Registration Statement No.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
FARMLAND INDUSTRIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
KANSAS 44-0209330
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
2011
(PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER)
3315 NORTH OAK TRAFFICWAY, KANSAS CITY, MISSOURI 64116-0005
816-459-6000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
TERRY M. CAMPBELL
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FARMLAND INDUSTRIES, INC.
3315 NORTH OAK TRAFFICWAY, KANSAS CITY, MISSOURI 64116-0005
816-459-6348
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From time to
time after the effective date of this Registration Statement, as determined by
market conditions.
IF ANY OF THE SECURITIES BEING REGISTERED ON THIS FORM ARE TO BE OFFERED ON A
DELAYED OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF
1933 CHECK THE FOLLOWING BOX. [ X ]
IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND LIST
THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE
REGISTRATION STATEMENT FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(D) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION STATEMENT
FOR THE SAME OFFERING. [ ]
IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM
AGGREGATE OFFERING OR AMOUNT OF
TITLE OF EACH CLASS OF SECURITY BEING REGISTERED EXCHANGE PRICE REGISTRATION FEE
<S> <C> <C>
DEMAND LOAN CERTIFICATES $ 100,000,000 $ 30,303
SUBORDINATED DEBENTURE BONDS $ 205,000,000 $ 62,121
TOTAL $ 305,000,000 $ 92,424
</TABLE>
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
A graphic of Farmland's Logo is in the top right corner of the Prospectus cover
page.
PROSPECTUS
FARMLAND INDUSTRIES, INC.
$205,000,000 SUBORDINATED DEBENTURE BONDS (SERIES A - H)
$100,000,000 DEMAND LOAN CERTIFICATES
TERMS OF SALE
If all the securities offered are sold, we will receive $100,000,000 from the
sale of demand loan certificates and $125,000,000 from the sale of subordinated
debenture bonds. Also, we will exchange subordinated debenture bonds with a
face amount of up to $80,000,000 for other subordinated debt securities. If
more than $125,000,000 is sold for cash a lesser amount will be available for
exchange. We will pay approximately $5,900,000 in commissions and $1,400,000 in
other expenses. Our agents will use their best efforts to sell these securities
but are not obligated to sell any of them.
SEE "RISK FACTORS" BEGINNING ON PAGE 7. FOR A DESCRIPTION OF CERTAIN RISK
FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THESE SECURITIES.
MINIMAL INITIAL INVESTMENT SERIES
$1,000.......................... Ten-Year Series A
Five-Year Series C
$5,000.......................... Ten-Year Monthly Income Series E
Ten-Year Monthly Income Series G
$100,000........................ Ten-Year Series B
Five-Year Series D
Ten-Year Monthly Income Series F
Ten-Year Monthly Income Series H
$1,000.......................... Demand Loan Certificates
For interest rate information, call 1-800-821-8000, ext. 6360.
These investments have not been approved by the SEC or any state securities
commission, nor have they determined that this prospectus is accurate or
complete. Any representation to the contrary is a criminal offense.
FARMLAND SECURITIES COMPANY AMERICAN HEARTLAND INVESTMENT, INC.
Agents
December 31, 19
INFORMATION AVAILABLE ABOUT FARMLAND
The Securities Exchange Act of 1934, as amended (the "Exchange Act") requires
our company to file annual and quarterly reports, as well as certain other
information, with the SEC. These reports may be read and copied at the SEC's
public reference rooms in Washington, D.C., New York, New York and Chicago,
Illinois. You can request copies of these documents, upon payment of a
duplication fee, by writing to the SEC's Public Reference Section. Please call
the SEC at 1-800-SEC-0330 for further information on the operation of the public
reference rooms. Our SEC filings are also available to the public on the SEC
Internet site (http://www.sec.gov).
REPORTS TO SECURITY HOLDERS
You may request a copy of our latest annual report as filed with the SEC, at no
cost, by writing or telephoning us at the address shown on page 7.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ANY
INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR
IS IT SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY STATE OR JURISDICTION
WHERE THE OFFER OR SALE IS NOT PERMITTED. FURTHERMORE, YOU SHOULD NOT ASSUME
THAT THE INFORMATION IN THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IS
ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT OF THOSE DOCUMENTS.
TABLE OF CONTENTS
Page
PROSPECTUS SUMMARY........................................7
RISK FACTORS.............................................12
SELECTED CONSOLIDATED FINANCIAL DATA.....................20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS........24
DETERMINATION OF INTEREST RATES..........................50
USE OF PROCEEDS..........................................51
PLAN OF DISTRIBUTION.....................................52
EXCHANGE OFFER...........................................54
HOW TO ACCEPT EXCHANGE OFFER.............................57
HOW TO TRANSFER OWNERSHIP................................57
DESCRIPTION OF DEBT SECURITIES...........................58
THE COMPANY................................................
BUSINESS.......................
PATRONAGE REFUNDS AND DISTRIBUTION OF ANNUAL EARNINGS....53
EQUITY REDEMPTION PLANS..................................54
LEGAL PROCEEDINGS........................................55
MANAGEMENT...............................................56
EXECUTIVE COMPENSATION...................................61
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 65
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...........65
LEGAL MATTERS............................................65
EXPERTS..................................................65
QUALIFIED INDEPENDENT UNDERWRITER........................66
INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS......67
PROSPECTUS SUMMARY
Because this is a summary, it does not contain all the information that may be
important to you. You should read this entire document before making a
decision.
Kansas City, Missouri is the location of our world headquarters. Our mailing
address and telephone number are as follows:
Farmland Industries, Inc.
P.O. Box 7305
Kansas City, Missouri 64116-0005
816-459-6000
FARMLAND'S BUSINESS
Founded in 1929, we are an agricultural farm supply and processing and marketing
cooperative. As a cooperative, our members are also our owners. As of August
31, 1997, our membership consisted of 1,400 cooperative associations and 13,000
pork or beef producers.
Based on sales, we are one of the largest cooperatives in the United States. In
1997, we had sales of $9.1 billion, including export sales in excess of $1.3
billion to customers in over 80 countries.
Farmland competes with many companies, including other cooperatives. These
competitors are of various sizes and have various levels of vertical
integration. We sell to a large number of customers and no single customer is
material to our business.
Our business is focused on two areas: Agricultural inputs and outputs.
AGRICULTURAL INPUTS
In this area, we operate as a farm supply cooperative. Our three main farm
supply product divisions are as follows:
. Petroleum
. Crop Production
. Feed
Each of these divisions manufactures products and then distributes them
primarily to wholesalers or retailers. Company owned or operated plants
produced over 50% of the farm supply products we sold in 1997. Member
cooperative associations purchased approximately 60% of the farm supply products
we sold in 1997. These cooperatives distribute products primarily to farmers
and ranchers who are the end users of the products we manufacture and sell.
AGRICULTURAL OUTPUTS
In this area, we operate as a processing and marketing cooperative. Our
operations are organized into two areas:
. The processing and marketing of pork and beef
. The storage, processing and marketing of grain
In 1997, our members supplied about 63% of the hogs we processed, 20% of the
cattle we processed and 53% of the grain we marketed. Substantially all of the
pork and beef products we sold in 1997 was processed in company owned plants.
THE OFFERING
DESCRIPTION OF SECURITIES
We are offering $205 million of Subordinated Debenture Bonds for sale or to
exchange for certain Farmland subordinated debt securities and $100 million of
Demand Loan Certificates. The Subordinated Debenture Bonds are available in
several series.
Minimum
Series Initial Investment
Ten-Year, Series A.........................$ 1,000
Ten-Year, Series B ........................$ 100,000
Five-Year, Series C........................$ 1,000
Five-Year, Series D........................$ 100,000
Ten-Year Monthly Income, Series E..........$ 5,000
Ten-Year Monthly Income, Series F..........$ 100,000
Five-Year Monthly Income, Series G.........$ 5,000
Five-Year Monthly Income, Series H.........$ 100,000
The terms and conditions of the debt securities which we are offering for sale
or exchange are more fully described in the section "Description of Debt
Securities" which begins on page 58.
UNDERWRITING DISCOUNTS AND COMMISSIONS
We will pay FSC and AHI a commission of 4% or less of the sales price of the
Subordinated Debenture Bonds and a commission of 1/2 of 1% or less of the sales
price of the Demand Loan Certificates. We also pay FSC for all expenses it
incurs related to the sale of these securities. However, this additional
payment is limited to no more than 3% of the total sales price of the securities
being offered.
PURPOSE OF THE EXCHANGE OFFER
The purpose of the exchange offer is to extend the period of time we utilize
funds borrowed from an investor in our subordinated debt securities. For
additional information regarding the exchange offer, including how to accept an
exchange offer, please see "Exchange Offer" on page 54 of this Prospectus.
SELLING PRICE
The debt securities, if sold for cash, will be sold for 100% of the face amount.
USE OF PROCEEDS
Proceeds received from the sale of the debt securities will be used for general
corporate purposes, including repayment of long-term debt and the funding of
capital expenditures.
MATURITY
The Subordinated Debenture Bonds mature 10 years or 5 years from the date of
original issuance. The Demand Loan Certificates are payable upon demand.
INTEREST RATES
The interest rates on the various debt securities which are available at the
date of this Prospectus can be found under "Determination of Interest Rates" on
page 50. When those rates change, we will include them in a prospectus
supplement. You may obtain information about the interest rates available at
any particular time by calling Farmland Securities Company, 1-800-821-8000,
Extension 6360.
PROVISIONS FOR EARLY REDEMPTION
Holders of the Ten-Year, Series A and Series B, and the Five-Year, Series C and
Series D Subordinated Debenture Bonds may redeem their investments prior to
maturity under certain restricted conditions. However, we will not redeem any
Subordinated Debenture Bond if that redemption would cause us to not comply with
the terms of any loan agreement or other agreement. For detailed information
regarding early redemption and limitations on early redemptions, please refer to
"Limited Redemption Prior to Maturity of Subordinated Debenture Bonds" beginning
on page 70 of this Prospectus and to the subcaptions "Redemption by Farmland",
"Redemption by the Holder" and "IRA Redemption" within "Subordinated Debenture
Bonds" beginning on page 64 of this Prospectus.
1.The following are the general conditions under which we will redeem, prior to
maturity at the request of the Holder, the Subordinated Debt Securities. To
qualify for early redemption under (a) below, a Ten-Year Bond, Series A and
B, must have been held at least three years and a Five-Year Bond, Series C
and D, must have been held at least two years. A minimum holding period is
not required for early redemption under (b), (c) and (d) below.
a) We will make available each month, on a first come, first serve basis, a
limited sum of money for early redemption of Series A, B, C and D Bonds.
b) Series A, B, C and D Bonds held by a trustee or custodian in an IRA may be
redeemed, upon request, as necessary to satisfy mandatory withdrawals from
the IRA.
c) Series A, B, C and D Bonds will be redeemed, upon request, on death of the
holder.
d) Series E, F, G and H Monthly Income Bonds will be redeemed prior to
maturity only on death of the holder.
RISK FACTORS
You should consider carefully the following risk factors in addition to the
other information contained in this Prospectus.
INCOME TAX MATTERS -- LITIGATION
In July 1983, we sold the stock of Terra Resources, Inc. ("Terra"), a 100% owned
subsidiary engaged in oil and gas exploration and production operations. 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, excluding
statutory interest, of $70.8 million. The asserted deficiencies relate
primarily to our tax treatment of the Terra sale gain as income against which
certain patronage-sourced operating losses could be offset. The statutory
notice also claims that Farmland incorrectly characterized for tax purposes
$14.6 million of gains and a $2.3 million loss related to dispositions of
certain other assets.
On June 11,1993, Farmland filed a petition in the United States Tax Court
contesting the claimed 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 of about $85.8 million plus statutory interest.
Through August 31, 1997, statutory interest, before tax benefits of the interest
deduction, totaled about $243.2 million. Therefore, the total potential
liability resulting from a loss of this tax case is approximately $329.0
million. 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
that year's federal and state income taxes and related statutory interest
(through August 31, 1997) by approximately $13.1 million. The asserted federal
and state income tax liabilities and accumulated statutory interest would become
immediately due and payable unless the Company appealed the decision and posted
the bond required to postpone 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 an adverse determination of the Terra tax issue,
certain financial covenants of the Company's Syndicated Credit Facility (the
"Credit Facility"), dated May 15, 1996, become less restrictive. If we assume
the United States Tax Court had decided in favor of the IRS on all unresolved
issues, and that all related additional federal and state income taxes and
accumulated statutory interest had been due and payable on August 31, 1997,
Farmland's borrowing capacity under the Credit Facility was adequate at that
time to finance the liability. However, Farmland's ability to finance an
adverse decision depends substantially on the financial effects of future
operating events on its borrowing capacity under the Credit Facility. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Financial Condition, Liquidity and Capital Resources", beginning on
page 24 of this Prospectus.
SUBORDINATION AND ADDITIONAL DEBT
The Subordinated Debenture Bonds offered by this Prospectus for sale and for
exchange are unsecured obligations of Farmland and are subordinated in right of
payment to all existing and future Senior Indebtedness. Senior Indebtedness of
Farmland includes the Demand Loan Certificates, money borrowed from financial
institutions and amounts due and payable under any instrument which provides
that such amounts are to be Senior Indebtedness.
The Demand Loan Certificates are unsecured and non-subordinated obligations of
Farmland and have the same right of payment as all other unsecured and non-
subordinated indebtedness of Farmland.
In addition, the Debt Securities will be effectively subordinated to all
obligations of Farmland's subsidiaries. Any right of Farmland to receive assets
from any subsidiary which liquidates or re-capitalizes will be subject to the
claims of such subsidiary's creditors. As a result, the right of holders of the
debt securities to participate in those assets is also subject to the claims of
such subsidiary's creditors. Accordingly, the debt securities will be
effectively subordinated to all indebtedness and other liabilities, including
trade accounts payable, of our subsidiaries.
As of August 31, 1997:
1. Farmland had outstanding $480.8 million of Senior Indebtedness,
2. Farmland had outstanding $373.0 million aggregate principal amount of other
subordinated indebtedness, and
3. Certain Farmland subsidiaries had outstanding $132.7 million aggregate
principal amount of indebtedness, of which $109.2 million was nonrecourse to
Farmland.
The indentures under which the debt securities are issued do not contain any
provision that would limit the ability of Farmland or any of its affiliates to
incur indebtedness of any type or that would afford holders of the debt
securities protection in the event of a highly leveraged transaction,
restructuring, change in control, merger, sale of substantially all the
Company's assets or similar transaction involving Farmland. In the event of
these transactions, no assurances can be given as to whether or not Farmland or
any successor would be able to repay, from continuing operations or from
proceeds of any such transaction, holders of our debt securities.
EVENT OF DEFAULT ON SENIOR INDEBTEDNESS
The Credit Facility relating to our Senior Indebtedness contains financial
covenants. Violation of these financial covenants or any other breach relating
to Senior Indebtedness, including payment defaults, would create a default on
our Senior Indebtedness. If default occurs, payment of principal and interest
on the Subordinated Debenture Bonds, as well as our other subordinated debt,
will stop. Payments will begin again when the breach or violation is resolved.
RESTRICTED REDEMPTION RIGHTS OF HOLDERS OF SUBORDINATED DEBENTURE BONDS
Holders of Subordinated Debenture Bonds may redeem their investments prior to
maturity only under restricted conditions. These restricted conditions are more
fully described under the caption "Limited Redemption Prior to Maturity of
Subordinated Debenture Bonds" starting on page 70 of this Prospectus. Depending
on your investment objectives, these restricted redemption rights may make these
Subordinated Debenture Bonds an unsuitable investment for you.
PAY AMOUNT OF INTEREST AND PRINCIPAL FROM GENERAL CORPORATE FUNDS
We have not and do not intend to establish special cash reserves, escrow
accounts or trusts for payment of principal or interest on the securities
offered in this Prospectus. We have relied on, and plan to continue to rely on,
general corporate funds provided through operations, sale of assets and other
borrowings to make all principal and interest payments when due.
EXTERNAL FACTORS MAY AFFECT OUR BUSINESS
Our financial success depends largely on factors which affect agricultural,
production and marketing conditions. These factors, which are outside of
Farmland's control, often change agricultural conditions in an unpredictable
manner. Therefore, we cannot determine the future impact on our operations from
changes in these external factors. We expect demand for our products will
continue to be volatile as agricultural conditions change. External factors
that affect agricultural conditions and Farmland's financial results include:
1. REGULATORY: Our ability to grow through acquisitions and investments in
joint ventures may be affected by regulatory delays. Also, various federal
and state regulations to protect the environment encourage farmers to use
less fertilizer and other chemical applications.
2. COMPETITION: Competitors may offer more varied products and may possess
greater resources than our company. Competitors may also have better
access to equity capital markets than Farmland.
3. IMPORTS AND EXPORTS: The following factors may affect the amount of
agricultural products imported or exported:
a) Foreign trade and monetary policies;
b) Laws and regulations;
c) Political and governmental changes;
d) Inflation and exchange rates;
e) Taxes;
f) Operating conditions; and
g) World demand.
4. WEATHER: Global weather conditions may cause:
a) Shifts in demand that result in price changes for agricultural input
products; and
b) Shifts in supply that result in cost changes for agricultural output
products.
5. RAW MATERIALS COST: Historically, we are limited in our ability to
increase our products' selling prices in order to pass through the price
increases in our raw materials.
6. OTHER FACTORS: Other domestic and global factors may have an impact on the
supply, demand and price of our products. The following are examples of
these factors.
a) Domestic factors
i) Crop failures;
ii) Federal agricultural programs; and
iii) Production efficiencies.
b) Global factors
i) Embargoes;
ii) Political instabilities; and
iii) Local conflicts and civil disruptions.
LIMITED ACCESS TO EQUITY CAPITAL MARKETS
As a cooperative, we raise equity primarily through the reinvestment of a
portion of patronage refunds as stock or capital credits and through retention
of net income (retained earnings) generated from transactions with non-members.
ENVIRONMENTAL MATTERS
Various federal, state and local environmental laws and regulations impose
requirements on our operations. Furthermore, some of these laws and regulations
impose liability on Farmland for the cleanup of environmental contamination.
Our capital expenditures and operating costs related to compliance with these
laws and regulations have been substantial over the years. Although we cannot
predict the enforcement or interpretations of existing laws and regulations or
the impact of new or amended laws or regulations, we anticipate that capital
expenditures and operating costs related to environmental laws and regulations
are likely to continue to be substantial.
Many of our current and former facilities have been in operation for many years.
Over this time, Farmland and other prior operators of these facilities have
generated, used, stored or disposed of substances or wastes that may be
considered hazardous under current or future applicable environmental laws. As
a result of these operations, the soil and groundwater at many of our current
and former facilities have been contaminated. Material expenditures may be
required in the future to remediate contamination from past or future releases
of hazardous substances or wastes.
We own or operate, either wholly or jointly, 27 grain elevators and 62
manufacturing properties. We also have potential responsibility for
environmental conditions at a number of former manufacturing facilities and at
waste disposal facilities operated by other companies. We have been identified
as a potentially responsible party (a "PRP") under the federal Comprehensive
Environmental Response, Compensation and Liability Act ("CERCLA") at various
National Priority List sites and have unresolved liability with respect to the
past disposal of hazardous substances at five of these sites. CERCLA may impose
joint and several liability on certain statutory classes of persons for the
costs of investigation and remediation of contaminated properties, regardless of
fault or whether the original disposal was legal. These persons include the
present and former owner or operator of a contaminated property, and companies
that generated, disposed of or arranged for the disposal of, hazardous
substances found at the property. Farmland currently is aware of probable
obligations for environmental matters at 33 properties and is investigating or
remediating contamination at 25 properties. During 1995, 1996 and 1997, we paid
approximately $3.2 million, $1.8 million and $4.6 million, respectively, for
environmental investigation and remediation.
Farmland has accrued all costs which, in management's opinion, are probable and
which costs are reasonably estimable at August 31, 1997 amounting to $16.9
million. It is possible that the costs of resolution of these matters may
exceed the liabilities which have been accrued. In the opinion of management,
it is reasonably possible for these costs to be an additional $17.5 million.
See "Management's Discussion and Analysis of Financial Conditions and Results of
Operations-Matters Involving the Environment" beginning on page 45 and
"Business-Matters Involving the Environment" beginning on page __.
ABSENCE OF PUBLIC MARKET
A trading market does not exist for our debt securities. Also, it is unlikely
that a secondary market for these securities will develop. We do not plan to
list any of the debt securities on any securities exchange.
AFFILIATED UNDERWRITER
FSC is our wholly owned subsidiary. FSC's business is limited to the offer and
sale of securities issued by our company. The offering complies with the terms
of a partial exemption from requirements of Schedule E of the NASD bylaws.
This partial exemption requires, among other things, that a minimum of 80
percent of the dollar amount of sales be to a defined group as approved by the
NASD. Only persons associated with us or FSC participated in determining the
terms, including price, of the securities offered in this Prospectus.
POTENTIAL TAXABLE GAINS OR LOSSES FROM THE EXCHANGE
Exchanging Subordinated Debenture Bonds, as permitted by this Prospectus, could
result in taxable gains and losses to the holder.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of the end of and for
each of the years in the five-year period ended August 31, 1997 are derived from
the Consolidated Financial Statements of the Company, which Consolidated
Financial Statements have been audited by KPMG Peat Marwick LLP, independent
certified public accountants. The Consolidated Financial Statements as of
August 31, 1996 and 1997 and for each of the years in the three-year period
ended August 31, 1997 (the "Consolidated Financial Statements"), and the
independent auditors' report thereon, are included elsewhere herein. The
information set forth below should be read in conjunction with information
appearing elsewhere herein: "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes.
<TABLE>
<CAPTION>
Year Ended August 31
1993 1994 1995 1996 1997
(Amounts in Thousands except ratios)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:(1)
Net Sales...................... $ 4,722,940 $ 6,677,933 $ 7,256,869 $ 9,788,587 $ 9,147,507
Operating Income of Industry
Segments..................... 86,579 154,799 295,933 241,666 242,963
Interest Expense............... 36,764 51,485 53,862 62,445 62,335
Net Income (Loss).............. (30,400) 73,876 162,799 126,418 135,423
DISTRIBUTION OF NET INCOME (LOSS):
Patronage Refunds:
Allocated Equity............. $ 1,155 $ 44,032 $ 61,356 $ 60,776 $ 68,079
Cash and Cash
Equivalents.................. 495 26,580 33,061 32,719 40,228
Earned Surplus and Other
Equities..................... (32,050) 3,264 68,382 32,923 27,116
$ (30,400) $ 73,876 $ 162,799 $ 126,418 $ 135,423
RATIO OF EARNINGS TO
FIXED CHARGES (2)........... Note 2 2.1 4.0 3.0 3.0
BALANCE SHEETS:
Working Capital................ $ 260,519 $ 290,704 $ 319,513 $ 322,050 $ 242,211
Property, Plant and
Equipment, Net............... 504,378 501,290 592,145 717,224 783,108
Total Assets................... 1,719,981 1,926,631 2,185,943 2,568,446 2,645,312
Long-Term Borrowings
(excluding
current maturities).......... 482,112 506,531 469,718 616,258 580,665
Capital Shares and
Equities..................... 561,707 585,013 687,287 755,331 821,993
</TABLE>
[FN]
(1)See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Financial Condition, Liquidity and Capital Resources"
included herein, for a discussion of the pending income tax litigation
relating to Terra, a former subsidiary of the Company.
(2)The ratios of earnings to fixed charges have been computed by dividing
fixed charges into the sum of (a) income (loss) before taxes for the
enterprise as a whole, less capitalized interest and with adjustments to
appropriately reflect the Company's majority-owned, 50%-owned, and less-than-
50%-owned affiliates, and (b) fixed charges. Fixed charges consist of
interest on all indebtedness (including amortization of debt issuance
expenses) and the component of operating rents determined to be interest,
with adjustments as appropriate to reflect the Company's 50%-owned and less-
than-50%-owned affiliates. Income was inadequate to cover fixed charges for
the year ended August 31, 1993. The dollar amount of the coverage deficiency
was $36.6 million.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically maintained two primary sources for debt
capital: a substantially continuous public offering of its subordinated debt
and demand loan securities (the "continuous debt program") and bank lines of
credit.
The Company's debt securities issued under the continuous debt program
generally are offered on a best-efforts basis through the Company's wholly owned
broker-dealer subsidiary, Farmland Securities Company, and through American
Heartland Investments, Inc. (which is not affiliated with Farmland), and also
may be offered by selected unaffiliated broker-dealers. The types of securities
offered in the continuous debt program include certificates payable on demand
and 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 or series of debt security offered and by options of Farmland to
call for redemption certain of its outstanding debt securities. During the year
ended August 31, 1997, the outstanding balance of demand certificates increased
by $10.4 million and the outstanding balance of subordinated debt certificates
increased by $48.9 million.
In May 1996, Farmland entered into a five year Syndicated Credit Facility
(the "Credit Facility") with various participating banks. The Credit Facility
provides a $1.1 billion credit, subject to compliance with financial covenants
as set forth in the , 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 Credit Facility 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 Credit Facility'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 Credit Facility are reviewed and/or renewed annually. The
next scheduled review date is in May 1998. The revolving term provisions of the
Credit Facility expire in May 2001.
At August 31, 1997, the Company had $185.5 million of short-term borrowing
under the Credit Facility and $160.0 million of revolving term borrowings;
additionally, $44.2 million of the Credit Facility was being utilized to support
letters of credit issued on behalf of Farmland. As of August 31, 1997, under
the short-term credit provisions, the Company had capacity to finance additional
current assets of $425.6 million and, under the long-term credit provisions, the
Company had capacity to borrow up to an additional $284.7 million.
FNBPC maintains borrowing agreements with a group of banks which provide
financing support for its beef packing operations. Such borrowings are
nonrecourse to Farmland or Farmland's other affiliates (except to the extent of
$10.0 million). At August 31, 1997, $90.0 million was available under this
Credit Facility of which $29.1 million was borrowed and $0.6 million was
utilized to support letters of credit. In addition, FNBPC has certain long-term
borrowings from Farmland. FNBPC has pledged certain assets to Farmland and such
group of banks to support its borrowings.
Leveraged leasing has been utilized to finance railcars and a significant
portion of the Company's fertilizer production equipment.
The Company maintains other borrowing arrangements with banks and
financial institutions. Under such agreements, at August 31, 1997, $40.8 million
was borrowed.
Tradigrain has borrowing agreements with various international banks which
provide financing and letters of credit to support current international grain
trading transactions. Obligations of Tradigrain under these loan agreements are
nonrecourse to Farmland or Farmland's other affiliates. At August 31, 1997,
such borrowings totaled $72.8 million.
In the opinion of management, these arrangements for debt capital are
adequate for the Company's present operating and capital plans. However,
alternative financing arrangements are continuously evaluated.
In the normal course of business, the Company utilizes derivative
commodity instruments, primarily related to grain, to hedge its exposure to
price volatility. These instruments consist mainly of grain contracts traded on
organized exchanges and forward purchase and sales contracts in cash markets.
These hedging activities limit both the risk of loss and the potential for gain
which otherwise could result from changes in market prices. Also, in the
ordinary course of its international grain trading business, the Company may
take long or short grain positions. Such positions are accounted for on a mark-
to-market basis and the gain or loss is recognized currently as a component of
net earnings.
Farmland operates on a cooperative basis. In accordance with its bylaws,
Farmland determines its annual net earnings from transactions with members
("member-sourced earnings"). For this purpose, annual net earnings is before
income tax determined in accordance with generally accepted accounting
principles. Losses (including patronage allocation unit losses), if any, are
handled in accordance with the Company's bylaws. The remaining member-sourced
earnings are returned to members as patronage refunds in the form of qualified
or nonqualified written notice of patronage refund allocation. Each member's
portion of the annual patronage refund is determined by the earnings of Farmland
attributed to the quantity or value of business transacted by the member with
Farmland during the year for which the patronage is paid. Other income is
classified as either nonmember-sourced income (earnings attributed to
transactions with persons not eligible to receive patronage refunds, i.e.
nonmembers) or nonpatronage income or loss (income or loss from activities not
directly related to the cooperative marketing or purchasing activities of
Farmland) and is subject to income taxes. Nonpatronage and nonmember after-tax
earnings are transferred to earned surplus.
Under Farmland's bylaws, patronage refunds, determined as stated above,
are distributed to members unless the earned surplus account after such
distribution is lower than 30% of the sum of the prior year-end balance of
outstanding common shares, associate member shares, capital credits and
patronage refunds for reinvestment. In such cases, the patronage refund is
reduced by the lesser of 15% or an amount required to increase the earned
surplus account to the required 30%. The amount by which the patronage refund
income is so reduced is treated as nonmember-sourced income. The patronage
refund income remaining is distributed to members as in the form of qualified or
nonqualified written notices of allocation. For the years 1995, 1996 and 1997,
the earned surplus account exceeded the required amount by $62.8 million, $84.7
million and $101.7 million, respectively.
The patronage refunds may be paid in the form of qualified or nonqualified
written notices of allocation or cash. The qualified patronage refund, if any,
must be paid at least 20% in cash and is deductible by the Company for federal
income tax purposes. The portion of the qualified patronage refund not paid in
cash (the allocated equity portion) is distributed in common shares, associate
member common shares or capital credits (depending on the membership status of
the recipient), or the Board of Directors may determine to distribute the
allocated equity portion in any other form or forms of equities. The allocated
equity portion of the qualified patronage refund is determined annually by the
Board of Directors, but is limited to no more than 80% of the total qualified
patronage refund. The nonqualified patronage refund, if any, is recorded as
book credits in the form of common shares, associate member common shares or
capital credits (depending on the membership status of the recipient), or the
Board of Directors may determine to record the nonqualified patronage refund in
any other form or forms of nonpreferred equities. The nonqualified patronage
refund is deductible by the Company for federal income tax purposes only upon
redemption of the equity or equities issued. The nonqualified patronage refund
and the allocated equity portion of the qualified patronage refund are sources
of funds from operations which are retained for use in the business and which
increase Farmland's equity base. Common shares and associate member common
shares may be redeemed by cash payments from Farmland to holders thereof who
participate in Farmland's base capital plan. Common stock, associate member
common stock, capital credits and other equities of Farmland and Foods may also
be redeemed under other equity redemption plans. The base capital plan and
other equity redemption plans are described under "Business and Properties -
Business - Equity Redemption Plans" included herein.
Major sources of cash during 1997 include: $222.3 million from operating
activities; $55.2 million from cash distributions from ventures; $59.1 million
of net proceeds from issuance of subordinated debt and demand loan certificates;
and $24.8 million from the sale of investments and collection of long-term notes
receivable.
Major uses of cash during 1997 include: $184.4 million for capital
expenditures and acquisition of other long-term assets; $89.7 million for net
payments on bank loans and notes payable; $46.2 million for acquisition of
investments and notes receivable; $32.5 million for cash patronage refunds
distributed from income of the 1996 fiscal year; and $25.4 million for the
redemption of equities under the Farmland base capital and other equity
redemption plans.
In July 1983, Farmland sold the stock of Terra, a wholly owned subsidiary
engaged in oil and gas exploration and production operations, and exited its oil
and gas exploration and production activities. The gain from the sale of Terra
amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the IRS issued a statutory notice to Farmland asserting
deficiencies in federal income taxes (exclusive of statutory interest thereon)
in the aggregate amount of $70.8 million. The asserted deficiencies relate
primarily to the Company's tax treatment of the $237.2 million gain resulting
from its sale of the stock of Terra and the IRS's contention that Farmland
incorrectly treated the Terra sale gain as income against which certain
patronage-sourced operating losses could be offset. The statutory notice
further asserts that Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million, and a loss of approximately $2.3
million, from dispositions of certain other assets.
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 $243.2 million
through August 31, 1997), or $329.0 million (before tax benefits of the interest
deduction) in the aggregate at August 31, 1997. 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 $8.1 million), or $13.1 million in the aggregate at
August 31, 1997. 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 Credit Facility become less
restrictive. Had the United States Tax Court decided in favor of the IRS on all
unresolved issues, and had all related additional federal and state income taxes
and accumulated interest thereon been due and payable on August 31, 1997,
Farmland's borrowing capacity under the Credit Facility was adequate at that
time to finance the liability. However, Farmland's ability to finance such an
adverse decision depends substantially on the financial effects of future
operating events on its borrowing capacity under the Credit Facility.
No provision has been made in the Consolidated Financial Statements for
federal or state income taxes (or interest thereon) in respect of the IRS claims
described above. The Company believes that it has meritorious positions with
respect to all of these claims.
In the opinion of Bryan Cave LLP, the Company's special tax counsel, it is
more likely than not that the courts will ultimately conclude that the Company's
treatment of the Terra sale gain was substantially, if not entirely, correct.
Such counsel has further advised, however, that none of the issues involved in
this dispute is free from doubt, and there can be no assurance that the courts
will ultimately rule in favor of the Company on any of these issues.
RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
The Company's revenues, margins and net income depend, to a large
extent, on conditions in agriculture and may be volatile due to factors beyond
the Company's control, such as weather, crop failures, federal agricultural
programs, production efficiencies and U.S. imports and exports. In addition,
various federal and state regulations to protect the environment encourage
farmers to reduce the use of fertilizers and other chemicals. Global variables
which affect supply, demand and price of crude oil, refined fuels, natural gas
and other commodities may impact the Company's operations. Historically,
changes in the costs of raw materials used in the manufacture of the Company's
finished products have not necessarily resulted in corresponding changes in the
prices at which such products have been sold by the Company. Management cannot
determine the extent to which these factors may impact future operations of the
Company. The Company's cash flow and net income may continue to be volatile as
conditions affecting agriculture and markets for the Company's products change.
The increase (decrease) in sales and operating income by business
segment in each of the years in the three-year period ended 1997, compared with
the respective prior year, is presented in the below table.
Management's discussion of industry segment sales, operating income or
loss and other factors affecting the Company's net income during 1995, 1996 and
1997 follows the table.
<TABLE>
<CAPTION>
Change in Sales Change in Net Income
1995 1996 1997 1995 1996 1997
Compared Compared Compared Compared Compared Compared
with 1994 with 1995 with 1996 with 1994 with 1995 with 1996
(Amounts in Millions)
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) OF INDUSTRY SEGMENT
SALES AND OPERATING INCOME OR LOSS:
Petroleum.................. $ 21 $ 181 $ 274 $ (35) $ 13 $ 31
Crop Production............ 8 165 (73) 73 (20) (20)
Feed....................... (60) 102 48 (7) 3 (6)
Food Processing
and Marketing ............. 337 528 338 56 (11) (22)
Grain Marketing............ 279 1,563 (1,230) 52 (36) 25
Other...................... (6) (7) 2 2 (3) (7)
$ 579 $ 2,532 $ (641) $ 141 $ (54) $ 1
<S> <C> <C> <C>
CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease....................... $ (17) $ (11) $ 8
Interest expense (increase) decrease................................. (2) (8) -0-
Other income and deductions increase (decrease)...................... (6) 9 (1)
Equity in net income of investees increase (decrease)................ 12 18 1
Minority owners' interest in net income of subsidiaries
(increase) decrease ............................................... (14) 2 (1)
Income taxes (increase) decrease..................................... (25) 8 1
Net income increase (decrease)....................................... $ 89 $ (36) $ 9
</TABLE>
In computing the operating income or loss of an industry segment, none
of the following have been added or deducted: corporate expenses (included in
the Consolidated Statements of Operations as selling, general and administrative
expenses) which cannot be identified or allocated, practicably, to an industry
segment, interest expense, interest income, equity in net income (loss) of
investees, other income (deductions) and income taxes.
PETROLEUM
SALES
Sales of the petroleum business increased $273.5 million, or 25.8%, in
1997 compared with 1996. This increase was primarily attributable to expansion
of the refinery's capacity, which resulted in increased unit sales of gasoline,
distillates and diesel fuel, as well as to increased unit prices for these
products.
Sales of the petroleum business increased $181.5 million in 1996 compared
with 1995. This increase was primarily the result of increased fuel (gasoline,
distillate, diesel and propane) prices and unit sales of approximately 11% and
9.5%, respectively.
Sales of the petroleum business increased $21.3 million in 1995 compared
with 1994, or 2.5%. Sales of gasoline increased $42.1 million due to 9.6% higher
unit sales and 2.4% higher prices. Sales of distillates and propane decreased
$14.3 million and $3.0 million, respectively, and sales of other petroleum
products decreased $3.5 million. Unit sales of distillates and propane
decreased as a result of the mild winter and a wet spring.
OPERATING INCOME
Operating income of the petroleum business increased $31.3 million in 1997
compared with 1996. This increase was primarily a result of higher margins
coupled with increased unit sales. The higher margins are primarily
attributable to an increase in the difference between crude oil prices and
finished product prices, the ability of the refinery to process crude oil
streams containing a higher proportion of sulfur and to higher production
efficiencies resulting from increased refinery capacity.
The petroleum business had operating income of $5.0 million in 1996
compared to an operating loss of $8.0 million in 1995. This improvement was
primarily attributable to higher unit margins resulting from seasonal demand
pressure on product price movements. In addition, petroleum realized some
margin improvement resulting from increased production capacity at the Company's
refinery.
The petroleum business incurred an operating loss of $8.0 million in 1995
compared with operating income of $27.2 million in 1994. This loss was
attributable to increased crude oil costs (approximately 9%) without
corresponding increases in finished product selling prices.
CROP PRODUCTION
SALES
Crop production sales, consisting primarily of plant nutrients, decreased
$72.7 million, or 5.4%, in 1997 compared with 1996. This decrease was primarily
a result of lower unit sales of phosphate and nitrogen fertilizers and lower
phosphate prices partially offset by higher nitrogen prices.
Crop production sales increased $164.9 million or 14.1% in 1996 compared
with 1995. This increase was primarily a net result of increased unit sales of
phosphate and nitrogen fertilizers and higher phosphate prices, partly offset by
a slight decline of nitrogen prices.
Sales of the crop production business increased $8.0 million in 1995
compared with 1994. Sales of plant nutrients increased $117.9 million due to
higher selling prices. Unit sales of plant nutrients decreased slightly from
1994. Sales of crop protection products reflect a decrease of $109.9 million as
a result of placing the Company's crop protection operations in WILFARM.
OPERATING INCOME
Operating income of the Company's crop production business decreased $20.0
million, or 11.2%, in 1997 compared with 1996. This decrease was primarily a
result of higher natural gas costs which resulted in lower nitrogen unit
margins, partially offset by higher unit margins related to the distribution of
phosphate fertilizers. Crop production's share of net income from the Company's
phosphate manufacturing and WILFARM ventures decreased slightly in 1997 to
$41.2 million compared with $41.9 million in 1996.
Operating income of the Company's crop production business reflects a
decrease of $19.7 million in 1996 compared with 1995. However, the aggregate
contribution to net income from all crop production operations (including joint
ventures) was at about the same level in 1996 as in 1995. The Company's crop
production operations reflect a decrease primarily because of lower fertilizer
margins. The approximately $6.0 million, or 2.8%, decrease in nitrogen
fertilizer margins was the result of lower average unit selling prices combined
with higher raw material costs. Unit margins from the Company's phosphate
fertilizer operations decreased approximately $17.0 million. The effect of
these decreases were largely offset by an increase of approximately
$17.1 million in the Company's share of net income from joint ventures engaged
in phosphate fertilizer manufacturing operations and an increase of
approximately $2.4 million in the Company's share of net income from WILFARM.
Operating income of the crop production business increased $72.7 million
in 1995 compared with 1994. In addition, the Company's share of the net income
of joint ventures engaged in phosphate manufacturing increased $5.6 million and
the Company's share of net income of WILFARM was $2.2 million. The increased
operating results from crop production operations was principally attributable
to the effect of higher selling prices on unit margins and contributed
significantly to the Company's increased net income in 1995.
FEED
SALES
Sales of the feed business increased $48.1 million in 1997 compared with
1996. This increase resulted primarily from higher unit prices of feed
ingredients combined with a slight increase in volume.
Sales of feed products increased 21.9% to $569.9 million in 1996 compared
with $467.7 million in 1995. The increase was primarily attributable to higher
unit prices which reflected higher cost of raw materials. In addition, unit
sales of feed ingredients increased approximately 10% and unit sales of formula
feed and basic ingredients increased approximately 2%.
Sales of the feed business decreased $60.1 million in 1995 compared with
1994. This decrease reflected lower unit sales in traditional markets for beef,
dairy and swine feed partly offset by increased commercial (bulk) feed sales.
Unit sales of dairy feed decreased because the number of dairy cattle on feed
programs in the Company's trade territory decreased in 1995. Beef and swine
feed unit sales decreased because the relatively low market prices available to
livestock producers encouraged such producers to reduce input costs wherever
possible and such efforts were aided by the mild winter during which pastures in
most of the Company's trade area remained open and provided suitable grazing for
beef cattle.
OPERATING INCOME
Operating income of the feed business decreased $6.3 million in 1997
compared with 1996. This decrease was primarily attributable to declining sales
through traditional local cooperative channels and an increase in sales to lower
margin commercial accounts.
Operating income of the feed business increased $2.9 million in 1996
compared with 1995. This increase was attributable primarily to increased unit
margins on feed grade phosphate and to increased sales of feed ingredients.
Operating income of the feed business decreased $7.0 million in 1995
compared with 1994. This decrease was attributable to decreased unit sales in
traditional markets with cooperatives combined with a net loss on sales to
commercial accounts.
FOOD PROCESSING AND MARKETING
SALES
The Company's food processing and marketing business sales increased
$338.3 million in 1997 compared with 1996. This increase was largely
attributable to increased unit volume primarily resulting from the operations of
pork processing plants acquired during the third and fourth quarters of 1996.
Unit price increases of approximately 4% also contributed to the increase in
sales.
Sales of the food processing and marketing business increased $528.1
million in 1996 compared with 1995. Beef sales increased $308.7 million due
primarily to the effect of including operations of the Hyplains Beef L.C.
("Hyplains") beef plant in the Company's financial statements for a full year in
1996. The Company acquired a majority ownership in this plant in March 1995.
Pork sales increased $219.4 million primarily as a result of higher unit sales
of branded products mostly as a result of acquisitions (OhSe and Farmstead
brands).
Sales of the food processing and marketing business increased $337.3
million in 1995 compared with 1994. Sales of beef increased $350.6 million.
Approximately $235.0 million of this increase resulted from FNBPC's purchase of
assets from Hyplains (formerly 50%-owned by Farmland). The balance of the
increased sales of beef resulted primarily from increased volume (approximately
16%) at FNBPC's plant. Sales of pork decreased $13.3 million reflecting the net
effect of lower wholesale pork prices, partly offset by higher unit sales.
OPERATING INCOME
Operating income of the Company's food processing and marketing business
decreased $21.9 million in 1997 compared with 1996. This decrease was primarily
attributable to the increased cost to acquire live hogs and to the increased
selling and administrative expenses related to the food processing business,
partially offset by increased beef unit margins.
Operating income of the food processing and marketing business of $66.0
million in 1996 represented an $11.1 million decrease compared to 1995. This
decrease primarily resulted from decreased margins on fresh pork and increased
administrative expenses, partially offset by increased beef unit sales.
Operating income of the food processing and marketing business increased
$56.5 million in 1995 compared with 1994. This increase included increased
operating income of $43.5 million in beef operations and $13.0 million in pork
operations. In addition, the Company's share of net income of Hyplains in 1995
(for the period prior to its acquisition by FNBPC) increased $5.2 million
compared with 1994. These increases reflected increased unit margins (mostly a
result of lower cattle and hog market prices) and an increased number of cattle
and hogs processed.
GRAIN MARKETING
SALES AND OPERATING INCOME
The Company's grain marketing sales decreased $1.2 billion in 1997
compared with 1996. This decrease resulted from decreases in both unit sales
(primarily due to a reduction in export sales) and unit prices. The grain
marketing business had operating income of $6.8 million in 1997 compared with an
operating loss of $18.2 million in 1996. This increase in operating income was
primarily attributable to higher margins combined with increased storage income.
Grain sales increased $1.6 billion, or 82%, in 1996 compared to 1995
principally owing to a 40% increase in units sold combined with increased grain
prices. Grain had a $18.2 million operating loss in 1996 compared with $17.9
million operating income in 1995. The operating loss was principally
attributable to drought conditions in certain major wheat producing regions of
the United States which resulted in both shortages of and significantly higher
prices for wheat. Due to this shortage, the Company had to source wheat (in
order to meet contractual obligations), from domestic geographic areas further
from the Company's gulf coast export elevator than expected, resulting in higher
than anticipated purchase prices and transportation charges. The Company's
policy is to hedge its exposure to price fluctuations. However, in order to
avoid influencing price movement in certain commodity futures markets,
significant contracts are hedged over a period of time, but as soon as
practical, after such contracts are written. In 1996, the Company entered into
a significant fixed price sales contract. During the time required to fully
hedge this contract, the market for wheat was relatively volatile but generally
trended upward. The joint effect of these factors contributed to the loss in
the Company's grain operations.
Sales of grain increased $279.0 million in 1995 compared with 1994. This
increase resulted from higher grain prices and unit sales, primarily export
sales. Operating income of the grain business totaled $17.9 million in 1995
compared with a loss of $33.5 million in 1994. The increase in operating
results was attributable to approximately 59.0 million bushels higher export
volume by the NAGD, increased volume of international grain brokered by
Tradigrain and more favorable unit margins which developed as market prices
increased in response to decreased worldwide production in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $40.4
million, or 11%, in 1997 compared with 1996. SG&A directly associated with
business segments increased $48.8 million (primarily the food processing and
marketing segment) and has been included in the determination of the operating
income of business segments. General corporate expenses not identified to
business segments decreased $8.4 million primarily as a result of lower
employee-related costs.
SG&A increased $24.6 million, or 7.1%, in 1996 compared with 1995.
Approximately $13.5 million of the increase was directly connected to business
segments (primarily the food processing and marketing and grain segments) and
has been included in the determination of the operating income of business
segments. The increase of general corporate expenses, not identified to
business segments ($11.1 million), included higher expenses from improving the
management information systems and higher employee-related costs.
SG&A increased $39.1 million in 1995 compared with 1994.
Approximately $22.3 million of the increase was directly connected to business
segments (primarily the food processing and marketing and grain segments) and
has been included in the determination of the operating income of business
segments. The increase of general corporate expenses, not identified to
business segments ($16.8 million), reflected higher variable compensation,
pension and other employee costs and higher costs for legal services.
OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense decreased $0.1 million in 1997 compared with 1996,
reflecting lower average borrowings offset by a slight increase in the average
interest rate.
Interest expense increased $8.6 million in 1996 compared with 1995,
reflecting higher average borrowings, partly offset by a slight decline in the
average interest rate.
Interest expense increased $2.4 million in 1995 compared with 1994,
reflecting a higher average interest rate, partly offset by a lower amount of
average borrowings.
OTHER, NET
In May 1996, the Company sold its interest in a communications joint
venture, Broadcast Partners. The sale resulted in a gain before income taxes of
$10.9 million, which has been included in the caption "Other income
(deductions): Other, net" in the Company's Consolidated Statement of
Operations. See Note 15 of the Notes to Consolidated Financial Statements
included herein.
CAPITAL EXPENDITURES
See "Business and Properties - Business - Capital Expenditures and
Investments in Ventures" included herein.
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials, as the Company uses hazardous
substances and generates hazardous wastes in the ordinary course of its
manufacturing processes. The Company recognizes liabilities related to
remediation of contaminated properties when the related costs are probable and
can be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. Such liabilities include estimates
of the Company's share of costs attributable to potentially responsible parties
which are insolvent or otherwise unable to pay. All liabilities are monitored
and adjusted regularly as new facts or changes in law or technology occur.
The Company wholly or jointly owns or operates 27 grain elevators and 62
manufacturing properties and has potential responsibility for environmental
conditions at a number of former manufacturing facilities and at waste disposal
facilities operated by third parties. The Company also has been identified as a
PRP under CERCLA at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five such
sites. CERCLA may impose joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property and companies that generated, disposed of, or arranged for
the disposal of hazardous substances found at the property. The Company is
investigating or remediating contamination at 25 properties under CERCLA and/or
the state and federal hazardous waste management laws. During 1995, 1996 and
1997, the Company paid approximately $3.2 million, $1.8 million and $4.6
million, respectively, for environmental investigation and remediation.
The Company currently is aware of probable obligations for environmental
matters at 33 properties. As of August 31, 1997, the Company has an
environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated cost for remediation of contaminated property of
$16.9 million. The Company periodically reviews and, as appropriate, revises
its environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this paragraph
may exceed the liabilities which, in the opinion of management, are probable and
which costs are reasonably estimable at August 31, 1997. In the opinion of
management, it is reasonably possible for such additional costs to be
approximately $17.5 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, 1997 (and is in addition to
the $17.5 million discussed in the prior paragraph). The Company accrues these
liabilities when plans for termination of plant operations have been made.
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.
There can be no assurance that the environmental matters described above,
or environmental matters which may develop in the future, will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
Protection of the environment requires the Company to incur expenditures
for equipment or processes, which expenditures may impact the Company's future
net income. However, the Company does not anticipate that its competitive
position will be adversely affected by such expenditures or by laws and
regulations enacted to protect the environment. Environmental expenditures are
capitalized when such expenditures provide future economic benefits. In 1995,
1996 and 1997, the Company had capital expenditures of approximately $4.7
million, $10.9 million and $8.4 million, respectively, to improve the
environmental compliance and efficiency of its operations. Management believes
the Company currently is in substantial compliance with existing environmental
rules and regulations.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." These statements, which are effective for periods
beginning after December 15, 1997, expand or modify disclosures and,
accordingly, will have no impact on the Company's reported financial position,
results of operations or cash flows.
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
Prospectus to make applicable and take advantage of the "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 are 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, the 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. Such forward looking statements include, without
limitation, statements regarding the seasonal effects upon the Company's
business, the effects of actual and pending legislation and regulation upon the
Company's business (including, but not limited to, the effects of FAIR, "fast-
track" and certain environmental laws), the anticipated expenditures for
environmental remediation, the consequences of an adverse judgment in certain
litigations (including the Terra litigation), the Company's ability to fully and
timely complete modifications and expansions with respect to certain of the
Company's manufacturing facilities, the redemption of the Company's various
equities, the adequacy of certain raw material reserves and supplies, the
Company's objectives with respect to certain strategic acquisitions and
dispositions and the Company's ability to resolve Year 2000 issues with respect
to its financial, informational and operational systems. Discussion containing
such forward-looking statements is found in the material set forth under
"Business and Properties" (including, without limitation, "Business Risk
Factors"), "Market for the Registrant's Common Equity and Related Stockholder
Matters", "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Notes to Consolidated Financial Statements", as well
as within this Prospectus generally.
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 amounts accrued.
9.The factors identified in "Risk Factors" included herein.
DETERMINATION OF INTEREST RATES
The Bond Interest Rate ("BIR"), with respect to any series of Subordinated
Debenture Bonds, is the interest rate per annum for such Series, as determined
by Farmland, from time to time, after giving consideration to the current rates
of interest established by various money markets, and Farmland's need for funds.
Any change in the BIR will not affect the BIR on any Subordinated Debenture
Bonds for which the full purchase price was received prior to the change.
The Certificate Interest Rate ("CIR") is the interest rate per annum for
Demand Loan Certificates as determined, from time to time, by Farmland. Any
change in the CIR will not affect the CIR on any outstanding Demand Loan
Certificate. Except as hereinafter provided, each Demand Loan Certificate shall
earn interest at the CIR in effect on the date of issuance of such Demand Loan
Certificate for a period of six (6) months only; provided, however, that if
during such six (6) month period the CIR for Demand Loan Certificates is
increased to a rate higher than that currently in effect for a Demand Loan
Certificate, then each such Demand Loan Certificate shall earn interest at the
increased rate from the effective date of the increase to the end of such Demand
Loan Certificate's then current six (6) month period. Six (6) months from the
date of issuance of each Demand Loan Certificate and each six (6) month
anniversary date thereafter, such Demand Loan Certificate shall, if not
redeemed, earn interest at the CIR for Demand Loan Certificates in effect on
such anniversary date, but only for a six (6) month period from such anniversary
date, subject to the escalation provisions previously set forth. A decrease in
the CIR for Demand Loan Certificates will have no effect on the CIR of any
Demand Loan Certificate issued prior to the decrease unless such decreased rate
is in effect on the first day of the next subsequent six (6) month period of
such outstanding Demand Loan Certificate.
On the date of this Prospectus, the BIR was ____%, ____%, ____% and ____%
on Ten-Year, Series A, Series B, Series E and Series F Bonds, respectively, and
____%, ____%, ____% and ____% on Five-Year, Series C, Series D, Series G and
Series H Bonds, respectively. On the date of this Prospectus, the CIR was ____%
on Demand Loan Certificates. Whenever the BIR or CIR is changed, this
Prospectus shall be amended to specify the interest rate in effect, after the
effective date of the change as specified in the amendment, on the Subordinated
Debenture Bonds and Demand Loan Certificates, as applicable, to be offered
pursuant to such Prospectus. Whenever the BIR or CIR is changed, each
respective Subordinated Debenture Bond and Demand Loan Certificate owner is
notified in writing of the change as specified in the amendment. Information
concerning the BIR and CIR can be obtained from the Prospectus or from Farmland
Securities Company, Post Office Box 7305, Kansas City, Missouri 64116 (telephone
1-800-821-8000, extension 6360). See "Description of Debt Securities - Demand
Loan Certificates - Interest" and the subcaption "Bond Interest Rates" within
the description of each type of Subordinated Debenture Bonds included herein.
USE OF PROCEEDS
The offering is made on a best efforts basis with no established minimum
amount of Subordinated Debenture Bonds and Demand Loan Certificates that must be
sold. No assurance can be provided as to the amount of net proceeds the Company
may receive as a result of this offering. Assuming that all of the Subordinated
Debenture Bonds and Demand Loan Certificates offered for cash hereby are sold,
net proceeds to the Company will be approximately $297.6 million after deducting
estimated commissions and expenses. To the extent Subordinated Debenture Bonds
are exchanged pursuant to the exchange offer, net cash proceeds will be reduced
by the face amount of Subordinated Debenture Bonds exchanged, up to $80.0
million. Any proceeds to the Company from this offering may be used: 1) to fund
portions of the Company's capital expenditures and investments in ventures which
are estimated to be approximately $202.2 million through the two-year period
ending August 31, 1999; 2) to refinance approximately $41.5 million of
subordinated debt with interest rates of 7.25% to 10.5% which mature at various
times prior to August 31, 1999; or 3) to redeem subordinated debt prior to
maturity at owners' requests, as permitted by the respective trust indenture
pursuant to which such subordinated debt was issued. To the extent that
proceeds from sales of the securities offered hereby are less than amounts
required for these purposes, such insufficient amounts may be obtained from
operations, from bank or other borrowings or from other financing arrangements.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition, Liquidity and Capital Resources", included
herein, "- Capital Expenditures and Investments in Ventures", included herein,
and the subcaptions "Redemption by Farmland" and "Redemption by the Holder"
within the description of each type of Subordinated Debenture Bond included
herein.
PLAN OF DISTRIBUTION
The securities offered by this Prospectus for cash and for exchange are
offered by FSC and AHI, and may be offered by other broker-dealers selected by
Farmland. The offering is on a best efforts basis. There is no requirement
that any minimum amount of securities offered hereby must be sold. The offering
shall be for an indeterminate period of time not expected to be in excess of two
years.
FSC, located at 3315 North Oak Trafficway, Kansas City, Missouri, is a
wholly-owned subsidiary of Farmland organized for the sole purpose of offering
Farmland's Demand Loan Certificates and subordinated debt for sale to the
general public and/or for exchange and to solicit offers therefor which are
subject to acceptance by Farmland. FSC is a member of the NASD and the
Securities Investor Protection Corporation (SIPC). FSC's involvement in this
offering is in compliance with terms of a partial exemption from requirements of
Schedule E of the NASD Bylaws; no persons, other than persons associated with
Farmland or FSC, participated in determining the price and other terms of the
securities offered hereby. FSC is under no firm commitment or obligation to
solicit offers for any specified amount of such debt securities. FSC's
commitment is to use its best efforts to solicit such orders. Farmland will pay
commissions to FSC not to exceed 4% of the aggregate price of the Offered Debt
Securities. Farmland will pay all expenses and liabilities incurred by FSC,
limited to an amount not to exceed 3% of the aggregate sales price of the
Offered Debt Securities. FSC is a registered broker-dealer under the Securities
Exchange Act of 1934, as amended, but has only limited authority to engage in
the offer and sale of securities issued by Farmland. Farmland will indemnify
FSC for certain liabilities under the Securities Act of 1933, as amended (the
"Securities Act").
FSC, AHI and other brokers-dealers, if any, selected by Farmland have or
will agree to deliver a current prospectus relating to the Offered Debt
Securities to prospective investors at the time of or prior to any offering of
such certificates for sale or for exchange.
The Company has engaged AHI, located at 110 E. Iron, P. O. Box 1303,
Salina, Kansas 67402, to offer Farmland's Offered Debt Securities to the general
public and for exchange and to solicit offers therefore which are subject to
acceptance by Farmland. Farmland may engage other broker-dealers that are
qualified to offer and sell Offered Debt Securities in a particular state and
that are members of the National Association of Securities Dealers, Inc. AHI
and each broker-dealer participating in this offering shall be held responsible
for complying with all statutes, rules and regulations of all jurisdictions in
which each participating broker-dealer offers the Offered Debt Securities for
sale. Farmland will pay to AHI and may pay to other selected broker-dealers for
their services a sales commission of not more than 4% of the face amount of
Subordinated Debenture Bonds and not more than 1/2 of 1% of the face amount of
Demand Loan Certificates which AHI and other selected broker-dealers sell. In
addition, Farmland will pay to AHI and may pay to other selected broker-dealers
an unallocated due diligence and marketing fee of not more than 1/2 of 1% of the
face amount of the Subordinated Debt Securities the broker-dealers sell.
Farmland may indemnify AHI and other selected broker-dealers for certain
liabilities arising out of violations by Farmland of blue sky laws, or the
Securities Act.
Interstate/Johnson Lane Corporation, a member of the NASD, participated as
a qualified independent underwriter in the "due diligence" review with respect
to the preparation of this Prospectus and received approximately $45,000 for
such participation. As discussed above, Interstate/Johnson Lane Corporation
will not be participating in the pricing of this issue.
EXCHANGE OFFER
Farmland is offering:
1) to the owners of its Subordinated Capital Investment Certificates, its
Ten-Year Bonds and its Five-Year Bonds the right to exchange such
certificates for an equivalent principal amount of any Monthly Income
Bond ($5,000 minimum) which, at the time of the exchange, is being
offered by this Prospectus. The option to exchange a Subordinated
Capital Investment Certificate, Ten-Year Bond or Five-Year Bond into a
Monthly Income Bond is not affected by the period of time the
Subordinated Capital Investment Certificate, Ten-Year Bond or Five-Year
Bond has been held. Farmland will not redeem Monthly Income Bonds prior
to maturity except upon death of the owner.
2) to the owners of its Subordinated Capital Investment Certificates which
have been held until eligible for redemption prior to maturity at the
option of the owner, the right to exchange such certificates for an
equivalent principal amount of any Ten-Year Bond or Five-Year Bond
which, at the time of the exchange, is being offered by this Prospectus.
This option to exchange into Ten-Year Bonds or Five-Year Bonds is
affected by the period of time the outstanding certificate has been
held. The required holding period is as follows:
If, at the time of Then, to be eligible
issuance the maturity for exchange, the
period of the certificate must have
certificate held was: been held for:
(In Years) (In Years)
5 2
10 3
15 5
20 5
An exchange will be made effective on the day certificates eligible for
exchange are received at Farmland's office in Kansas City, Missouri, provided,
however, that any certificates received within a fifteen (15) day period
preceding the record date of such certificates, the exchange shall be made
effective as of the first day following such record date. The exchange is
irrevocable after the effective date, but is revocable at any time prior to the
effective date. Notice of an owner's revocation may be in writing, delivered to
the address given below (see "How to Accept Exchange Offer" included herein) or
by telephone to (816) 459-6360. This exchange offer will expire at 12:00 P.M.
Eastern Standard Time on December 31, 1998, unless terminated prior to such
date. Owners of certificates or bonds eligible for exchange shall be notified
by letter from Farmland at least 30 days prior to the effective date of
Farmland's termination of this exchange offer.
Any interest accrued on a certificate or bond being exchanged will be paid
on the day the exchange is made effective.
The following discussion is a brief summary of the principal United States
Federal income tax consequences under current Federal income tax laws relating
to exchanges of certificates. This summary is the opinion of Robert B. Terry,
General Counsel for Farmland and is not intended to be exhaustive and, among
other things, does not describe state, local or foreign income and other tax
consequences. Generally, the exchange of certificates would be considered as
taxable exchanges. The basis for determining a taxable gain or loss on a
taxable exchange is for an owner to take into account as gain or loss the
difference between the fair market value of the security being received and his
basis (usually cost) in the security being exchanged. As a practical matter,
most owners should have no gain or loss since the securities were sold at 100%
of face amount and are being exchanged at 100% of face amount. However, since
it is possible for a prior owner to have sold his certificate to another person
at a cost which is more or less than he had paid for it, a subsequent owner
could have a different cost than the original issued cost. Any gain or loss
recognized on a taxable exchange would be taken into account for purpose of
federal income taxes as a gain or loss from the sale or disposition of a capital
asset. Characterization of the gain or loss as short-term or long-term will
depend on the length of time the certificate had been held by the owner as of
the date of the exchange. Owners of these certificates should seek advice from
their tax advisor before accepting the exchange offer.
HOW TO ACCEPT EXCHANGE OFFER
The exchange offer may be accepted by delivering any of the Subordinated
Capital Investment Certificates, which are eligible for exchange (see "Exchange
Offer" immediately above), to Farmland Securities Company, P.O. Box 7305, Kansas
City, Missouri 64116 or American Heartland Investments, Inc. P. O. Box 1303,
Salina, Kansas, 67402. The certificates should be assigned to Farmland in the
transfer section (on the reverse side of the certificate) and endorsed by all of
the persons whose names appear on the face of the certificate. Should any
registered owner be incapable of endorsing the certificate, additional
documentation may be necessary. Call (816) 459-6360 or write to the above
address for specific information. Should registered owners wish to have the new
certificate issued to persons other than as shown on the certificate being
surrendered in the exchange, the endorsement signatures must be guaranteed by a
commercial bank or trust company officer or a NASD member firm representative.
The exchange offer must be accompanied by a completed "Order and Receipt for
Investment" form supplied by FSC or AHI. The U.S. Treasury Form W-9, Backup
Withholding Certificate, included on the order form must be completed and signed
by the principal owner of the new certificate.
HOW TO TRANSFER OWNERSHIP
To transfer ownership of the Offered Debt Securities, the certificates
should be assigned to the new owner(s) in the transfer section on the reverse
side of the certificate and endorsed by all persons named on the face of the
certificate. Should any registered owner be incapable of endorsing the
certificate, additional documentation may be necessary. Call (816) 459-6360 or
write Farmland Industries, Inc., P.O. Box 7305, Kansas City, Mo. 64116, Dept. 79
for specific information. All transfer requests require that endorsement
signatures be guaranteed by a commercial bank or trust company officer or an
NASD member firm representative. Requests for transfer should be accompanied by
a completed transfer form supplied by Farmland. The U.S. Treasury Form W-9
Backup Withholding Certificate included with or on the transfer form must be
completed and signed by the new principal owner.
The transfer will be made effective on the day certificates to be
transferred are received at Farmland's office in Kansas City, Missouri,
provided, however, that for any certificates received within a fifteen (15) day
period preceding the record date of such certificates, the transfer shall be
made effective as of the first day following such record date.
DESCRIPTION OF DEBT SECURITIES
Under this Prospectus, Farmland is offering the following Offered Debt
Securities, namely:
Demand Loan Certificates
Subordinated Debenture Bonds issuable in series, as follows:
Minimum
Series Initial Investment
Ten-Year, Series A.........................$ 1,000
Ten-Year, Series B ........................$ 100,000
Five-Year, Series C........................$ 1,000
Five-Year, Series D........................$ 100,000
Ten-Year Monthly Income, Series E..........$ 5,000
Ten-Year Monthly Income, Series F..........$ 100,000
Five-Year Monthly Income, Series G.........$ 5,000
Five-Year Monthly Income, Series H.........$ 100,000
The Demand Loan Certificates are herein called the "Demand Loan
Certificates" and various series of Subordinated Debenture Bonds referred to
above are herein collectively called the "Subordinated Debenture Bonds".
The Demand Loan Certificates will rank equally with all other unsecured
and unsubordinated debt of Farmland and will be issued under the Senior
Indenture. The Demand Loan Certificates are direct obligations of Farmland. As
described below, the Senior Indenture permits the issuance of unsubordinated
debt in series, of which the Demand Loan Certificates are a series.
Each series of Subordinated Debenture Bonds will be subordinate and junior
in right of payment to all Senior Indebtedness (as defined below) of Farmland
and will be issued under the Subordinated Indenture. As described below, the
Subordinated Indenture permits the issuance of subordinated debt in series, of
which each series of Subordinated Debenture Bonds offered hereby is a series.
The unsubordinated debt issuable under the Senior Indenture and the
subordinated debt issuable under the Subordinated Indenture are referred to
collectively as the "Debt Securities".
Each series of Debt Securities issued pursuant to an Indenture will be
issued pursuant to an amendment or supplemental indenture or pursuant to an
Officers' Certificate, in each case delivered pursuant to resolutions of the
Board of Directors of Farmland and in accordance with the provisions of Section
3.01 of the applicable Indenture. The terms of the Debt Securities include
those stated in the applicable Indenture and those made part of the applicable
Indenture by reference to the Trust Indenture Act of 1939, as amended (the
"TIA"). The Debt Securities are subject to all such terms and the Holders of
Debt Securities are referred to the Indentures and the TIA for a statement of
such terms.
The following summaries of certain provisions of each Indenture, and the
Debt Securities and the Offered Debt Securities are not complete and are
qualified in their entirety by reference to the provisions of the applicable
Indenture, including the definitions of capitalized terms used herein without
definition. Numerical references in parentheses are to sections in the
applicable Indenture and unless otherwise indicated capitalized terms have the
meanings given them in the Indentures.
GENERAL
Neither Indenture limits the amount of Debt Securities, debentures, notes
or other evidences of indebtedness that may be issued by Farmland or any of its
subsidiaries. Furthermore, neither Indenture affords Holders of Debt Securities
protection in the event of a highly leveraged transaction, restructuring, change
in control, merger or similar transaction involving the Company that may
adversely affect Holders of Debt Securities.
Each Indenture provides that Debt Securities may be issued from time to
time in one or more series. Under each Indenture, Farmland has the authority to
establish as to each series (i) the title of the Debt Securities of the series;
(ii) any limit upon the aggregate principal amount of the Debt Securities of the
series; (iii) the date or dates on which the principal of or premium, if any, on
the Debt Securities of the series shall be payable or the methods for the
determination thereof; (iv) the rate or rates at which such Debt Securities will
bear interest, if any, or the method or methods of calculating such rate or
rates of interest, the date or dates from which such interest shall accrue or
the method or methods by which such date or dates shall be determined, the
interest payment dates on which any such interest shall be payable, the right,
if any, of Farmland to defer or extend an interest payment date, the record
date, if any, for the interest payable on any Interest Payment Date, and the
basis upon which interest shall be calculated if other than that of a 365-day
year; (v) the place or places where such Debt Securities shall be payable or
surrendered for registration of transfer or exchange; (vi) the period or periods
within which, the price or prices at which, and the other terms and conditions
upon which, such Debt Securities may be redeemed, in whole or in part, at the
option of Farmland; (vii) the obligation, if any, of Farmland to redeem or
purchase such Debt Securities pursuant to any sinking fund or analogous
provisions or upon the happening of a specified event or at the option of a
Holder thereof and the period or periods within which, the price or prices at
which and the other terms and conditions upon which, such Debt Securities shall
be redeemed or purchased, in whole or in part, pursuant to such obligation;
(viii) the denominations in which such Debt Securities shall be issuable; (ix)
if other than the entire principal amount thereof, the portion of the principal
amount of Debt Securities of the series which shall be payable upon declaration
of acceleration thereof upon an event of default; (x) provisions, if any,
granting special rights to the holders of Debt Securities of the series upon the
occurrence of specified events; (xi) any deletions from, modifications of or
additions to the events of default specified in the applicable Indenture or
covenants of Farmland specified in the applicable Indenture; (xii) the forms of
such Debt Securities and interest coupons, if any, of the series; (xiii) the
applicability, if any, to the Debt Securities and interest coupons, if any, of
the series of defeasance provisions; (xiv) if other than Farmland, the identity
of the Registrar and any Paying Agent; (xv) any restrictions on the
registration, transfer or exchange of such Debt Securities; and (xvi) any other
terms of the series including any terms which may be required by or advisable
under United States laws or regulations or advisable (as determined by Farmland)
in connection with the marketing of Debt Securities of the series. (Section
3.01)
Unless otherwise indicated as to a series of Debt Securities, the Debt
Securities will be issued only in fully registered form without coupons and Debt
Securities denominated in U.S. dollars will be issued in denominations of not
less than $1000. (Section 3.02)
Unless otherwise indicated as to a series of Debt Securities, the principal
of, and any premium or interest on, any series of Debt Securities will be
payable at the principal executive offices of Farmland in Kansas City, Missouri,
provided that, at the option of Farmland, payment of interest may be made by
check mailed to the address of the Holder entitled thereto as it appears in the
related security register or by electronic funds transfer or similar means to an
account maintained by the Holder entitled thereto as it appears in the related
security register (Sections 3.05, 3.07, 6.02). The office address of Farmland is
3315 North Oak Trafficway, Kansas City, Missouri, 64116-0005).
Farmland will issue the Offered Debt Securities on the day (the "Date of
Original Issuance") on which it receives (or is deemed to receive) and has
accepted payment of the full purchase price. Any payments (other than by
electronic funds transfer or similar means) received after noon shall be deemed
received by Farmland on the next business day. Electronic funds transfers are
effective when funds are received. No Offered Debt Security shall be valid or
obligatory for any purpose unless there appears on such Offered Debt Security a
certificate of authentication substantially in the form provided for in the
applicable Indenture duly executed by the applicable Trustee by manual signature
of one of its authorized officers. (Sections 2.02, 3.03)
DEMAND LOAN CERTIFICATES
INTEREST
If purchased and held by a Farmland member cooperative for a one (1) month
period or by any other purchaser for a six (6) month period immediately
following the Date of Original Issuance of the Demand Loan Certificates, the
principal amount of the Demand Loan Certificates will bear interest at the
interest rate as determined by Farmland, from time to time (the "Certificate
Interest Rate"). Except as hereinafter provided, each Demand Loan Certificate
shall earn interest at the Certificate Interest Rate in effect on the Date of
Original Issuance of such Demand Loan Certificate for a period of six (6) months
only; provided, however, that if during such six (6) month period the
Certificate Interest Rate is increased to a rate higher than that currently in
effect for the Demand Loan Certificates, then each such Demand Loan Certificate
shall earn interest at the increased rate from the effective date of the
increase to the end of such Demand Loan Certificate's then current six (6) month
period. Commencing six (6) months from the Date of Original Issuance of each
Demand Loan Certificate and on each six (6) month anniversary date thereafter,
such Demand Loan Certificate shall, if not redeemed, earn interest at the
Certificate Interest Rate in effect on such anniversary date, but only for a six
(6) month period from such anniversary date, subject to the escalation
provisions previously set forth. A decrease in the Certificate Interest Rate
will have no effect on any Demand Loan Certificate issued prior to the decrease
until the first day of the next subsequent six (6) month period of such
outstanding Demand Loan Certificate. Holders of Demand Loan Certificates are
notified of the effective date of any change of the Certificate Interest Rate
which affects the Demand Loan Certificates held. If redeemed by a Farmland
member cooperative during a one (1) month period or by any other purchaser
during a six (6) month period immediately following the Date of Original
Issuance, the Demand Loan Certificates shall bear interest from Date of Original
Issuance to date of redemption at a rate 2% below the Certificate Interest Rate
(the "Demand Rate"). Thus, if the Certificate Interest Rate is 6% per year, the
Demand Rate would be 4% per year. Interest on the principal amount of any
Demand Loan Certificates held longer than six (6) months will be computed at the
effective Certificate Interest Rate and is payable in one of the following ways
at the option of the Holder, made at the time of purchase and irrevocable as to
the purchaser: (i) six (6) months after the Date of Original Issuance and at
the end of each and every six (6) month period thereafter until the Demand Loan
Certificate is surrendered for redemption, or (ii) only at the date of
redemption compounded semi-annually at the effective Certificate Interest Rate.
Any interest not punctually paid or duly provided for ("Defaulted
Interest") on any Demand Loan Certificate will not be payable to the Holder
thereof on the applicable payment date but instead may either be paid to the
person in whose name such Demand Loan Certificate is registered at the close of
business on a special record date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice of which shall be given to the Holder of such
Demand Loan Certificate not less than ten (10) days prior to such special record
date, or may be paid at any time in any other lawful manner, all as more
completely provided in the Senior Indenture. (Section 3.07)
REDEMPTION
The Demand Loan Certificates cannot be called for redemption by Farmland at
any time prior to maturity.
Farmland will redeem the Demand Loan Certificates at any time upon
written request of the Holder. No partial redemptions will be permitted. If
the Demand Loan Certificate is surrendered for redemption by a Farmland member
cooperative during a one (1) month period or by any other Holder during a six
(6) month period immediately following the Date of Original Issuance, interest
computed at the applicable Demand Rate from Date of Original Issuance to date
of redemption will be paid at the time of redemption of the Demand Loan
Certificate. If the Demand Loan Certificate is held for a period longer
than six (6) months from Date of Original Issuance, interest from the last
previous date on which interest was paid to the date of redemption computed at
the applicable Certificate Interest Rate will be paid upon redemption. Any
interest held for compounding by Farmland in accordance with an interest option
made by the purchaser will be paid upon redemption of the Demand Loan
Certificate.
SUBORDINATED DEBENTURE BONDS
TEN-YEAR, SERIES A AND B
MATURITY DATE
The maturity date for Subordinated Debenture Bonds, Ten-Year, Series A and
Ten- Year, Series B (hereinafter referred to individually as "Series A Bonds"
and "Series B Bonds" and collectively as the "Ten-Year Bonds") is ten (10) years
from the Date of Original Issuance. The payment of the principal will be made
at maturity upon presentation and surrender of the Subordinated Debenture Bonds,
properly endorsed.
SERIES A BONDS
The Bond Interest Rate for any Series A Bonds issued will be the rate per
year stated on the face of the bond. The Series A Bonds (which require a minimum
initial investment of $1000) will bear interest at the applicable Bond Interest
Rate as in effect on the Date of Original Issuance, but any change of the Bond
Interest Rate for later issued Series A Bonds will not affect the Bond Interest
Rate on any Series A Bond for which the full purchase price was received prior
to the change.
SERIES B BONDS
The Bond Interest Rate for any Series B Bonds issued will be the rate per
year stated on the face of the bond. The Series B Bonds (which require a
minimum initial investment of $100,000) will bear interest at the applicable
Bond Interest Rate as in effect on the Date of Original Issuance. Farmland
anticipates that the Bond Interest Rate for Series B Bonds on a particular day
may exceed by up to 1/4 of 1% per year the Bond Interest Rate on such day for
Series A Bond. Any change of the Bond Interest Rate for later issued Series B
Bonds will not affect the Bond Interest Rate on any Series B Bonds for which the
full purchase price was received prior to the change.
INTEREST PAYMENTS
Interest is payable on the principal of the Ten-Year Bonds from the Date of
Original Issuance at the election of the purchaser, made at the time of
purchase, in one of the following ways: (i) semiannually on January 1 and July
1, to Holders of record on the last preceding December 15 and June 15,
respectively (or, if originally issued between the record date and the payment
date, to the Holder on the Date of Original Issuance); or (ii) at maturity or at
the date of redemption if redeemed prior to maturity, compounded semiannually,
on December 31 and June 30 at the applicable Bond Interest Rate. Any election
to receive payment of the interest semiannually is irrevocable. The election to
receive payment of the interest at maturity, or at the date of redemption if
redeemed prior to maturity, will be terminated upon written request of the
Holder, such termination to be effective as of the last previous interest
compounding date. Such termination is irrevocable and, at the same time, is an
election to receive payment of the interest semiannually thereafter. Any
interest attributable to periods starting with the Date of Original Issuance and
ending with the effective date of the written request of the Holder to terminate
the election to receive payment of the interest at maturity or at the date of
redemption if redeemed prior to maturity will be paid upon receipt of the
written request to terminate the election. Farmland shall have the right at any
time by notice to the Holder to terminate any obligation to continue retaining
the interest of any Holder. Such termination shall be effective as of the
opening of business on the day following the first interest compounding date
after such notice is mailed to the Holder, and the Holder will be paid all the
interest accrued to the Holder's account on the effective date.
Any Defaulted Interest on any Ten-Year Bond will not be payable to the
Holder thereof on the applicable record date but instead may either be paid to
the person in whose name such Ten-Year Bond is registered at the close of
business on a special record date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice of which shall be given to the Holder of such
Ten-Year Bond not less than ten (10) days prior to such special record date, or
may be paid at any time in any other lawful manner, all as more completely
provided in the Subordinated Indenture. (Section 3.07)
REDEMPTION BY FARMLAND
The Ten-Year Bonds may be redeemed, after two (2) years from the Date of
Original Issuance, at the option of Farmland at any time prior to maturity, on
at least fifteen (15) days written notice, at face value plus accrued interest
to the date of redemption. The Subordinated Indenture permits Farmland to
select in any manner at its discretion the bonds to be redeemed. (Section 4.01)
REDEMPTION BY THE HOLDER
Farmland will redeem limited amounts of the Ten-Year, Series A Bonds and
Series B Bonds prior to maturity at the option of the Holder as described under
the caption "Limited Redemption Prior to Maturity of Subordinated Debenture
Bonds" on page 70.
FIVE-YEAR, SERIES C AND D
MATURITY DATE
The maturity date for Subordinated Debenture Bonds, Five-Year, Series C and
Five-Year, Series D (hereinafter referred to individually as "Series C Bonds"
and "Series D Bonds" and collectively as the "Five-Year Bonds") is five (5)
years from the Date of Original Issuance. The payment of the principal will be
made at maturity upon presentation and surrender of the Subordinated Debenture
Bonds, properly endorsed.
SERIES C BONDS
The Bond Interest Rate for any Series C Bonds issued will be the rate per
year stated on the face of the bond. The Series C Bonds (which require a minimum
initial investment of $1000) will bear interest at the applicable Bond Interest
Rate as in effect on the Date of Original Issuance, but any change of the Bond
Interest Rate for later issued Series C Bonds will not affect the Bond Interest
Rate on any Series C Bond for which the full purchase price was received prior
to the change.
SERIES D BONDS
The Bond Interest Rate for any Series D Bonds issued will be the rate per
year stated on the face of the bond. The Series D Bonds (which require a
minimum initial investment of $100,000) will bear interest at the applicable
Bond Interest Rate as in effect on the Date of Original Issuance. Farmland
anticipates that the Bond Interest Rate for Series D Bonds on a particular day
may exceed by up to 1/4 of 1% per year the Bond Interest Rate on such day for
any Series C Bond. Any change of the Bond Interest Rate for later issued Series
D Bonds will not affect the Bond Interest Rate on any Series D Bonds for which
the full purchase price was received prior to the change.
INTEREST PAYMENTS
Interest is payable on the principal of the Five-Year Bonds from the Date
of Original Issuance at the election of the purchaser, made at the time of
purchase, in one of the following ways: (i) semiannually on January 1 and July
1, to Holders of record on the last preceding December 15 and June 15,
respectively (or, if originally issued between the record date and the payment
date, to the Holder on the Date of Original Issuance); or (ii) at maturity or at
the date of redemption if redeemed prior to maturity, compounded semiannually,
on December 31 and June 30 at the applicable Bond Interest Rate. Any election
to receive payment of the interest semiannually is irrevocable. The election to
receive payment of the interest at maturity, or at the date of redemption if
redeemed prior to maturity, will be terminated upon written request of the
Holder, such termination to be effective as of the last previous interest
compounding date. Such termination is irrevocable and, at the same time, is an
election to receive payment of the interest semiannually thereafter. Any
interest attributable to periods starting with the Date of Original Issuance and
ending with the effective date of the written request of the Holder to terminate
the election to receive payment of the interest at maturity or at the date of
redemption if redeemed prior to maturity will be paid upon receipt of the
written request to terminate the election. Farmland shall have the right at any
time by notice to the Holder to terminate any obligation to continue retaining
the interest of any Holder. Such termination shall be effective as of the
opening of business on the day following the first interest compounding date
after such notice is mailed to the Holder and the Holder will be paid all the
interest accrued to the Holder's account on the effective date.
Any Defaulted Interest on any Five-Year Bonds will not be payable to the
Holder thereof on the applicable record date but instead may either be paid to
the person in whose name such Five-Year Bond is registered at the close of
business on a special record date for the payment of such Defaulted Interest to
be fixed by the Trustee, notice of which shall be given to the Holder of such
Five-Year Bond not less than ten (10) days prior to such special record date, or
may be paid at any time in any other lawful manner, all as more completely
provided in the Subordinated Indenture. (Section 3.07)
REDEMPTION BY FARMLAND
The Five-Year Bonds may be redeemed, after two (2) years from the Date of
Original Issuance, at the option of Farmland at any time prior to maturity, on
at least fifteen (15) days written notice, at face value plus accrued interest
to the date of redemption only. The Subordinated Indenture permits Farmland to
select in any manner at its discretion the bonds to be redeemed. (Section 4.01)
REDEMPTION BY THE HOLDER
Farmland will redeem limited amounts of the Five-Year Bonds prior to
maturity at the option of the Holder as described under the caption "Limited
Redemption Prior to Maturity of Subordinated Debenture Bonds".
LIMITED REDEMPTION PRIOR TO MATURITY OF SUBORDINATED DEBENTURE BONDS
(A) Farmland will redeem each month, on a first come, first serve basis (as
evidenced by the time stamped or otherwise recorded as received by
Farmland), a limited amount of Ten-Year, Series A Bond, Ten-Year,
Series B, Five-Year, Series C Bond and Five-Years, Series D Bond prior to
maturity. To be eligible for redemption, a Ten-Year, Series A Bond or
Ten-Year, Series B Bond must have been held three (3) years from Date of
Original Issuance and a Five-Year, Series C Bond or Five-Year, Series D
Bond must have been held two (2) years from Date of Original Issuance.
Subject to the carryover discussed below, the aggregate maximum amount
that Farmland will redeem of Ten-Year, Series A Bonds, Ten-Year, Series B
Bonds, Five-Year, Series C Bonds, Five-Year, Series D Bonds and other
subordinated debt that Farmland elects to include in this redemption
limit and which, in each case, meets the requirements for redemption
prior to maturity, will be the greater of:
(1) $1,500,000 or,
(2) 1/2% of 1% of the combined total principal balance outstanding of all
such Ten-Year Bonds, Five-Year Bonds and other bonds included in this
redemption limit as specified above.
If the amount determined pursuant to the foregoing formula in any month
(including any carryover from the prior month) exceeds the total amount
requested for redemption prior to maturity in that month, such excess is
carried over to the next month and added to the amount available for
redemption prior to maturity in that month provided, however, that any
excess will not be carried beyond the end of Farmland's fiscal year.
If any series eligible for early redemption under the above provision has a
total balance outstanding less than $5,000,000, at the end of any month,
then the subordinated debt securities of that series will be redeemed at
the request of the Holder without regard to the above dollar limitation.
B. In addition to the amounts made available for redemption prior to maturity
at the option of the Holder as described in (A) above, redemption will be
made in the case of death of a Holder of Ten-Year Bonds and Five-Year Bonds
upon written request and delivery of satisfactory proof of death and other
documentation and in accordance with applicable laws.
C. IRA Redemption.
In addition to the amounts made available for redemption prior to maturity
at the option of the Holder as described in (A) and (B) above, if Ten-Year
Bonds or Five-Year Bonds are held in an Individual Retirement Account (an
"IRA") established under Section 408 of the Internal Revenue Code of 1986,
as amended (the "IRC"), Farmland will redeem, upon written request, such
Ten-Year Bonds and Five-Year Bonds to the extent necessary to satisfy
mandatory withdrawals from the IRA which are required by the IRC. Such
redemption will be made only upon sufficient proof to Farmland that a
mandatory withdrawal from the IRA is required. In general, as presently in
effect, the IRC requires mandatory withdrawals from an IRA to commence on
April 1 following the calendar year in which the beneficiary reaches the
age of seventy and one-half (701/2) years.
D. The foregoing redemption privileges described in this section are subject
to the conditions, as provided under the subordination provisions
applicable to the Subordinated Debenture Bonds, that Farmland cannot
redeem any of the Subordinated Debenture Bonds if, at the time of or
immediately after giving effect to such redemption, there shall exist
under any indenture or loan or other agreement pursuant to which any
Senior Indebtedness is issued any default or any condition, event or
act, which with notice or lapse of time, or both, would constitute a
default.
Redemption prior to maturity will be made upon the surrender of eligible
Ten-Year Bonds and Five-Year Bonds properly endorsed and accompanied by written
requests for early redemption to Farmland. Redemption prior to maturity will
be made at the face value of the bonds plus accrued interest to the date of
redemption. Amounts available for redemption prior to maturity are not set
aside in a separate fund.
TEN-YEAR MONTHLY INCOME, SERIES E AND F
MATURITY DATE
The maturity date for Subordinated Debenture Bonds, Ten-Year Monthly
Income, Series E and Ten-Year Monthly Income, Series F (hereinafter shall be
referred to individually as the "Series E Bonds" and the "Series F Bonds" and
collectively as the "Ten-Year Monthly Income Bonds") is ten (10) years from the
Date of Original Issuance. The payment of the principal will be made at
maturity upon presentation and surrender of the Subordinated Debenture Bonds,
properly endorsed.
BOND INTEREST RATES
The interest rates for the Ten-Year Monthly Income Bonds will be determined
by Farmland, from time to time (each, a "Bond Interest Rate").
SERIES E BONDS
The Bond Interest Rate for any Series E Bonds issued will be the rate per
year stated on the face of the bond. The Series E Bonds (which require a
minimum initial investment of $5,000, and subsequent investments require a
minimum investment of $1,000) will bear interest at the applicable Bond Interest
Rate as in effect on the Date of Original Issuance, but any change of the Bond
Interest Rate for later issued Series E Bonds will not affect the Bond Interest
Rate on any Series E Bond for which the full purchase price was received prior
to the change.
SERIES F BONDS
The Bond Interest Rate for any Series F Bonds issued will be the rate per
year stated on the face of the bond. The Series F Bonds (which require a
minimum initial investment of $100,000) will bear interest at the applicable
Bond Interest Rate as in effect on the Date of Original Issuance. Farmland
anticipates that the Bond Interest Rate for Series F Bonds on a particular day
may exceed by up to 1/4 of 1% per year the Bond Interest Rate on such day for
any Series E Bond. Any change of the Bond Interest Rate for later issued Series
F Bonds will not affect the Bond Interest Rate on any Series F Bonds for which
the full purchase price was received prior to the change.
INTEREST PAYMENTS
Interest on the principal sum is payable monthly on the first day of each
month to Holders of record on the last day of the preceding month, commencing on
the first day of the month, following the month in which a Ten-Year Monthly
Income Bond is issued.
Any Defaulted Interest on any Ten-Year Monthly Income Bonds will not be
payable to the Holder thereof on the applicable record date but instead may
either be paid to the person in whose name such Ten-Year Monthly Income Bond is
registered at the close of business on a special record date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice of which shall be
given to the Holder of such Ten-Year Monthly Income Bond not less than ten (10)
days prior to such special record date, or may be paid at any time in any other
lawful manner, all as more completely provided in the Subordinated Indenture.
(Section 3.07)
REDEMPTION BY FARMLAND
The Ten-Year Monthly Income Bonds cannot be called for redemption by
Farmland any time prior to maturity.
REDEMPTION BY THE HOLDER
Except as provided in this paragraph, Farmland will not redeem the Ten-Year
Monthly Income Bonds prior to maturity upon the request of the Holder.
Redemptions will be made in the case of death of a Holder of Ten-Year Monthly
Income Bonds, upon written request and delivery of satisfactory proof of death
and other documentation and in accordance with applicable laws. Redemptions
prior to maturity will be made at the face value of the bonds plus accrued
interest to the date of redemption only. Amounts available for redemption prior
to maturity are not set aside in a separate fund. (Section 5.01)
IRA REDEMPTION
The Ten-Year Monthly Income Bonds will not, under any circumstances, be
sold to an IRA and an IRA trustee or custodian will not be permitted to be the
registered owner of a Ten-Year Monthly Income Bond. Therefore, unlike the Ten-
Year Bonds and the Five-Year Bonds, the Ten-Year Monthly Income Bonds do not
contain any special redemption rights for the benefit of an IRA or its trustee
or custodian.
FIVE-YEAR MONTHLY INCOME, SERIES G AND H
MATURITY DATE
The maturity date for Subordinated Debenture Bonds, Five-Year Monthly
Income, Series G and Five-Year Monthly Income, Series H (hereinafter shall be
referred to individually as the "Series G Bonds" and the "Series H Bonds" and
collectively as the "Five-Year Monthly Income Bonds") is five (5) years from the
Date of Original Issuance. The payment of the principal will be made at
maturity upon presentation and surrender of the Subordinated Debenture Bonds,
properly endorsed.
BOND INTEREST RATES
The interest rates for the Five-Year Monthly Income Bonds will be
determined by Farmland, from time to time (each, a "Bond Interest Rate").
SERIES G BONDS
The Bond Interest Rate for any Series G Bonds issued will be the rate per
year stated on the face of the bond. The Series G Bonds (which require a
minimum initial investment of $5,000, and subsequent investments require a
minimum investment of $1,000) will bear interest at the applicable Bond Interest
Rate as in effect on the Date of Original Issuance, but any change of the Bond
Interest Rate for later issued Series G Bonds will not affect the Bond Interest
Rate on any Series G Bond for which the full purchase price was received prior
to the change.
SERIES H BONDS
The Bond Interest Rate for any Series H Bonds issued will be the rate per
year stated on the face of the bond. The Series H Bonds (which require a
minimum initial investment of $100,000) will bear interest at the applicable
Bond Interest Rate as in effect on the Date of Original Issuance. Farmland
anticipates that the Bond Interest Rate for Series H Bonds on a particular day
may exceed by up to 1/4 of 1% per year the Bond Interest Rate on such day for
any Series G Bond. Any change of the Bond Interest Rate for later issued Series
H Bonds will not affect the Bond Interest Rate on any Series H Bonds for which
the full purchase price was received prior to the change.
INTEREST PAYMENTS
Interest on the principal sum is payable monthly on the first day of each
month to Holders of record on the last day of the preceding month, commencing on
the first day of the month, following the month in which a Ten-Year Monthly
Income Bond is issued.
Any Defaulted Interest on any Five-Year Monthly Income Bonds will not be
payable to the Holder thereof on the applicable record date but instead may
either be paid to the person in whose name such Five-Year Monthly Income Bond is
registered at the close of business on a special record date for the payment of
such Defaulted Interest to be fixed by the Trustee, notice of which shall be
given to the Holder of such Five-Year Monthly Income Bond not less than ten (10)
days prior to such special record date, or may be paid at any time in any other
lawful manner, all as more completely provided in the Subordinated Indenture.
(Section 3.07)
REDEMPTION BY FARMLAND
The Five-Year Monthly Income Bonds cannot be called for redemption by
Farmland any time prior to maturity.
REDEMPTION BY THE HOLDER
Except as provided in this paragraph, Farmland will not redeem the Five-
Year Monthly Income Bonds prior to maturity upon the request of the Holder.
Redemptions will be made in the case of death of a Holder of Five-Year Monthly
Income Bonds, upon written request and delivery of satisfactory proof of death
and other documentation and in accordance with applicable laws. Redemptions
prior to maturity will be made at the face value of the bonds plus accrued
interest to the date of redemption only. Amounts available for redemption prior
to maturity are not set aside in a separate fund. (Section 5.01)
IRA REDEMPTION
The Five-Year Monthly Income Bonds will not, under any circumstances, be
sold to an IRA and an IRA trustee or custodian will not be permitted to be the
registered owner of a Five-Year Monthly Income Bond. Therefore, unlike the Ten-
Year Bonds and the Five-Year Bonds, the Five-Year Monthly Income Bonds do not
contain any special redemption rights for the benefit of an IRA or its trustee
or custodian.
SUBORDINATION
The payment of the principal of (and premium, if any) and interest on
Subordinated Debenture Bonds is, to the extent set forth in the Subordinated
Indenture, subordinated in right of payment to the prior payment in full of all
Senior Indebtedness, whether now outstanding or hereafter incurred. "Senior
Indebtedness" is defined as (a) the principal of (and premium, if any) and
interest on indebtedness of Farmland (other than the indebtedness of Farmland
with respect to its Subordinated Capital Investment Certificates issued under
indentures dated July 29, 1974, and under an indenture dated November 29, 1976,
and under an indenture dated October 24, 1978, and under an indenture dated
October 24, 1979, and under an indenture dated November 8, 1984; and with
respect to Subordinated Monthly Income Capital Investment Certificates issued
under an indenture dated November 8, 1984, and under an indenture dated November
11, 1985; and with respect to its Subordinated Individual Retirement Account
Certificates issued under an indenture dated November 8, 1984) for money
borrowed from or guaranteed to banks, trust companies, insurance companies, or
pension trusts or evidenced by securities issued under the provisions of an
indenture or similar instrument between Farmland and a bank or trust company
other than indebtedness evidenced by instruments which expressly provide that
such indebtedness is not superior in right of payment to the Debt Securities
issued under the Subordinated Indenture, and (b) indebtedness created after the
date of the Subordinated Indenture, as to which the instrument creating or
evidencing the indebtedness provides that such indebtedness is superior in right
of payment to Debt Securities issued under the Subordinated Indenture. The
Demand Loan Certificates will be Senior Indebtedness under the foregoing
definition.
By reason of the subordination provisions of the Subordinated Indenture,
payment on account of principal of (or premium, if any) or interest on the
Subordinated Debenture Bonds shall be made, and no Subordinated Debenture Bonds
shall be purchased, either directly or indirectly, by Farmland or any of its
subsidiaries, unless full payment of amounts then due for principal of (and
premium, if any) and interest (including interest on overdue principal and
interest, to the extent permitted by law) on Senior Indebtedness has been made
or duly provided for. In addition, no payment on account of principal of (or
premium, if any) or interest on the Subordinated Debenture Bonds shall be made,
and no Subordinated Debenture Bonds shall be purchased, either directly or
indirectly, by Farmland or any of its subsidiaries, if, at the time of such
payment or purchase or immediately after giving effect thereto, there shall
exist under any Senior Indebtedness or any indenture or agreement pursuant to
which any Senior Indebtedness is issued any default or any condition, event or
act, which, with notice or lapse of time, or both, would constitute a default.
In the event that any Subordinated Debenture Bond is declared due and
payable before its stated maturity because of an Event of Default (as herein
defined) or upon any other acceleration of payment of the principal of the
Subordinated Debenture Bonds because of an Event of Default and upon any payment
or distribution of assets of Farmland, whether in cash, property or securities,
to creditors upon any dissolution, winding up, total or partial liquidation,
reorganization, assignment for the benefit of creditors, or other marshaling of
assets, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all principal of (and premium, if any) and
interest (including interest on overdue principal and interest) due or to become
due upon all Senior Indebtedness shall first be paid in full before the Holders
of Subordinated Debenture Bonds, or the Trustee under the Subordinated
Indenture, shall be entitled to retain any assets (other than shares of stock of
Farmland as reorganized or readjusted or securities of Farmland or any other
corporation provided for by a plan of reorganization or readjustment, the
payment of which is subordinated, at least to the same extent as the
Subordinated Debenture Bonds, to the payment of all Senior Indebtedness which at
the time may be outstanding, provided that the rights of the owners of the
Senior Indebtedness are not altered by such reorganization or readjustment) so
paid or distributed in respect of the Subordinated Debenture Bonds (for
principal, premium, if any, or interest); and upon any such dissolution, winding
up, liquidation, reorganization, assignment or marshaling, any payment or
distribution of assets of Farmland, whether in cash, property or securities
(other than as set forth above), to which the Holders of Subordinated Debenture
Bonds or the Trustee would otherwise be entitled, shall be paid by Farmland or
by any receiver, trustee in bankruptcy, liquidating trustee, agent or other
person making such payment or distribution, or by the Holders of Subordinated
Debenture Bonds or the Trustee under the Subordinated Indenture if received by
them or it, directly to the owners of Senior Indebtedness (pro rata to each such
owner on the basis of the respective amounts of Senior Indebtedness held by such
owner) or their representatives, to the extent necessary to pay all Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the owners of Senior Indebtedness, before any payment or
distribution is made to the Holders of Subordinated Debenture Bonds or to the
Trustee under the Subordinated Indenture. By reason of such subordination, in
the event of Farmland's insolvency, holders of Senior Indebtedness may receive
more, ratably, and Holders of Subordinated Debenture Bonds may receive less,
ratably, than other creditors of Farmland.
The Subordinated Indenture does not limit the amount of Senior Indebtedness
that may be issued by Farmland. As of August 31, 1997, (i) Farmland had
outstanding $480.8 million aggregate principal amount of Senior Indebtedness,
(ii) Farmland had outstanding $373.0 million aggregate principal amount of other
subordinated indebtedness and (iii) certain of Farmland's subsidiaries had
outstanding $132.7 million aggregate principal amount of indebtedness, of which
$109.2 million was nonrecourse to Farmland. See "Risk Factors -- Subordination
and Additional Debt."
EVENTS OF DEFAULT
Each Indenture provides that the following shall constitute "Events of
Default" with respect to any series of Debt Securities issued thereunder
(including, as applicable, the Demand Loan Certificates and the Subordinated
Debenture Bonds): (a) failure to pay principal of (or any installment of the
principal of) or any premium on any Debt Securities of that series, after such
principal shall have become due and payable; (b) failure to pay interest of any
Debt Securities of that series or any interest coupon appertaining thereto for a
period of 60 days after such interest shall have become due or payable; (c)
certain events of bankruptcy, insolvency or reorganization; (d) failure to
perform any other covenant or agreement contained in the Indenture or in any
supplemental indenture or in any Debt Security of that series for a period of 90
days following the mailing by the Trustee to Farmland of a written demand that
such failure be cured, such failure not having been cured in the meantime, and
(e) any other Event of Default established for the series as contemplated by
Section 3.01 with respect to Debt Securities of that series (the Offered Debt
Securities have no additional Events of Default of the type permitted by this
clause (e)). No Event of Default with respect to a particular series of Debt
Securities issued under either Indenture necessarily constitutes an Event of
Default with respect to any other series of Debt Securities issued thereunder.
(Section 8.01)
Each Indenture provides that if an Event of Default specified therein shall
occur and be continuing, either the Trustee or the Holders of at least 50% in
aggregate principal amount of the Debt Securities of such series then
outstanding may declare the principal amount of the Debt Securities of such
series and all interest accrued thereon to be due and payable immediately upon
written notice thereof to Farmland. Notwithstanding the foregoing, in the case
of an Event of Default arising from certain events of bankruptcy, insolvency or
reorganization with respect to Farmland, all Debt Securities will become due and
payable without further action or notice. (Section 8.03)
The agreements governing certain of Farmland's outstanding indebtedness
contain provisions to the effect that certain Events of Default under each
Indenture would constitute an event of default under such agreements which,
among other things, could cause an acceleration of the indebtedness thereunder.
Each Indenture provides that the Trustee shall within 90 days after the
occurrence of a default, not including periods of grace, give the Holders of the
affected series notice of all defaults known to it unless such defaults have
been cured; provided that, except in the case of default in the payment of
principal of or interest on any of the Debt Securities, the Trustee shall be
protected in withholding such notice if and so long as the Trustee determines
that the withholding of such notice is in the interests of such Holders.
(Section 8.02)
Each Indenture provides that the Trustee may sue Farmland in the case of
default in payment of the principal of any Debt Security when the same shall
become due and payable, or in the case of a default in the payment of the
interest on any Debt Security for any period of 60 days after such interest
shall become due and payable. (Section 8.04) Each Indenture further provides
that the right of any Holder to receive payment of the principal of and interest
on any Debt Security, or to institute a suit for the enforcement of such
payment, may not be impaired without the consent of such Holder, unless, with
regard to overdue interest payments, 75% in principal amount of the outstanding
Debt Securities of the affected series consent on behalf of the Holders of all
the Debt Securities of the affected series to the postponement of such overdue
interest payment. (Sections 8.05 and 8.06) Each Indenture also provides that
the Holders of not less than a majority in principal amount of the outstanding
Debt Securities of each series have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or to
consent, on behalf of the Holders of all Debt Securities of such series, to the
waiver of any past default and its consequences, except for a default in the
payment of principal or interest. (Section 8.06)
Each Indenture requires Farmland to file with the Trustee annually an
Officers' Certificate as to the absence of certain defaults under the terms of
the applicable Indenture. (Section 7.05)
CONCERNING THE TRUSTEES
UMB Bank, National Association, Kansas City, Missouri, is the Trustee under
the Senior Indenture and Commerce Bank of Kansas City, National Association,
Kansas City, Missouri, is the Trustee under the Subordinated Indenture. Each
Trustee is to perform only the duties as are specifically set forth in the
applicable Indenture and in the case of an Event of Default (which has not been
cured) to exercise such of the rights and powers vested in it by the applicable
Indenture, and to use the same degree of care and skill in their exercise, as a
prudent man would exercise or use under the circumstances in the conduct of his
own affairs.
Each Trustee, before taking any action under the applicable Indenture, may
require that satisfactory indemnity be furnished to it by the Holders of the
Securities or other persons for the reimbursement of all reasonable costs and
expenses to which it may be put and to protect it against all liability which it
may incur in or by reason of such action, except liability which is adjudicated
to have resulted from its negligence or willful misconduct.
CONSOLIDATION OR MERGER OF OR WITH FARMLAND
Nothing contained in either Indenture prevents any consolidation or merger
of Farmland with or into any other corporation or corporations (whether or not
affiliated with Farmland), or successive consolidation or mergers in which
Farmland or its successor or successors shall be a party or parties, or prevents
any sale or conveyance of the property of Farmland as an entirety or
substantially as an entirety to any other corporation (whether or not affiliated
with Farmland) authorized to acquire and operate the same; provided, however,
that upon any such consolidation, merger, sale or conveyance, the due and
punctual payment of the principal of and interest on all the Debt Securities
(including the Demand Loan Certificates and the Subordinated Debenture Bonds)
and the due and punctual performance and observance of all of the covenants and
conditions under each Indenture to be performed or observed by Farmland, shall
be expressly assumed, by supplemental indentures satisfactory in form to the
Trustees and executed and delivered to the Trustees by the corporation formed by
such consolidation, or into which Farmland shall have been merged, or by the
corporation which shall have acquired such property. In case of any such
consolidation, merger, sale or conveyance and upon any such assumption by the
successor corporation, such successor corporation shall succeed to and be
substituted for Farmland, as if it had been the signatory to the Indentures.
(Sections 13.01, 13.02)
MODIFICATION OF THE INDENTURE
Each Indenture contains provisions permitting Farmland and the Trustee to
enter into one or more supplemental indentures without the consent of the
Holders of any of the Debt Securities issued thereunder (including, as
applicable, the Demand Loan Certificates and the Subordinated Debenture Bonds)
in order (i) to evidence the succession of another corporation to Farmland and
the assumption by any such successor of the covenants and obligations of
Farmland therein and in the Debt Securities issued thereunder and any interest
coupons appertaining thereto; (ii) to add to the covenants of Farmland for the
benefit of the Holders of all or any series of Debt Securities issued thereunder
(and if such covenants are to be for the benefit of less than all series of Debt
Securities, stating that such covenants are expressly being included solely for
the benefit of such series) or to surrender any right or power conferred upon
Farmland; (iii) to add any additional Events of Default with respect to all or
any series of Debt Securities issued thereunder; (iv) to change or eliminate any
of the provisions of the Indentures in respect of one or more series of Debt
Securities issued thereunder, provided that any such change or elimination shall
become effective only when there are no Debt Securities outstanding of any
series created prior to the execution of such supplemental indenture which is
entitled to the benefit of such provision; (v) to establish the form or terms of
Debt Securities of any series issued thereunder; (vi) to evidence and provide
for the acceptance of appointment thereunder by a successor Trustee with respect
to the issued thereunder Debt Securities and to add to or change any of the
provisions of the Indenture as shall be necessary to provide for or facilitate
the administration of the trusts thereunder by more than one Trustee; (vii) to
cure any ambiguity, to correct or supplement any provision therein which may be
inconsistent with any other provision therein or to make any other provisions
with respect to matters or questions arising under the Indenture which shall not
be inconsistent with the provisions of such Indenture, provided such action
shall not adversely affect in any material respect the interests of the Holders
of any series issued thereunder; (viii) to modify, eliminate or add to the
provisions of the Indenture to such extent as shall be necessary to effect the
qualification of the Indenture under the Trust Indenture Act or under any
similar federal statute subsequently enacted, and to add to the Indenture such
other provisions as may be expressly required under the Trust Indenture Act; or
(ix) to enable the issuance of uncertificated Debt Securities and to permit
registration, transfer and exchange of Debt Securities by book-entry. (Section
12.01)
Each Indenture also contains provisions permitting Farmland and the
respective Trustee, with the consent of the Holders of a majority in aggregate
principal amount of the outstanding Debt Securities of each series issued
thereunder and affected by such supplemental indenture, to execute supplemental
indentures adding any provisions to or changing or eliminating any of the
provisions of such Indenture or any supplemental indenture or modifying the
rights of the Holders of such series, except that, without the consent of the
each Holder so affected, no such supplemental indenture may: (i) change the
stated maturity of the principal of, or premium, if any, on, or any installment
of principal of or premium, if any, or interest on, any such Debt Security, or
reduce the principal amount thereof or the rate of interest thereon or any
premium payable upon the redemption thereof, or change the manner in which the
amount of any principal thereof or premium, if any, or interest thereon is
determined, or impair the right to institute suit for the enforcement of any
such payment on or after the stated maturity thereof (or, in the case of
redemption, on or after the redemption date); (ii) reduce the percentage in
principal amount of the outstanding Debt Securities of any series, the consent
of whose Holders is required for any such supplemental indenture, or the consent
of whose Holders is required for any waiver (of compliance with certain
provisions of each Indenture or of certain defaults hereunder and their
consequences) provided for in such Indenture; (iii) change any obligation of
Farmland to maintain an office or agency in the places at which Debt Securities
may be presented for transfer, exchange, redemption and payment, and where
notices and demand to or upon Farmland may be served; or (iv) modify the
provisions that set forth the provisions in each Indenture that may not be
changed without the consent of the Holder of each Debt Security affected
thereby. The Subordinated Indenture also provides that certain provisions with
respect to the subordination of outstanding Debt Securities may not be modified
in a manner adverse to the Holders thereof without the consent of each Holder of
such outstanding Debt Securities affected thereby. (Section 12.02)
SATISFACTION, DISCHARGE AND DEFEASANCE
Each Indenture provides that it ceases to be of further effect with respect
to the Debt Securities of, or within, any series (except for certain specified
surviving obligations, including (i) certain obligations to register the
transfer or exchange of Debt Securities; and (ii) the rights of Holders of Debt
Securities to receive payments of principal thereof and interest thereon upon
the stated maturity thereof) upon the satisfaction of certain conditions,
including that (a) all Debt Securities of such series not theretofore delivered
to the Trustee for cancellation: (i) have become due and payable, (ii) will
become due and payable at their stated maturity within one year or (iii) are to
be called for redemption within one year and (b) Farmland, has irrevocably
deposited or caused to be deposited with the Trustee money in an amount
sufficient to pay and discharge the entire indebtedness on such Debt Securities
for principal, premium, if any, and interest, with respect thereto, to the date
of such deposit (in the case of Debt Securities which have become due and
payable) or to the stated maturity or redemption date, as the case may be.
(Section 14.01)
Each Indenture also contains defeasance provisions under which, unless
otherwise specified with respect to the Debt Securities of any series issued
thereunder, Farmland, at its option (i) will be discharged from any and all
obligations in respect of the Debt Securities of such series (except with regard
to certain specified surviving obligations, including (a) certain obligations to
register the transfer or exchange of Debt Securities and (b) the rights of
Holders of Debt Securities to receive payments of principal thereof and interest
thereon upon the stated maturity thereof) or (ii) will not be subject to certain
covenants and Events of Default, in each case, upon the compliance with certain
conditions, including the deposit with the relevant Trustee, in trust, or money
and/or Government Obligations which through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay (x) the principal of, premium, if any, and each
installment of interest on such Debt Securities at the maturity of such payments
and (y) any mandatory sinking fund payments applicable to such series on the day
on which such payments are due and payable in accordance with the terms of the
applicable Indenture and such Debt Securities. Such provisions do not apply to
the Demand Loan Certificates and the Subordinated Debenture Bonds. (Sections
14.03, 14.04, 14.05, 14.06)
THE COMPANY
Farmland is an agricultural farm supply and processing and marketing
cooperative headquartered in Kansas City, Missouri, that is primarily owned by
its members and operates on a cooperative basis. Founded in 1929, Farmland has
grown from revenues of $310,000 during its first year of operation to over $9.1
billion during 1997. Members are entitled to receive patronage refunds
distributed by Farmland from its member-sourced annual net earnings. Unless the
context otherwise requires, the term "member" herein means (i) any voting
member, (ii) any associate member, or (iii) any other person with which Farmland
is a party to a currently effective patronage refund agreement (a "patron").
See "Business - Patronage Refunds and Distribution of Annual Earnings" included
herein.
Farmland was formally incorporated in Kansas in 1931. Its principal
executive offices are at 3315 North Oak Trafficway, Kansas City, Missouri 64116
(telephone 816-459-6000).
MEMBERSHIP
Membership requirements are determined by Farmland's Articles of
Incorporation and the Board of Directors of Farmland (the ''Board of
Directors'').
VOTING MEMBERS
As of August 31, 1997, Farmland's requirements for voting membership were
as follows: the voting member must (1) own a minimum of $1,000 of Farmland's
common stock; and (2) actively transact business with Farmland on a patronage
basis (a member is deemed to be inactive when he or she does not transact
business with Farmland for two consecutive years); and (3) not be a significant
direct competitor with Farmland in any of Farmland's major business lines; and
(4) (a) be a natural person, a family farm corporation or a family farm
partnership that (i) derives a majority of earned income from a farming
operation (excluding any earned income of a spouse from other sources) and (ii)
is a vendor of livestock to Farmland and/or a contract producer of livestock for
Farmland; or (b) be an association of producers of agricultural products that
(i) is organized and conducts business on a cooperative basis; and (ii)
distributes its earnings based on patronage; and (iii) is controlled directly by
its voting producer members.
ASSOCIATE MEMBERS
To qualify for associate membership in Farmland, all of the following
conditions must be met: the associate member must (1) own a minimum of $1,000
of Farmland's associate member common stock; (2) not be a significant direct
competitor of Farmland in any business line in which the associate member
expects to conduct patronage business with Farmland; and (3)(a) be a natural
person, a family farm corporation, or a family farm partnership that (i) derives
a majority of earned income from a farming operation (excluding any earned
income of a spouse from other sources) and (ii) is a vendor of livestock to
Farmland and/or a contract producer of livestock for Farmland; or (b) be an
association conducting business on a cooperative basis; or (c) be a business
entity owned 100%, directly or indirectly, by Farmland or its members or
associate members; or (d) be a hog-and/or cattle-feeding business entity that
agrees to provide Farmland with the information it needs to pass on patronage
refunds from Farmland's hog- and/or cattle-marketing operations to those
agricultural producer-members of Farmland who have conducted business with the
entity.
PATRONAGE AGREEMENTS WITH PATRONS
All existing patronage agreements with patrons will remain in force until
such time as either (a) the patron has been inactive with Farmland during any
single fiscal year or (b) the patronage agreement is canceled by mutual consent.
No new patronage agreements will be authorized without prior approval by the
Board of Directors.
As of August 31, 1997, Farmland's membership, associate membership and
patrons eligible for patronage refunds consisted of approximately 1,400
cooperative associations of farmers and ranchers and 13,000 pork or beef
producers or associations of such producers. See ''Business - Patronage
Refunds and Distribution of Annual Earnings'' included herein.
In the event the Board of Directors of Farmland shall determine that any
holder of the common stock or associate member common stock of Farmland does not
meet the qualifications as may be established by the Board of Directors for
holders thereof, such person shall have no rights or privileges on account of
such common stock to vote for director(s) or to vote on the management or
affairs of Farmland, and Farmland shall have the right, at its option, (a) to
purchase such common stock at its book or par value, whichever is less, as
determined by the Board of Directors, or (b) in exchange for such common stock
or associate member common stock, to issue or record on the books of Farmland
capital credits in an equivalent amount. On the failure of any holder,
following any demand by Farmland therefor, to deliver the certificate or
certificates evidencing any common stock or associate member common stock,
Farmland may cancel the same on its books and issue or record on the books of
Farmland an equivalent amount of capital credits in lieu thereof.
BUSINESS
GENERAL
The Company is one of the largest cooperatives in the United States in
terms of revenues. In 1997, Farmland had export sales in excess of $1.3 billion
to customers in over 80 countries. Substantially all of the Company's foreign
sales are invoiced and collected in U.S. Dollars.
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal product
divisions: petroleum, crop production and feed. Principal products of the
petroleum division are refined fuels, propane, and by-products of petroleum
refining. Principal products of the crop production division are nitrogen-,
phosphate- and potash-based fertilizers ("plant nutrients") and, through the
Company's ownership in WILFARM, L.L.C. (a 50%-owned venture formed in 1995)
("WILFARM") and Omnium, LLC (a 50%-owned venture formed in 1997) ("Omnium"), a
complete line of insecticides, herbicides and mixed chemicals. Principal
products of the feed division include swine, dairy, pet, beef, poultry, mineral
and specialty feeds, feed ingredients and supplements, animal health products
and livestock services. Over 50% of the Company's farm supply products sold in
1997 was produced in plants owned by the Company or operated by the Company
under long-term lease arrangements. Approximately 60% of the Company's farm
supply products sold in 1997 was sold at wholesale to farm cooperative
associations which are members of Farmland. These farm cooperative associates
distribute products primarily to farmers and ranchers in states which comprise
the corn belt and the wheat belt and who utilize the products in the production
of farm crops and livestock.
On the output side, the Company's operations include the processing of
pork and beef, the marketing of fresh pork, processed pork and fresh beef and
the storage and marketing of grain. In 1997, approximately 63% of the hogs
processed, 20% of the beef cattle processed and 53% of the grain marketed by the
Company were supplied to the Company by its members. Substantially all of the
Company's pork and beef products sold in 1997 were processed in plants owned by
the Company.
No material part of the business of any segment of the Company is
dependent on a single customer or a few customers. Financial information about
the Company's industry segments is presented in Note 11 of the Notes to
Consolidated Financial Statements included herein.
The principal businesses of the Company are highly seasonal.
Historically, the majority of revenues related to crop production, beef and
grain occur during the spring, summer and fall, respectively. Revenues related
to crop production and beef are lowest during the winter, while sales related to
the grain and feed businesses tend to be lowest during the spring and summer,
respectively.
The Company competes for market share with numerous participants with
various levels of vertical integration, product and geographical
diversification, sizes and types of operations. In the petroleum industry,
competitors include major oil companies, independent refiners, other
cooperatives and product brokers. Competitors in the crop production industry
include global producers (some of which are cooperatives) of nitrogen- and
phosphate-based fertilizers and product importers and brokers. The feed, pork
and beef industries are comprised of a large variety of competitive
participants.
PETROLEUM
MARKETING
The principal products of this business segment are refined fuels, propane
and by-products of the petroleum refinery. Approximately 60% of petroleum
refined fuels products sold in 1997 resulted from transactions with Farmland's
members. The balance of the Company's refined fuels products sales were
principally to retailing chains in urban areas. Other petroleum products
include lube oil, grease and, through the Company's ownership in Triton Tire &
Battery, L.L.C. (a 33.3%-owned venture formed subsequent to year-end), car,
truck and tractor tires, batteries and accessories. Sales of petroleum products
as a percent of the Company's consolidated sales for 1995, 1996 and 1997 were
12%, 11% and 15%, respectively.
Competitive methods in the petroleum industry include service, product
quality and prices. However, in refined fuel markets, price competition is most
dominant. Many participants in the industry engage in one or more of the
industry's processes (oil production, transportation, refining, wholesale
distribution and retailing). The Company participates in the industry primarily
as a mid-continent refiner and as a wholesale distributor of petroleum products.
PRODUCTION
The Company owns a refinery at Coffeyville, Kansas. Production volume for
1995, 1996 and 1997 was as follows:
Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per year
1995 1996 1997
(barrels)
Coffeyville, Kansas 66,367 64,276 81,397
The refinery produced approximately 26 million barrels of motor fuels,
heating fuels and other petroleum products in 1995, 25 million barrels in 1996,
and 32 million barrels in 1997. In July 1994, the Company acquired a mothballed
refinery in Texas for reassembly at the Coffeyville refinery site. Reassembly
was completed during the fourth quarter of 1996, enabling the Company to
increase production during 1997 compared with 1995 and 1996. Approximately 73%
of refined fuel sales in 1997 represented products produced at this location.
RAW MATERIALS
Farmland's refinery was designed to process high quality crude oil with
low sulfur content ("sweet crude"). Competition for sweet crude and declining
production in proximity of the refinery has increased the cost and decreased the
availability of raw material relative to such cost and availability for coastal
refineries with the capacity for processing and access to lower quality crude
with high sulfur content ("sour crude"). In 1997, the Company's
pipeline/trucking gathering system collected approximately 19% of its crude oil
supplies from producers near its refinery. Additional supplies are acquired
from diversified sources.
Modifications are being made to the Coffeyville refinery to increase its
capability to efficiently process crude oil streams containing greater amounts
of sour crude. In 1996, Farmland entered into various 20-year agreements with
Tessenderlo KERLEY Inc. ("TKI") whereby TKI would build two 50-ton per day
sulfur processing facilities at the refinery. The first plant was completed
during 1997. The second unit will be completed during 1998. Under the
agreements, Farmland will provide high sulfur gas streams, a refinery by-
product, to the sulfur processing plants.
Crude oil is purchased approximately 45 to 60 days in advance of the time
the related refined products are to be marketed. Certain of these advance crude
oil purchase transactions, as well as fixed price advance sales contracts of
refined products, are hedged utilizing petroleum futures contracts. See
"Business - Business Risk Factors - External Factors That May Affect the
Company" included herein.
During periods of volatile crude oil price changes, or in extremely short
crude supply conditions, the Company's petroleum operations could be affected to
a greater extent than petroleum operations of more vertically integrated
competitors with crude oil supplies available from owned producing reserves. In
past periods of relatively severe crude oil shortages, various governmental
regulations such as price controls and mandatory crude oil allocating programs
have been implemented. There can be no assurance as to what, if any, government
action would be taken if a crude oil shortage were to develop.
CROP PRODUCTION
MARKETING
The Company's crop production business includes plant nutrients and,
through the Company's ownership in WILFARM and Omnium, a complete line of crop
protection products such as insecticides, herbicides and mixed chemicals. Sales
of the crop production business segment as a percent of consolidated sales for
1995, 1996 and 1997 were 16%, 14% and 14%, respectively.
Competition in the plant nutrient industry is dominated by price
considerations. However, during the spring and fall plant nutrient application
seasons, farming activities intensify and delivery service capacity is a
significant competitive factor. The Company maintains a significant capital
investment in distribution assets and a seasonal investment in inventory to
enhance its manufacturing and distribution operations. The Company owns or
leases plant nutrient custom dry blending, liquid mixing, storage and
distribution facilities at over 150 locations throughout its trade territory to
conform delivery capacity more closely to customer demands for delivery
services.
The Company's sales of crop production products are primarily at wholesale
to local cooperative associations who are members of Farmland. In view of this
member/customer relationship, management believes that, with respect to such
customers, the Company has a slight competitive advantage.
Domestic competition, mainly from other regional cooperatives and
integrated multinational crop production companies, is intense due to customers'
sophisticated buying tendencies and production strategies that focus on costs
and service. Also, foreign competition exists from producers of crop production
products manufactured in countries with lower cost natural gas supplies (the
principal raw material in nitrogen-based fertilizer products). In certain
cases, foreign producers of fertilizer for export to the United States may be
subsidized by their respective governments.
PRODUCTION
The Company manufactures nitrogen-based crop production products. Based
on total production capacity, the Company is one of the largest producers of
anhydrous ammonia fertilizer in the United States.
The Company operates seven anhydrous ammonia production plants, three of
which are leased under long-term lease arrangements, at six locations in Kansas,
Iowa, Nebraska, Oklahoma and Louisiana. For fiscal years 1995, 1996 and 1997,
annual production approximated 2.7 million tons, 2.8 million tons and 2.8
million tons, respectively.
Natural gas is the major raw material used in production of synthetic
anhydrous ammonia. Synthetic anhydrous ammonia is the basic component of other
commercially produced nitrogen-based crop production products including urea,
urea ammonium nitrate ("UAN") solutions and other products. The Company
produces such value-added nitrogen-based products at five plants, two of which
are leased under long-term lease arrangements, at four locations in Kansas,
Oklahoma and Nebraska. Production of such value-added products from anhydrous
ammonia for 1995, 1996 and 1997 approximated 1.6 million tons, 1.5 million tons
and 1.6 million tons, respectively.
Ammonia also is used to react with phosphoric acid to produce phosphoric
acid products such as liquid mixed fertilizer, diammonium phosphate and
monoammonium phosphate.
The Company owns land in Florida which contains an estimated 40 million
tons of phosphate rock and a phosphate chemical plant located in Joplin,
Missouri. The Joplin plant produces ammonium phosphate which is combined in
varying ratios with muriate of potash to produce 12 different fertilizer grade
products. In addition, feed grade phosphate (dicalcium phosphate) is produced
at this facility. Production of ammonium phosphate approximated 64,000 tons,
65,000 tons and 44,000 tons in 1995, 1996 and 1997, respectively, and production
of feed grade phosphate approximated 159,000 tons, 160,000 tons and 163,000 tons
in 1995, 1996 and 1997, respectively.
The Company and Norsk Hydro a.s. are each 50% owners of a joint venture,
Farmland Hydro, L.P. ("Hydro"), which is a manufacturer of phosphate fertilizer
products for distribution principally to international markets. Hydro operates
a phosphate-based plant at Green Bay, Florida, and owns phosphate rock reserves
located in Hardee County, Florida which contain an estimated 40 million tons of
phosphate rock (and is in addition to the aforementioned Florida phosphate rock
owned by the Company). The Company provides management and administrative
services and Norsk Hydro a.s. provides marketing services to Hydro. Hydro's
plant produces phosphate fertilizer products such as super phosphoric acid,
diammonium phosphate and monoammonium phosphate. Annual production in tons of
such products for 1995, 1996 and 1997 was 1,471,000, 1,459,000 and 1,504,000,
respectively. The phosphate rock required to operate Hydro's plant is presently
purchased from outside suppliers and adequate supplies of sulfur are available
from several producers.
In view of the availability of adequate supplies of phosphate rock from
alternative sources, neither the Company nor Hydro plan to develop their
respective phosphate rock reserves within the next year.
The Company and J.R. Simplot Company are each 50% owners of a venture, SF
Phosphates Limited Company ("SF Phosphates"), which operates a phosphate mine
located in Vernal, Utah, a phosphate chemical plant located in Rock Springs,
Wyoming and a 96-mile pipeline connecting the mine to the plant. The plant
produces monoammonium phosphate and super phosphoric acid with annual production
in tons for 1995, 1996 and 1997 of 409,000, 483,000 and 409,000, respectively.
Under the venture agreement, the Company and J.R. Simplot Company purchase the
production of the venture in proportion to their ownership. Based on current
recovery methods and the levels of plant production in recent years, the Company
estimates that the phosphate rock reserves owned by SF Phosphates are adequate
to provide the phosphate rock requirements of the plant for approximately 75
years.
The Company and Mississippi Chemical Company are each 50% owners of a
joint venture formed to develop, construct and operate a 1,850 metric ton per
day ammonia production facility in The Republic of Trinidad and Tobago. The
plant construction is funded by a combination of nonrecourse project financing
and equity. Construction is scheduled to be completed in 1998. See "Business
and Properties - Business - Capital Expenditures and Investments in Ventures"
included herein.
RAW MATERIALS
Natural gas, the largest single component of nitrogen-based fertilizer
production, is purchased directly from natural gas producers. Natural gas
purchase contracts are generally market sensitive and contract prices change as
the market price for natural gas changes. In addition, the Company has a
hedging program which utilizes natural gas futures and options to reduce risks
of market price volatility. See "Business - Business Risk Factors - External
Factors That May Affect the Company" included herein.
Natural gas is delivered to the Company's facilities under pipeline
transportation service agreements which have been negotiated with each plant's
delivering pipeline. Natural gas delivery to the plants could be curtailed
under regulations of the Federal Energy Regulatory Commission if a delivering
pipeline's capacity was required to serve priority users such as residences,
hospitals and schools. In such cases, production could be curtailed. No
significant production has been lost because of curtailments in pipeline
transportation, and no such curtailment is anticipated.
FEED
Products in the Company's feed line include swine, beef, poultry, dairy,
pet, mineral and specialty feeds, feed ingredients and supplements, livestock
and animal health products. The primary components of feed products are grain
and grain by-products, which are generally available in the region in which the
Company operates.
This business segment's sales were approximately 6%, 6% and 7% of
consolidated sales for the years 1995, 1996 and 1997, respectively.
Approximately 51% of the feed business segment's sales in 1997 was attributable
to products manufactured in the Company's feed mills. The Company operates feed
mixing plants at 22 locations throughout its territory, an animal protein and a
premix plant located in Eagle Grove, Iowa, a premix plant in Marion, Ohio and a
pet food plant in Muncie, Kansas.
Feed production for 1995, 1996 and 1997 was as follows:
<TABLE>
<CAPTION>
Approximate Annual Production
1995 1996 1997
(tons)
<S> <C> <C> <C>
26 feed mills (combined)...... 1,112,000 1,103,000 1,165,000
</TABLE>
The Company conducts research in animal health and nutrition. Through
local cooperative associations of farmers and ranchers, the Company participates
in livestock and hog services designed to produce lean, feed-efficient animals
and help livestock producers select feed formulations which maximize weight
gain.
FOOD PROCESSING AND MARKETING
PORK
PROCESSING
The Company's pork processing and marketing operations are conducted
through a 99%-owned subsidiary, Farmland Foods, Inc. ("Foods"), which operates
12 food processing facilities. These facilities are primarily located in the
Midwest and include facilities at Topeka, Kansas and Dubuque, Iowa, which were
purchased during 1996, and a leased facility in Albert Lea, Minnesota.
Meat processing facilities at Springfield, Massachusetts, Carey, Ohio, and
New Riegel, Ohio produce Italian-style specialty meats and ham products. Plants
in Wichita and Topeka, Kansas and Albert Lea, Minnesota process fresh pork into
a variety of products including ham, bacon and sausage. Additionally, the
Wichita, Kansas facility processes pork, beef and chicken into hot dogs, dry
sausage and other luncheon meats. Facilities in Denison and Dubuque, Iowa,
Monmouth, Illinois and Crete, Nebraska function as pork abattoirs and have
additional capabilities for processing pork into bacon, ham and smoked meats.
These facilities also process fresh pork into primal cuts for additional
processing into fabricated meats which are sold to commercial users and to
retail grocery chains, as well as case-ready and label-branded cuts for retail
distribution. The plant located in Carroll, Iowa is primarily a packaging
facility for canned or cook-in-bag products. The facility located in Omaha,
Nebraska, prepares primal beef and pork products into case-ready cuts of meat
which can be shipped directly to retailers.
The Company's total weekly production approximated 12.6 million pounds,
16.2 million pounds and 16.8 million pounds, and total weekly head slaughtered
approximated 120,000, 111,000 and 132,000 in 1995, 1996 and 1997, respectively.
MARKETING
The Company's products include fresh pork, fabricated pork, smoked meats,
ham, bacon, fresh sausage, dry sausage, hot dogs and packing house by-products.
These products are marketed under a variety of brand names including: Farmland,
Farmstead, OhSe, Maple River, Carando, Roegelein, Regal and Marco Polo. Product
distribution is through national and regional retail food chains, food service
accounts, distributors and through international marketing brokers.
Pork marketing is a highly competitive industry with many suppliers of
fresh and processed pork products competing for shelf space in retail food
stores. Other meat products such as beef, poultry and fish also compete
directly with pork products. Competitive methods in this segment include price,
product quality, product differentiation and customer service.
BEEF
PROCESSING
The Company's beef processing and marketing operations are conducted
through Farmland National Beef Packing Company, L.P. ("FNBPC"), which was formed
in April 1993, and at September 1, 1997, was 75%-owned by Farmland. The
processing facilities for these beef operations are located in Liberal, Kansas
and Dodge City, Kansas. These facilities function as beef abattoirs and process
fresh beef into primal cuts for additional processing into fabricated or boxed
beef. During 1995, 1996 and 1997, the two plants slaughtered an aggregate of
1.9 million, 2.1 million and 2.1 million cattle, respectively.
The Company has agreed to sell up to a 25% interest in FNBPC to an
unrelated party, U.S. Premium Beef, LTD. ("USPB"). Therefore, the Company's
ownership in FNBPC could be reduced to 50%. At this time, there is no assurance
USPB will raise the capital necessary to consummate part or all of this
transaction.
MARKETING
Products in the Company's beef processing and marketing operations include
fresh and frozen beef, boxed beef and packing house by-products. Product
distribution is through national and regional retail and food service customers
as well as under the Farmland Black Angus Beef label. In addition, certain
beef products are distributed in international markets.
Beef marketing is a highly competitive industry with many suppliers of
fresh and boxed beef. Other meat products such as pork, poultry and fish also
compete directly with beef products. Competitive methods in this industry
include price, product quality, product differentiation and customer service.
GRAIN
MARKETING
The Company markets wheat, corn, soybeans, milo, barley and oats, with
wheat and corn constituting the majority of the marketing business. The
Company's North American Grain Division ("NAGD") purchases grain from members
and nonmembers located in the Midwestern part of the United States and assumes
all risks related to selling such grain. Grain is priced in the United States
principally through bids based on organized commodity markets.
The Company is exposed to risk of loss in the market value of its grain
inventory and fixed price purchase contracts if grain market prices decrease and
is exposed to loss on its fixed price sales contracts if grain market prices
increase. To reduce the price change risk associated with holding positions in
grain, the Company takes opposite and offsetting positions by entering into
grain commodity futures contracts. Generally, such contracts have terms of up
to one year. The Company's strategy is to maintain hedged positions on as close
to 100% of its grain positions as is possible. During 1995, 1996 and 1997, the
Company maintained hedges on approximately 97.9%, 94.8% and 92.9%, respectively,
of its grain positions. Based on total assets at the beginning and end of 1997,
the average market value of grain positions not hedged during the year amounted
to less than 1% of the Company's average total assets. While hedging activities
reduce the risk of loss from changing market values of grain, such activities
also limit the gain potential which otherwise could result from changes in
market prices of grain. See "Management's Discussion and Analysis of Financial
Conditions and Results of Operations - Financial Condition, Liquidity and
Capital Resources - Results of Operations for Years Ended August 31, 1995, 1996
and 1997 - Grain Marketing" included herein.
In 1997, approximately 41% of grain revenues were from export sales or
sales to domestic customers for export. In 1995 and 1996, export sales or sales
to domestic customers for export accounted for approximately 47% and 42%,
respectively, of grain revenues. Export-related sales are subject to
international political upheavals and changes in other countries' trade policies
which are not within the control of the United States or the Company. Foreign
sales of grain generally are paid in U.S. Dollars.
The Company's international grain trading subsidiaries (collectively
referred to as "Tradigrain") import, export and ship all major grains from the
major producing countries to final consumers which are either governmental
entities, private companies or other major grain companies.
Tradigrain's purchases of grain are made on a cash basis and its sales of
grain are mostly done against confirmed letters of credit. For purposes of the
Company's Consolidated Financial Statements, the Company recognizes as sales the
net margin on grain merchandised by Tradigrain rather than the gross value of
such products merchandised. Furthermore, Tradigrain may take long or short
grain positions. These positions are accounted for on a mark-to-market basis
and the gain or loss is recognized as a component of net sales.
PROPERTY
The Company currently operates, through either ownership or lease, 26
inland elevators and one export elevator in the United States with a total
capacity of approximately 120.6 million bushels of grain.
RESEARCH
The Company operates a research and development farm for the primary
purpose of improving nutrition, genetic selection and animal health practices
related to livestock and pets. The Company also conducts research at its pork
processing facilities directed toward product development and process
improvement.
Expenditures related to Company-sponsored product research and process
improvements amounted to $2.3 million, $2.4 million and $2.1 million for 1995,
1996, and 1997, respectively.
CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES
In 1997, the Company made capital expenditures and investments in
ventures totaling $187.9 million.
The Company has approved expenditures (of which $39.2 million was
committed as of August 31, 1997) of $197.0 million for capital additions and
improvements and $5.0 million for investments in ventures during the years 1998
and 1999. The majority of these expenditures are in the crop production, food
processing and marketing and petroleum businesses and are primarily for plant
improvements. From time to time, management may recommend additional capital
projects to Farmland's Board of Directors for approval.
The Company intends to fund its capital program with cash from
operations, through borrowings or through other capital market transactions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition, Liquidity and Capital Resources" included
herein.
YEAR 2000
The Company has assessed key financial, informational and operational
systems. Management does not anticipate that the Company will encounter
significant operational issues related to Year 2000. Furthermore, the financial
impact of making required systems changes is not expected to be material to the
Company's consolidated financial position, results of operations or cash flows.
MATTERS INVOLVING THE ENVIRONMENT
The Company is subject to various stringent federal, state and local
environmental laws and regulations, including those governing the use, storage,
discharge and disposal of hazardous materials, as the Company uses hazardous
substances and generates hazardous wastes in the ordinary course of its
manufacturing processes. The Company recognizes liabilities related to
remediation of contaminated properties when the related costs are probable and
can be reasonably estimated. Estimates of these costs are based upon currently
available facts, existing technology, undiscounted site specific costs and
currently enacted laws and regulations. In reporting environmental liabilities,
no offset is made for potential recoveries. Such liabilities include estimates
of the Company's share of costs attributable to potentially responsible parties
which are insolvent or otherwise unable to pay. All liabilities are monitored
and adjusted regularly as new facts or changes in law or technology occur.
The Company wholly or jointly owns or operates 27 grain elevators and
62 manufacturing properties and has potential responsibility for environmental
conditions at a number of former manufacturing facilities and at waste disposal
facilities operated by third parties. The Company also has been identified as a
PRP under CERCLA at various National Priority List sites and has unresolved
liability with respect to the past disposal of hazardous substances at five such
sites. CERCLA may impose joint and several liability on certain statutory
classes of persons for the costs of investigation and remediation of
contaminated properties, regardless of fault or the legality of the original
disposal. These persons include the present and former owners or operators of a
contaminated property and companies that generated, disposed of, or arranged for
the disposal of hazardous substances found at the property. The Company is
investigating or remediating contamination at 25 properties under CERCLA and/or
the state and federal hazardous waste management laws. During 1995, 1996 and
1997, the Company paid approximately $3.2 million, $1.8 million and $4.6
million, respectively, for environmental investigation and remediation.
The Company currently is aware of probable obligations for
environmental matters at 33 properties. As of August 31, 1997, the Company has
an environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated cost for remediation of contaminated property of
$16.9 million. The Company periodically reviews and, as appropriate, revises
its environmental accruals. Based on current information and regulatory
requirements, the Company believes that the accruals established for
environmental expenditures are adequate.
The Company's actual final costs of addressing certain environmental
matters are not quantifiable, and therefore have not been accrued, because such
matters are in preliminary stages and the timing, extent and costs of various
actions which governmental authorities may require are currently unknown.
Management is aware of other environmental matters for which there is a
reasonable possibility that the Company will incur costs to resolve. It is
possible that the costs of resolution of the matters described in this paragraph
may exceed the liabilities which, in the opinion of management, are probable and
which costs are reasonably estimable at August 31, 1997. In the opinion of
management, it is reasonably possible for such additional costs to be
approximately $17.5 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, 1997 (and is in addition to
the $17.5 million discussed in the prior paragraph). The Company accrues these
liabilities when plans for termination of plant operations have been made.
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.
There can be no assurance that the environmental matters described
above, or environmental matters which may develop in the future, will not have a
material adverse effect on the Company's business, financial condition or
results of operations.
Protection of the environment requires the Company to incur
expenditures for equipment or processes, which expenditures may impact the
Company's future net income. However, the Company does not anticipate that its
competitive position will be adversely affected by such expenditures or by laws
and regulations enacted to protect the environment. Environmental expenditures
are capitalized when such expenditures provide future economic benefits. In
1995, 1996 and 1997, the Company had capital expenditures of approximately $4.7
million, $10.9 million and $8.4 million, respectively, to improve the
environmental compliance and efficiency of its operations. Management believes
the Company currently is in substantial compliance with existing environmental
rules and regulations.
GOVERNMENT REGULATION
The Company's business is conducted within a legal environment created
by numerous federal, state and local laws which have been enacted to protect the
public's interest by promoting fair trade practices, safety, health and welfare.
The Company believes that its operating procedures conform to the intent of
these laws and that the Company currently is in compliance with all such laws,
the violation of which could have a material adverse effect on the Company.
Certain policies may be implemented from time to time by the United
States Department of Agriculture, the Department of Energy or other governmental
agencies which may impact the demands of farmers and ranchers for the Company's
products or which may impact the methods by which certain of the Company's
operations are conducted. Such policies may impact the Company's farm supply,
food processing and marketing and grain storage and marketing operations.
In 1996, the Federal Agriculture Improvement and Reform Act ("FAIR") was
signed into law. FAIR represents the most significant change in government farm
programs in more than 60 years. Under FAIR, the former system of variable
price-linked deficiency payments to farmers has been replaced by a program of
fixed payments which decline over a seven-year period. In addition, FAIR
eliminates federal planting restrictions and acreage controls. The Company
believes that FAIR was intended to accelerate the trend toward greater market
orientation and reduced Government influence on the agricultural sector. As a
result, the Company expects the number of acres under cultivation to increase.
This increase could favorably impact demand of producers for the Company's plant
nutrients and crop protection products and fuels. Whether demand for the
Company's products is favorably impacted depends in a large part on whether U.S.
agriculture becomes more competitive in world markets as this industry moves
toward greater market orientation, the extent which governmental actions expand
international trade agreements and whether market access opportunities for U.S.
agriculture is increased.
The U.S. Congress recently deliberated, and postponed until 1998
further consideration of legislation commonly referred to as "fast track", which
would authorize the President to submit a trade agreement to Congress with the
assurance that it will be voted on within 90 days and not be subject to
amendments. The Company believes that fast track legislation could be
beneficial to U.S. agricultural interests, as it may open markets, increase
exports and expand trade opportunities with countries which import agricultural
products. If Congress were to fail to adopt the fast track legislation, or if
Congress were to modify the pending legislation in any significant respect, the
Company's access to international markets may be adversely impacted. There can
be no assurance that fast track legislation in any form will be adopted.
Management is not aware of any newly implemented or pending policies,
other than as discussed above, having a significant impact or which may have a
significant impact on operations of the Company.
EMPLOYEE RELATIONS
At August 31, 1997, the Company had approximately 14,600 employees.
Approximately 50% of the Company's employees were represented by unions having
national affiliations. The Company considers its relationship with employees to
be generally satisfactory. No labor strikes or work stoppages within the last
three fiscal years have had a materially adverse effect on the Company's
operating results. Current labor contracts expire on various dates through March
2001.
PATRONAGE REFUNDS AND DISTRIBUTION OF ANNUAL EARNINGS
For purposes of this section, annual earnings means earnings before income
taxes determined in accordance with generally accepted accounting principles.
Farmland operates on a cooperative basis. In accordance with its bylaws,
Farmland determines its annual net earnings from transactions with members
("member-sourced earnings"). For this purpose, annual net earnings is before
income tax determined in accordance with generally accepted accounting
principles. Losses, including patronage allocation unit losses, if any, are
handled in accordance with the Company's bylaws. The remaining member-sourced
earnings are returned to members as patronage refunds in the form of qualified
or nonqualified written notice of patronage refund allocation. Each member's
portion of the annual patronage refund is determined by the earnings of Farmland
attributed to the quantity or value of business transacted by the member with
Farmland during the year for which the patronage is paid.
The patronage refunds may be paid in the form of qualified or
nonqualified written notices of allocation or cash. The qualified patronage
refund, if any, must be paid at least 20% in cash and is deductible by the
Company for federal income tax purposes. The portion of the qualified patronage
refund not paid in cash (the allocated equity portion) is distributed in common
shares, associate member common shares or capital credits (depending on the
membership status of the recipient), or the Board of Directors may determine to
distribute the allocated equity portion in any other form or forms of equities.
The allocated equity portion of the qualified patronage refund is determined
annually by the Board of Directors, but is limited to no more than 80% of the
total qualified patronage refund. The nonqualified patronage refund, if any, is
recorded as book credits in the form of common shares, associate member common
shares or capital credits (depending on the membership status of the recipient),
or the Board of Directors may determine to record the nonqualified patronage
refund in any other form or forms of nonpreferred equities. The nonqualified
patronage refund is deductible by the Company for federal income tax purposes
only upon redemption of the equity or equities issued. The bylaws of Farmland
provide that the Board of Directors has complete discretion with respect to the
handling and ultimate disposition of any member-sourced losses. For the year
ended August 31, 1997, the Board of Directors determined that the Company would
retain $13.5 million of member-sourced losses for disposition at a later date.
For the years ended 1995, 1996 and 1997, patronage refunds authorized by
the Board of Directors were:
<TABLE>
<CAPTION>
Cash or Cash Equivalent
Portion of Patronage Non-Cash Portion of Total Patronage
Refunds Patronage Refunds Refunds
(Amounts in thousands)
<S> <C> <C> <C>
1995............... $ 33,061 $ 61,356 $ 94,417
1996............... $ 32,719 $ 60,776 $ 93,495
1997............... $ 40,228 $ 68,079 $ 108,307
</TABLE>
Nonmember-sourced income (earnings attributed to transactions with
persons not eligible to receive patronage refunds, i.e. nonmembers) and
nonpatronage income or loss (income or loss from activities not directly related
to the cooperative marketing or purchasing activities of Farmland) is subject to
income taxes computed on the same basis as such taxes are computed on the income
or loss of other corporations.
EQUITY REDEMPTION PLANS
The Equity Redemption Plans described below, namely the base capital
plan, the estate settlement plan and the special equity redemption plans
(collectively, the "Plans") may be changed at any time or from time to time at
the sole and absolute discretion of the Board of Directors. The Plans are also
not binding upon the Board of Directors or the Company, and the Board of
Directors reserves the right to redeem, or not redeem, any equities of the
Company without regard to whether such action or inaction is in accordance with
the Plans. The factors which may be considered by the Board of Directors in
determining when, and under what circumstances, the Company may redeem equities
include, but are not limited to, the terms of the Company's base capital plan,
the Company's results of operations, financial position, cash flow, capital
requirements, long-term financial planning needs, income and other tax
considerations and other relevant considerations. By retaining discretion to
determine the amount, timing and ordering of any equity redemptions, the Board
of Directors believes that it can continue to assure that the best interests of
the Company and thus of its owners will be protected.
BASE CAPITAL PLAN
For the purposes of acquiring and maintaining adequate capital to
finance the business of the Company, the Board of Directors has established a
base capital plan.
The base capital plan provides a mechanism for determining the
Company's total capital requirements and each voting member's and associate
member's share thereof (hereinafter referred to as the "Base Capital
Requirement"). As part of the base capital plan, the Board of Directors may, in
its discretion, provide for redemption of Farmland common shares or associate
member common shares held by voting members or associate members whose holdings
of common shares or associate member shares exceed the voting members' or
associate members' Base Capital Requirement. The base capital plan provides a
mechanism under which the cash portion of the patronage refund payable to voting
members or associate members will depend upon the degree to which such voting
members or associate members meet their Base Capital Requirements.
ESTATE SETTLEMENT PLAN
The estate settlement plan provides that equity holdings of deceased
natural persons (except for equity purchased and held for less than five years)
be redeemed at par value. This provision is subject to a limitation of $1.0
million in any one fiscal year without further authorization by the Board of
Directors for such year.
SPECIAL EQUITY REDEMPTION PLANS
From time to time, the Company has redeemed portions of its outstanding
equity under various special equity redemption plans. The special equity
redemption plans may be changed at any time or from time to time at the sole and
absolute discretion of the Board of Directors. The special equity redemption
plans are not binding upon the Board of Directors or the Company, and the Board
of Directors reserves the right to redeem, or not redeem, any equities of the
Company without regard to whether such action or inaction is in accordance with
the special equity redemption plans.
The special equity redemption plans are designed to return cash to members
or former members of Farmland or Farmland Foods by a systematic method for
redemption of outstanding equity which may not be subject to redemption through
other Plans, such as the base capital plan or the estate settlement plan. The
order in which each type of equity is redeemed is determined by the Board of
Directors.
Presented below are the amounts of equity approved for redemption by the
Board of Directors of Farmland and Farmland Foods under the base capital plan,
the estate settlement plan, and special equity redemption plans for each of the
years in the five-year period ended 1997. Substantially all amounts approved
for redemptions are paid in cash in the year following approval.
<TABLE>
<CAPTION>
Base Capital Plan Estate Settlement
Redemptions Plan Redemptions Special Equity Total Plan
Redemption(A) Redemptions
(Amounts in Thousands)
<S> <C> <C> <C> <C>
1995.......... $ 14,159 $ 128 $ 13,451 $ 27,738
1996.......... $ 14,024 $ 138 $ 11,277 $ 25,439
1997.......... $ 17,228 $ 141 $ 11,351 $ 28,720
</TABLE>
(a)Included in 1995, 1996 and 1997 are redemptions of preferred stock.
LEGAL PROCEEDINGS
The Company believes there is no litigation existing or pending against
Farmland or any of its subsidiaries that, based on the amounts involved or the
defenses available to the Company, would have a material adverse effect on the
financial position of the Company except for the pending tax litigation relating
to Terra Resources, Inc. ("Terra"), a former subsidiary of the Company, as
explained in Note 6 of the Notes to Consolidated Financial Statements. See
"Risk Factors - Income Tax Matters" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Financial Condition, Liquidity
and Capital Resources" included herein.
MANAGEMENT
<TABLE>
<CAPTION>
The directors of Farmland are as follows:
Total Years
Expiration of Service
Age as of Positions of Present as Board
August 31, Held With Term as Member
Name 1997 Farmland Director Business Experience During Last Five Years
<S> <C> <C> <C> <C> <C>
Albert J. Shivley 54 Chairman of 1998 13 General Manager--American Pride Co-op
the Board Association, Brighton, Colorado, a local
cooperative association of farmers and
ranchers.
H. D. Cleberg 58 President and 1997 7 Mr. Cleberg has been with Farmland since
Chief 1968. He was named as president-elect in
Executive February 1991 and became President in April
Officer 1991. From September 1990 to January 1991 he
served as Senior Vice President and Chief
Operating Officer, Agricultural Group. From
April 1989 to August 1990 he served as
Executive Vice President, Operations.
Otis H. Molz 66 Vice Chairman 1997 14 Producer--Deerfield, Kansas. Mr. Molz has
and Vice served as Chairman of the Board of the
President National Bank for Cooperatives since January
1993. He served as Chairman of the Board of
Directors of Farmland Industries, Inc. from
December 1991 to December 1992. He served as
First Vice President of the National Bank for
Cooperatives from January 1990 to January of
1993. He was Second Vice Chairman from
January 1, 1989 to January 1, 1990.
Lyman Adams, Jr. 46 1998 5 General Manager--Cooperative Grain and
Supply, Hillsboro, Kansas, a local
cooperative association of farmers and
ranchers.
Ronald J. Amundson 53 1997 9 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association
of farmers and ranchers.
Baxter Ankerstjerne 61 1999 7 Producer--Peterson, Iowa. Mr. Ankerstjerne
serves as Director of First Cooperative
Association, Cherokee, Iowa, a local
cooperative association of farmers and
ranchers. From 1988 to 1997, he served as
Chairman of the Board of Directors of Farmers
Cooperative Association, Marathon, Iowa.
Jody Bezner 56 1997 6 Producer--Texline, Texas.
Richard L. Detten 63 1999 10 Producer--Ponca City, Oklahoma.
Steven Erdman 47 1998 5 Producer--Bayard, Nebraska.
Harry Fehrenbacher 49 1999 1 Producer--Newton, Illinois. Mr. Fehrenbacher
serves as President of the Board of Directors
of Effingham Equity, Effingham, Illinois, a
local cooperative association of farmers and
ranchers.
Warren Gerdes 49 1998 4 General Manager--Farmers Cooperative Elevator
Company, Buffalo Lake, Minnesota, a local
cooperative association of farmers and
ranchers.
Ben Griffith 48 1998 8 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.
Gail D. Hall 55 1997 9 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local
cooperative association of farmers and
ranchers.
Barry Jensen 52 1999 7 Producer--White River, South Dakota.
Mr. Jensen currently serves as a Director,
and was President from May 1989 to May 1993,
of Farmers Co-op Oil Association, Winner,
South Dakota, a local cooperative association
of farmers and ranchers.
Ron Jurgens 59 1998 2 General Manager-Agri Co-op in Holdrege,
Nebraska, a local cooperative association of
farmers and ranchers.
William F. Kuhlman 48 1999 1 Producer--Oakley, Kansas. Mr. Kuhlman serves
on the Boards of Directors of Kansas Retail
Venture Group and Northwest Kansas Ground
Water Management. Formerly, he was President
and CEO of Cooperative Agricultural Services,
Inc., Oakley, Kansas and General Manager of
Menlo-Rexford Cooperative, local cooperative
associations of farmers and ranchers.
Greg Pfenning 48 1997 5 Producer--Hobart, Oklahoma. Director of
Hobart & Roosevelt Cooperative, a local
cooperative association of farmers and
ranchers.
Monte Romohr 44 1999 7 Producer--Gresham, Nebraska. From March 1988
to March 1991, Mr. Romohr served as President
of Farmers Co-op Business Association,
Shelby, Nebraska, a local cooperative
association of farmers and ranchers.
Joe Royster 45 1999 4 General Manager--Dacoma Farmers Cooperative,
Inc., Dacoma, Oklahoma, a local cooperative
association of farmers and ranchers.
E. Kent Stamper 51 1999 1 Producer--Plainville, Kansas. Mr. Stamper
serves as Director and Vice President of the
Board of Directors of Midland Marketing Coop,
Hays, Kansas, a local cooperative association
of farmers and ranchers. He is a member of
the Director Development Committee of the
Kansas Cooperative Council. Formerly, he
served as Director and Secretary of the Board
of Directors of Union Equity Cooperative
Exchange, Enid, Oklahoma, a regional grain
marketing cooperative.
Eli F. Vaughn 48 1997 * General Manager--Farm Service Cooperative,
Afton, Iowa, a local cooperative association
of farmers and ranchers.
Frank Wilson 49 1998 2 General Manager-Elkhart Farmers Co-op
Association, Elkhart, Texas, a local
cooperative association of farmers and
ranchers.
*Appointed to the Board of Directors in April 1997
</TABLE>
Directors are elected for a term of three years by the shareholders of
Farmland at its annual meeting. The expiration dates for such three-year terms
are sequenced so that about one-third of the Board of Directors is elected each
year. H. D. Cleberg is serving as director-at-large; the remaining 21 directors
were elected from nine geographically defined districts. The executive
committee consists of Ronald Amundson, Ben Griffith, Otis Molz, Monte Romohr,
Albert Shivley and H. D. Cleberg. With the exception of H. D. Cleberg,
President and Chief Executive Officer, members of the executive committee serve
as chairman of standing committees of the Board of Directors as follows: Ronald
Amundson, corporate responsibility committee; Ben Griffith, audit committee;
Otis Molz, compensation committee; Monte Romohr, finance committee; and Albert
Shivley, nominating committee.
The executive officers of Farmland are as follows:
<TABLE>
<CAPTION>
Age as of
August 31,
Name 1997 Principal Occupation and Other Positions
<S> <C> <C>
J. F. Berardi 54 Executive Vice President and Chief Operating Officer, Grain and Grain Businesses -
Mr. Berardi joined Farmland in March 1992, serving as Executive Vice President and
Chief Financial Officer. He was appointed to his present position in July 1996.
He served as Executive Vice President and Treasurer of Harcourt Brace Jovanovich,
Inc., a diversified Fortune 200 company, and was a member of its Board of
Directors from 1988 until 1990.
T. M. Campbell 47 Executive Vice President and Chief Financial Officer - Mr. Campbell joined Farmland
in August 1992, serving as Vice President and Treasurer. He was appointed to his
present position in August 1996. He served as Vice President and Assistant
Treasurer of Harcourt Brace Jovanovich, Inc., a diversified Fortune 200 company,
from 1986 to 1992.
H. D. Cleberg 58 President and Chief Executive Officer - Mr. Cleberg has been with Farmland since
1968. He was appointed to his present position effective April 1991. From
September 1990 to March 1991 he served as Senior Vice President and Chief
Operating Officer. From April 1989 to August 1990 he served as Executive Vice
President, Operations. Prior to April 1989 he held several executive management
positions with Farmland.
S. P. Dees 54 Executive Vice President, Corporate Relations, Communications & International
Services. Mr. Dees joined Farmland in 1984, serving as Vice President and General
Counsel, Law and Administration. He was appointed to his present position in
September 1995. From September 1993 to September 1995. (Mr. Dees has announced
his intention to retire during 1998.) He served as Executive Vice President,
Farmland and Director General of Farmland Industrias, S.A. de C.V. From October
1990 to September 1993 he served as Executive Vice President, Administrative Group
and General Counsel.
G. E. Evans 53 Executive Vice President and Chief Operating Officer, Meats Group - Mr. Evans has
been with Farmland since 1971. He was appointed to his present position in July
1997. He held the same position in the Meat and Livestock Businesses from
September 1995 until July 1997. From January 1992 to September 1995 he served as
Senior Vice President, Agricultural Production Marketing/Processing. From April
1991 to January 1992 he served as Senior Vice President, Agricultural Inputs. He
served as Executive Vice President, Agricultural Marketing from October 1990 to
March 1991.
R. W. Honse 54 Executive Vice President and Chief Operating Officer, Ag Input Businesses - Mr.
Honse has been with Farmland since 1983. He was appointed to his present position
in September 1995. From January 1992 to September 1995, he served as Executive
Vice President, Agricultural Inputs Operations. From October 1990 to January 1992
he served as Executive Vice President, Agricultural Operations.
B. L. Sanders 56 Senior Vice President and Corporate Secretary - Dr. Sanders has been with Farmland
since 1968. He was appointed to his present position in September 1991. From
April 1990 to September 1991 he served as Vice President, Strategic Planning and
Development. From October 1987 to March 1990 he served as Vice President,
Planning.
</TABLE>
EXECUTIVE COMPENSATION
The following table sets forth the annual compensation awarded to,
earned by, or paid to the Chief Executive Officer and the Company's next four
most highly compensated executive officers for services rendered to the Company
in all capacities during 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Employee
Year Variable
Ending Compensation Other Annual LTIP
Name and Principal Position August 31 Salary Plan Compensation Payouts
<S> <C> <C> <C> <C> <C>
H. D. Cleberg, 1995 $ 456,218 $ 346,944 $ -0- $ -0-
President and 1996 $ 497,713 $ 356,485 $ -0- $ 1,296,482
Chief Executive Officer 1997 $ 540,292 $ 469,954 $ -0- $ 514,999
G. E. Evans, 1995 $ 283,988 $ 217,761 $ -0- $ -0-
Executive Vice President and 1996 $ 298,848 $ 216,121 $ -0- $ 648,241
Chief Operating Officer 1997 $ 317,568 $ 245,352 $ -0- $ 257,499
Meats Group
R. W. Honse, 1995 $ 280,248 $ 210,337 $ -0- $ -0-
Executive Vice President and 1996 $ 303,364 $ 216,121 $ -0- $ 648,241
Chief Operating Officer 1997 $ 322,125 $ 245,352 $ -0- $ 257,499
Ag Input Businesses
J. F. Berardi, 1995 $ 226,914 $ 150,241 $ -0- $ -0-
Executive Vice President and 1996 $ 244,770 $ 154,372 $ -0- $ 549,204
Chief Operating Officer, 1997 $ 286,814 $ 245,352 $ -0- $ 243,194
Grain and Grain Businesses
S. P. Dees, 1995 $ 211,000 $ 122,070 $ 127,878(a) $ -0-
Executive Vice President 1996 $ 236,765 $ 125,427 $ 5,357(a) $ 459,171
Corporate Relations, 1997 $ 317,866 $ 165,044 $ -0- $ 182,395
Communications &
International Services
<FN>
(a) Mr. Dees received a differential remuneration and reimbursements in 1995
and 1996 for taxes in connection with a foreign assignment. Mr. Dees'
foreign assignment ended in September 1995.
</TABLE>
An Annual Employee Variable Compensation Plan, a Management Long-Term
Incentive Plan ("LTIP") and an Executive Deferred Compensation Plan have been
established by the Company to meet the competitive salary programs of other
companies and to provide a method of compensation which is based on the
Company's performance.
Under the Company's Annual Employee Variable Compensation Plan, all
regular salaried employees' total compensation is based on a combination of base
and variable pay. The variable compensation payment is dependent upon the
employee's position, the performance of the Company for the fiscal year or other
performance criteria of the individual's operating unit. Variable compensation
is awarded only in years that the Company achieves a threshold performance level
as approved each year by the Board of Directors. The Company intends for its
total cash compensation (base plus variable) to be competitive, recognizing that
in the event the Company fails to achieve a predetermined threshold level of
performance, the base pay alone will place the employees well under market
rates. This system of variable compensation allows the Company to keep its
fixed costs (base salaries) lower and only increase payroll costs consistent
with the Company's ability to pay. Distributions under this plan are made
annually after the close of each fiscal year.
During 1997, under the Company's Management Long-Term Incentive Plan
for 1997 through 1999, certain management employees, including those executives
set forth below, became eligible for future payments contingent on satisfying
the terms and conditions of the Plan as set forth below herein.
<TABLE>
<CAPTION>
Estimated Future Payouts Under Non-Stock
(A) (B) (C) Price Based Plans
Number of Shares, Performance or Other
Units or Other Period Until Maturation (D) (E) (F)
Name Rights (1) or Payout Threshold Target (2) Maximum (2)
(Amounts in Thousands)
<S> <C> <C>
H. D. Cleberg 1997 - 1999 $ 504
G. E. Evans 1997 - 1999 $ 252
R. W. Honse 1997 - 1999 $ 252
J. F. Berardi 1997 - 1999 $ 252
S. P. Dees 1997 - 1999 $ 180
<FN>
(1) Rights in the incentive pool are expressed as a minimum percentage
of the total pool. See discussion contained below herein.
(2) Not applicable as payouts are based on a percentage of aggregate
income; the plan does not specify a target or maximum payment. See
discussion contained below herein.
</TABLE>
Under the Management Long-Term Incentive Plan, certain of the Company's
management employees are paid cash incentive amounts determined by a formula
which takes into account the level of management and the aggregate income of the
Company over a three year period. The Management Long-Term Incentive Plan
provides for three year performance and reward cycles and, in general,
participants must be active employees of the Company at the end of the cycle in
order to receive payment of the award with respect to such cycle. Periods
currently covered by the Management Long-Term Incentive Plan are: 1995 through
1997 ("1997 Plan"); 1996 through 1998 ("1998 Plan") and 1997 through 1999 ("1999
Plan"). The income threshold ("Threshold") for the three year period of the
1997 Plan, the 1998 Plan and 1999 Plan is $235,043,000, $393,481,000 and
$541,768,000, respectively. For each plan, if the aggregate income is less than
the Threshold or if the sum of the cash returned to members during the 1997
Plan, the 1998 Plan and the 1999 Plan, as patronage refunds, redemptions under
the base capital plan, estate settlement plans and special allocated equity
redemption plans is less than $61,938,000, $90,000,000 and $147,285,000,
respectively, subject to the following sentence, no payment will occur with
respect to such plan. The Board of Directors may, in its sole discretion, amend
or discontinue the Management Long-Term Incentive Plan, adjust or cancel any
awards otherwise payable thereunder should the Company incur a loss in the final
year of any performance cycle or impact the goals and rewards of the plan by
approving for inclusion or exclusion in the calculation of performance results
the financial results of extraordinary events occurring during the cycle.
Subject to the preceding sentence, if aggregate income equals or exceeds the
Threshold and the cash returned to members equals or exceeds the specified
amounts, then .83% of aggregate income for the 1997 Plan, the 1998 Plan and the
1999 Plan is allocated to an incentive pool for each such plan from which awards
to management will be paid. Absent a significant change in their status, in
which event such percentages may be adjusted, of the amount, if any, allocated
to the incentive pool Messrs. Cleberg, Evans, Honse, Berardi and Dees will
receive at least : 12%, 6% 6%, 5.7% and 4.25%, respectively, for the 1997 Plan;
12%, 6%, 6%, 6% and 4.25%, respectively, for the 1998 Plan; and 11.2%, 5.6%,
5.6%, 5.6% and 4.0%, respectively, for the 1999 Plan.
The Company's Executive Deferred Compensation Plan permits executive
employees to defer part of their salary and/or part or all of their variable and
incentive compensation. The amount to be deferred and the period for deferral
is specified by an election made semi-annually. Payments of deferred amounts
shall begin at the earlier of the end of the specified deferral period,
retirement, disability or death. The employee's deferred account balance is
credited annually with interest at the highest rate of interest paid by the
Company on any subordinated debt certificate sold during the year. Payment of
an employee's account balance shall, at the employee's election, be a lump sum
or in ten annual installments. Amounts deferred pursuant to the plan for the
accounts of the named individuals during the years 1995, 1996 and 1997 are
included in the cash compensation table.
The Company established the Farmland Industries, Inc. Employee
Retirement Plan (the "Plan") in 1986 for all employees whose customary
employment is at the rate of at least 1,000 hours per year. Participation in
the Plan is optional prior to age 34, but mandatory thereafter. Approximately
7,630 active and 8,140 inactive employees were participants in the Plan on
August 31, 1997. The Plan is funded by employer and employee contributions to
provide lifetime retirement income at normal retirement age 65, or a reduced
income beginning as early as age 55. The Plan also contains provisions for
death and disability benefits. The Plan has been determined qualified under the
Internal Revenue Code. The Plan is administered by a committee appointed by the
Board of Directors, and all funds of the Plan are held by a bank trustee in
accordance with the terms of the trust agreement. It is the present intent to
continue this plan indefinitely. The Company's funding strategy is to make the
maximum annual contributions to the Plan's trust fund that can be deducted for
federal income tax purposes. Company contributions made to the Plan for the
years ended August 31, 1995, 1996 and 1997 were $5.3 million, $12.2 million and
$ -0-, respectively.
Payments to participants in the Plan are based upon length of
participation and compensation reported to the Plan for the four highest of the
last ten years of employment. Compensation for this purpose includes base
salary and compensation earned under the Company's Annual Employee Variable
Compensation Plan discussed above. However, at the present time, the maximum
compensation (per participant) which may be covered by a qualified pension plan
is limited to $160,000 annually and the maximum retirement benefit which may be
paid by such plan is limited to $125,000 annually by the Internal Revenue Code
("IRC").
The Company established the Farmland Industries, Inc. Supplemental
Executive Retirement Plan ("SERP") effective January 1, 1994. The SERP is
intended to supplement the retirement income of executive participants in the
Farmland Industries, Inc. Employee Retirement Plan whose retirement benefit is
reduced because of the limitation of the IRC on the amount of annual salary
which can be included in the computation of retirement income (currently
$160,000) or the amount of annual retirement benefit which may be paid by a
qualified retirement plan (currently $125,000).
The Board of Directors has appointed an Administrative Committee to
administer the SERP. The Company purchased cash value life insurance polices on
the lives of certain plan participants to recover its cost of providing benefits
under the SERP. The Company owns these insurance policies and has the sole
right to name policy beneficiaries. The total SERP premiums charged to
operations for the years ended August 31, 1995, 1996 and 1997 were $0.6 million,
$0.6 million and $0.6 million, respectively.
The Company's obligation to pay supplemental retirement benefits under
the SERP is limited to the aggregate cash value of the life insurance policies
designated by the Administrative Committee as policies of the SERP. If the
benefit payments under this Plan for a year would, when added to all prior
benefit payments made from this Plan, exceed (a) the total cash value, on August
31 of the preceding year, of the policies designated by the Administrative
Committee, increased by (b) any previous reductions in cash value caused by
withdrawals from the policies by the Corporation, each Participant's payment
shall be reduced.
The following table sets forth, for compensation levels up to
$160,000, the estimated annual benefits payable at age 62 for members of the
Retirement Plan, which benefits are not reduced by virtue of Social Security
payments. The following table also sets forth, for compensation levels
exceeding $160,000, the combined estimated annual benefits payable under the
Retirement Plan and SERP for each of the first 10 years following retirement (no
SERP payouts are to be made after 10 years) assuming: retirement occurs on or
after age 62; the portion of the employee's benefit lost (due to the IRC
limitations) which would have been provided by the employer's contribution to
the Retirement Plan is 85%; the employee lives for 10 years after retirement;
and, the aggregate payments under the SERP are less than the cash value of life
insurance policies designated (see above) as SERP policies.
<TABLE>
<CAPTION>
Final Average Years of Service
Wage 15 20 25 30
<S> <C> <C> <C> <C>
$ 100,000 $ 26,250 $ 35,000 $ 43,750 $ 52,500
125,000 32,812 43,750 54,687 65,625
150,000 39,375 52,500 65,625 78,750
200,000 47,950 63,933 79,917 95,900
250,000 55,388 73,850 92,313 110,775
300,000 62,825 83,767 104,708 125,650
350,000 70,263 93,683 117,104 140,525
400,000 77,700 103,600 129,500 155,400
450,000 85,138 113,517 141,896 170,275
500,000 92,575 123,433 154,292 185,150
600,000 107,450 143,267 179,083 214,900
700,000 122,325 163,100 203,875 244,650
800,000 137,200 182,933 228,667 274,400
900,000 152,075 202,767 253,458 304,150
1,000,000 166,950 222,600 278,250 333,900
</TABLE>
The following table sets forth the credited years of service for
certain executive officers of the Company at August 31, 1997.
Name Years of Creditable Service
H. D. Cleberg 32
G. E. Evans 23
R. W. Honse 23
J. F. Berardi 5
S. P. Dees 13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons, none of whom, except as indicated below, is
either currently or formerly an officer or employee of the Company or any of its
subsidiaries, served as members of the Company's compensation committee during
1997: Messrs. Otis Molz, Lyman Adams, Jody Bezner, Harry Fehrenbacher and Joe
Royster. Mr. Molz was Chairman of the Board of the Company from December 1991
to December 1992 and has served as Vice Chairman and Vice President of the Board
of the Company from December 1992 to the current date. No executive officer of
the Company (i) served as a member of a compensation committee (or other board
committee performing equivalent functions or, in the absence of such committee,
the entire board of directors) of another entity, one of whose executive
officers served on the compensation committee of the Company, (ii) served as a
director of another entity, one of whose executive officers served on the
compensation committee of the Company, or (iii) served as a member of a
compensation committee (or other board committee performing equivalent functions
or, in the absence of such committee, the entire board of directors) of another
entity, one of whose executive officers served as a director of the Company.
COMPENSATION OF DIRECTORS
Directors' compensation consists of payment of three hundred dollars
($300.00) per day of Farmland business (including, for example, board and
committee meetings, and other similar activities), plus reimbursement of
necessary expenses incurred in connection with their official duties. 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.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Farmland's equity consists of preferred shares, common shares,
associate member common shares and capital credits. Only the common shares have
voting rights.
At August 31, 1997, no person was known by Farmland to be the
beneficial owner of more than five percent of Farmland's common shares.
At August 31, 1997, none of the directors of Farmland and the
executive officers listed under the first table under "Executive Compensation"
above, either individually or as a group, beneficially owned in excess of one
percent of any class of Farmland's equity.
CERTAIN RELATIONSHIP AND RELATED TRANSACTIONS
The Company transacts business in the ordinary course with its
directors and with its local cooperative members with which the directors are
associated on terms no more favorable than those available to its other members.
LEGAL MATTERS
Robert B. Terry, Vice President and General Counsel of Farmland, has given
an opinion upon the legality of the Offered Debt Securities.
EXPERTS
The Consolidated Financial Statements of Farmland as of August 31, 1996
and 1997 and for each of the years in the three-year period ended August 31,
1997 included herein and elsewhere in the Registration Statement, have been
included herein and in the Registration Statement in reliance upon the report of
KPMG Peat Marwick LLP, independent certified public accountants, appearing
elsewhere herein and upon the authority of such firm as experts in accounting
and auditing.
QUALIFIED INDEPENDENT UNDERWRITER
Interstate/Johnson Lane Corporation, a member of the NASD, has
participated as a qualified independent underwriter in the "due diligence"
review with respect to the preparation of this Prospectus. See "Plan of
Distribution", included herein, regarding the exception from pricing by the
qualified independent underwriter.
INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS
Page No.
Independent Auditors' Report ...............................
Consolidated Balance Sheets, August 31, 1996 and
1997 .......................................................
Consolidated Statements of Operations for each of
the years in the three-year period ended August
31, 1997 ...................................................
Consolidated Statements of Cash Flows for each of
the years in
the three-year period ended August 31, 1997 ................
Consolidated Statements of Capital Shares and
Equities for each of the years in the three-year
period ended August 31, 1997 ...............................
Notes to Consolidated Financial Statements .................
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Farmland Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Farmland
Industries, Inc. and subsidiaries as of August 31, 1996 and 1997, and the
related consolidated statements of operations, cash flows and capital shares and
equities for each of the years in the three-year period ended August 31, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Farmland Industries,
Inc. and subsidiaries as of August 31, 1996 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1997, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
October 17, 1997
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Accounts receivable - trade........................................ $ 624,002 $ 589,028
Inventories (Note 2)............................................... 736,620 745,301
Other current assets............................................... 101,748 94,239
Total Current Assets.......................................... $ 1,462,370 $ 1,428,568
Investments and Long-Term Receivables (Note 3)....................... $ 241,124 $ 266,554
Property, Plant and Equipment (Notes 4 and 5):
Property, plant and equipment, at cost............................. $ 1,506,460 $ 1,585,824
Less accumulated depreciation and amortization..................... 789,236 802,716
Net Property, Plant and Equipment.................................. $ 717,224 $ 783,108
Other Assets......................................................... $ 147,728 $ 167,082
Total Assets......................................................... $ 2,568,446 $ 2,645,312
FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Demand loan certificates............................................... $ 40,099 $ 50,523
Short-term notes payable (Note 5)...................................... 315,428 258,342
Current maturities of long-term debt (Note 5).......................... 41,080 91,643
Accounts payable - trade............................................... 392,436 366,345
Accrued payroll........................................................ 48,893 57,754
Other current liabilities.............................................. 302,384 361,750
Total Current Liabilities......................................... $ 1,140,320 $ 1,186,357
Long-Term Liabilities (Note 5):
Long-term borrowings (excluding current maturities).................... $ 616,258 $ 580,665
Other long-term liabilities............................................ 35,983 33,480
Total Long-Term Liabilities....................................... $ 652,241 $ 614,145
Deferred Income Taxes (Note 6)........................................... $ 6,709 $ 3,974
Minority Owners' Equity in Subsidiaries (Note 7)......................... $ 13,845 $ 18,843
Capital Shares and Equities (Note 8):
Preferred shares, $25 par value--Authorized 8,000,000 shares, 2,886
shares issued and outstanding
(50,565 shares in 1996).............................................. $ 1,264 $ 72
Common shares, $25 par value--Authorized 50,000,000
shares, 17,680,493 shares issued and outstanding
(16,580,112 shares in 1996) ......................................... 414,503 442,012
Associate member common shares (nonvoting), $25 par value --Authorized
2,000,000 shares, 889,913 shares
issued and outstanding (623,058 shares in 1996) ..................... 15,576 22,248
Earned surplus and other equities...................................... 323,988 357,661
Total Capital Shares and Equities................................. $ 755,331 $ 821,993
Contingent Liabilities and Commitments (Notes 5, 6 and 9)
Total Liabilities and Equities............................................. $ 2,568,446 $ 2,645,312
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31
1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C>
Sales....................................................... $ 7,256,869 $ 9,788,587 $ 9,147,507
Cost of sales............................................... 6,699,178 9,272,002 8,580,826
Gross income................................................ $ 557,691 $ 516,585 $ 566,681
Selling, general and administrative expenses................ $ 344,364 $ 368,954 $ 409,378
Other income (deductions):
Interest expense......................................... $ (53,862) $ (62,445) $ (62,335)
Interest income.......................................... 8,334 5,021 5,352
Other, net (Note 15)..................................... 11,600 24,257 22,486
Total other income (deductions)............................. $ (33,928) $ (33,167) $ (34,497)
Income before income taxes and equity in net
income of investees and minority owners'
interest in net income of subsidiaries................... $ 179,399 $ 114,464 $ 122,806
Income tax expense (Note 6)................................. 29,628 21,755 20,907
Income before equity in net income of investees and minority
owners' interest in net income of subsidiaries......... $ 149,771 $ 92,709 $ 101,899
Equity in net income of investees
(Note 3)................................................. 22,785 41,092 42,108
Minority owners' interest in net income
of subsidiaries.......................................... (9,757) (7,383) (8,584)
Net income ................................................. $ 162,799 $ 126,418 $ 135,423
Distribution of net income (Note 8):
Patronage refunds:
Farm supply patrons.................................. $ 74,557 $ 83,739 $ 101,262
Pork marketing patrons............................... 16,087 6,998 -0-
Beef marketing patrons............................... 2,488 2,753 6,458
Grain marketing patrons.............................. 1,285 -0- 585
Livestock production................................. -0- 5 2
$ 94,417 $ 93,495 $ 108,307
Earned surplus and other equities (Note 8)............... 68,382 32,923 27,116
$ 162,799 $ 126,418 $ 135,423
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended August 31
1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 162,799 $ 126,418 $ 135,423
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 69,138 77,741 90,351
Equity in net income of investees........................... (22,785) (41,092) (42,108)
Minority owners' equity in net
income of subsidiaries.................................... 9,757 7,383 8,584
(Gain) on disposition of investments........................ -0- (11,300) (552)
(Gain) loss on disposition of fixed assets.................. 1,882 (967) (1,390)
Patronage refunds received in equities...................... (2,025) (2,244) (1,830)
Proceeds from redemption of patronage equities.............. 3,776 5,112 5,106
Deferred income taxes....................................... 6,161 11,034 (1,469)
Other....................................................... 412 (2,335) 3,341
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable....................................... (70,413) (175,991) 27,644
Inventories............................................... (186,570) 47,220 (9,343)
Other assets.............................................. 38,889 (40,774) 6,249
Accounts payable.......................................... 782 140,721 (26,091)
Other liabilities......................................... 35,684 41,194 28,393
Net cash provided by operating activities..................... $ 47,487 $ 182,120 $ 222,308
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... $ (124,722) $ (168,272) $ (158,655)
Distributions from joint ventures............................. 513 22,239 55,238
Acquisition of investments and notes receivable............... (26,789) (51,923) (46,243)
Acquisition of other long-term assets......................... (2,141) (23,768) (25,724)
Proceeds from sale of investments
and collection of notes receivable.......................... 39,780 31,003 24,758
Proceeds from sale of fixed assets............................ 3,828 5,996 6,895
Acquisition of businesses..................................... -0- (39,536) (3,515)
Other......................................................... -0- (6,803) -0-
Net cash used in investing activities......................... $ (109,531) $ (231,064) $ (147,246)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of patronage refunds and dividends................... $ (26,648) $ (32,781) $ (32,515)
Payments for redemption of equities........................... (12,431) (27,470) (25,440)
Proceeds from bank loans and notes payable.................... 522,916 597,959 337,407
Payments of bank loans and notes payable...................... (513,672) (526,814) (427,139)
Proceeds from issuance of subordinated debt
certificates.............................................. 46,715 67,965 86,132
Payments for redemption of subordinated
debt certificates......................................... (26,866) (43,803) (37,455)
Net increase (decrease) in checks
and drafts outstanding.................................... 37,088 (6,144) 16,299
Net increase (decrease) in demand loan certificates........... (9,634) 26,575 10,424
Other, increase (decrease).................................... 492 (6,543) (2,775)
Net cash provided by (used in) financing activities........... $ 17,960 $ 48,944 $ (75,062)
Net decrease in cash and cash equivalents..................... $ (44,084) $ -0- $ -0-
Cash and cash equivalents at beginning of year................ 44,084 -0- -0-
Cash and cash equivalents at end of year...................... $ -0- $ -0- $ -0-
SUPPLEMENTAL SCHEDULE OF CASH PAID FOR INTEREST AND INCOME TAXES
Interest...................................................... $ 50,551 $ 58,125 $ 57,650
Income taxes (net of refunds)................................. $ 30,422 $ 27,943 $ 14,399
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equities and minority owners' interest called
for redemption............................................ $ 27,738 $ 25,214 $ 28,579
Transfer of assets in exchange for investment in
joint ventures............................................ $ 2,061 $ -0- $ 10,292
Appropriation of current year's net income as
patronage refunds......................................... $ 94,417 $ 93,495 $ 108,307
Acquisition of businesses:
Fair value of net assets acquired......................... $ -0- $ 52,401 $ -0-
Goodwill.................................................. -0- 3,181 2,550
Minority owners' investment............................... -0- -0- 965
Cash paid................................................. -0- (39,536) (3,515)
Liabilities assumed........................................... $ -0- $ 16,046 $ -0-
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES
<TABLE>
<CAPTION>
Years Ended August 31, 1995, 1996 and 1997
Associate Earned Total
Member Surplus and Capital
Preferred Common Common Other Shares and
Shares Shares Shares Equities Equities
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
BALANCE AT AUGUST 31, 1994......................... $ 3,702 $ 363,562 $ 9,268 $208,481 $ 585,013
Appropriation of current year's net income......... -0- -0- -0- 162,799 162,799
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (33,061) (33,061)
Base capital redemptions transferred
to current liabilities........................... -0- (13,939) (220) -0- (14,159)
Other equity redemptions transferred
to current liabilities........................... (1,249) (30) -0- (11,477) (12,756)
Prior year qualified patronage refund allocation... -0- 35,940 1,508 (37,284) 164
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- (73) 245 (172) -0-
Issue, redemption and cancellation of equities..... -0- (51) 332 (990) (709)
BALANCE AT AUGUST 31, 1995......................... $ 2,453 $ 385,409 $11,133 $288,292 $ 687,287
Appropriation of current year's net income......... -0- -0- -0- 126,418 126,418
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (32,719) (32,719)
Base capital redemptions transferred
to current liabilities........................... -0- (13,922) (103) -0- (14,025)
Other equity redemptions transferred
to current liabilities........................... (1,190) (6,578) (287) (3,272) (11,327)
Prior year qualified patronage refund allocation... -0- 49,644 6,493 (56,294) (157)
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- 116 (1,654) 1,538 -0-
Issue, redemption and cancellation of equities..... 1 (166) (6) 29 (142)
BALANCE AT AUGUST 31, 1996 $ 1,264 $ 414,503 $15,576 $323,988 $ 755,331
Appropriation of current year's net income......... -0- -0- -0- 135,423 135,423
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (40,228) (40,228)
Base capital redemptions transferred
to current liabilities........................... -0- (16,783) (444) -0- (17,227)
Other equity redemptions transferred
to current liabilities........................... (1,189) (6,737) (302) (2,963) (11,191)
Prior year qualified patronage refund allocation... -0- 53,269 5,640 (59,103) (194)
Dividends on preferred stock....................... -0- -0- -0- (4) (4)
Exchange of common stock, associate member
common stock and other equities.................. -0- (2,566) 1,929 637 -0-
Issue, redemption and cancellation of equities..... (3)
BALANCE AT AUGUST 31, 1997 $ 72 $ 442,012 $22,248 $357,661 $ 821,993
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Farmland Industries, Inc., a Kansas corporation, is organized and
operated as a cooperative and its mission is to be a producer-driven, customer-
focused and profitable agricultural supply to consumer foods cooperative system.
General -- The consolidated financial statements include the accounts
of Farmland Industries, Inc. and all of its majority-owned subsidiaries
("Farmland" or the "Company", unless the context requires otherwise). All
significant intercompany accounts and transactions have been eliminated. When
necessary, the financial statements include amounts based on informed estimates
and judgments of management. The Company's fiscal year ends August 31.
Accordingly, all references to "year" or "years" are to fiscal years ended
August 31.
Cash and Cash Equivalents -- Investments with maturities of less than
three months are included as cash and cash equivalents.
Investments -- Investments in companies over which the Company
exercises significant influence (20% to 50% voting control) are accounted for by
the equity method. Other investments are stated at cost, less any provision for
impairment (other than temporary impairment).
Accounts Receivable -- The Company uses the allowance method to
account for doubtful accounts and notes.
Inventories -- Grain inventories are valued at market adjusted for net
unrealized gains or losses on open commodity contracts. Crude oil, refined
petroleum products, cattle and beef inventories are valued at the lower of
last-in, first-out ("LIFO") cost or market. Other inventories are valued at the
lower of first-in, first-out ("FIFO") cost or market. Supplies are valued at
cost.
Property, Plant and Equipment -- Assets, including assets under
capital leases, are stated at cost. Depreciation and amortization are computed
principally using the straight-line method over the estimated useful lives of
the assets and the remaining terms of the capital leases, respectively.
Goodwill -- The excess of cost over the fair market value of assets of
businesses purchased is amortized on a straight-line basis over a period of 15
to 25 years. The Company assesses the recoverability of goodwill and measures
impairment, if any, by determining whether the unamortized balance can be
recovered over its remaining life through undiscounted future operating cash
flows. Goodwill is reflected in the accompanying Consolidated Balance Sheets
net of accumulated amortization of $10.3 million and $12.9 million,
respectively, at August 31, 1996 and 1997.
Sales -- The Company's policy is to recognize sales at the time
product is shipped. Net margins on grain merchandised by the Company's
international grain trading subsidiaries (collectively referred to as
"Tradigrain"), rather than the gross value of such products merchandised, are
included in net sales. The gross value of grain merchandised by Tradigrain in
1995, 1996 and 1997 was $1.6 billion, $2.6 billion and $2.3 billion,
respectively.
Derivative Commodity Instruments -- The Company uses derivative commodity
instruments, including forward contracts, futures contracts, purchased options
and collars, primarily to reduce its exposure to risk of loss from changes in
commodity prices. Derivative commodity instruments which are designated as
hedges and for which changes in value exhibit "high" correlation to changes in
value of the underlying position are accounted for as hedges.
Gains and losses on hedges of inventory are deferred as part of the carrying
amount of the related inventories and, upon sale of the inventory, recognized in
cost of sales. Gains and losses related to qualifying hedges of firm
commitments or anticipated transactions also are deferred and are recognized as
an adjustment to the carrying amounts of the commodities when the underlying
hedged transaction occurs. When a qualifying hedge is terminated or ceases to
meet the specified criteria for use of hedge accounting, any deferred gains or
losses through that date continue to be deferred. To the extent an anticipated
transaction is no longer likely to occur, related hedges are closed with gains
or losses charged to operations.
Tradigrain uses derivative commodity instruments to establish positions for
trading purposes. Instruments used for this purpose are marked-to-market and all
related gains and losses are included in operations. Cash flows from commodity
instruments are classified in the same category as cash flows from the hedged
commodities in the Consolidated Statements of Cash Flows.
Environmental Expenditures -- Liabilities related to remediation of
contaminated properties are recognized when the related costs are considered
probable and can be reasonably estimated. Estimates of these costs are based
upon currently available facts, existing technology, undiscounted site specific
costs and currently enacted laws and regulations. In reporting environmental
liabilities, no offset is made for potential recoveries. All liabilities are
monitored and adjusted as new facts or changes in law or technology occur.
Environmental expenditures are capitalized when such costs provide future
economic benefits.
Federal Income Taxes -- Farmland is subject to income taxes on all
income not distributed to patrons as qualified patronage refunds. Farmland
files consolidated federal and state income tax returns.
(2) INVENTORIES
Major components of inventories are as follows:
August 31
1996 1997
(Amounts in Thousands)
Finished and in-process
products...................$620,794 $625,577
Materials.................. 58,526 62,001
Supplies................... 57,300 57,723
$736,620 $745,301
The carrying values of crude oil and refined petroleum inventories
stated under the lower of LIFO cost or market at August 31, 1996 and 1997, were
$111.8 million and $125.5 million, respectively. Replacement cost approximated
the LIFO carrying values of inventories at both August 31, 1996 and 1997.
The carrying values of beef inventories stated under the lower of LIFO
or market at August 31, 1996 and 1997, were $32.3 million and $37.0 million,
respectively. At both August 31, 1996 and 1997, market value was lower than
LIFO and, accordingly, such inventories were valued at market.
(3) INVESTMENTS AND LONG-TERM RECEIVABLES
Investments and long-term receivables are as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Investments accounted for by the equity method................ $ 147,028 $ 177,994
Investments in and advances to other cooperatives............. 45,267 43,585
National Bank for Cooperatives ............................... 24,913 20,958
Other investments and long-term receivables................... 22,473 24,017
Notes receivable from ventures, 20% to 50% owned.............. 1,443 -0-
$ 241,124 $ 266,554
</TABLE>
National Bank for Cooperatives ("CoBank") requires its borrowers to
maintain an investment in stock of the bank. The amount of investment required
is based on the average amount borrowed from CoBank during the previous five
years. At August 31, 1996 and 1997, Farmland's investment in CoBank
approximated its requirement. CoBank maintains a statutory lien on the
investment held by the Company in CoBank.
Summarized financial information of investees accounted for by the
equity method is as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Current Assets................................................ $ 228,883 $ 269,565
Long-Term Assets.............................................. 319,166 492,966
Total Assets.............................................. $ 548,049 $ 762,531
Current Liabilities........................................... $ 191,632 $ 214,662
Long-Term Liabilities......................................... 57,208 186,344
Total Liabilities......................................... $ 248,840 $ 401,006
Net Assets.................................................... $ 299,209 $ 361,525
<CAPTION>
Year Ended August 31
1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C>
Net sales.................................. $ 1,212,592 $ 1,154,195 $ 1,366,038
Net income................................. $ 46,803 $ 83,075 $ 84,536
Farmland's equity in net income............ $ 22,785 $ 41,092 $ 42,108
</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. At
August 31, 1997, undistributed earnings from all ventures accounted for by the
equity method totaled $58.9 million.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of cost for property, plant and equipment is as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Land and improvements..................... $ 50,800 $ 51,586
Buildings................................. 278,097 275,835
Machinery and equipment................... 880,152 947,836
Automotive equipment...................... 67,754 67,021
Furniture and fixtures.................... 61,426 53,391
Capital leases............................ 50,562 54,467
Leasehold improvements.................... 24,539 28,981
Other..................................... 8,837 8,283
Construction in progress.................. 84,293 98,424
$ 1,506,460 $ 1,585,824
</TABLE>
(5) BANK LOANS, SUBORDINATED DEBT CERTIFICATES AND NOTES PAYABLE
Bank loans, subordinated debt certificates and notes payable are as
follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Subordinated capital investment certificates
--6% to 9.5%, maturing 1998 through 2014....................... $ 245,792 $ 284,493
Subordinated monthly income certificates
--6.25% to 9.25%, maturing 1998 through 2007................... 78,313 88,546
Syndicated Credit Facility
--5.84% to 6.28%, maturing 2001................................ 175,000 160,000
Other bank notes--6.5% to 10.75%,
maturing 1998 through 2008..................................... 88,704 69,943
Industrial revenue bonds--6.75% to 9.25%,
maturing 1998 through 2007..................................... 18,930 17,430
Promissory notes--7% to 8.5%,
maturing 1998 through 2005..................................... 16,917 11,707
Other--3% to 14.92%............................................... 33,682 40,189
$ 657,338 $ 672,308
Less current maturities........................................... 41,080 91,643
$ 616,258 $ 580,665
</TABLE>
The Company has a $1.1 billion Syndicated Credit Facility with a group
of domestic and international banks (the "Credit Facility"). The Credit
Facility provides revolving short-term credit of up to $650.0 million to
finance seasonal operations and inventory, and revolving term credit of up to
$450.0 million. At August 31, 1997, the Company had $185.5 million of revolving
short-term borrowings under the Facility and $160.0 million of revolving term
borrowings; additionally, $44.2 million of the Credit Facility was being
utilized to support letters of credit issued on behalf of the Company.
The Company pays commitment fees under the Credit Facility of 1/10
of 1% annually on the unused portion of the revolving short-term commitment
and 1/4 of 1% annually on the unused portion of the revolving term commitment.
In addition, the Company must comply with the Credit Facility's financial
covenants regarding working capital, the ratio of certain debt to average cash
flow and the ratio of equity to total capitalization, all as defined therein.
The short-term provisions of the Credit Facility are reviewed and/or renewed
annually. The next review date is in May 1998. The revolving term provisions
of the Credit Facility expire in May 2001.
Farmland National Beef Packing Company, L.P. ("FNBPC") maintains a
$90.0 million borrowing agreement with a group of banks which provides financing
support for its beef packing operations. The provisions of this agreement
expire in May 1998. Such borrowings are nonrecourse to Farmland or Farmland's
other affiliates (except to the extent of $10 million). At August 31, 1997,
$29.1 million was borrowed under this agreement and $0.6 million was utilized to
support letters of credit. In addition, FNBPC has certain long-term borrowings
from Farmland. FNBPC has pledged certain assets to Farmland and such group of
banks to support its borrowings.
The Company maintains other borrowing arrangements with banks and
financial institutions. At August 31, 1997, $40.8 million was borrowed under
such agreements.
Tradigrain has borrowing agreements with various international banks
which provide financing and letters of credit to support current international
grain trading transactions. At August 31, 1997, such short-term borrowings
totaled $72.8 million. Obligations of Tradigrain under these loan agreements
are nonrecourse to Farmland or Farmland's other affiliates.
Subordinated debt certificates have been issued under several
indentures. Certain subordinated capital investment certificates may be
redeemed prior to maturity at the option of the owner in accordance with the
indenture. Subject to limitations in the indenture, the Company has options to
redeem certain subordinated capital investment certificates in advance of
scheduled maturities. Additionally, upon written request the Company redeems
subordinated capital investment certificates and subordinated monthly income
certificates in the case of death of an owner.
Outstanding subordinated debt certificates are subordinated to senior
indebtedness ($459.8 million at August 31, 1997) and additional financings
(principally long-term operating leases). See Note 9.
At August 31, 1997, under industrial revenue bonds and other
agreements, property, plant and equipment with a carrying value of $14.1 million
have been pledged.
Borrowings from CoBank, totaling $93.6 million at August 31, 1997, are
partially secured by liens on the equity investment held by the Company in
CoBank. See Note 3.
Bank loans, subordinated debt certificates and notes payable mature
during future fiscal years ending August 31 in the following amounts:
(Amounts in Thousands)
1998................. $ 91,643
1999................. 38,272
2000................. 30,467
2001................. 211,736
2002................. 66,662
2003 and after....... 233,528
$ 672,308
At August 31, 1996 and 1997, the Company had demand loan certificates and
short-term bank debt outstanding of $355.5 million (weighted average interest
rate of 6.29%) and $308.9 million (weighted average interest rate of 6.07%),
respectively.
During 1995, 1996 and 1997, the Company capitalized interest of $0.7
million, $1.6 million and $4.0 million, respectively.
(6) INCOME TAXES
A. TERRA RESOURCES, INC.
In July 1983, Farmland sold the stock of Terra Resources, Inc.
("Terra"), a wholly owned subsidiary engaged in oil and gas exploration and
production operations, and exited its oil and gas exploration and production
activities. The gain from the sale of Terra amounted to $237.2 million for tax
reporting purposes.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a
statutory notice to Farmland asserting deficiencies in federal income taxes
(exclusive of statutory interest thereon) in the aggregate amount of $70.8
million. The asserted deficiencies relate primarily to the Company's tax
treatment of the $237.2 million gain resulting from its sale, in July 1983, of
the stock of Terra and the IRS's contention that Farmland incorrectly treated
the Terra sale gain as income against which certain patronage-sourced operating
losses could be offset. The statutory notice further asserts that Farmland
incorrectly characterized for tax purposes gains aggregating approximately $14.6
million, and a loss of approximately $2.3 million, from dispositions of certain
other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax
Court contesting the asserted deficiencies in their entirety. The case was
tried on June 13-15, 1995. The parties submitted post-trial briefs to the court
in September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $243.2 million
through August 31, 1997), or $329.0 million (before tax benefits of the
interest deduction) in the aggregate at August 31, 1997. 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 $8.1 million), or $13.1 million in the aggregate
at August 31, 1997. 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 Syndicated Credit
Facility (the "Credit Facility"), dated May 15, 1996, become less restrictive.
Had the United States Tax Court decided in favor of the IRS on all unresolved
issues, and had all related additional federal and state income taxes and
accumulated interest thereon been due and payable on August 31, 1997,
Farmland's borrowing capacity under the Credit Facility was adequate at that
time to finance the liability. However, Farmland's ability to finance such
an adverse decision depends substantially on the financial effects of future
operating events on its borrowing capacity under the Credit Facility.
No provision has been made in the Consolidated Financial Statements
for federal or state income taxes (or interest thereon) in respect of the IRS
claims described above. The Company believes that it has meritorious positions
with respect to all of these claims.
In the opinion of Bryan Cave LLP, the Company's special tax counsel,
it is more likely than not that the courts will ultimately conclude that the
Company's treatment of the Terra sale gain was substantially, if not entirely,
correct. Such counsel has further advised, however, that none of the issues
involved in this dispute is free from doubt, and there can be no assurance that
the courts will ultimately rule in favor of the Company on any of these issues.
B. OTHER INCOME TAX MATTERS
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended August 31
1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C>
Federal:
Current.................................. $ 18,533 $ 7,322 $ 18,712
Deferred................................. 4,255 9,430 (1,129)
$ 22,788 $ 16,752 $ 17,583
State:
Current................................. $ 3,356 $ 1,292 $ 3,303
Deferred................................ 665 1,664 (199)
$ 4,021 $ 2,956 $ 3,104
Foreign:
Current................................. $ 1,578 $ 2,107 $ 361
Deferred................................ 1,241 (60) (141)
$ 2,819 $ 2,047 $ 220
Total income tax expense................... $ 29,628 $ 21,755 $ 20,907
</TABLE>
Income tax expense differs from the "expected" income tax expense
using a statutory rate of 35% as follows:
<TABLE>
<CAPTION>
Year Ended August 31
1995 1996 1997
<S> <C> <C> <C>
Computed "expected" income tax expense on
income
before income taxes ..................... 35.0 % 35.0 % 35.0 %
Increase (reduction) in income tax
expense attributable to:
Patronage refunds ....................... (18.3) (20.4) (22.4)
State income tax expense net of
federal income tax effect.............. 2.2 2.5 1.6
Other, net .............................. (2.4) 1.9 2.8
Income tax expense......................... 16.5 % 19.0 % 17.0 %
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at August 31, 1996
and 1997 are as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<C> <C> <C>
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences
in depreciation......................... $ 40,182 $ 51,632
Prepaid pension cost ....................... 21,500 19,242
Income from foreign subsidiaries ........... -0- 3,765
Basis differences in pass-through
ventures................................ -0- 3,929
Other ...................................... 2,080 3,144
Total deferred tax liabilities.......... $ 63,762 $ 81,712
Deferred tax assets:
Safe harbor leases ......................... $ 4,699 $ 4,143
Accrued expenses ........................... 47,140 49,747
Benefit of nonqualified
written notices......................... -0- 19,456
Accounts receivable, principally due to
allowance for doubtful accounts......... 1,971 1,844
Other ...................................... 3,243 2,548
Total deferred tax assets .................. $ 57,053 $ 77,738
Net deferred tax liability ................. $ 6,709 $ 3,974
</TABLE>
A valuation allowance of $1.5 million and $1.6 million for deferred
tax assets was provided at August 31, 1996 and 1997, respectively. The
valuation allowance was provided because of limitations imposed by the tax laws
on the Company's ability to realize the benefit of income tax credits obtained
through an acquisition.
At August 31, 1997, Farmland has member-sourced loss carryforwards,
expiring in 2012, amounting to $13.5 million available to offset future member-
sourced income. No deferred tax asset has been established for these
carryforwards since member-sourced losses offset future patronage refunds.
(7) MINORITY OWNERS' EQUITY IN SUBSIDIARIES
A summary of the equity in subsidiaries owned by others is as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Farmland National Beef Packing Company, L.P................ $ 6,455 $ 11,491
Farmland Foods, Inc. ...................................... 4,594 4,423
Other subsidiaries......................................... 2,796 2,929
$ 13,845 $ 18,843
</TABLE>
The Company has agreed to sell up to a 25% interest in FNBPC to an
unrelated party, U.S. Premium Beef, LTD. ("USPB"). Therefore, the Company's
ownership in FNBPC could be reduced to 50%. At this time, there is no assurance
USPB will raise the capital necessary to consummate part or all of this
transaction.
(8) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES
A summary of preferred stock is as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Preferred shares, $25 par value - Authorized
8,000,000 shares: 6% - 570 shares issued and
outstanding (608 shares in 1996).................... $ 15 $ 14
5-1/2% - 2,316 shares issued and outstanding
(2,412 shares in 1996)................................. 60 58
Series F - -0- shares issued and outstanding
(47,545 shares in 1996)................................ 1,189 -0-
$ 1,264 $ 72
</TABLE>
Dividends on the 5-1/2% and 6% preferred stock are cumulative if
declared by the Farmland Board of Directors and only to the extent earned each
year. Upon liquidation, preferred stock holders are entitled to the par value
thereof and any declared or unpaid earned dividends.
A summary of earned surplus and other equities is as follows:
<TABLE>
<CAPTION>
August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Earned surplus............................................ $ 230,340 $ 257,044
Patronage refund allocable in equities.................... 60,776 68,079
Capital credits........................................... 31,237 30,879
Additional paid-in surplus................................ 1,616 1,616
Currency translation adjustment........................... 19 43
$ 323,988 $ 357,661
</TABLE>
In accordance with the bylaws of Farmland, the member-sourced portion
of its net income or loss and the resulting patronage refund payable to members
and patrons are determined annually. In 1997, a portion of the patronage refund
was paid in the form of qualified written notices of allocation and a portion
was paid in the form of nonqualified written notices of allocation. The
qualified patronage refund was paid 70% in cash and the remainder was
distributed in the form of common shares, associate member common shares or
capital credits, depending on the patron's status. The member or patron must
take the total amount of the qualified patronage refund into income for income
tax purposes in the year issued. The nonqualified patronage refund was recorded
as book credits in the form of common shares, associate member common shares or
capital credits, depending on the member or patron's status. The nonqualified
distribution is not taxable income to the member or patron until redeemed in
cash.
Capital credits are issued: 1) for payment of patronage refunds to
patrons who do not satisfy requirements for membership or associate membership
and 2) upon conversion of common stock or associate member common stock held by
persons who no longer meet qualifications for membership or associate membership
in Farmland.
Additional paid-in surplus results from members donating Farmland
equity to Farmland.
Farmland maintains a base capital plan. The plan's objectives are as
follows: 1) to achieve proportionality between the dollar amount of business a
member or associate member of Farmland ("Participant") transacts with Farmland
and the equity of Farmland which the Participant should hold (hereinafter
referred to as the Participant's "Base Capital Requirement") and 2) provide a
method for the Board of Directors, in its discretion, to redeem equities held by
a Participant when the amount of such equity held by the Participant exceeds the
Participant's Base Capital Requirement. Under this plan, the cash portion of
the patronage refund payable to voting members or associate members depends upon
the degree to which such voting members or associate members meet their Base
Capital Requirements.
The Base Capital Requirement is determined annually by the Board of
Directors at its sole discretion. At August 31, 1996 and 1997, common stock and
associate member common stock with an aggregate par value of $14.0 million and
$17.2 million, respectively, were approved for redemption by the Board of
Directors under the base capital plan and such amounts have been included in
"Other current liabilities" in the Consolidated Balance Sheets at August 31,
1996 and 1997, respectively.
Farmland maintains an estate settlement plan for redemption of
equities held by estates of deceased individuals (except purchased equities held
less than five years) and special equity redemption plans. Under these plans,
the Board of Directors, in its discretion, may redeem equities based on certain
factors, including the financial position and consolidated net income of the
Company.
At August 31, 1996 and 1997, certain equities with a face amount of
$11.4 million and $11.5 million were approved by the Board of Directors for
redemption under the estate settlement, preferred shares and other special
equity redemption plans and such amounts have been included in "Other current
liabilities" in the Consolidated Balance Sheets at August 31, 1996 and 1997,
respectively.
None of the aforementioned equities are held by or for the account of
Farmland or in any sinking or other special fund of Farmland and none have been
pledged by Farmland.
(9) CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various equipment and real properties under
long-term operating leases, and also has certain throughput and take-or-pay
agreements for processing services and raw material supplies. For 1995, 1996
and 1997, rental expenses and purchases under the throughput and take-or-pay
agreements totaled $44.6 million, $42.1 million and $55.7 million, respectively.
Rental expense is reduced for sublease income, primarily mileage credits
received on leased railroad cars ($1.8 million in 1995, $1.4 million in 1996 and
$5.4 million in 1997).
The lease and throughput and take-or-pay agreements have various
remaining terms ranging from one year to twenty years. Some agreements are
renewable, at the Company's option, for additional periods. The minimum
required payments for these agreements during the fiscal years ending August 31
are as follows:
(Amounts in Thousands)
1998...........................$ 72,234
1999........................... 63,477
2000........................... 53,477
2001........................... 45,786
2002........................... 30,981
2003 and after................. 121,019
$ 386,974
Commitments for capital expenditures and investments in joint ventures
aggregated $39.2 million at August 31, 1997.
The Company has been designated by the Environmental Protection Agency
as a potentially responsible party ("PRP") under the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), at various National
Priority List ("NPL") sites. In addition, the Company is aware of possible
obligations associated with environmental matters at other sites, including
sites where no claim or assessment has been made. The Company's accrued
liability for probable and reasonably estimable obligations for resolution of
environmental matters at NPL and other sites was $18.9 million and $16.9 million
at August 31, 1996 and 1997, respectively.
The ultimate costs of resolving certain environmental matters are not
quantifiable because many such matters are in preliminary stages and the timing
and extent of actions which governmental authorities may ultimately require are
unknown. It is possible that the costs of such resolution may be greater than
the liabilities which, in the opinion of management, are probable and reasonably
estimable at August 31, 1997. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $17.5 million.
In the ordinary course of conducting international grain trading,
Tradigrain, as of August 31, 1997, was contingently liable in the amount of
$56.0 million of guarantees, performance and bid bonds, and letters of credit.
The Company is involved in various lawsuits arising in the normal
course of business. In the opinion of management, except for the tax litigation
relating to Terra as explained in Note 6, the ultimate resolution of these
litigation issues will not have a material adverse effect on the Company's
Consolidated Financial Statements.
(10) EMPLOYEE BENEFIT PLANS
The Farmland Industries, Inc. Employee Retirement Plan (the "Plan") is
a defined benefit plan in which substantially all employees of the Company who
meet minimum age and length-of-service requirements are eligible to
participate. Benefits payable under the Plan are based on years of service
and the employee's average compensation during the highest four of the
employee's last ten years of employment.
The assets of the Plan are maintained in a trust fund. The majority
of the Plan's assets are invested in common stocks, corporate bonds, United
States Government securities and short-term investment funds.
The Company's funding strategy is to make the maximum annual
contribution to the Plan's trust fund that can be deducted for federal income
tax purposes. The Company charges pension cost as accrued based on actuarial
valuation of the Plan.
<TABLE>
Components of the Company's pension cost are as follows:
<CAPTION>
Year Ended August 31
1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period................... $ 10,336 $ 10,886 $ 11,333
Interest cost on projected benefit obligation...................... 16,707 18,843 19,816
Actual return on Plan assets....................................... (27,422) (46,630) (37,816)
Net amortization and deferral...................................... 8,677 24,634 12,252
Pension expense.................................................... $ 8,298 $ 7,733 $ 5,585
</TABLE>
The discount rate, the rate of increase in future compensation levels
used in determining the actuarial present value of the projected benefit
obligations and the expected long-term rate of return on assets were 8.0%, 4.5%
and 8.5%, respectively, at August 31, 1995, 1996 and 1997.
The following table sets forth the Plan's funded status and amounts
recognized in the Company's Consolidated Balance Sheets at August 31, 1996 and
1997. Such prepaid pension cost is based on the Plan's funded status as of May
31, 1996 and 1997.
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997
(Amounts in Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.................................................... $ 180,253 $ 196,063
Nonvested benefits................................................. 12,024 16,730
Accumulated benefit obligation..................................... $ 192,277 $ 212,793
Increase in benefits due to future compensation increases.......... 56,030 51,730
Projected benefit obligation....................................... $ 248,307 $ 264,523
Estimated fair value of Plan assets................................ 301,504 331,822
Plan assets in excess of projected benefit obligation.............. $ 53,197 $ 67,299
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes
in assumptions.................................................. 450 (15,405)
Unrecognized prior service cost.................................... 871 621
Prepaid pension cost at end of year.................................. $ 54,518 $ 52,515
</TABLE>
During 1997, certain employees transferred to a newly formed venture
and were no longer eligible to participate in the Plan. As a result of such
transfer, the Company recognized a curtailment gain of $3.6 million.
(11) INDUSTRY SEGMENT INFORMATION
The Company conducts business primarily in two operating areas:
agricultural inputs and outputs. On the input side of the agricultural
industry, the Company operates as a farm supply cooperative. On the output side
of the agricultural industry, the Company operates as a processing and marketing
cooperative.
The Company's farm supply operations consist of three principal
product divisions: petroleum, crop production and feed. Principal products of
the petroleum division are refined fuels, propane, jet fuels and by-products of
petroleum refining. Principal products of the crop production division are
nitrogen-, phosphate- and potash-based fertilizers, and, through the Company's
ownership in the WILFARM, LLC and Omnium L.L.C. joint ventures, a complete line
of insecticides, herbicides and mixed chemicals. Principal products of the feed
division include swine, dairy, pet, beef, poultry, mineral and specialty feeds,
feed ingredients and supplements, animal health products and livestock services.
On the output side, the Company's processing and marketing operations
include the processing of pork and beef, the marketing of fresh pork, processed
pork and fresh beef and the storage and marketing of grain.
Other operations primarily includes livestock production and services
such as computer services, accounting, financial, management, printing and
transportation.
The operating income (loss) of each industry segment includes the
revenue generated on transactions involving products within that industry
segment less identifiable and allocated expenses. In computing operating income
(loss) of industry segments, none of the following items has been added or
deducted: interest expense, interest income, other income (deductions) or
corporate expenses (included in the statements of operations as selling, general
and administrative expenses), which cannot practicably be identified or
allocated by industry segment. Corporate assets include cash, investments in
other cooperatives, the Company's corporate headquarters and certain other
assets.
Following is a summary of industry segment information as of and for
the years ended August 31, 1995, 1996 and 1997.
<TABLE>
<CAPTION>
Unallocated
Corporate
Items
Farm Supply Marketing and Inter-
Crop and Processing Other Segment
Petroleum Production Feed Foods Grain Operations Eliminations Consolidated
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1995
Sales to unaffiliate
customers......... $876,776 $1,171,389 $467,695 $2,692,892 $1,906,164 $ 141,953 $ -0- $ 7,256,869
Tansfers between
segments.......... 6,549 18,368 5,982 3,100 13,164 80,891 (128,054) -0-
Total sales and
transfers......... $883,325 $1,189,757 $473,677 $2,695,992 $1,919,328 $ 222,844 $(128,054) $ 7,256,869
Operating income
(loss) of industry
segments.......... $ (8,029) $ 198,575 $ 9,773 $ 77,060 $ 17,936 $ 618 $ 295,933
Equity in net income
(loss) of investee
(Note 3).......... $ 168 $ 22,096 $ 130 $ 823 $ 688 $ (1,120) $ 22,785
General corporate
expenses.......... (83,039)
Other corporate
income............ 20,367
Interest expense... (53,862)
Minority interest... (9,757)
Income tax expense.. (29,628)
Net income.......... $ 162,799
Identifiable assets at
August 31, 1995... $313,478 $ 410,979 $ 93,438 $ 491,257 $ 503,670 $ 80,470 $ 1,893,292
Investment in and
advances to
investees......... $ 953 $ 80,805 $ 1,497 $ 325 $ 120 $ 9,304 $ 93,004
Corporate assets.... 199,647
Total assets........ $ 2,185,943
Provision for
depreciation and
amortization...... $ 9,858 $ 15,530 $ 4,319 $ 21,891 $ 5,156 $ 5,308 $ 7,076 $ 69,138
Capital expenditures $ 27,638 $ 23,845 $ 5,766 $ 32,219 $ 905 $ 7,504 $ 28,986 $ 126,863
1996
Sales to unaffiliated
customers........$1,058,258 $1,336,307 $569,869 $3,220,996 $3,468,686 $ 134,471 $ -0- $ 9,788,587
Transfers between
segments......... 7,895 16,392 13,672 2,959 72,819 93,144 (206,881) -0-
Total sales and
transfers........$1,066,153 $1,352,699 $583,541 $3,223,955 $3,541,505 $ 227,615 $(206,881) $ 9,788,587
Operating income
(loss) of industry
segments.........$ 4,990 $ 179,008 $ 12,952 $ 65,953 $ (18,234) $ (3,003) $ 241,666
Equity in net income
(loss) of investees
(Note 3).........$ (98) $ 41,899 $ 382 $ -0- $ (10) $ (1,081) $ 41,092
General corporate
expenses......... (94,035)
Other corporate
income........... 29,278
Interest expense.. (62,445)
Minority interest.. (7,383)
Income tax expense. (21,755)
Net income......... $ 126,418
Identifiable assets at
August 31, 1996..$ 433,352 $ 438,559 $107,267 $ 618,122 $ 455,044 $ 102,278 $ 2,154,622
Investment in and
advances to
investees........$ 611 $ 136,959 $ 3,399 $ 18 $ 468 $ 7,016 $ 148,471
Corporate assets... 265,353
Total assets....... $ 2,568,446
Provision for
depreciation and
amortization.....$ 11,024 $ 16,797 $ 4,625 $ 26,438 $ 5,010 $ 6,766 $ 7,081 $ 77,741
Capital expenditure
(Including $29.9
million of capital
assets of
businesses
acquired)........$ 42,075 $ 37,296 $ 5,083 $ 84,493 $ 6,643 $ 19,044 $ 27,342 $ 221,976
1997
Sales to unaffiliated
customers........$1,331,786 $1,263,566 $618,000 $3,559,305 $2,238,695 $ 136,155 $ -0- $ 9,147,507
Transfers between
segments......... 5,153 15,752 18,134 7,362 160,313 108,192 (314,906) -0-
Total sales and
transfers........$1,336,939 $1,279,318 $636,134 $3,566,667 $2,399,008 $ 244,347 $(314,906) $ 9,147,507
Operating income
(loss) of industry
segments.........$ 36,314 $ 158,992 $ 6,658 $ 44,072 $ 6,783 $ (9,856) $ 242,963
Equity in net income
of investees
(Note 3).........$ 101 $ 41,213 $ 342 $ -0- $ 241 $ 211 $ 42,108
General corporate
expenses......... (85,657)
Other corporate
income........... 27,835
Interest expense.. (62,335)
Minority interest.. (8,584)
Income tax expense. (20,907)
Net income......... $ 135,423
Identifiable assets at
August 31, 1997..$ 449,045 $ 465,014 $107,536 $ 647,395 $ 494,176 $ 88,936 $ 2,252,102
Investment in and
advances to
investees........$ 706 $ 158,549 $ 3,185 $ 18 $ 3,901 $ 11,635 $ 177,994
Corporate assets... 215,216
Total assets....... $ 2,645,312
Provision for
depreciation and
amortization.....$ 13,828 $ 17,705 $ 4,959 $ 31,581 $ 4,934 $ 9,421 $ 7,923 $ 90,351
Capital
expenditures .....$ 22,838 $ 78,859 $ 3,167 $ 38,106 $ 2,646 $ 12,172 $ 30,106 $ 187,894
</TABLE>
Export sales from the Company's United States operations to unaffiliated
customers were as follows:
<TABLE>
<CAPTION>
Year Ended August 31
1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C>
Asia................................. $ 788,583 $ 705,905 $ 549,404
Latin and South America.............. 216,059 695,404 441,912
Canada............................... 58,740 61,217 53,567
Other................................ 224,386 527,770 308,412
Total................................ $ 1,287,768 $ 1,990,296 $ 1,353,295
</TABLE>
(12) SIGNIFICANT GROUP CONCENTRATION OF CREDIT RISK
The Company extends credit to its customers on terms generally no more
favorable than standard terms of sale for the industries it serves. A
substantial portion of the Company's receivables are concentrated in the
agricultural industry. Collection of these receivables may be dependent upon
economic returns from farm crop and livestock production. The Company's credit
risks are continually reviewed and management believes that adequate provisions
have been made for doubtful accounts.
The Company maintains investments in and advances to cooperatives,
cooperative banks and joint ventures from which it purchases products or
services. A substantial portion of the business of these investees is dependent
upon the agribusiness economic sector. See Note 3.
(13) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
<TABLE>
Estimates of fair values are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could affect the estimates.
Except as follows, the fair market value of the Company's financial
instruments approximates the carrying value:
<CAPTION>
August 31, 1996 August 31, 1997
Carrying Carrying
Amount Fair Value Amount Fair Value
(Amounts in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Investments:
National Bank for Cooperatives.............. $ 24,913 $ **** $ 20,958 $ ****
Other cooperatives:
Equities.................................. 27,160 **** 27,871 ****
Notes receivable.......................... 18,107 17,073 15,714 15,010
FINANCIAL LIABILITIES:
Subordinated capital investment certificates
and subordinated monthly
income certificates........................... $ (324,105) $ (317,476) $ (373,039) $ (376,891)
</TABLE>
****Investments in National Bank for Cooperatives and other cooperatives'
equities which have been purchased are carried at cost and equities received as
patronage refunds are carried at par value, less provisions for other than
temporary impairment. The Company believes it is not practicable to estimate
the fair value of these equities because there is no established market for
these equities and estimated future cash flows, which are largely dependent on
the future equity redemptions policy of each cooperative, are not determinable.
The estimated fair value of notes receivable has been estimated by
discounting future cash flows using the current rates at which similar loans
would be made to borrowers with similar credit ratings.
The estimated fair value of the subordinated debt certificates was
calculated using a discount rate equal to the interest rate on subordinated debt
certificates with similar maturities currently offered for sale by the Company.
The carrying amounts of the Company's other debt borrowings approximate their
fair market value.
(14) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in two manufacturers of phosphate
products, Farmland Hydro, L.P. and SF Phosphates Limited Company, and a 50%
interest in a distributor of crop protection products, WILFARM, LLC. During
1995, 1996 and 1997, the Company purchased $106.2 million, $117.4 million and
$109.7 million, respectively, of product from these ventures. Accounts payable
includes $2.9 million and $9.6 million due to these ventures at August 31, 1996
and 1997, respectively. The Company also has notes receivable from these
ventures in the amount of $12.9 million and $8.9 million at August 31, 1996 and
1997, respectively.
During 1997, the Company entered into an agreement with OneSystem
Group, LLC ("OSG"), a 50% owned venture, to provide information technology
services for a monthly fee plus certain other expenses. Fees and expenses for
these services amounted to $22.2 million for the year ended August 31, 1997.
Accounts payable of $0.3 million were due to OSG at August 31, 1997.
(15) OTHER INCOME
In May 1996, the Company sold its interest in a communications joint
venture, Broadcast Partners. The sale resulted in a gain before income taxes of
$10.9 million, which has been included in the caption "Other income
(deductions): Other, net" in the Company's 1996 Consolidated Statement of
Operations.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses (excluding commissions) to be incurred in connection with the
issuance and distribution of the securities to be offered are estimated as
follows and will be borne by the Company:
Estimated
Item Expense
Federal and state registration fees $ 135,000
..................................
State taxes and fees.............. 6,000
Printing and engraving............ 236,000
Accounting and legal.............. 118,000
Trustee fee....................... 10,000
Advertising and administration.... 980,000
$1,485,000
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 6002(b) of Chapter 17 of the Kansas Statutes (1987), permits the
following provision to be included in the articles of incorporation of the
Company: a provision eliminating or limiting the personal liability of a
director to the corporation or its stockholders, policyholders or members for
monetary damages for breach of fiduciary duty as a director, provided that such
provision shall not eliminate or limit the liability of a director (A) for any
breach of the director's duty of loyalty to the corporation or its stockholders,
policyholders or members, (B) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing violation of law, (C) under the
provision of K.S.A. 17-6424 and amendments thereto or (D) for any transaction
from which the director derived an improper personal benefit. No such provision
shall eliminate or limit the liability of a director for any act or omission
occurring prior to the date when such provision becomes effective. All
references in this subsection to a director shall be deemed also to refer to a
member of the governing body of a corporation which is not authorized to issue
capital stock. Section 6002(c) provides that "It shall not be necessary to set
forth in the articles of incorporation any of the powers conferred on
corporations by this act."
Article VII of the Articles of Incorporation of Farmland reads as follows:
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. Sec. 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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Company did not sell any unregistered securities during the three years
ended August 31, 1997.
ITEM 16. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
The following exhibits are filed as a part of this Form S-1 Registration
Statement. Certain of these exhibits are incorporated by reference. Items
marked with an asterisk (*) are filed herein.
Exhibit No. Description of Exhibits
UNDERWRITING AGREEMENT:
1.A Underwriting Agreement between Farmland Industries, Inc. and Farmland
Securities Company, dated December 6, 1989. (Incorporated by
Reference - Form S-1 No. 33-56821 filed December 12, 1994)
1.A(1) Amendment, dated December 5, 1994, to the agreement, dated
December 6, 1989 between Farmland Industries, Inc. and Farmland
Securities Company. (Incorporated by Reference - Form S-1 No.
33-56821, filed December 12, 1994)
1.B Sales Agency Agreement between Farmland Industries, Inc. and American
Heartland Investment, Inc., dated December 29, 1993.(Incorporated by
Reference - Form S-1 No. 33-56821, filed December 12, 1994)
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q,
filed January 14, 1997)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
** 4.(i)A Trust Indenture dated November __, 1997, with UMB Bank, National
Association, providing for issuance of unsubordinated debt
securities, including specimen of Demand Loan Certificates.
** 4.(i)B Trust Indenture dated November __, 1997, with Commerce Bank,
National Association, providing for issuance of subordinated debt
securities, including specimen of Ten-Year Bond, Series A, Ten-Year
Bond, Series B, Five-Year Bond, Series C, Five-Year Bond, Series D,
Ten-Year Monthly Income Bond, Series E, Ten-Year Monthly Income
Bond, Series F, Five-Year Monthly Income Bond, Series G and Five-
Year Monthly Income Bond, Series H.
4.(ii)A Syndicated Credit Facility between Farmland Industries, Inc. and
various banks dated May 15, 1996, (Incorporated by Reference - Form
10-Q filed July 15, 1996)
4.(ii)A(1) First Amendment dated May 14, 1997 (including
Exhibits A, B, C, D and Schedule 101A) to
Syndicated Credit Facility dated May 15, 1996
between Farmland Industries, Inc. and various
banks. (Incorporated by Reference - Form 10-K
filed November 7, 1997)
Certain instruments relating to long-term debt not being registered have
been omitted in accordance with Item 601(b)(4)(iii) of Regulation S-K.
Registrant will furnish a copy of any such instrument to the Commission
upon its request.
**5 Opinion of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. re Legality
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First National
Bank of Chicago, not individually but solely as Trustee for AT&T
Commercial Finance Corporation, The Boatmen's National Bank of St.
Louis, Firstier Bank, N.A. and Norwest Bank Minnesota, National
Association and Farmland Industries, Inc. in the amount of
$73,153,000. (Incorporated by Reference - Form SE, filed December 3,
1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National Bank
of Commerce as Trustee for General Electric Credit Corporation as
Beneficiary and Farmland Industries, Inc. in the amount of
$51,909,257.90. (Incorporated by Reference - Form S-1, No. 2-60372,
effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Employee Variable Compensation Plan (September 1, 1997 -
August 31, 1998). (Incorporated by Reference - Form 10-K
filed November 7, 1997)
10.(iii)B Farmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1993) (Incorporated by Reference -
Form 10-K, filed November 28, 1995)
10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999) (Incorporated by
Reference - Form 10-K filed November 7, 1997)
10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000) (Incorporated by
Reference - Form 10-K filed November 7, 1997)
10.(iii)C Farmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference -
Form 10-K, filed November 28, 1995)
10.(iii)C(1) Resolution Approving the Revision of Appendix A and Appendix
A (Incorporated by Reference - Form 10-K, filed November 27,
1996)
10.(iii)D Farmland Industries, Inc. Executive Deferred Compensation Plan
(As Amended and Restated Effective November 1, 1996)
(Incorporated by Reference - Form 10-K, filed November 27, 1996)
*12 Computation of Ratios
21 Subsidiaries of the Registrant . (Incorporated by Reference - Form 10-K
filed November 7, 1997)
CONSENTS OF EXPERTS AND COUNSEL:
*23.A Independent Auditors' Consent
*23.B Consent of Special Tax Counsel
*23.C Consent of Qualified Independent Underwriter
*23.D Consent of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. (included in Exhibit 5)
*24 Power of Attorney
*25.A Statement of Eligibility of Trustee and Qualification of UMB Bank,
National Association Trustee, Form T-1.
*25.B Statement of Eligibility of Trustee and Qualification of Commerce Bank,
National Association as Trustee, Form T-1.
* Filed herewith
** To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES
All schedules are omitted as the required information is inapplicable or
the information is presented in the Consolidated Financial Statements or related
notes included herein.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement.
Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the
total dollar value of securities offered would not
exceed that which was registered) and any deviation
from the low or high end of the estimated maximum
offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule
424(b) (Section 230.424(b)) if, in the aggregate, the
changes in volume and price represent no more than a
20% change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee"
table in the effective Registration Statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement;
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, FARMLAND
INDUSTRIES, INC. HAS DULY CAUSED THIS REGISTRATION STATEMENT ON FORM S-1 TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY
OF KANSAS CITY, STATE OF MISSOURI ON NOVEMBER 21, 1997.
FARMLAND INDUSTRIES, INC.
BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Executive Vice President and
Chief Financial Officer
BY /s/ ROBERT B. TERRY
Robert B. Terry
Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT ON FORM S-1 HAS BEEN SIGNED FOR THE FOLLOWING PERSONS IN
THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
* Chairman of Board, November 21, 1997
Albert J. Shivley Director
* President, November 21, 1997
H. D. Cleberg Chief Executive
Officer and Director
(Principal Executive Officer)
* Vice Chairman of Board November 21, 1997
Otis H. Molz Vice President and Director
* Director November 21, 1997
Lyman L. Adams, Jr.
* Director November 21, 1997
Ronald J. Amundson
* Director November 21, 1997
Baxter Ankerstjerne
* Director November 21, 1997
Jody Bezner
* Director November 21, 1997
Richard L. Detten
* Director November 21, 1997
Steven Erdman
* Director November 21, 1997
Harry Fehrenbacher
* Director November 21, 1997
Warren Gerdes
* Director November 21, 1997
Ben Griffith
* Director November 21, 1997
Gail D. Hall
* Director November 21, 1997
Barry Jensen
* Director November 21, 1997
Ron Jurgens
Director November 21, 1997
William F. Kuhlman
* Director November 21, 1997
Greg Pfenning
* Director November 21, 1997
Monte Romohr
* Director November 21, 1997
Joe Royster
Director November 21, 1997
E. Kent Stamper
* Director November 21, 1997
Eli F. Vaughn
* Director November 21, 1997
Frank Wilson
/s/ TERRY M. CAMPBELL Executive Vice President November 21, 1997
Terry M. Campbell and Chief Financial Officer
(Principal Financial Officer)
/s/ MERL DANIEL Vice President and November 21, 1997
Merl Daniel Controller
(Principal Accounting Officer)
*BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Attorney-In-Fact
</TABLE>
EXHIBIT 99
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
________________
EXHIBITS
To
Form S-1
Registration Statement
Under
The Securities Act of 1933
___________________
Farmland Industries, Inc.
Financial Information for the Fiscal Year Ending
August 31, 1997
EXHIBIT INDEX
The following exhibits are filed as a part of this Form S-1 Registration
Statement. Certain of these exhibits are incorporated by reference as
indicated. Items marked with an asterisk (*) are filed herein. Items marked
with two asterisks (**) will be filed by amendment.
Exhibit No. Description of Exhibits Page No
UNDERWRITING AGREEMENT:
1.A Underwriting Agreement between Farmland Industries, Inc. and Farmland
Securities Company, dated December 6, 1989. (Incorporated by Reference -
Form S-1 No. 33-56821 filed December 12, 1994)
1.A(1) Amendment, dated December 5, 1994, to the agreement, dated
December 6, 1989 between Farmland Industries, Inc. and Farmland
Securities Company. (Incorporated by Reference - Form S-1 No.
33-56821, filed December 12, 1994)
1.B Sales Agency Agreement between Farmland Industries, Inc. and American
Heartland Investment, Inc., dated December 29, 1993. (Incorporated by
Reference - Form S-1 No. 33-56821, filed December 12, 1994)
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q,
filed January 14, 1997)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
** 4.(i)A Trust Indenture dated November __, 1997, with UMB Bank, National
Association, providing for issuance of unsubordinated debt
securities, including specimen of Demand Loan Certificates.
**4.(i)B Trust Indenture dated November __, 1997, with Commerce Bank,
National Association, providing for issuance of subordinated debt
securities, including specimen of Ten-Year Bond, Series A, Ten-Year
Bond, Series B, Five-Year Bond, Series C, Five-Year Bond, Series D,
Ten-Year Monthly Income Bond, Series E, Ten-Year Monthly Income
Bond, Series F, Five-Year Monthly Income Bond, Series G and Five-
Year Monthly Income Bond, Series H.
4.(ii)A Syndicated Credit Facility between Farmland Industries, Inc. and
various banks dated May 15, 1996, (Incorporated by Reference - Form
10-Q filed July 15, 1996)
4.(ii)A(1) First Amendment dated May 14, 1997 (including
Exhibits A, B, C, D and Schedule 101A) to
Syndicated Credit Facility dated May 15, 1996
between Farmland Industries, Inc. and various
banks. (Incorporated by Reference - Form 10-K
filed November 7, 1997)
Certain instruments relating to long-term debt not being registered
have been omitted in accordance with Item 601(b)(4)(iii) of Regulation
S-K. Registrant will furnish a copy of any such instrument to the
Commission upon its request.
**5 Opinion of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. re Legality
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First National
Bank of Chicago, not individually but solely as Trustee for AT&T
Commercial Finance Corporation, The Boatmen's National Bank of St.
Louis, Firstier Bank, N.A. and Norwest Bank Minnesota, National
Association and Farmland Industries, Inc. in the amount of
$73,153,000. (Incorporated by Reference - Form SE, filed December 3,
1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National Bank
of Commerce as Trustee for General Electric Credit Corporation as
Beneficiary and Farmland Industries, Inc. in the amount of
$51,909,257.90. (Incorporated by Reference - Form S-1, No. 2-60372,
effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)AEmployee Variable Compensation Plan (September 1, 1997 - August 31,
1998). (Incorporated by Reference - Form 10-K filed November 7,
1997)
10.(iii)BFarmland Industries, Inc. Management Long-Term Incentive Plan
(Effective September 1, 1993) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
10.(iii)B(1) Exhibit E (Fiscal years 1997 through 1999) (Incorporated by
Reference - Form 10-K filed November 7, 1997)
10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000) (Incorporated by
Reference - Form 10-K filed November 7, 1997)
10.(iii)CFarmland Industries, Inc. Supplemental Executive Retirement Plan
(Effective January 1, 1994) (Incorporated by Reference - Form 10-K,
filed November 28, 1995)
10.(iii)C(1) Resolution Approving the Revision of Appendix A and Appendix
A (Incorporated by Reference - Form 10-K, filed November 27,
1996)
10.(iii)DFarmland Industries, Inc. Executive Deferred Compensation Plan (As
Amended and Restated Effective November 1, 1996) (Incorporated by
Reference - Form 10-K, filed November 27, 1996)
*12 Computation of Ratios
21 Subsidiaries of the Registrant . (Incorporated by Reference - Form 10-K
filed November 7, 1997)
CONSENTS OF EXPERTS AND COUNSEL:
*23.A Independent Auditors' Consent
*23.B Consent of Special Tax Counsel
*23.C Consent of Qualified Independent Underwriter
*23.D Consent of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. (included in Exhibit 5)
*24 Power of Attorney
*25.A Statement of Eligibility of Trustee and Qualification of UMB Bank,
National Association Trustee, Form T-1.
*25.B Statement of Eligibility of Trustee and Qualification of Commerce Bank,
National Association as Trustee, Form T-1.
* Filed herewith
** To be filed by amendment
EXHIBIT 12
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
Year Ended August 31
1993 1994 1995 1996 1997
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax Income (Loss).................. $ (36,833) $ 78,766 $ 197,641 $ 155,754 $ 163,772
Minority Interest in Income of
Consolidated Subsidiary that
has Fixed Charges................. 865 333 9,793 7,604 10,586
Minority Interest in Loss of
Consolidated Subsidiary .......... (37) (4,855) -0- (221) (1,902)
Equity Interest in Loss (Income)
(Earnings less distributions) of
Less-than-Fifty Percent
Owned Investees................... 1,007 603 (623) 574 (868)
Distributions from Less-than-
Fifty Percent Owned Investees......... -0- -0- -0- -0- 5
Total Fixed Charges (excluding
interest capitalized)............. 55,361 64,838 68,271 76,658 79,247
Total Earnings............................. $ 20,363 $ 139,685 $ 275,082 $ 240,369 $ 250,840
Fixed Charges:
Interest (including amounts
capitalized and amortization of
debt issuance costs).............. $ 43,966 $ 52,297 $ 55,497 $ 65,361 $ 68,099
Estimated Interest Component
of Rentals........................ 13,006 12,898 13,494 12,926 15,127
Total Fixed Charges........................ $ 56,972 $ 65,195 $ 68,991 $ 78,287 $ 83,226
Ratio of Earnings to Fixed Charges......... 0.4 2.1 4.0 3.0 3.0
Earnings Inadequate to Cover
Fixed Charges......................... $ 36,609
</TABLE>
EXHIBIT 23.A
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Farmland Industries, Inc.:
We consent to the use of our report included herein and to the references
to our firm under the headings "Selected Consolidated Financial Data", and
"Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Kansas City, Missouri
November 21, 1997
EXHIBIT 23.B
CONSENT OF SPECIAL TAX COUNSEL
Farmland Industries, Inc.:
We consent to the references to our firm in the Prospectus
filed as part of this Registration Statement.
BRYAN CAVE LLP
November 21, 1997
EXHIBIT 23.C
CONSENT OF QUALIFIED INDEPENDENT UNDERWRITER
Farmland Industries, Inc.:
We consent to the references to our firm under the caption
"Qualified Independent Underwriter" in the Prospectus.
James H. Glen, Jr.
INTERSTATE/JOHNSON LANE
November 21, 1997
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose name appears
below constitutes and appoints Robert B. Terry and Terry M. Campbell, and
each of them, his true and lawful attorney-in-fact and agent with full power
of substitution and resubstitution, for him and in his name, place and stead,
in any and all capacities, to sign any and all amendments (including post-
effective amendments) to this Registration Statement, as well as any related
registration statement (or amendments thereto) filed pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
This Power of Attorney may be executed in multiple counterparts, each of
which shall be deemed an original, but which taken together shall constitute
one instrument.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICTED.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C> <C>
/s/ ALBERT J. SHIVLEY Chairman of Board October 22, 1997
Albert J. Shivley and Director
/s/ H. D. CLEBERG
H. D. Cleberg Chief Executive Officer October 22, 1997
and Director
(Principal Executive Officer)
/s/ OTIS H. MOLZ Vice Chairman of Board October 22, 1997
Otis H. Molz and Director
/s/ LYMAN L. ADAMS, JR. Director October 22, 1997
Lyman L. Adams, Jr.
/s/ RONALD J. AMUNDSON Director October 22 , 1997
Ronald J. Amundson
/s/ BAXTER ANKERSTJERNE Director October 22, 1997
Baxter Ankerstjerne
/s/ JODY BEZNER Director October 22, 1997
Jody Bezner
/s/ RICHARD L. DETTEN Director October 22, 1997
Richard L. Detten
/s/ STEVEN ERDMAN Director October 22, 1997
Steven Erdman
/s/ HARRY FEHRENBACHER Director October 22, 1997
Harry Fehrenbacher
/s/ WARREN GERDES Director October 22, 1997
Warren Gerdes
/s/ BEN GRIFFITH Director October 22, 1997
Ben Griffith
/s/ GAIL D. HALL Director October 22, 1997
Gail D. Hall
/s/ BARRY JENSEN Director October 22, 1997
Barry Jensen
/s/ RON JURGENS Director October 22, 1997
Ron Jurgens
/s/ WILLIAM F. KUHLMAN Director October 22, 1997
William F. Kuhlman
/s/ GREG PFENNING Director October 22, 1997
Greg Pfenning
/s/ MONTE ROMOHR Director October 22, 1997
Monte Romohr
/s/ JOE ROYSTER Director October 22, 1997
Joe Royster
/s/ E. KENT STAMPER Director October 22, 1997
E. Kent Stamper
/s/ ELI F. VAUGHN Director October 22, 1997
Eli F. Vaughn
/s/ FRANK WILSON Director October 22, 1997
Frank Wilson
</TABLE>
EX 25.A
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
UMB BANK, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
44-0201230
(I.R.S. Employer
Identification No.)
928 Grand Avenue, Kansas City, Missouri.....................64106
(Address of principal executive offices) (Zip Code)
FARMLAND INDUSTRIES, INC.
(Exact name of obligor as specified in its charter)
KANSAS 42-0209330
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification No.)
3315 North Oak Trafficway
Post Office Box 7305
Kansas City, Missouri 64116
(Address of principal executive offices) (Zip Code)
DEMAND LOAN CERTIFICATES
Dated: November 20, 1981
(Title of the indenture securities)
Item 1.General Information
(a) Name and address of each examining or supervising authority to
which the Trustee is subject is as follows:
The Comptroller of the Currency
Mid-Western District
2345 Grand Avenue, Suite 700
Kansas City, Missouri 64108
Federal Reserve Bank of Kansas City
Federal Reserve P.O. Station
Kansas City, Missouri 64198
Supervising Examiner
Federal Deposit Insurance Corporation
720 Olive Street, Suite 2909
St. Louis, Missouri 63101
(b) The Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with obligor and underwriters. The Obligor is not
affiliated with the Trustee. No person, who is not an affiliate of
the Obligor, has served as an underwriter for the Obligor.
Item 3. Voting securities of the Trustee.
The following information as to each class of voting securities of the
Trustee is furnished as of October 24, 1997:
Column A Column B
Title of Amount
Class Outstanding
Common 660,000
Item 4. Trusteeships under other indentures.
The Trustee is not a trustee under another indenture under which any
other securities, or certificates of interest or participation in
other securities, of the Obligor are outstanding.
Item 5. Interlocking directorates and similar relationships with the obligor
or underwriters. Neither the Trustee nor any of its directors or
officers is a director, officer, partner, employee, appointee, or
representative of the Obligor.
No person, who is not an affiliate of the Obligor, has served as an
underwriter for the Obligor.
Item 6. Voting securities of the trustee owned by the obligor or its
officials.
No voting securities of the Trustee are owned beneficially by the
Obligor or its directors and executive officers as of October 24,
1996.
Item 7. Voting securities of the trustee owned by underwriters or their
officials.
Not applicable
Item 8. Securities of the obligor owned or held by the trustee. No securities
of Obligor are owned beneficially or held as collateral security for
obligations in default by the Trustee as of October 24, 1996.
Item 9. Securities of the underwriters owned or held by the trustee.
Not applicable
Item 10. Ownership or holdings by the trustee of voting securities of certain
affiliates or security holders of the obligor.
The Trustee neither owns beneficially nor holds as collateral security
for obligations in default any voting securities of a person who, to
the knowledge of the Trustee, (1) owns 10 percent or more of the
voting securities of the Obligor, or (2) is an affiliate, other than a
subsidiary of Obligor, as of October 24, 1997
Item 11. Ownership or holdings by the trustee of any securities of a person
owning 50 percent or more of the voting securities of the obligor.
The Trustee neither owns beneficially nor holds as collateral security
for obligations in default any securities of a person who, to the
knowledge of the Trustee, owns 50 percent or more of the voting shares
of the Obligor as of October 24, 1997.
Item 12. Indebtedness of the Obligor to the Trustee.
None
Item 13. Defaults of the Obligor.
There has been no default with respect to the securities under this
Indenture.
Item 14. Affiliations with the Underwriters.
Not Applicable
Item 15. Foreign Trustee.
Not Applicable
Item 16. List of exhibits.
Listed below are all exhibits filed as a part of this statement of
eligibility and qualification.
Exhibit No. Exhibit
1. Articles of Association of the Trustee, as now in effect.
2. Certificate of Authority from the Comptroller of the Currency
evidencing a change of the corporate title of the Association.
Incorporated by Reference - In the Statement of Eligibility and
Qualification of United Missouri Bank, National Association, as
Trustee, Form T-1 #22-21530, Filed on FORM SE dated December 19, 1991.
3. Certificate from the Comptroller of the Currency evidencing authority
to exercise corporate trust powers and a letter evidencing a change of
the corporate title of the Association. Incorporated by Reference -
In the Statement of Eligibility and Qualification of United Missouri
Bank, National Association, as Trustee, Form T-1 #22-21530, Filed on
FORM SE dated December 19, 1991.
4. Bylaws, as amended, of the Trustee.
5. N/A
6. Consent of the Trustee required by Section 321 (b) of the Act.
7. Report of Condition of the Trustee as of
June 30, 1997.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
UMB Bank, National Association, a national bank organized and existing under the
laws of the United States of America, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the city of Kansas City, and State of Missouri, on the 24th
day of October 1997.
UMB BANK, NATIONAL ASSOCIATION
BY: Frank C. Bramwell, Senior Vice President
Frank C. Bramwell, Senior Vice President
T-1 Exhibit 6
Consent of Trustee
Pursuant to Section 321(B) of the Trust Indenture Act of 1939, UMB Bank,
National Association, a national bank organized under the laws of the United
States, hereby consents that reports of examinations by the Comptroller of the
Currency, of the Federal Deposit Insurance Corporation, and any other federal,
state, territorial or district authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
UMB BANK, NATIONAL ASSOCIATION
By: Frank C. Bramwell, Senior Vice President
Frank C. Bramwell, Senior Vice President
Date: October 24, 1997
UMB BANK, NATIONAL ASSOCIATION
RESTATED ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be "UMB Bank, National
Association" (amended as of October 1, 1994).
SECOND: The main office shall be in the City of Kansas City, County of
Jackson, State of Missouri. The general business of this Association, and its
operations of discount and deposit, shall be conducted at its main office.
THIRD: The Board of Directors of this Association shall
consist of not less than five nor more than twenty-five shareholders, the exact
number of Directors within such minimum and maximum limits to be fixed and
determined from time to time by resolution of a majority of the full Board of
Directors or by resolution of the shareholders at any annual or special meeting
thereof. Unless otherwise provided by the laws of the United States, any
vacancy in the Board of Directors for any reason, including an increase in the
number thereof, may be filled by action of the Board of Directors.
FOURTH: The regular annual meeting of the shareholders for the
election of directors and the transaction of whatever other business which may
be brought before said meeting shall be held at the main office, or at such
other place as the Board of Directors may designate, on the day of each year
specified therefor in the By-Laws of the Association, but if no election be held
on that day it may be held on any subsequent day according to the provisions of
law.
FIFTH: The amount of authorized capital stock of this Association shall be
Sixteen Million Five Hundred Thousand Dollars ($16,500,000), divided into
660,000 shares of common stock of the par value of Twenty-Five Dollars ($25)
each; but said capital stock may be increased or decreased from time to time in
accordance with the provisions of the laws of the United States.
If the capital stock is increased by the sale of additional
shares thereof, each shareholder shall be entitled to subscribe for such
additional shares in proportion to the number of shares of said capital stock
owned by him at the time the increase is authorized by the shareholders, unless
another time subsequent to the date of the shareholders' meeting is specified in
a resolution adopted by the shareholders at the time the increase is authorized.
The Board of Directors shall have the power to prescribe a reasonable period of
time within which the pre-emptive rights to subscribe to the new shares of
capital stock must be exercised.
If the capital stock is increased by a stock dividend, each
shareholder shall be entitled to his proportion of the amount of
such increase in accordance with the number of shares of capital stock owned by
him at the time the increase is authorized by the shareholders, unless another
time subsequent to the date of the shareholders' meeting is specified in a
resolution adopted by the shareholders at the time the increase is authorized.
SIXTH: The Board of Directors shall appoint one of its members to be
President of this Association. The Board of Directors may appoint one of its
members to be Chairman of the Board, who shall perform such duties as the Board
of Directors may designate.
The Board of Directors shall have the power to appoint one or more
Vice Presidents and to appoint a Cashier and such other officers and employees
as may be required to transact the business of the Association.
The Board of Directors shall have the power to define the
duties of the officers and employees of the Association; to fix the salaries to
be paid to them; to dismiss them; to require bonds from them and to fix the
penalty thereof; to regulate the manner in which any increase in the capital of
the Association shall be made; to manage and administer the business and affairs
of the Association; to make all By-Laws that it may be lawful for them to make;
and generally to do and perform all acts that it may be legal for the Board of
Directors to do and perform.
The Board of Directors, without the approval of the shareholders, but
subject to the approval of the Comptroller of the Currency, shall have the power
to change the location of the main office of the Association to any other place
within the limits of Kansas City, Missouri and to establish or change the
location of any branch or branches to any other location permitted under
applicable law.
SEVENTH: The corporate existence of this Association shall
continue until terminated in accordance with the laws of the United States.
EIGHTH: The Board of Directors of this Association, or any
three or more shareholders owning, in the aggregate, not less than ten percentum
(10%) of the stock of this Association, may call a special meeting of the
shareholders at any time; provided, however, that unless otherwise provided by
law, not less than ten (10) days prior to the date fixed for any such meeting, a
notice of the time, place and purpose of the meeting shall be given by first
class mail, postage prepaid, to all shareholders of record at their respective
addresses as shown upon the books of the Association.
Subject to the provisions of the laws of the United States,
these Articles of Association may be amended at any meeting of the
shareholders, for which adequate notice has been given, by the
affirmative vote of the owners of two-thirds of the stock of this
Association, voting in person or by proxy.
NINTH: Any person, his heirs, executors, or administrators,
may be indemnified or reimbursed by the Association for reasonable
expenses actually incurred in connection with any action, suit, or
proceeding, civil or criminal, to which he or they shall be made a party by
reason of his being or having been a director, officer, or employee of the
Association or any firm, corporation, or organization which he served in any
capacity at the request of the Association; provided, however, that no person
shall be so indemnified or reimbursed in relation to any matter in such action,
suit, or proceeding as to which he shall finally be adjudged to have been guilty
of or liable for gross negligence or willful misconduct or criminal acts in the
performance of his duties to the Association; and, provided further, that no
person shall be so indemnified or reimbursed in relation to any matter in such
action, suit, or proceeding which has been made the subject of a compromise
settlement except with the approval of a court of competent jurisdiction, or the
holders of record of a majority of the outstanding shares of the Association, or
the Board of Directors, acting by vote of directors not parties to the same or
substantially the same action, suit, or proceeding, constituting a majority of
the whole number of the directors. The foregoing right of indemnification or
reimbursement shall not be exclusive of other rights to which such person, his
heirs, executors, or administrators, may be entitled as a matter of law.
T-1 Exhibit 2
Certificate, dated January 10th, 1934, of the Office of Comptroller of the
Currency authorizing the City National Bank and Trust Company of Kansas City to
Commence the business of Banking.
C E R T I F I C A T E
For and on behalf of UMB Bank, National Association, a national banking
association organized under the laws of the United States of America (formerly
named The City National Bank and Trust Company of Kansas City and the United
Missouri Bank of Kansas City, National Association and United Missouri Bank,
National Association), the undersigned, R. William Bloemker, Assistant Secretary
of said Association, hereby certifies that attached hereto are the following:
1) A true and correct copy of the certificate of the
Comptroller of the Currency, dated December 19,
1972, evidencing a change in corporate title from
The City National Bank and Trust Company of Kansas
City to United Missouri Bank of Kansas City,
National Association;
2) A true and correct copy of the letter of
authorization from the Comptroller of the Currency,
dated April 9, 1991, authorizing the Association to
adopt the name United Missouri Bank, National
Association; and
3) Certified Resolution evidencing recordation of
change of the name of the Association to UMB Bank,
National Association.
Certified under the corporate seal of said Association this 24th day of
October, 1997.
/s/ R. William Bloemker
Assistant Secretary
Certificate, dated December 19, 1972, of the Comptroller of the Currency
evidencing change in corporate title from the City National Bank and Trust
Company of Kansas City to United Missouri Bank of Kansas City, National
Association.
Letter, dated April 9, 1991, from the Comptroller of the currency,
authorizing the Association to adopt the name United Missouri Bank, National
Association.
CERTIFIED RESOLUTION
I hereby certify that the following is an excerpt from a letter dated
October 3, 1994 from the Office of the Comptroller of the Currency (OCC)
confirming the Bank's change of name:
The OCC has recorded that as of October 1, 1994, the title of United
Missouri Bank, National Association, Charter No. 13936, was changed to "UMB
Bank, National Association."
/s/ R. William Bloemker
Assistant Secretary
[SEAL]
T-l Exhibit 3
C E R T I F I C A T E
For and on behalf of UMB Bank, National Association, a national banking
association under the laws of the United States of America, the undersigned, R.
William Bloemker, Assistant Secretary of said Association, hereby certifies that
the attached document is a true and correct copy of the certificate issued by
the Comptroller of the Currency of the United States evidencing its authority to
exercise fiduciary powers under the statutes of the United States.
Certified under the corporate seal of said Association this 24th day of
October, 1997.
/s/ R. William Bleomker
Assistant Secretary
Certificate, dated December 31, 1972, of the Comptroller of the Currency
evidencing the authority of the Association to exercise fiduciary powers under
the statutes of the United States.
T-l Exhibit No. 4
TO WHOM IT MAY CONCERN
The attached ByLaws are the ByLaws for the UMB Bank, National
Association and are current as of this date.
/s/ R. William Bloemker
Assistant Secretary
October 24, 1997
[SEAL]
UMB BANK, NATIONAL ASSOCIATION BY-LAWS
ARTICLE I
Meetings of Shareholders
Section 1.1 - Where Held. All meetings of shareholders of this Association
shall be held at its main banking house in Kansas City, Jackson County,
Missouri, or at such other place as the Board of Directors may from time to time
designate.
Section 1.2 - Annual Meeting. The annual meeting of shareholders shall be
held at 11 o'clock in the forenoon, or at such other time as shall be stated in
the notice thereof, on the third Wednesday of January in each year or, if that
day be a legal holiday, on the next succeeding banking day, for the purpose of
electing a Board of Directors and transacting such other business as may
properly come before the meeting.
Section 1.3 - Special Meetings. Except as otherwise provided by law,
special meetings of shareholders may be called for any purpose, at any time, by
the Board of Directors or by any three or more shareholders owning, in the
aggregate, not less than ten percent (10%) of the outstanding stock in the
Association.
Section 1.4 - Notice of Meetings. Written notice of the time, place, and
purpose of any meeting of shareholders shall be given to each shareholder (a) by
delivering a copy thereof in person to the shareholder, or (b) by depositing a
copy thereof in the U.S. mails, postage prepaid, addressed to the shareholder at
his address appearing on the books of the Association, in either case at least
ten (10) days prior to the date fixed for the meeting.
Section 1.5 - Quorum. A majority of the outstanding capital
stock, represented in person or by proxy, shall constitute a quorum for the
transaction of business at any meeting or shareholders, unless otherwise
provided by law. A majority of the votes cast shall decide every question or
matter submitted to the shareholders at any meeting, unless otherwise provided
by law or by the Articles of Association.
Section 1.6 - Adjournment. Any meeting of shareholders may, by majority
vote of the shares represented at such meeting, in person or by proxy, though
less than a quorum, be adjourned from day to day or from time to time, not
exceeding, in the case of elections of directors, sixty (60) days from such
adjournment, without further notice, until a quorum shall attend or the business
thereof shall be completed. At any such adjourned meeting, any business may be
transacted which might have been transacted at the meeting as originally called.
Section 1.7 - Voting. Each shareholder shall be entitled to one (1) vote
on each share of stock held, except that in the election of directors each
shareholder shall have the right to cast as many votes, in the aggregate, as
shall equal the number of shares owned by him, multiplied by the number of
directors to be elected, and said votes may be cast for one director or
distributed among two (2) or more candidates. Voting may be in person or by
proxy, but no officer or employee of this Association shall act as proxy.
Authority to vote by proxy shall be by written instrument, dated and filed with
the records of the meeting, and shall be valid only for one meeting, to be
specified therein, and any adjournments of such meeting.
ARTICLE II
Directors
Section 2.1 - Number and Qualifications. The Board of Directors
(hereinafter sometimes referred to as the "Board") shall consist of not less
than five (5) nor more than twenty-five (25) shareholders, the exact number,
within such limits, to be fixed and determined from time to time by resolution
of a majority of the full Board of Directors or by resolution of the
shareholders at any meeting thereof; provided, however, that a majority of the
full Board of Directors shall not increase the number of directors to a number
which: (a) exceeds by more than two (2) the number of directors last elected by
shareholders where such number was fifteen (15) or less; or (b) exceeds by more
than four (4) the number of directors last elected by shareholders where such
number was sixteen (16) or more. No person who has attained the age of seventy
(70) shall be eligible for election to the Board of Directors unless such person
is actively engaged in business at the time of his election, but any person not
so disqualified at the time of his election as a director shall be entitled to
serve until the end of his term. All directors shall hold office for one (1)
year and until their successors are elected and qualified.
Section 2.2 - Advisory Directors. The Board of Directors may
appoint Advisory Directors, chosen from former directors of the Association or
such other persons as the Board shall select. The Advisory Directors shall meet
with the Board at all regular and special meetings of the Board and may
participate in such meetings but shall have no vote. They shall perform such
other advisory functions and shall render such services as may from time to time
be directed by the Board.
Section 2.3 - Powers. The Board shall manage and administer the business
and affairs of the Association. Except as expressly
limited by law, all corporate powers of the Association shall be vested in and
may be exercised by said Board. It may not delegate responsibility for its
duties to others, but may assign the authority and responsibility for various
functions to such directors, committees and officers or other employees as it
shall see fit.
Section 2.4 - Vacancies. In case of vacancy occurring on the Board through
death, resignation, disqualification, disability or any other cause, such
vacancy may be filled at any regular or special meeting of the Board by vote of
a majority of the surviving or remaining directors then in office. Any director
elected to fill a vacancy shall hold office for the unexpired term of the
director whose place was vacated and until the election and qualification of his
successor.
Section 2.5 - Organization Meeting. Following the annual meeting of
shareholders, the Corporate Secretary shall notify the directors elect of their
election and of the time and place of the next regular meeting of the Board, at
which the new Board will be organized and the members of the Board will take the
oath required by law, after which the Board will appoint committees and the
executive officers of the Association, and transact such other business as may
properly come before the meeting; provided, however, that if the organization
meeting of the Board shall be held immediately following the annual meeting of
shareholders, no notice thereof shall be required except an announcement thereof
at the meeting of directors.
Section 2.6 - Regular Meetings. The regular meetings of the Board of
Directors shall be held, without notice except as provided for the organization
meeting, on the third Wednesday of each month at the main banking house in
Kansas City, Jackson County, Missouri. When any regular meeting of the Board
falls upon a holiday, the meeting shall be held on the next banking day, unless
the Board shall designate some other day. A regular monthly meeting of the
Board may, by action of the Board at its preceding meeting, be postponed to a
later day in the same month.
Section 2.7 - Special Meetings. Special meetings of the Board may be
called by the Corporate Secretary on direction of the President or of the
Chairman of the Board, or at the request of three (3) or more directors. Each
member of the Board shall be given notice, by telegram, letter, or in person,
stating the time, place and purpose of such meeting.
Section 2.8 - Quorum. Except when otherwise provided by law, a majority of
the directors shall constitute a quorum for the
transaction of business at any meeting, but a lesser number may adjourn any
meeting, from time to time, and the meeting may be held, as adjourned, without
further notice.
Section 2.9 - Voting. A majority of the directors present and voting at
any meeting of the Board shall decide each matter considered. A director may
not vote by proxy.
Section 2.10 - Compensation of Directors. The compensation to be paid the
directors of the Association for their services shall be determined from time to
time by the Board.
ARTICLE III
Committees Appointed by the Board
Section 3.1 - Standing Committees. The standing committees of this
Association shall be the Management Committee, Executive Committee, the
Officers' Salary Committee, the Discount Committee, the Bond Investment
Committee, the Trust Policy Committee, the Bank Examining Committee and the
Trust Auditing Committee. The members of the standing committees shall be
appointed annually by the Board of Directors at its organization meeting, or, on
notice, at any subsequent meeting of the Board, to serve until their respective
successors shall have been appointed. The President and the Chairman of the
Board shall be, ex officio, members of all standing committees except the Bank
Examining Committee and the Trust Auditing Committee. Each standing committee
shall keep minutes of its meetings, showing the action taken on all matters
considered. A report of all action so taken shall be made to the Board, and a
copy of such minutes shall be available for examination by members of the Board.
Section 3.2 - Management Committee. The Management Committee shall consist
of such executive officers of the Association as shall be designated by the
Board. One of the members of the Committee shall be designated by the Board as
Chairman. The Committee may adopt policies (not inconsistent with policies and
delegations of authority prescribed by these By-Laws or by the Board) with
respect to the executive and administrative functions of the Association, and in
general, it shall coordinate the performance of such functions in and among the
various departments of the Association, assisting and advising the executive
officers or department heads upon matters referred to it by such officers or
department heads. The Committee shall make reports and recommendations to the
Board upon such policies or other matters as it deems advisable or as may be
referred to it by the Board, and shall have such other powers and duties as may
be delegated or assigned to it by the Board from time to time. The secretary of
the Committee may be designated by the Board, or, in default thereof, by the
Committee, and may but need not be a member thereof.
Section 3.3 - Executive Committee. The Executive Committee shall consist
of such executive officers of the Association as shall be designated by the
Board. One of the members of the Committee shall be designated by the Board as
Chairman. The Committee shall carry out such responsibilities and duties as the
Management Committee shall delegate to it, from time to time.
Section 3.4 - Officers' Salary Committee. The Officers' Salary Committee
shall consist of such directors and officers of the Association as may be
designated by the Board. It shall study and consider the compensation to be
paid to officers of the Association and shall make recommendations to the Board
with respect thereto and with respect to such other matters as may be referred
to it by the Board.
Section 3.5 - Discount Committee. The Discount Committee shall consist of
such directors and officers as shall be designated by the Board of Directors.
It shall have the power to discount and purchase bills, notes and other
evidences of debt; to buy and sell bills of exchange; to examine and approve
loans and discounts; and to exercise authority regarding loans and discounts
held by the Association. At each regular meeting of the Board, the Board shall
approve or disapprove the report filed with it by the Discount Committee and
record its actions in the minutes of its meeting. The powers and authority
conferred upon the Discount Committee by this Section may, with the approval of
the Board of Directors, be assigned or delegated by it, to officers of the
Association, subject to such limits and controls as the Committee may deem
advisable.
Section 3.6 - Bond Investment Committee. The Bond Investment
Committee shall consist of such directors and officers as shall be designated by
the Board of Directors. It shall have power to buy and sell bonds, to examine
and approve the purchase and sale of bonds, and to exercise authority regarding
bonds held by the Association. At each regular meeting of the Board, the Board
shall approve or disapprove the report filed with it by the Bond Investment
Committee and record its action in the minutes of its meeting.
Section 3.7 - Trust Policy Committee. The Trust Policy Committee shall
consist of such directors and officers of the Association as shall be designated
by the Board of Directors. Such committee shall have and exercise such of the
Bank's fiduciary powers as may be assigned to it by the Board, with power to
further assign, subject to its control, the exercise of such powers to other
committees, officers and employees. The action of the Trust Policy Committee
shall, at all times, be subject to control by the Board.
Section 3.8 - Bank Examining Committee. The Bank Examining
Committee shall consist of such directors of the Association as shall be
designated by the Board, none of whom shall be an active officer of the
Association. It shall make suitable examinations at least once during each
period of twelve (12) months of the affairs of the Association or cause a
suitable audit to be made by auditors responsible only to the Board of
Directors. The result of such examinations shall be reported in writing, to the
Board at the next regular meeting thereafter and shall state whether the
Association is in a sound and solvent condition, whether adequate internal
controls and procedures are being maintained, and shall recommend to the Board
such changes as the Committee shall deem advisable. The Bank Examining
Committee, with the approval of the Board of Directors, may employ a qualified
firm of certified public accountants to make an examination and audit of the
Association. If such a procedure is followed, the annual examination of
directors, will be deemed sufficient to comply with the requirements of this
section of the By-Laws.
Section 3.9 - Trust Auditing Committee. The Trust Auditing
Committee shall consist of such directors of the Association as shall be
designated by the Board, none of whom shall be an active officer of the
Association. At least once during each calendar year, and within fifteen (15)
months of the last such audit, the Trust Auditing Committee shall make suitable
audits of the Trust Departments or cause suitable audit to be made by auditors
responsible only to the Board of Directors, and t such time shall ascertain
whether the Departments have been administered in accordance with law, the
Regulations of the Comptroller and sound fiduciary practices. As an
alternative, in lieu of such periodic audits, the Board may elect to adopt an
adequate continuous audit system.
Section 3.10 - Other Committees. The Board may appoint, from time to time,
from its own members or from officers of the Association, or both, other
committees of one or more persons for such purposes and with such powers as the
Board may determine.
Section 3.11 - Compensation of Committee Members. The Board shall
determine the compensation to be paid to each member of any
committee appointed by it for services on such committee, but no such
compensation shall be paid to any committee member who shall at the time be
receiving a salary from the Association as an officer thereof.
ARTICLE IV
Officers and Employees
Section 4.1 - Chairman of the Board. The Board of Directors shall appoint
one of its members (who may, but need not, be President of the Association) as
Chairman of the Board. He shall preside at all meeting of the Board of
Directors and shall have general executive powers and such further powers and
duties as from time to time may be conferred upon, or assigned to, him by the
Board of Directors. He shall be, ex officio, a member of all standing
committees except the Bank Examining Committee and the Trust Auditing Committee.
Section 4.2 - President. The Board of Directors shall appoint one of its
members to be the President of this Association. The President shall be the
chief executive officer of the Association, except as the Board of Directors may
otherwise provide, and shall have and may exercise any and all other powers and
duties pertaining to such office. He shall also have and may exercise such
further powers and duties as from time to time may be conferred upon, or
assigned to, him by the Board of Directors. He shall be, ex officio, a member
of all standing committees except the Bank Examining Committee and the Trust
Auditing Committee.
Section 4.3 - Chairman of the Executive Committee. The Board of Directors
may appoint a Chairman of the Executive Committee, who shall have general
executive powers and shall have and may exercise such further powers and duties
as from time to time may be conferred upon, or assigned to, him by the Board of
Directors.
Section 4.4 - Vice Presidents. The Board of Directors shall
appoint one or more Vice Presidents. Each Vice President shall have such powers
and duties as may be assigned to him by the Board and may be given such
descriptive or functional titles as the Board may designate.
Section 4.5 - Trust Officers. The Board of Directors shall appoint one or
more Trust Officers. Each Trust Officer shall have such powers and duties as
may be assigned to him by the Board of Directors in accordance with the
provisions of Article V. The Trust Officers may be given such descriptive or
functional titles as the Board may designate.
Section 4.6 - Corporate Secretary. The Board of Directors shall appoint a
Corporate Secretary. The Corporate Secretary shall be responsible for the
minutes book of the Association, in which he shall maintain and preserve the
organization papers of the Association, the Articles of Association, the
By-Laws, minutes of regular and special meetings of the shareholders and of the
Board of Directors, and reports by officers and committees of the Association to
the shareholders and to the Board of Directors. He shall attend all meetings of
the shareholders and of the Board of Directors and shall act as the clerk of
such meetings and shall prepare and sign the minutes of such meetings. He shall
have custody of the corporate seal of the Association and of the stock transfer
books, except as given to the Comptroller's Department or the Corporate Trust
Department to act as transfer agent and registrar of the Association's capital
stock, and of such other documents and records as the Board of Directors shall
entrust to him. The Secretary shall give such notice of meetings of the
shareholders and of the Board of Directors as is required by law, the Articles
of the Association and the By-Laws. In addition, he shall perform such other
duties as may be assigned to him from time to time by the Board of Directors.
The Assistant Secretaries shall render the Corporate Secretary such assistance
as he shall require in the performance of his office. During his absence or
inability to act, the Assistant Secretaries shall be vested with the powers and
perform the duties of the Corporate Secretary.
Section 4.7 - Cashier. The Board of Directors may appoint a
Cashier. He shall have such powers and shall perform such duties as may be
assigned to him by resolution of the Board of Directors.
Section 4.8 - Comptroller. The Board of Directors shall appoint a
Comptroller. The Comptroller shall institute and maintain the accounting
policies and practices established by the Board of Directors. He shall
maintain, or cause to be maintained, adequate records of all transactions of the
Association. He shall be responsible for the preparation of reports and
returns to taxing and regulatory authorities, and at meetings of the Board of
Directors shall furnish true and correct statements of condition and statements
of operations of the Association and such further information and data, and
analyses thereof, as the Board of Directors may require. He shall have custody
of the Association's insurance policies. In addition, the Comptroller shall
perform such other duties as may be assigned to him, from time to time by the
Board of Directors. The Assistant Comptroller(s) shall render the Comptroller
such assistance as he shall require in the performance of the duties of his
office and, during his absence or inability to act, the Assistant
Comptroller(s), in the order designated by the Board of Directors, shall be
vested with the powers and perform the duties of the Comptroller.
Section 4.9 - Auditor. The Board of Directors shall appoint an Auditor of
the Association. He shall see that adequate audits of the Association are
currently and regularly made and that adequate audit systems and controls are
established and maintained. He shall examine each department and activity of
the Association and may inquire into transactions affecting the Association
involving any officer or employee thereof. The Board, however, may, in lieu of
appointing an Auditor, assign the duties thereof to the Auditor of the parent
company of the Association.
Section 4.10 - Other Officers. The Board of Directors may appoint one or
more Assistant Vice Presidents, one or more Assistan Trust Officers, one or
more Assistant Secretaries, one or more Assistant Cashiers, and such other
officers and Attorneys-In-Fact as from time to time may appear to the Board of
Directors to be required or desirable to transact the business of the
Association. The power to appoint such assistant or the additional officers may
be delegated to the Chairman of the Board or the President, or to such other
executive officer or officers as the Board may designate, but the power to
appoint any officer of the Audit Department or any Assistant Secretary may not
be so delegated. Any officer and Attorney-In-Fact appointed as herein provided
shall exercise such powers and perform such duties as pertain to his office or
as may be conferred upon or assigned to him by the Board of Directors of by the
officer authorized to make such appointment.
Section 4.11 - Tenure of Office. The Chairman of the Board and the
President shall hold office for the current year for which Board of
Directors of which they are members was elected, unless either of them shall
resign, become disqualified or be removed, and any vacancy occurring in either
of such offices shall be filled promptly by the Board of Directors. All other
officers of the Association shall serve at the pleasure of the Board of
Directors.
Section 4.12 - Compensation of Officers. The compensation of the officers
of the Association shall be fixed and may be altered, from time to time, by the
Board of Directors or, in the case of officers appointed by another officer, as
authorized by Section 4.10 of this Article, by the officer or officers making
such appointment, subject to the supervisory control of, and in accordance with
the policies established by, the Board.
Section 4.13 - Combining Offices. The Board of Directors, in its
discretion, may combine two or more offices and direct that they be filled by
the same individual, except that (a) the office of Corporate Secretary shall not
be combined with that of the Chairman of the Board or of the President and (b)
the office of Auditor shall not be combined with any other office.
Section 4.14 - Succession. During the absence of the Chairman of the
Board, or such other officer designated as Chief Executive Officer, all of the
duties pertaining to his office under these By-Laws and the resolutions of the
Board of Directors shall, subject to the supervisory control of the Board,
devolve upon, and be performed by, the officers, successively, who are next in
the order of authority as established by the Board of Directors from time to
time, or, in the absence of an order of authority so established, in the order
of Chairman of the Board, President and Chairman of the Executive Committee as
may be applicable in the particular case.
Section 4.15 - Clerks and Agents. Any one of the Chairman of the Board,
President or Chairman of the Executive Committee, or any
officer of the Association authorized by them, may appoint and dismiss all or
any clerks, agents and employees and prescribe their duties and the conditions
of their employment, and from time to time fix their compensation.
Section 4.16 - Requiring Bond. The Board of Directors shall
require such officers and employees of the Association as it shall
designate to give bond, of suitable amount, with security to be approved by the
Board, conditioned for the honest and faithful discharge by each such officer or
employee of his respective duties. In the discretion of the Board, such bonds
may be in blanket form and the premiums may be paid by the Association. The
amount of such bonds, form of coverage, and the company acting as surety
therefor, shall be reviewed by the Board of Directors each year.
ARTICLE V
Administration of Trust Powers
Section 5.1 - Trust Department. Organization. There shall be one or more
departments of the Association which shall perform the
fiduciary responsibilities of the Association.
Section 5.2 - Management of Department. The Board of Directors shall be
responsible for the management and administration of the Trust Department or
Departments, but is may assign or delegate such of its powers and authority to
the Trust Policy Committee and to such other committees and officers of the
Association as it may deem advisable.
Section 5.3 - Department Heads. The Board of Directors shall
designate one of the Trust Officers as the chief executive of each Trust
Department. His duties shall be to manage, supervise and direct all activities
of such Department, subject to such supervision as may be vested in the Trust
Policy and other committees. He shall do, or cause to be done, all things
necessary or proper in carrying on the business of such Department in accordance
with provisions of law, applicable regulations and policies established by
authority of the Board. He shall act pursuant to opinions of counsel where such
opinion is deemed necessary. He shall be responsible for all assets and
documents held by the Association in connection with fiduciary matters, in such
Department, except as otherwise provided in this Article V.
Section 5.4 - Custody of Securities. The Board of Directors shall
designate two or more officers or employees of the Association to have joint
custody of the investments of each trust account administered by the Trust
Department or Departments.
Section 5.5 - Trust Department Files. There shall be maintained in each
Trust Department files containing all fiduciary records necessary to assure that
it fiduciary responsibilities have been properly undertaken and discharged.
Section 5.6 - Trust Investments. Funds held in a fiduciary
capacity shall be invested in accordance with the instrument establishing the
fiduciary relationship and governing law. Where such instrument does not
specify the character and class of investments to be made and does not vest in
the Association a discretion in the matter, funds held pursuant to such
instrument shall be invested in investments in which corporate fiduciaries may
invest under the laws of the State of Missouri and the decisions of its courts.
ARTICLE VI
Stock and Stock Certificates
Section 6.1 - Transfers. Shares of the capital stock of the
Association shall be transferable only on the books of the
Association, and a transfer book shall be kept in which all transfers of stock
shall be recorded.
Section 6.2 - Stock Certificates. Certificates of stock shall bear the
signatures of (i) the Chairman of the Board, the President or any Vice
President, and (ii) the Secretary, Cashier, any Assistant Secretary, or any
other officer appointed by the Board of Directors for that purpose; and the seal
of the Association shall be impressed, engraved, or printed thereon. Such
signatures may be manual or engraved, printed or otherwise impressed by
facsimile process; but if both of the required signatures are by facsimile then
such certificates shall be manually countersigned by the person or persons
thereunto authorized by the Board of Directors. Certificates bearing the
facsimile signature of an authorized officer may be validly issued even though
the person so named shall have ceased to hold such office at the time of
issuance. Each certificate shall recite on its face that the stock represented
thereby is transferable only upon the books of the Association upon the
surrender of such certificate properly endorsed.
Section 6.3 - Closing Transfer Books or Fixing Record Date. The Board of
Directors shall have power to close the transfer books of the Association for a
period not exceeding thirty (30) days preceding the date of any meeting of
shareholders, or the date of payment of any dividend, or the date of allotment
of rights, or the date when any change or conversion of exchange of shares shall
go into effect; provided, however, that in lieu of closing the said transfer
books, the Board of Directors may fix, in advance, a date, not exceeding thirty
(30) days preceding the date of any such event, as record date for the
determination of the shareholders entitled to notice of, and to vote at, any
such meeting (and any adjournment thereof), or entitled to receive payment of
any such dividend or allotment of such rights, or to exercise rights in respect
of any such change, conversion or exchange of shares, and in such case, only
such shareholders as shall be shareholders of record at the close of business on
the date of closing the transfer books or on the record date so fixed shall be
entitled to notice of, and to vote at, such meeting (and any adjournment
thereof), or to receive payment of such dividend or allotment of such rights, or
to exercise such rights, as the case may be.
ARTICLE VII
Corporate Seal
Section 7.1 - Authority to Affix. The President, the Corporate Secretary,
the Cashier, and any Assistant Secretary or other officer designated by the
Board of Directors, shall have authority to affix the corporate seal on any
document requiring such seal, and to attest the same. The seal shall be
substantially in the following form:
ARTICLE VIII
Miscellaneous Provisions
Section 8.1 - Fiscal Year. The fiscal year of the Association shall be the
calendar year.
Section 8.2 - Execution of Instruments. All agreements,
indentures, mortgages, deeds, conveyances, transfers, certificates,
declarations, receipts, discharges, releases, satisfactions, settlements,
petitions, schedules, accounts, affidavits, bonds, undertakings, proxies and
other instruments or documents may be signed, executed, acknowledged, verified,
delivered or accepted on behalf of the Association by the Chairman of the Board,
the President, any Vice President, or the Cashier; and, if in connection with
the exercise of fiduciary owers of the Association, by any of said officers or
by any authorized officer of the Trust Department or Departments. Any such
instruments may also be executed, acknowledged, verified, delivered, or accepted
on behalf of the Association in such other manner and by such other officers as
the Board of Directors may from time to time direct. The provisions of this
Section are supplementary to any other provisions of these By-Laws.
Section 8.3 - Banking Hours. The Association shall be open for business on
such days and during such hours as may be prescribed by resolution of the Board
of Directors. Unless and until the Directors shall prescribe other and
different banking hours, this Association's main office shall be open for
business from 9:30 o'clock a.m. to 2:00 o'clock p.m. of each day, except Fridays
when the hours shall be from 9:30 o'clock a.m. to 6:00 o'clock p.m., and except
that the Association shall be closed on Saturdays and Sundays, and, with the
approval of the Board on days recognized by the laws of the State of Missouri as
public holiday.
ARTICLE IX
By-Laws
Section 9.1. - Inspection. A copy of the By-Laws, with all
amendments thereto, shall at all times be kept in a convenient place at the main
office of the Association and shall be open for inspection to all shareholders
during banking hours.
Section 9.2 - Amendments. The By-Laws may be amended, altered or repealed
by vote of a majority of the entire Board of Directors at any meeting of the
Board, provided that ten (10) days' written notice of the proposed change has
been given to each Director. No amendment may be made unless the By-Laws, as
amended, is consistent with the requirements of the laws of the United States
and with the provisions of the Articles of the Association. A certified copy of
all amendments to the By-Laws shall be forwarded to the Comptroller of the
Currency immediately after adoption.
10-1-94
T-l Exhibit 6
Consent of Trustee
Pursuant to Section 32l(b) of the Trust Indenture Act of l939, UMB Bank,
National Association, a national bank organized under the laws of the United
States, hereby consents that reports of examinations by the Comptroller of the
Currency, of the Federal Deposit Insurance Corporation, and any other federal,
state, territorial or district authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
UMB BANK, NATIONAL ASSOCIATION
BY: Frank C. Bramwell, Senior Vice President
Frank C. Bramwell, Senior Vice President
Date: October 24, 1997
T-1 Exhibit 7
Title of Bank: UMB BANK, N.A. Call Date: 6/30/97
ST BK: 29-2668 FFIEC 032
Address: P. O. Box 419226 Page RC-1
State Zip: KANSAS CITY, MO 64141-6226
Certificate No.: /1/3/6/0/1
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Bank for June 30, 1997
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC--Balance Sheet
<TABLE>
<CAPTION>
Dollar Amounts in Thousands 3 RCON Bil Mil Thou
<S> <C> <C>
ASSETS
1. Cash and balances due from depository institutions:
a. Noninterest-beering balances and currency and coin 0081 599,551
b. Interest-bearing balances (2) 0071 2,091
2. Securities /////////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 117,361
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 1,058,027
3. Federal funds sold and securities purchased under agreements to resell: ////////////////////
a. Federal funds sold 0276 228,113
b. Securities purchased under agreements to resell 0277 0
4. Loans and lease financing receivables: /////////////////////
a. Loans and leases, net of unearned income
(from Schedule RC-C) RCON 2122 1,642,963 /////////////////////
b. LESS: Allowance for loan and lease losses .........RCON 3123 17,233 /////////////////////
c. LESS: Allocated transfer risk reserve..............RCON 3128 0 /////////////////////
d. Loans and leases, net of unearned income, /////////////////////
allowance, and reserve (item 4.a minus 4.b and 4.c) 2125 1,625,730
5. Trading assets (from Schedule RC-D) 3545 104,895
6. Premises and fixed assets (including capitalized leases) 2145 110,461
7. Other real estate owned (from Schedule RC-M) 2150 3,066
8. Investments in unconsolidated subsidiearies and associated companies
(from Schedule RC-M) 2130 0
9. Customers' liability to this bank on acceptances outstanding 2155 3,293
10. Intangible assets (from Schedule RC-M) 2143 32.710
11. Other assets (from Schedule RC-F 2160 69,242
12. Total assets (sum of items 1 through 11) 2170 3,954,560
</TABLE>
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
CONTINUED ON NEXT PAGE
Legal Title of Bank: UMB BANK, N.A. Call Date: 6/30/9
ST-BK: 29-2668 FFIEC 032
Address: P. O. Box 419226
Page RC-2
City, State Zip: KANSAS CITY, MO 64141-6226
FDIC Certificate No.: /1/3/6/0/1
Schedule RC--Continued
<TABLE>
<CAPTION>
Dollar Amounts in Thousands 3 RCON Bil Mil Thou
LIABILITIES ////////////////////
<S> <C> <C>
13. Deposits: ///////////////////
a. In domesteic offices (sum of totals of columns A and C from Schedule RC-E) 2200 2,970,848
(1) Noninterest-bearing(1).................................. RCON 6631 1,251,087 ////////////////////
(2) Interest-bearing........................................ RCON 6636 1,719,761 ///////////////////
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs ////////////////////
(1) Non-interest-bearing ////////////////////
(2) Interest-bearing ////////////////////
14. Federal funds purchased and securities sold under agreements to repurchase: ///////////////////
a. Federal funds purchased 2800 584,356
15. a. Demand notes issued to the U. S. Treasury 2840 0
b. Trading liabilities (from Schedule RC-D) 3548 0
16. Other borrowed money: ////////////////////
a. With original maturity of one year or less. 2332 0
b. With original maturity of more than one year 2333 0
17. Mortgage indebtedness and obligations under capitalized leases 2910 0
18. Bank's liability on acceptances executed and outstanding 2920 3,293
19. Subordinated notes and debentures 3200 0
20. Other liabilities (from Schedule RC-G) 2930 48,860
21. Total liabilities (sum of items 13 through 20) 2948 3,607,357
////////////////////
22. Limited-life preferred stock and related surplus 3282 0
EQUITY CAPITAL ////////////////////
23. Perpetual preferred stock and related surplus 3838 0
24. Common stock 3230 16,500
25. Surplus (exclude all surplus related to preferred stock) 3839 133,822
26. a. Undivided profits and capital reserves 3632 198,057
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 (1,176)
27. Cumulative foreign currency translation adjustments ////////////////////
28. Total equity capital (sum of items 23 through 27) 3210 347,203
29. Total liabilities, limited-life preferred stock, and equity capital ////////////////////
(sum of items 21, 22, and 28) 3300 3,954,560
</TABLE>
EXHIBIT 25.B
FORM T - 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(b)(2)______
COMMERCE BANK, NATIONAL ASSOCIATION
(exact name of trustee as specified in its charter)
NATIONAL BANKING ASSOCIATION
(State of incorporation if not a national bank)
44-0206815
(I.R.S. employer identification No.)
1000 WALNUT STREET, KANSAS CITY, MISSOURI
(Address of principal executive offices)
64106
(Zip Code)
William E. Ekey
922 Walnut Street, Kansas City, MO 64106 (816) 234-2102
(Name, Address and telephone number of agent for service)
Farmland Industries, Inc.
(Exact name of obligator as specified in its charter)
Kansas
(State or other jurisdiction of incorporation or organization)
44-0209330
(I.R.S. Employer Identification No.)
3315 North Oak Trafficway, Kansas City, Missouri
(Address of principal executive offices)
64116
(Zip Code)
Subordinated Debt Securities
(Title of the indenture securities)
ITEM 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising
authority to which it is subject.
Comptroller of the Currency,
Washington, D.C.
Federal Reserve Bank of Kansas City,
Kansas City, Missouri
Federal Deposit Insurance Corporation
Washington, D.C.
(b) Whether it is authorized to exercise corporation trust
powers.
Yes. As authorized by the Comptroller of the Currency,
effective June 30, 1972. Previously organized as a trust
company under the Laws of the State of Missouri.
ITEM 2. Affiliations with obligor and underwriters.
If the obligor or any underwriter for the obligor is an affiliate
of the trustee, describe each such affiliation.
NONE
ITEM 3. Voting securities of the trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of October 31, 1996
___________________________________________________________________________
COL. A. COL. B.
Title of class Amount Outstanding
Capital Stock - par $20 900,000 Shares
ITEM 4. Trusteeships under other indentures.
If the trustee is a trustee under another indenture under which any other
securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, furnish the following information:
(a) Title of the securities outstanding under each such
other indenture.
FARMLAND INDUSTRIES, INC.
(F.K.A. Consumers Cooperative Association)
Subordinated Certificates of Investment (under Indenture dated February 25,
1970, as amended by Supplemental Indenture dated April 1, 1970) 8-1/2%, due 10
years from date of issue
and
Subordinated Monthly Interest Certificate (under Indenture dated
November 29, 1971, amended by Supplemental Indenture dated December 22, 1971,
as amended by Amended Indenture dated January 6, 1972), 7-1/2%, due 10 years
from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated
July 29, 1974) 8-1/2%, due 10 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated
July 29, 1974) 9%, due 15 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated July 29,
1974) 9-1/2% due 20 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated November 29,
1976) 9-1/2%, due 20 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated October 24,
1979) 10-1/2%, due 25 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated October 24,
1978, as amended by Supplemental Indemniture dated December 21, 1978) 9-1/2%,
due 20 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated May 20,
1980) due 10 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated November 5,
1980) due 5 years from date of issue
and
Subordinated Capital Investment Certificates (under Indenture dated November 5,
1980) due 20 years from date of issue
and
Subordinated Monthly Income Capital Investment Certificates (under Indenture
dated November 5, 1980) due 10 years from date of issue
and
Subordinated Individual Retirement Account Certificates (under Indenture dated
November 20, 1981) due 10 years from date of issue
and
Subordinated Monthly Income Capital Investment Certificates (under Indenture
dated November 11, 1985) due 5 years from date of issue
(b) A brief statement of the facts relied upon as a basis for the claim
that no conflicting interest within the meaning of Section 310 (b) (1) of the
Act arises as a result of the trusteeship under any such other indenture,
including a statement as to how the securities will rank with the securities
issued under such other indenture.
The securities issued, or to be issued, under the indentures named herein are
wholly unsecured and rank equally with each other without priority.
ITEM 5. Interlocking directorates and similar relationships with
obligor or underwriters.
If the trustee or any of the directors or executive officers of he
trustee is a director, officer, partner, employee, appointee, or
representative of the obligor or of any underwriter for the obligor,
identify each such person having any such connection and state the nature of
each such connection.
H. D. Cleberg, President and CEO of Farmland Industries, Inc.is a director of
Commerce Bank of Kansas City, N.A.
ITEM 6. Voting securities of the trustee owned by the obligor or its
officials.
Furnish the following information as to the voting securities of
the trustee owned beneficially by the obligor and each director, partner
and executive officer of the obligor.
As of October 10, 1997
___________________________________________________________________________
COL. A. COL. B. COL. C. COL. D.
Amount Percentage of voting
Name of Title of owned securities represented by
owner class beneficially amount given in Col. C.
NONE
[The remainder of this page was intentionally left blank]
ITEM 7. Voting securities owned by underwriters or their officials.
Furnish the following information as to the voting securities
of the trustee owned beneficially by each underwriter for the
obligor and each director, partner, and executive officer or
each underwriter.
As of October 10, 1997
___________________________________________________________________________
COL. A. COL. B. COL. C. COL. D.
Percentage of voting
securities represented
Name of Title of Amount Owned by amount given in
owner class beneficially Col. C.
NONE
ITEM 8. Securities of the obligor owned or held by the trustee.
Furnish the following information as to the securities of the
obligor owned beneficially or held as collateral security for
obligations in default by the trustee.
As of October 10, 1997
___________________________________________________________________________ COL.
A. COL. B. COL. C. COL. D.
Whether the Amount owned Percent of
securities are beneficially or held as class represented
Title of voting or non- collateral security for by amount given
class voting securities obligations in default in Col. C.
NONE
ITEM 9. Securities of underwriters owned or held by the trustee.
If the trustee owns beneficially or holds collateral security
for obligations in default any securities of an underwriter
for the obligor, furnish the following information as to each
class of securities of such underwriter any of which are so
owned or held by the trustee.
As of October 10, 1997
__________________________________________________________________________
COL. A. COL. B. COL. C. COL. D.
Amount owned beneficially Percent of
Name of issuer or held as collateral class represented
and Amount security for obligations by amount given
title of class outstanding in default by trustee in Col. C.
NONE
ITEM 10. Ownership or holdings by the trustee of voting securities of certain
affiliates or security holders of the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default voting securities of a person who, to the knowledge of
the trustee (1) owns 10 percent or more of the voting securities or the obligor
or (2) is an affiliate, other than a subsidiary or the obligor, furnish the
following information as to the voting securities of such person.
As of October 10, 1997
___________________________________________________________________________
COL. A. COL. B. COL. C. COL. D.
Amount owned beneficially Percent of
Name of issuer or held as collateral class represented
and Amount security for obligations by amount given
title of class outstanding in default by trustee in Col. C.
NONE
ITEM 11. Ownership or holdings by the trustee of any securities of a
person owning 50 percent or more of the voting securities of
the obligor.
If the trustee owns beneficially or holds as collateral security for
obligations in default any securities of a person who, to the knowledge of the
trustee, owns 50 percent or more of the voting securities of the obligor,
furnish the following information as to each class of securities of such person
any of which are so owned or held by the trustee.
As of October 10, 1997
___________________________________________________________________________
COL. A. COL. B. COL. C. COL. D.
Amount owned beneficially Percent of
Name of issuer or held as collateral class represented
and Amount security for obligations by amount given
title of class outstanding in default by trustee in Col. C.
NONE
ITEM 12. Indebtedness of the Obligor to the Trustee
Except as noted in the instructions, if the obligor is indebted to
the trustee, furnish the following information:
__________________________________________________________________________ COL.
A. COL. B. COL. C
Nature of Indebtedness Amount Outstanding Date Due
Unsecured Line of Credit $953,854 11/28/97
Unsecured Line of Credit $933,277 10/21/97
Unsecured Line of Credit $675,007 10/27/97
ITEM 13. Defaults by the Obligor
(a) State whether there is or has been a default with respect to the
securities under this indenture. Explain the nature of any such default
There is not currently, nor has there been a default with
respect to the securities under the indentures.
(b) If the trustee is a trustee under another indenture under which
any other securities, or certificates of interest or participation in any other
securities, of the obligor are outstanding, or is trustee for more than one
outstanding series of securities under the indenture, state whether thee has
been a default under any such indenture or series, identify the indenture or
series affected, and explain the nature of any such default.
There has been no default under any of the securities for
which the Trustee is a Trustee under any other indenture.
ITEM 14. Affiliations with the Underwriters
If any underwriter is an affiliate of the trustee, describe each such
affiliation.
No underwriter is an affiliate of the trustee.
ITEM 15. Foreign Trustee
Identify the order or rule pursuant to which the foreign trustee is
authorized to act as sole trustee under indentures qualified or to be qualified
under the Act.
Not applicable.
ITEM 16. List of Exhibits:
1. A copy of the articles of association of the trustee as
now in effect.
2. A copy of the certificate of authority of the trustee to
commence business, if not contained in the articles of
association.
3. A copy of the authorization of the trustee to exercise
corporate trust powers.
4. A copy of the existing By-Laws of the trustee or instru-
ments corresponding thereto.
5. A copy of each indenture referred to in Item 4 hereof.
6. The consents of the trustee required by Section 321(b)
of the Act.
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of the
supervising examining authority.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
trustee, Commerce Bank, National Association, a banking association organized
and existing under the laws of the United States, has duly caused this statement
of eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of Kansas City, and State of Missouri, on the 10th
day of October, 1997.
COMMERCE BANK,
NATIONAL ASSOCIATION
By /s/William E. Ekey
William E. Ekey
Vice-President
EXHIBIT 1
COPY OF THE ARTICLES OF ASSOCIATION OF THE TRUSTEE AS NOW IN EFFECT
ARTICLES OF ASSOCIATION
Commerce Bank, National Association
(Charter #18112)
For the purpose of organizing an Association to carry on the business of
banking under the laws of the United States, the undersigned do enter into the
following Articles of Association:
FIRST. The title of this Association shall be Commerce Bank, National
Association.
SECOND. The main office of the Association shall be in the City of Kansas
City, County of Jackson, State of Missouri. The general business of the
Association shall be conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not
less than five nor more than twenty-five shareholders, the exact number of
Directors within such minimum and maximum limits to be fixed and determined from
time to time by resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting thereof. Unless
otherwise provided by the laws of the United States, any vacancy in the Board of
Directors for any reason, including an increase in the number thereof, may be
filled by action of the Board of Directors.
FOURTH. The annual meeting of the shareholders for the election of
Directors and the transaction of whatever other business may be brought before
said meeting shall be held at the main office or such other place as the Board
of Directors may designate, on the day of each year specified therefor in the
By-Laws, but if no election is held on that day, it may be held on any
subsequent day according to the provisions of law; and all elections shall be
held according to such lawful regulations as may be prescribed by the Board of
Directors.
Nominations for election to the Board of Directors may be made by the Board
of Directors or by any shareholder of any outstanding class of capital stock of
the bank entitled to vote for election of directors.
FIFTH. The authorized amount of capital stock of this Association shall be
100,000 shares of common stock of the par value of one hundred dollars ($100.00)
each; but said capital stock may be increased or decreased from time to time, in
accordance with the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of the corporation
shall have any preemptive or preferential right of subscription to any shares of
any class of stock of the corporation, whether now or hereafter authorized, or
to any obligations convertible into stock of the corporation, issued or sold,
nor any right of subscription to any thereof other than such, if any, as the
Board of Directors, in its discretion, may from time to time determine and at
such price as the Board of Directors may from time to time fix.
The Association, at any time and from time to time, may authorize and issue
debt obligations, whether or not subordinated, without the approval of the
shareholders.
SIXTH. The Board of Directors shall appoint one of its members President
of this Association, who shall be Chairman of the Board, unless the Board
appoints another director to be the Chairman. The Board of Directors shall have
the power to appoint one or more Vice Presidents; and to appoint a Cashier and
such other officers and employees as may be required to transact the business of
this Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association shall be made; to manage and administer the business and affairs of
the Association; to make all By-Laws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the
location of the main office to any other place within the limits of Kansas City,
Missouri, without the approval of the shareholders, and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location without the approval of the shareholders but subject to the
approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any shareholder
owning, in the aggregate, not less than 25 per cent of the stock of this
Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting to each shareholder of record at his address as shown
upon the books of this Association.
TENTH. This Association shall, to the fullest extent permissible under The
General and Business Corporation Law of Missouri, (a) indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, other than an action by or in the right
of the corporation, by reason of the fact that such person is or was a director,
officer or employee of this Association, or is or was serving at the request of
this Association as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, against expenses,
including attorneys' fees, judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Association, and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful, and (b) indemnify any person who was or is a party or is
threatened to be made a party to any threatened pending or completed action or
suit by or in the right of the Association to procure a judgment in its favor by
reason of the fact that such person is or was a director, officer or employee of
the Association or is or was serving at the request of the Association as a
director, officer or employee of another corporation against expenses and
amounts paid in settlement actually and reasonably incurred by him in connection
with the defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the Association, and indemnification shall be made in the event of
negligence or misconduct in the performance of duties to the corporation only to
the extent that the court in which the action or suit was brought determines
upon application that the person is fairly and reasonably entitled to indemnity
for such expenses; provided, however, that no such indemnification shall be
available to any person against expenses or civil money penalties arising from
final orders in an administrative proceeding or action instituted by an
appropriate bank regulatory agency assessing such civil money penalties or
requiring affirmative action by an individual or individuals in the form of
payments to this Association; and, provided further, that all advances to an
officer, director or employee to indemnify such party against expenses incurred
in an action instituted by the Comptroller of the Currency shall be made subject
to reimbursement if a final order is entered assessing civil money penalties or
requiring payments to be made to this Association and before any advances are
made the Board of Directors of this Association in good faith has determined in
writing that all the following conditions are met:
1. The officer, director or employee has a substantial likelihood of
prevailing on the merits;
2. In the event the officer, director or employee does not prevail, he or she
will have the financial capability to reimburse this Association; and
3. Payment of expenses by this Association will not adversely affect the
Association's safety and soundness;
and provided further, the Association may purchase insurance covering the
liability of its directors, officers, or employees, and pay the premiums
therefor, to the extent authorized under The General and Business Corporation
Law of Missouris, except that any such insurance shall exclude insurance
coverage for a formal order assessing civil money penalties against a bank
director or employee.
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
EXHIBIT 2
COPY OF THE CHARTER
There is a document called "Comptroller of the Currency that can not be put in
ASCII. It is a picture of the certificate which is dated January 4, 1996
EXHIBIT 3
COPY OF THE AUTHORIZATION OF THE TRUSTEE
TO EXERCISE CORPORATE TRUST POWERS
This is a picture copy of a letter dated June 29, 1972 from Mr. Dean E. Miller,
Deputy Comptroller of the Currency for Trustee, Administrator of National Banks
EXHIBIT 4
COPY OF THE EXISTING BY-LAWS OF THE TRUSTEE
OR INSTRUMENTS CORRESPONDING THERETO
COMMERCE BANK, N.A., Kansas City, Missouri
By-Laws as amended thru October 31, 1996
BY-LAWS OF
COMMERCE BANK, NATIONAL ASSOCIATION
KANSAS CITY, MISSOURI
BY-LAWS OF
COMMERCE BANK, NATIONAL ASSOCIATION
KANSAS CITY, MISSOURI
ARTICLE I
STOCKHOLDERS' MEETING
Section 1.1 Stockholders' Annual Meeting. The annual meeting of the
stockholders of this Association for the election of directors and the
transaction of other business shall be held at the offices of the Association in
Kansas City, Missouri, on the third Tuesday of February in each year, and shall
be convened by the Chairman of the Board or the President at the hour of ten
o'clock A.M.
Section 1.2 Special Meetings of Stockholders. Special meetings of
the stockholders may be called by the Chairman of the Board or the President at
any time, and shall be called whenever so directed by resolution of the Board of
Directors, or whenever stockholders holding a majority of the capital stock
issued and outstanding, request either of them in writing so to do.
Section 1.3 Notice. Notice of each annual and each special meeting
of stockholders shall be given by the Secretary as required by law; provided,
that notice of any meeting of stockholders may be waived by any stockholder
executing a written waiver of notice either before, during or after such
meeting.
Section 1.4 Votes. Each share of stock shall entitle its owner to
one vote, and in case of election for Directors, each stockholder shall have the
right to cast as many votes in the aggregate as shall equal the number of shares
held by such stockholder, multiplied by the number of directors to be elected,
and may cast the whole number of votes, in person or by proxy, for one candidate
or distribute them among two or more.
Section 1.5 Proxies. Stockholders may vote at any meeting of the
stockholders by proxies duly authorized in writing; provided, however, that each
proxy shall be valid only for the specific meeting of stockholders specified
therein and at any adjournments of such meeting, and, provided further, that no
officer or employee of this Association shall act as proxy. Proxies shall be
dated and shall be filed with the records of the meeting.
ARTICLE II
DIRECTORS
Section 2.1 Board of Directors. The affairs of this Association
shall be controlled and managed by a Board of Directors (hereinafter referred to
as the "Board") consisting of not less than five nor more than twenty-five
shareholders, the exact number within such minimum and maximum limits to be
fixed and determined from time to time by resolution of a majority of the full
Board or by resolution of the shareholders at any meeting thereof; provided,
however, that a majority of the full Board may not increase the number of
directors to a number which: (i) exceeds by more than two the number of
directors last elected by shareholders where such number was fifteen or less;
and (ii) exceeds by more than four the number of directors last elected by
shareholders where such number was sixteen or more, but in no event shall the
number of directors exceed twenty-five.
In addition the Board may appoint, from time to time, one or more
advisory directors to serve in advisory capacities only without the power of
final decision in matters concerning the business of the bank.
Advisory directors shall be entitled to the same compensation as other
directors and shall be subject to the same requirements relating to retirement.
Advisory directors may also serve in an advisory capacity on any committee;
provided, that an advisory director may not fill any committee position which,
according to these By-Laws, must be filled by a regular member of the Board.
Section 2.2 Retirement of Directors. No person shall be elected a
director of this Association who shall have attained the age of 70 years, and
each person serving as a director of this Association upon attaining the age of
70 years shall be deemed to have submitted his resignation as a director of this
Association with such resignation to become effective on the day such director
attains the age of 70 years. Notwithstanding the foregoing, a director who is
also an officer of this Association shall retire from the Board on the date he
shall resign, retire or otherwise terminate his services as an officer of this
Association; provided, however, that for the purposes of this Section only, a
director serving as Chairman of the Board or as Chairman of any Committee of the
directors shall not be deemed to be an officer of this Association, and provided
further that without establishing any precedent and because of the unique
position of James M. Kemper, Jr., he may continue to serve as a director of this
Association after attaining the age of 70 years and may thereafter be elected to
serve as a director of this Association. The election or re-election by mistake
or otherwise of a director in violation of the aforesaid policy shall not, ipso
facto, void such election or re-election or nullify any actions such person
might take as a director.
Section 2.3 Board Meetings. Regular meetings of the Board shall be
held at the office of the Association in Kansas City, Missouri, at the hour of
1:00 o'clock in the afternoon, on the third Tuesday of every January, March,
May, July, September and November, if not a legal holiday, and if the same be a
legal holiday, then on the first day following which is not a legal holiday. No
notice shall be required for any such regular monthly meetings of the Board, and
any and all business may be transacted thereat.
At the first regular meeting of the Board following a stockholders
meeting at which directors are elected, the Board shall first proceed with the
organization of the new Board and shall elect and appoint such officers as these
By-Laws or the Board may prescribe.
Section 2.4 Special Board Meetings. Special meetings of the Board
may be held at any time on the call of the Chairman of the Board, the Chairman
of the Executive Committee, if one be elected, or the President, or any three
(3) directors.
Section 2.5 Notice of Board Meetings. While no notice shall be
required for any regular meeting of the Board, nevertheless, the Secretary, for
the information of the directors, shall mail to each director a written or
printed notice specifying the time and place of such meeting, addressed to him
at his last known business address (postage prepaid), not less than twenty-four
(24) hours before the hour fixed for the meeting. Except in the case of special
meetings called by reason of emergency, as hereinafter provided, notice of the
time and place of special meetings shall be given by the Secretary, in writing,
delivered to, or by telephone message communicated to, or by prepaid telegram
deposited in the telegraph office at Kansas City, Missouri, addressed to each
director not less than twenty-four (24) hours before the hour fixed for the
meeting. Such notices and communications may be addressed to or communicated to
such director at his last known place of business or residence, and shall be
sufficient if delivered to, addressed to, or communicated to, such place of
business or residence. If in the opinion of the Chairman of the Board, or the
President, and of three directors, the matters to be presented at such special
meeting are so urgent in their character as to constitute an emergency requiring
a shorter notice, and they shall so certify in writing, notice of such meeting
may be given in the same manner as hereinbefore provided, but shall be
sufficient if given at least one (l) hour before the hour fixed for the meeting.
Unless otherwise indicated in the notice thereof, any and all business may be
transacted at a special meeting.
Section 2.6 Quorum. A majority of the directors shall constitute a
quorum at any meeting, except when otherwise provided by law, but a lesser
number may adjourn any meeting from time to time and the meeting may be held, as
adjourned, without further notice.
Section 2.7 Vacancies. When any vacancy occurs among the directors
the remaining members of the Board, in accordance with the laws of the United
States, may appoint a director to fill such vacancy at any regular meeting of
the Board or at a special meeting called for that purpose.
Section 2.8 Compensation of Directors. The compensation of directors
of this Association for services shall be $650.00 for each regular or special
meeting of the Board attended; provided that no such compensation shall be paid
to any director who shall at the time be receiving a salary from the
Association, the parent of the Association or any other subsidiary of the
parent, as an officer thereof, without express order from the Board. Each
director shall be entitled to two paid absences per year.
ARTICLE III
COMMITTEES
Section 3.1 Executive Committee. The Executive Committee shall
consist of seven directors, of whom the Chairman of the Board, the Chairman of
the Executive Committee, if one be so elected, and the President shall be
members and such other members of the Board as may be appointed, from time to
time, by the Chairman of the Board with the approval of the Board.
The Executive Committee shall have, and exercise, all the powers of
the Board during the intervals between meetings of the Board, including the
power to control the conduct of the Association's business, and full power to
appoint committees and prescribe their duties, and to direct the actions of all
officers, agents and employees of the Association.
The Executive Committee shall meet at the office of the Association on
such days and at such hour as meetings of such Committee may be called, from
time to time, by any three members thereof, or by the Chairman of the Executive
Committee, the Chairman of the Board, or the President. Notices of meetings
shall be given in the same manner as is provided for in the case of special
emergency meetings of the Board. Four (4) members of the Executive Committee
shall constitute a quorum for the transaction of business. Unless otherwise
indicated in the notice thereof, any and all business may be transacted at any
meeting of the Committee.
Minutes of the meetings of the Executive Committee shall be recorded
in chronological order in the same Minute Book of the Association in which the
minutes of the meetings of the stockholders and of the Board are recorded, and
shall be approved at the next succeeding meeting of the Board as the report of
that committee to the Board, together with any special report that said
Committee may wish to make to the Board not contained in said minutes.
Section 3.2 Trust Committee. There shall be a committee to be known
as the Trust Committee, consisting of nine regular members selected from the
members of the Board. At least one of the members shall be an ex-officio member
selected from the Chairman of the Board, any Vice Chairman or the President, and
at least three other members of the Committee shall be selected from Board
members who are not officers of the Association. The regular members shall be
appointed by the Chairman of the Board with the approval of the Board, such
appointment to be made annually at the regular meeting of the Board in December
of each year, and shall hold their offices as such until their successors are
duly appointed. Vacancies occurring in the Trust Committee shall be filled by
the Chairman of the Board, subject to the approval of the Board at a regular
meeting after such vacancy occurs. The powers of appointment hereby given to
the Chairman of the Board may be exercised by the President in the absence of
the Chairman.
Said Committee shall have general supervision and control of the sale
and disposition of all property and assets, as well as of the investments and
reinvestments of all funds and other property, which have, or may at any time,
come into the custody, possession, control of, or have been, or may be acquired
by the Association through its Trust Division, in its fiduciary capacity
(including, but not by way of limitation, in the capacity of executor,
administrator, guardian, curator, trustee and/or agent), and with reference to
the same, and each of the same, said Committee shall possess the same authority
and power as the Board. Three members shall constitute a quorum.
Regular meetings of the Committee shall be held at the offices of the
Association on such days and at such hour as may be fixed by the Committee; and
special meetings may be held at any time upon call of the Chairman of the Board,
the President of the Association or the Chairman of the Committee. A Vice
President assigned to the Trust Division or a Trust Officer shall attend all
meetings of the Committee.
Section 3.3 Examining Committee. At the December meeting of the
Board held in each year, the Chairman, with the approval of the Board, shall
appoint not less than three directors to serve for the ensuing year as members
of the Examining Committee. Such members shall not consist of any director who
may at the same time be serving as an officer or employee of the Association.
Vacancies occurring from time to time in the Committee may be filled by the
Chairman with the approval of the Board. The Committee shall meet at such time
or times as it shall deem appropriate and shall have the duty of meeting with
and receiving the reports of the Auditor of the Association and such independent
accountants as may, from time to time, conduct audits of the Association. The
Committee shall determine whether adequate internal audit controls and
procedures are being maintained, shall supervise the continuous audit system of
the Association and shall recommend to the Board such changes in the manner of
doing business or conducting the affairs of the Association as it shall deem
advisable. The Examining Committee shall also make, or cause to be made by
auditors responsible only to the Board, suitable audits of the Trust Division at
least once during each calendar year and within fifteen months of the last
audit.
Section 3.4 Other Committees. From time to time the Board may create
such other committees, consisting of such persons, as the Board may determine to
be necessary or desirable and may fix the powers and duties of any such
committee.
Section 3.5 Compensation of Committee Members. The compensation of
committee members for service shall be $150.00 (or such lesser amount as shall
be specified in the resolution establishing any other committee) for each
meeting attended; provided, that no such compensation shall be paid to any
committee member who shall at the time be receiving a salary from the
Association, the parent of the Association or any other subsidiary of the
parent, as an officer thereof, without express order from the Board.
ARTICLE IV
OFFICERS
Section 4.1 Executive Officers. The executive officers of this
Association shall be the Chairman of the Board, the Vice Chairman of the Board,
if one or more is so elected, the Chairman of the Executive Committee, if one be
so elected, the President, the Senior Executive Vice Presidents, the Executive
Vice Presidents and the Secretary. Any person may hold two or more offices
except the offices of President and Secretary.
Section 4.2 Chairman of the Board. The Board shall elect one of its
members to be Chairman of the Board. He shall preside at all meetings of the
Board and shall supervise the establishment of policies adopted or approved by
the Board. He shall have general executive powers, including, by way of
illustration, the power to fix remuneration of officers, agents and employees;
to employ and dismiss any officer, agent or employee; and to assign officers,
agents and employees to duties in the various areas of the Association, as well
as the specific powers conferred by these By-Laws and shall also have and may
exercise such further powers and duties as may from time to time be conferred
upon, or assigned to him by the Board.
Section 4.3 Vice Chairman of the Board. The Board may elect one or
more of its members to the office of Vice Chairman of the Board. In the absence
of the Chairman, any Vice Chairman may preside at any meeting of the Board. The
Vice Chairman of the Board shall assist the Chairman of the Board in
establishing policies adopted or approved by the Board. A Vice Chairman of the
Board shall have such general executive powers as may be assigned by the
Chairman as well as specific powers conferred by these By-Laws, and shall also
have and may exercise such further powers and duties as may from time to time be
conferred upon or assigned to him by the Board.
Section 4.4 Chairman of the Executive Committee. The Board may elect
one of its members to the office of Chairman of the Executive Committee, and
such officer shall preside over all meetings of the Executive Committee. In the
absence of the Chairman or any Vice Chairman of the Board, the Chairman of the
Executive Committee shall preside at any meeting of the Board. The Chairman of
the Executive Committee shall have such general executive powers as may be
assigned by the Chairman as well as specific powers conferred upon or assigned
to him by the Board.
Section 4.5 President. The Board shall elect one of its members to
be President of the Association. In the absence of the Chairman, any Vice
Chairman, or Chairman of the Executive Committee, the President shall preside at
any meeting of the Board. The President shall have such general executive
powers as may be assigned by the Chairman, and shall have and may exercise any
and all other powers and duties pertaining by law, regulation, or practice, to
the office of President, or imposed by these By-Laws, and shall also have and
may exercise such further powers and duties as may from time to time be
conferred upon or assigned to him by the Board.
Section 4.6 Vice President. The Board shall elect one or more Vice
Presidents and may classify one or more of such Vice Presidents so elected as
Senior Executive Vice President, Executive Vice President, Senior Vice President
or otherwise as the Board may deem appropriate. The offices of Senior Executive
Vice President, Executive Vice President, and Senior Vice President shall be
deemed executive offices of the Association and the persons holding such office
shall be authorized to participate in the major policy making functions of the
Association and shall additionally have such powers and duties as imposed by the
By-Laws or assigned or conferred from time to time by the Board, the Chairman of
the Board, a Vice Chairman or the President. Each Vice President shall have and
may exercise any and all powers and duties pertaining to the office of Vice
President as imposed by these By-Laws and shall also have and may exercise such
further powers and duties as may from time to time be conferred upon or assigned
to him by the Board, the Chairman of the Board, a Vice Chairman or the
President.
Section 4.7 Secretary. The Board shall elect a Secretary (who may
also be designated as Cashier) who shall be the Secretary of the Board and of
the Association. He shall attend the meetings of stockholders, the Board, and
the Executive Committee and keep minutes of said meetings and shall have custody
of the corporate records of the Association. He shall have custody of the seal
of the Association and shall have authority to affix the same to any instrument
executed on behalf of the Association and also to attest the same. He shall
also attend to the giving of all notices required by these By-Laws to be given
and shall have and may exercise any and all other powers and duties pertaining
by law, regulation or practice or imposed by these By-Laws or as may be assigned
to him, from time to time, by the Board.
Section 4.8 General Counsel. The Board shall elect a General Counsel
who shall have charge of the legal business of the Association and shall appear
or provide for proper appearances for the Association in suits and proceedings
to which it is a party. He shall advise the Board, Executive Committee,
Chairman of the Board, President and other officers of the Association
concerning the affairs of the Association when by them requested. He shall also
have such other powers and duties as may be imposed by these By-Laws.
Section 4.9 Controller. The Board shall elect a Controller who shall
receive and take care of all monies, securities and evidences of indebtedness
belonging to the Association, keep full and complete accounts of receipts and
disbursements, and make reports thereof to the Executive Committee and the Board
as often as may be requested. He shall, under the direction of the Chairman of
the Board, a Vice Chairman, or the President, perform such other duties
pertinent to his office as they may require.
Section 4.10Other Officers. The Board may elect one or more Trust
Officers, one or more Assistant Vice Presidents, and one or more Assistant
Secretaries together with such other junior officers, to be designated by such
titles as the Board may determine, from time to time, as may appear to the Board
to be required or desirable to transact the business of the Association. Such
officers shall respectively exercise such powers and perform such duties as
pertain to their several offices, or as may be conferred upon them or assigned
to them by the Board, the Chairman of the Board, a Vice Chairman of the Board or
the President. As used in these By-Laws a Trust Officer shall include Trust
Investment Officer, Corporate Trust Officer, Trust Operations Officer, and a
Trust Officer with such other descriptive term as may be applied by the Board.
A person elected a junior officer under this Section shall use such title,
approved by the Board, as the Chairman, from time to time, may designate.
Section 4.11Bonds. All officers shall be bonded with such security
and approved in such manner as the Board or the Executive Committee may from
time to time direct.
Section 4.12Tenure of Office. The officers of this Association shall
be elected by the Board annually at the annual meeting of the Board and such
officers as shall be elected to such offices shall continue in office for one
year and until their successors shall be elected, unless such officer shall
resign, become disqualified, or be removed. Persons may be elected officers or
be promoted to a different office at any meeting of the Board; provided, that
such person so elected shall continue in office only until the next annual
meeting of the Board at which all officers are to be elected or re-elected,
unless any such person shall resign, become disqualified, or be removed. The
Board shall have the power to remove any officer at any time and, in addition,
may designate by resolution, officers who shall have the authority to dismiss
any officer, agent or employee.
ARTICLE V
POWERS AND DUTIES OF OFFICERS
Section 5.1 Representation. The Chairman of the Board, any Vice
Chairman, the President, the General Counsel, and such other officer or officers
of the Association as may be empowered so to do by the Board, or any one of
them, shall have power to act for, appear in behalf of, and represent this
Association before all Departments and Courts of the United States of America,
and any State, Territory or Possession thereof, and to execute general or
special powers of attorney for litigation in favor of lawyers, solicitors,
agents, or any other legal representatives, granting to them such powers and
authorization, whether ordinary or extraordinary, and with or without
limitation, which any such officer may deem advisable, including the power to
settle in or out of court, or to submit to arbitrators or other adjustment, any
question in which this Association may be interested; and to employ counsel and
direct the taking of any legal action in reference to any of the foregoing, or
any other matter or thing touching the interest of the Association.
Section 5.2 Real Estate Conveyances. All transfers and conveyances
of real estate, including releases of mortgages, deeds of trust and other real
estate interests held, or purportedly held, by the Association, may be executed
by the Chairman of the Board, any Vice Chairman, the President, or any Vice
President and sealed with the corporate seal of the Association and, if
required, attested by the Secretary or one of the Assistant Secretaries of the
Association; and such instruments may be executed and delivered by the Chairman
of the Board, the President, or any Vice President without any order of the
Board of Directors.
Section 5.3 Voting of Securities. Unless otherwise ordered by the
Board or the Executive Committee, the Chairman of the Board, any Vice Chairman,
the President, and any Vice President, (and, with respect to stock held in a
fiduciary capacity, any Trust Officer) shall each have full power and authority
in behalf of the Association to attend, and to act and to vote at any meeting of
the stockholders of any corporation in which the Association may hold stock, in
its own capacity or in any fiduciary capacity, and in connection with such
meeting each of said officers shall possess and may exercise in behalf of the
Association any and all rights and powers incident to the ownership of such
stock, including the power to sign proxies therefor; provided, that any proxy
granted with respect to stock held in a fiduciary capacity shall be limited to a
single meeting and shall either be limited to voting for trustees or directors
or shall direct how such proxy holder shall vote.
Section 5.4 Foreclosure of Collateral. The Chairman of the Board,
any Vice Chairman, the President, and any Vice President, shall each have power
and authority for and on behalf of this Association to request, order or direct
the foreclosure of any mortgage, deed of trust or other security agreement in
favor of the Association held or owned by the Association (or held by this
Association in trust) securing a loan or loans or other obligations and to
exercise any or all of the options and powers inuring to this Association under
the provisions of such mortgages, deeds of trust or security agreements or under
the terms of the note or notes thereby secured, including the power and
authority to appoint and designate a successor trustee or trustees as
substitutes for the trustee or trustees named in any such mortgage or deed of
trust.
Section 5.5 Refusal to Serve as Trustee. The Chairman of the Board,
any Vice Chairman, the President, and any Vice President, shall each have power
and authority to act for the Association in refusing or declining to act as
trustee under any mortgage or deed of trust securing a loan on real or personal
property in which this Association is named or designated as trustee, and/or to
resign as such trustee, and to make, execute and deliver in the name of, and for
and in behalf of the Association, appropriate instruments, in writing,
evidencing such refusal or declination to so act or such resignation.
Section 5.6 Authentication of Securities. The Chairman of the Board,
any Vice Chairman, the President, any Vice President, any Trust Officer, and any
Assistant Trust Officer, shall each have authority to countersign or
authenticate bonds or certificates on behalf of this Association as Trustee, and
to sign, in behalf of this Association as Trustee, authentications or
certifications of this Association as Trustee under any mortgage, deed of trust
or other agreement securing an issue of bonds, debentures, notes or other
obligations of any corporation, association or individual, or as registrar or
transfer agent, and also certificates of deposit for stock, bonds, debentures,
notes or other obligations, interim certificates and trust certificates. The
Chairman of the Board, any Vice Chairman, the President, any Vice President, or
the Secretary and any Assistant Secretary shall each have authority to
countersign or authenticate bonds or certificates on behalf of this Association
where this Association is the direct purchaser of the issue and to execute any
closing documents required for the purchase of such bonds.
Section 5.7 Trust Division. The Chairman of the Board shall assign a
Vice President who shall have and may exercise, subject to the control of the
Chairman, a Vice Chairman or the President, general supervision over the Trust
Division. Such Vice President together with other Vice Presidents assigned to
the Trust Division and the Trust Officers, and each of them, may represent the
Association in any of the business of said division. All securities and funds
held by the Association in a fiduciary capacity and the accounts of each trust
or other fiduciary relationship shall be held separate and apart from those of
every other and entirely separate and apart from the assets of the Association,
and such securities shall be subject to the joint control of any two Trust
Officers or, if designated by the Vice President having general supervision of
the Trust Division, employees of the Trust Division. Each Vice President
assigned to the Trust Division shall have and may exercise, so long as he
remains assigned to said division, all of the powers granted by these By-Laws or
by the Board to a Trust Officer.
Section 5.8 Trusts. The Chairman of the Board, any Vice Chairman,
the President, any Vice President assigned to the Trust Division, and the Trust
Counsel, shall each have authority, for and on behalf of this Association, to
accept or reject any and all trusts or other fiduciary duties or
responsibilities which may be offered to this Association, and in connection
therewith to execute, on behalf of this Association, all trust agreements or
other appropriate instruments and the Secretary, or any Assistant Secretary of
this Association, is authorized to affix the seal of this Association to any
such trust agreement or other instrument which has been duly signed by any such
officer.
Section 5.9 Substitution of Attorney-in-Fact. Whenever this
Association has been, or may be appointed Attorney-in-Fact, with power of
substitution in and about the transfer of shares of capital stock, bonds or
other instruments commonly referred to as securities of any corporation or other
entity, the Chairman of the Board, any Vice Chairman, the President, or any Vice
President of this Association may substitute, by a proper written instrument, an
attorney-in-fact to act in the place and stead of this Association in and about
such transfer.
Section 5.10Purchase or Transfer of Securities. The Chairman of the
Board, any Vice Chairman, the President, and any Vice President of this
Association, shall each have authority for and in behalf of the Association, and
in its name, to sell, assign and transfer, or to purchase or otherwise acquire,
directly or through a cash account of this Association established or maintained
with a brokerage firm selected by such person, any and all shares of the capital
stock, bonds, or other instruments commonly referred to as securities, and
notes, mortgages and deeds of trust issued by any corporation or other entity
and held or to be held by this Association in its own capacity or in any
fiduciary capacity; and the Chairman of the Board, any Vice Chairman or the
President may designate, in writing, from time to time, such other officers or
employees as shall be authorized to exercise the powers granted by this Section.
Section 5.11 Banking Relationships. The Chairman of the Board, any
Vice Chairman and the President shall each have authority for and in behalf of
the Association to designate from time to time institutions with which this
Association may maintain checking or other depository accounts, safekeeping
accounts, clearing accounts or such other form of account as may be deemed
necessary or appropriate for the conduct of the Association's business, whether
any such account shall be in the name of this Association or in the name of this
Association in any custodial or fiduciary capacity, and to designate from time
to time such individuals, who may be officers or employees of this Association,
as shall be authorized to effect transactions with respect thereto, and with
respect to any and all accounts or transactions with the Federal Reserve Bank of
Kansas City, including, without limitation, the signing of checks, drafts or
other orders with respect to any depository account to effect the deposit or
withdrawal of funds, securities, instruments or other documents held in or
subject to any such account, including delivery instructions with respect to any
safekeeping, clearing or other form of account, and any such transactions as may
be effected by a designated individual shall include authority to effect
transfers of funds, securities, instruments or other documents subject to any
such account by wire or telephone instruction.
ARTICLE VI
STOCK
Section 6.1 Stock Certificates--Transferred. The capital stock of
this Association shall be represented by certificates signed by the Chairman of
the Board, any Vice Chairman, the President, or any Vice President, and attested
by the Secretary or an Assistant Secretary, with the corporate seal affixed, and
shall be transferable only on the books of the Association, in person or by
attorney duly authorized according to law; and when stock is transferred, the
certificate therefor shall be returned to the Association and cancelled, and new
certificate issued.
Section 6.2 Stockholders Recognized. Until stock shall be
transferred, as provided in Section 6.l, no person shall be recognized by this
Association as the owner of said stock, except the person to whom the same was
issued, and in whose name the same stands on the books of the Association,
except as provided by law in case of executor, administrator, guardian or
trustee.
Section 6.3 Record Date. With respect to each meeting of
stockholders, each declaration and payment of a dividend or distribution, or
each declaration and grant of allotment of rights, the Board may fix a date
preceding the date on which such event affecting the rights of any stockholder
shall occur as a record date for the determination of the stockholders entitled
to notice of and to vote at any such meeting or entitled to receive payment of
any such dividend or to any such allotment of rights or to exercise the rights
in respect of any change, conversion or exchange of capital stock, and in such
case such stockholders and only such stockholders as shall be stockholders of
record on the date so fixed shall be entitled to notice of and to vote at such
meeting or to receive payment of such dividend or to receive such allotment of
rights or to exercise such rights, as the case may be, notwithstanding any
transfer of any stock on the books of the Association after any such record date
fixed as aforesaid. Any such date as may be fixed by the Board as the record
date shall not precede the date of any meeting of stockholders, the date for the
payment of any dividend or the date for allotment of rights or the date when any
change, conversion or exchange of capital stock shall go into effect by more
than fifty days. If the Board shall not have set a record date for the
determination of its stockholders entitled to participate in the event for which
a record date be established, the date on which notice of the meeting is mailed
or the date such dividend is declared or other right announced shall be the
record date for such determination of stockholders so entitled to participate.
ARTICLE VII
MISCELLANEOUS
Section 7.1 Fiscal Year. The fiscal year of this Association shall
end on the 31st day of December in each year, and at the close of each fiscal
year it shall be the duty of the Board to cause a complete and accurate
statement of the financial condition of the Association to be made forthwith
from the books thereof, a copy of which shall be submitted to the stockholders
at the annual meeting.
Section 7.2 Seal. The Association shall have a corporate seal which
shall have inscribed around the upper circumference thereof "Commerce Bank" and
around the lower circumference thereof "National Association" and elsewhere
thereon shall bear the word "Seal".
Section 7.3 Business Hours. The main office and all other facilities
of the Association shall be open for the transaction of business on such days
and during such hours as the Board or the Executive Committee may in its
discretion determine. The Board of Directors, or the Executive Committee,
however, may in its discretion change said hours and days, or close the office
entirely, whenever the interests of the Association will be best served thereby,
or circumstances shall render the same proper.
Section 7.4 Amendments. The Board shall have the power to make,
alter, amend, or repeal the By-Laws of this Association from time to time.
Exhibit 5
COPIES OF INDENTURE
opies of the Indentures referred to in Item 4 hereof have heretofore been filed
with the Securities and Exchange Commission under the Securities Act of 1933 and
the Securities Exchange Act of 1934 as Exhibits to the Registration Settlements
of the Farmland Industries, Inc. (formerly Consumers Cooperative Association).
The copies of Indentures listed in this Exhibit 5 hereof are hereby incorporated
by reference to the Exhibits to the Registration Statements which are listed as
items (a) through (n) as follows:
(a) Trust Indenture dated February 25, 1970, as amended by
Supplemental Indenture dated April 1, 1970, and amended January 29, 1982.
(Form S-1, No. 2-36418, effective April 6, 1970).
8-1/2%, 10-Year Subordinated Certificates of Investment
(b) Trust Indenture dated November 29, 1971, as amended by
Supplemental Indenture dated December 22, 1971, as amended by Amended
Indenture dated January 6, 1972, and amended January 29, 1982.
(Form S-1, No. 2-42493, effective January 14, 1972).
7-1/2%, 10-Year Subordinated Certificates of Investment
(c) Trust Indenture dated July 29, 1974, as amended January 29, 1982.
(Form S-1, No. 2-51757 effective October 22, 1974).
8-1/2%, 10-Year Subordinated Capital Investment Certificates
(d) Trust Indenture dated July 29, 1974, as amended January 29, 1982.
(Form S-1, No. 2-51757 effective October 22, 1974).
9%, 15-Year Subordinated Capital Investment Certificates
(e) Trust Indenture dated July 29, 1974, as amended January 29, 1982.
(Form S-1, No. 2-51757 effective October 22, 1974).
9-1/2%, 20-Year Subordinated Capital Investment Certificates
(f) Trust Indenture dated November 29, 1976, as amended January 29,
1982. (Form S-1, No. 2-55767 effective January 10, 1977).
9-1/2%, 20-Year Subordinated Capital Investment Certificates
(g) Trust Indenture dated October 24, 1978, as amended December 21,
1978. (Form S-1, No. 2-63106)
9-1/2% 20-Year Subordinated Capital Investment Certificates
(h) Trust Indenture dated October 24, 1978, as amended January 29,
1982. (Form S-1, No. 2-66090 effective January 3, 1980).
10-1/2%, 25-Year Subordinated Capital Investment Certificates
(i) Trust Indenture dated November 8, 1984.
(Form S-1, No. 2-94400 effective December 31, 1984).
10-Year Subordinated Capital Investment Certificates
(j) Trust Indenture dated November 8, 1984.
(Form S-1, No. 2-94400 effective December 31, 1984).
5-Year Subordinated Capital Investment Certificates
(k) Trust Indenture dated November 8, 1984.
(Form S-1, No. 2-94400 effective December 31, 1984).
20-Year Subordinated Capital Investment Certificates
(l) Trust Indenture dated November 5, 1980.
(Form S-1, No. 2-26998 effective December 31, 1980).
10-Year Subordinated Monthly Income Capital Investment
Certificates
(m) Trust Indenture dated November 20, 1981, as amended January 4,
1982, and as amended January 3, 1983.
(Form S-1, No. 2-75071, effective January 7, 1982).
10-Year Subordinated Individual Retirement Account
Certificates
(n) Trust Indenture dated November 11, 1985
(Form S-1, No. 33-1970, effective December 3, 1985)
5-Year Subordinated Monthly Income Capital Investment
Certificates
Exhibit 6
CONSENTS OF THE TRUSTEE REQUIRED
BY SECTION 321(B) OF THE ACT
Exhibit 6
CONSENT OF THE TRUSTEE
Pursuant to Section 321(b) of the Trust Indenture Act, Commerce Bank,
National Association, hereby consents to the release of reports of examinations
by Federal, State, Territorial or District authorities to the Securities and
Exchange Commission upon request therefor. Dated this 31st day of October,
1997.
COMMERCE BANK,
NATIONAL ASSOCIATION, Trustee
By: /s/ William E. Ekey
William E. Ekey, Vice-President
EXHIBIT 7
COPY OF THE LATEST REPORT OF CONDITION OF THE TRUSTEE
PUBLISHED PURSUANT TO LAW OR THE REQUIREMENTS
OF THE SUPERVISING EXAMINING AUTHORITY
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COMMERCE BANK N.A. (KANSAS CITY)
STATEMENT OF CONDITION
JUNE 30, 1997
ASSETS
Loans, less allowance for loan losses of
Investment Securities: 49,128,000 $2,773,922,000
US Goverment and Federal Agency obligations $770,588,000
Obligation of states and political subdivisions 20,449,000
Other securities 371,796,000 1,162,833,000
Federal funds sold and securities purchased under
agreements to resell 154,745,000
Trading account securities 16,675,000
Net earning assets $4,108,175,000
Cash and due from banks 516,200,000
Land, buildings and equipment 104,290,000
Customers' acceptance liability 1,240,000
Other assets 94,539,000
Total Assets $4,824,444,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $1,101,908,000
Savings and interest bearing demand 1,858,004,000
Time 1,213,517,000 $4,173,429,000
Federal funds purchased and securities sold under
agreements to repurchase
Accrued expenses and other liabilities 40,690,000
Acceptances outstanding 1,240,000
Total Liabilities $4,458,851,000
Stockholders' equity:
Capital stock 10,000,000
Capital surplus 316,760,000
Undivided profits 38,833,000
Total Stockholder's equity 365,593,000
Total liabilities and stockholders' equity $4,824,444,000
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