Board of Directors.
Section 9. Indemnification of Directors, Officers and Employees. Each
person who is or was a director, officer, manager, employee or agent of the
Association or is or was serving at the request of the Association as a
director, officer, manager, employee or agent of another corporation,
partnership, joint venture or other enterprise (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Association
as of right to the full extent permitted or authorized by the laws of the State
of Kansas, as now in effect and as hereafter amended, against any liability,
judgment, fine, amount paid in settlement, cost and expense (including
attorneys' fees) asserted or threatened against and incurred by such person in
his capacity as or arising out of his status as a director, officer, manager,
employee or agent of the Association, or, if serving at the request of the
Association, as a director, officer, manager, employee or agent of another
corporation, partnership, joint venture or other enterprise. The
indemnification provided by this bylaw provision shall not be exclusive of any
other rights to which those indemnified may be entitled under any other bylaw or
under any agreement, vote of shareholders or disinterested directors or
otherwise, and shall not limit in any way any right which the Association may
have to make different or further indemnifications with respect to the same or
different persons or classes of persons.
ARTICLE VII - DUTIES OF DIRECTORS
Section 1. Management of Business. The Board of Directors shall direct
the management of the affairs of the Association and shall make all necessary
rules and regulations, not inconsistent with the law or the articles of
incorporation or bylaws of the Association, for the management and control of
the affairs of the Association and the guidance of the officers, agents, and
employees thereof. The day-to-day business affairs of the Association shall be
in the management and control of the president, selected by the board.
Section 2. Executive Committee. An executive committee of six, which
shall include the chairman, vice chairman, and president of the Association and
three other members to be elected by the board from among its own members at its
first meeting after the annual meeting shall have all the powers and exercise
all the functions of the Board of Directors, subject to the Board of Directors'
general control and direction.
Section 3. Bonds. The Board of Directors shall require all officers and
employees charged by the Association with responsibility for the custody of any
of its funds or property to give adequate bonds, and the costs thereof shall be
paid by the Association.
Section 4. Audits. As often as the Board of Directors may consider
necessary, but at least once a year, the Board of Directors shall obtain the
services of a competent and disinterested auditor, who shall make a careful
audit of the books and accounts of the Association and render a report in
writing thereon. The annual audit report shall be submitted to the members of
the Association at the annual meeting.
ARTICLE VIII - DUTIES OF OFFICERS
Section 1. Duties of Chairman of the Board. The Chairman of the Board
shall preside over all meetings of the shareholders and of the Board of
Directors and call special meetings of the shareholders and of the Board of
Directors.
Section 2. Duties of Vice Chairman. In the absence or disability of the
Chairman, the Vice Chairman shall perform the duties and exercise the powers of
the Chairman. The Vice Chairman shall perform such other duties as may be
assigned from time to time by the Board.
Section 3. Duties of President. The President shall be the Chief
Executive Officer; shall sign or delegate to such other officers or employees of
the Association the authority to sign certificates, deeds, leases, bills of sale
and other instruments conveying any interest in real estate or personal property
of the Association and such other instruments or documents as the Board of
Directors may authorize or direct from time to time; shall have and exercise the
power to hire and fire all employees other than officers, administrative
officers, agents or employees selected by the Board of Directors; see that the
management and business operations of the Association are exercised and
conducted in accordance with general policies established by the Board of
Directors; and perform such other duties and exercise such other power or powers
as the Board of Directors may from time to time authorize or direct.
Section 4. Duties of Vice Presidents. One Vice President shall be elected
from the membership of the Board. The President may appoint such additional
Vice Presidents as deemed appropriate to conduct the affairs of the Association.
The duties of appointed Vice Presidents shall be assigned to them by the
President. The President may delegate to one or more officer(s) the authority
to perform his/her duties during his/her absence in such manner as deemed
appropriate. In the event of the total disability or death of the President,
the Vice President who has been elected by the Board of Directors shall perform
the duties of the President until such time as the Board shall otherwise direct
or until a successor to the President is elected.
Section 5. Duties of Secretary. The Secretary shall (1) keep a complete
record of the meetings of the shareholders and of the directors; (2) sign all
papers or documents pertaining to the Association as may be authorized or
directed by the directors; (3) serve all notices and make all reports required
by law and these bylaws, and perform such other secretarial duties as may be
required by the Board of Directors. The Assistant Secretaries shall perform the
duties and exercise the powers of the Secretary during the absence or disability
of the Secretary.
Section 6. Duties of Treasurer. The Treasurer shall keep such records and
perform such other duties pertaining to the office as the Board of Directors may
require. The Assistant Treasurers shall perform the duties and exercise the
powers of the Treasurer during the absence or disability of the Treasurer.
ARTICLE IX - GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of this Association shall
commence September 1 and end on August 31.
Section 2. Amendments. These bylaws may be amended or altered, in whole
or in part, as provided by law, at any regular meeting of the members or at any
special meeting, when such action has been duly announced in the call, provided
that a majority of the votes cast by the shareholders entitled to vote and
voting, including those absentee votes, shall approve such amendment or
alteration.
Section 3. Official Publication. The Association may publish an official
publication. It may be mailed to subscriber lists provided by member
associations and the subscription price may be deducted from patronage refunds
earned by members.
Section 4. Membership Vote for Sale of Principal Business. The
Association shall not, without approval by a vote of the majority of the votes
cast by members entitled to vote and voting at a duly called meeting of the
Association, sell or convey or cause or permit the sale or conveyance of more
than forty-nine percent (49%) of the voting shares in any subsidiary which
accounted for fifty percent (50%) or more of the Association's gross sales on a
consolidated basis during any one of the Association's three (3) most recently
completed fiscal years or during such shorter period as such subsidiary has been
in existence.
ARTICLE X - DISSOLUTION
Section 1. Upon dissolution or liquidation of the Association in any
manner, except as may be otherwise provided by law, the assets of the
Association shall be distributed in the following order and manner, to wit:
1. To pay all costs and expenses of dissolution, liquidation and
distribution;
2. To pay and discharge all indebtedness of the Association, exclusive of
any liability for the distribution of net earnings;
3. To retire, at par value plus unpaid accrued dividends thereon, if any,
the five and one-half percent (51/2%) and the six percent (6%) preferred stock;
4. To retire, at par value plus unpaid accrued dividends thereon, if any,
all other preferred stock of the Association, in the order and in accordance
with such priority as may be provided for by the terms and provisions of the
outstanding certificates therefor;
5. To pay all patronage refunds payable from current net earnings; and
6. All remaining assets, if any, shall be distributed among the holders of
common stock and associate member common stock or other capital credit(s) in
proportion to the amounts thereof held by each.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the Form 10-Q
dated November 30, 1996 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-31-1997
<PERIOD-START> SEP-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 622,573
<ALLOWANCES> 0
<INVENTORY> 729,653
<CURRENT-ASSETS> 1,438,025
<PP&E> 1,526,552
<DEPRECIATION> 800,706
<TOTAL-ASSETS> 2,567,733
<CURRENT-LIABILITIES> 1,113,123
<BONDS> 618,976
0
1,262
<COMMON> 467,874
<OTHER-SE> 309,950
<TOTAL-LIABILITY-AND-EQUITY> 2,567,733
<SALES> 2,359,948
<TOTAL-REVENUES> 2,389,279
<CGS> 2,255,292
<TOTAL-COSTS> 2,272,215
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,019
<INCOME-PRETAX> 15,864
<INCOME-TAX> 3,051
<INCOME-CONTINUING> 23,892
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,892
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
