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 [ ]
<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 $ 90,800,000
SUBORDINATED DEBENTURE BONDS $ 170,000,000
TOTAL $ 260,800,000 $ 73,773(1) AND (2)
</TABLE>
(1)THE FEE IS CALCULATED PURSUANT TO RULE 457(O)
(2)PURSUANT TO RULE 429, THE COMBINED PROSPECTUS FILED AS A PART OF THIS
REGISTRATION STATEMENT WILL RELATE AS WELL TO THE REGISTRANT'S FORM S-1
REGISTRATION STATEMENT NO. 333-40759. THE AMOUNT OF SECURITIES REGISTERED IN
REGISTRATION STATEMENT NO. 333-40759 WHICH WERE NOT SOLD AND WHICH ARE CARRIED
FORWARD IN THIS COMBINED REGISTRATION STATEMENT AND THE RELATED FEE CALCULATED
AT A RATE OF .000295 ARE: AMOUNT OF SECURITIES - $74,739,200; AMOUNT OF FEE -
$22,048. ACCORDINGLY, $51,725 IS PAID HEREWITH.
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.
PROSPECTUS
FARMLAND INDUSTRIES, INC.
$90,800,000 DEMAND LOAN CERTIFICATES
$170,000,000 SUBORDINATED DEBENTURE BONDS (SERIES A - H)
MINIMUM
INITIAL
INVESTMENT
Demand Loan Certificates........ $ 1,000
SERIES
Ten-Year Series A............... $ 1,000
Five-Year Series C
Ten-Year Monthly Income Series E $ 5,000
Ten-Year Monthly Income Series G
Ten-Year Series B............... $100,000
Five-Year Series D
Ten-Year Monthly Income Series F
Ten-Year Monthly Income Series H
For interest rate information, call 1-800-821-8000, ext. 6360.
TERMS OF SALE
If all the securities offered are sold, we will receive $90,800,000 from the
sale of demand loan certificates and $130,000,000 from the sale of subordinated
debenture bonds. Also, we will exchange subordinated debenture bonds with a
face amount of up to $40,000,000 for other subordinated debt securities. If
more than $130,000,000 is sold for cash a lesser amount will be available for
exchange. We will pay approximately $5,800,000 in commissions and $1,700,000 in
other expenses. The agents are not required to sell any specific number of
dollar amount of securities but will use their best efforts to sell the
securities offered.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
adequacy or accuracy of this prospectus. Any representation to the contrary is
a criminal offense.
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN RISK
FACTORS THAT YOU SHOULD CONSIDER BEFORE YOU INVEST IN THESE SECURITIES.
FARMLAND SECURITIES COMPANY
AMERICAN HEARTLAND INVESTMENT, INC. IRON STREET SECURITIES INC.
Agents
December 31, 1998
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........................................6
The Offering..............................................8
Risk Factors.............................................13
Selected Consolidated Financial Data.....................21
Management's Discussion And Analysis Of Financial
Condition And Results Of Operations..................25
Quantitative And Qualitative Disclosures About Market
Risk 53
Determination Of Interest Rates..........................55
Use Of Proceeds..........................................57
Plan Of Distribution.....................................58
Exchange Offer...........................................60
How To Accept Exchange Offer.............................62
How To Transfer Ownership................................63
Description Of Debt Securities...........................63
Equity Ownership of Certain Beneficial Owners and
Management..............................................64
Certain Relationships and Related Transactions...........64
The Company..............................................96
Business.................................................99
Legal Proceedings.......................................129
Management..............................................130
Executive Compensation..................................139
Legal Matters...........................................159
Experts.................................................159
Qualified Independent Underwriter.......................159
Index To Farmland Consolidated Financial Statements.....160
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 of the SEC,
450 Fifth Street N.W., Washington, D.C. 20549. 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 6.
INFORMATION AVAILABLE FROM NASD
The National Association of Securities Dealers, Inc. ("NASD") instituted a
program which provides information regarding the disciplinary history of NASD
members and their associated persons. You may obtain an investor brochure which
includes information describing this program by contacting the NASD. The NASD
hotline number is 1-800-289-9999. The NASD website is
http://www.nasdr.com/2000.htm.
PROSPECTUS SUMMARY
This summary does not contain all the information that may be important to you.
You should read the entire Prospectus 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
Farmland Industries, Inc., founded in 1929 and formally incorporated in Kansas
in 1931, is a farm supply and processing and marketing cooperative. In this
Prospectus, "Farmland" or the "Company" refers to Farmland Industries, Inc. and
its subsidiaries, unless the context requires otherwise. Farmland operates on a
cooperative basis and is primarily owned by its members. Members are entitled
to receive patronage refunds distributed by Farmland from the member-sourced
portion of its annual net earnings.
As of August 31, 1998, Farmland's membership, associate membership and patrons
eligible for patronage refunds consisted of approximately 1,500 cooperative
associations of farmers and ranchers and 5,800 pork or beef producers or
associations of such producers. See "The Company - Voting Members; - Associate
Members; - Patronage Agreements with Patrons." "
Based on sales, we are one of the largest cooperatives in the United States. In
1998, we had sales of $8.8 billion, including export sales in excess of $1.3
billion, to customers in over 90 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 and distributes products primarily to
wholesalers and to retailers. Company owned or operated plants produced
approximately 60% of the farm supply products we sold in 1998. Member
cooperative associations purchased approximately 64% of the farm supply products
we sold in1998. These cooperatives distribute products primarily to farmers and
ranchers who are the end users of the farm supply 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 and marketing of grain
In 1998, our members supplied about 60% of the hogs we processed, 30% of the
cattle we processed and 60% of the domestic grain that we marketed domestically.
Substantially all of the pork and beef products we sold in 1998 was processed in
company owned plants.
THE OFFERING
DESCRIPTION OF SECURITIES
We are offering $90.8 million of Demand Loan Certificates. We are offering $170
million of Subordinated Debenture Bonds for sale or to exchange for certain
Farmland subordinated debt securities. The terms and conditions of the debt
securities which we are offering for sale or exchange are more fully described
in the section "Description of Debt Securities" which begins on page 63.
The Subordinated Debenture Bonds are available in several series.
Minimum
Series Initial Investment
Ten-Year, Series A.........................$ 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
MATURITY
. Demand Loan Certificates are payable upon demand.
. Subordinated Debenture Bonds of Series A and Series B mature 10 years from
the date of original issuance.
. Subordinated Debenture Bonds of Series C and Series D mature 5 years from
the date of original issuance.
. Monthly Income Subordinated Debenture Bonds of Series E and Series F mature
10 years from the date of original issuance.
. Monthly Income Subordinated Debenture Bonds of Series G and Series H
mature 5 years from the date of original issuance.
INTEREST RATES
The interest rates we pay on the various Debt Securities we are selling can be
found under the heading "Determination of Interest Rates" on page 55. We may
change the interest rate we are paying on the Debt Securities that we are
offering at any time. When we change any interest rate, we will update this
Prospectus to show the interest rate. Also, you may obtain information about
the interest rates we pay by calling Farmland Securities Company, 1-800-821-
8000, Extension 6360.
INTEREST PAYMENT
Interest on the Subordinated Debenture Bonds (Series A, Series B, Series C and
Series D) is paid semi-annually on January 1 and July 1 or at the holder's
election may be left to accumulate semi-annually.
Interest on Monthly Income Subordinated Debenture Bonds (Series E, Series F,
Series G and Series H) is paid on the first day of each month.
PROVISIONS FOR EARLY REDEMPTION BY HOLDERS
1.We will redeem the Ten-Year Series A and Series B and Five-Year Series C and
Series D Subordinated Debenture Bonds held by a trustee or custodian in an
individual retirement account ("IRA") as necessary to satisfy mandatory
withdrawals from the IRA.
2.In addition to the amount of redemption for (1) above, we will redeem the
Ten-Year Series A and Series B, and Five-Year Series C and Series D
Subordinated Debenture Bonds upon notice of the death of the holder.
3.In addition to the amount of redemption for (1) and (2) above, we will redeem
limited amounts of Subordinated Debenture Bonds of Series A, Series B, Series
C and Series D before they mature if certain restrictive conditions are
satisfied. The limited amount of Subordinated Debenture Bonds that we will
redeem before maturity is explained under the caption "Limited Redemption
Prior to Maturity of Subordinated Debenture Bonds" beginning on page 76 of
this Prospectus. A summary of the other limitations on the redemption before
maturity of Subordinated Debenture Bonds of Series A, Series B, Series C and
Series D follows:
. Except when held by a trustee or custodian in an IRA as stated in (1)
above, the Ten-Year Subordinated Debenture Bonds (Series A and Series
B) must have been held for at least 3 years.
. Except when held by a trustee or custodian in an IRA as stated in (1)
above, the Five-Year Subordinated Debenture Bonds (Series C and Series
D) must have been held for at least 2 years.
4.We will redeem the Ten-Year Monthly Income Subordinated Debenture Bonds
(Series E and Series F), and Five-Year Monthly Income Subordinated Debenture
Bonds (Series G and Series H) before maturity only after notice of the death
of the holder.
PROVISIONS FOR EARLY REDEMPTION AT THE OPTION OF FARMLAND
Subordinated Debenture Bonds of Ten-Year Series A and Series B, and Five-Year
Series C and Series D may be called at the option of Farmland 2 years after the
date of issue.
Monthly Income Subordinated Debenture Bonds of Ten-Year Series E and Series F
and Five-Year Series G and Series H, cannot be called by Farmland.
SUBORDINATION
The right of holders of the Subordinated Debenture Bonds to receive payments of
principal and interest are subordinated in right of payment to all existing
and future holders of Senior Indebtedness. Senior Indebtedness includes Demand
Loan Certificates, obligations of Farmland created before the Subordinated
Indenture and outstanding to banks or trust companies, insurance companies or
pension trust and indebtedness created after the date of the Subordinated
Indenture under instruments which state that such indebtedness is Senior
Indebtedness.
The Subordinated Debenture Bonds are also effectively subordinated to all
obligations of Farmland's subsidiaries.
""
UNDERWRITING DISCOUNTS AND COMMISSIONS
We will pay Farmland Securities Company, American Heartland Investments, Inc.
and Iron Street Securities Inc. 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 Farmland Securities
Company 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 60 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.
""
""""""""""
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 of $70.8
million, excluding statutory interest. 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, 1998, statutory interest, before tax benefits of the interest
deduction, totaled about $279.9 million. Therefore, the total potential
liability resulting from a loss of this tax case is approximately $365.7
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 by
approximately $15.3 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.
In March 1998, Farmland received notice from the IRS assessing the $15.3 million
tax and accumulated statutory interest related to the Company's 1989 tax year
(as described above). In order to establish the trial court in which initial
litigation, if any, of the dispute would occur and to stop the accumulation of
interest, the Company deposited funds with the IRS in the amount of the
assessment. After making this deposit, the Company filed for a refund of the
entire amount deposited.
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, 1998,
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 25 of this Prospectus.
SUBORDINATION AND ADDITIONAL DEBT
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.
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
includes Demand Loan Certificates, obligations of Farmland created before the
Subordinated Indenture and outstanding to banks or trust companies, insurance
companies or pension trust and indebtedness created after the date of the
Subordinated Indenture under instruments which state that such indebtedness is
Senior Indebtedness.
In addition, the Subordinated Debenture Bonds 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 Subordinated Debenture Bonds to participate in those assets is also subject
to the claims of such subsidiary's creditors. Accordingly, the Subordinated
Debenture Bonds will be effectively subordinated to all indebtedness and other
liabilities, including trade accounts payable, of our subsidiaries.
As of August 31,1998:
1.Farmland had $605.8 million of Senior Indebtedness outstanding; In addition,
Senior Indebtedness includes certain obligations with a present value of
approximately $223 million for future payments over seven years under long-
term leases;
2. Farmland had outstanding $406.4 million aggregate principal amount of other
subordinated indebtedness; and
3. Certain Farmland subsidiaries had outstanding $173.8 million aggregate
principal amount of indebtedness, of which $169.3 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 provide 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, we can give no assurances that Farmland or any successor
would be able to repay holders of our debt securities either from continuing
operations or from proceeds of any such transaction.
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, we will not make payments of
principal and interest on the Subordinated Debenture Bonds, as well as our other
subordinated debt. Payments may 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 76 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 debt 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 to
continue to be volatile as agricultural conditions change. External factors
that affect agricultural conditions and Farmland's financial results include:
REGULATORY: Our ability to grow through acquisitions and investments in ventures
may be affected adversely by regulatory delays. Also, various federal and state
regulations to protect the environment encourage farmers to use less fertilizer
and other chemical applications.
COMPETITION: Competitors may offer a greater variety of products and may
possess greater resources than our company. Competitors may also have better
access to equity capital markets than Farmland.
IMPORTS AND EXPORTS: The following factors may affect the amount of
agricultural products imported or exported:
. Foreign trade and monetary policies;
. Laws and regulations;
. Political and governmental changes;
. Inflation and exchange rates;
. Taxes;
. Operating conditions; and
. World demand.
WEATHER: Global weather conditions may cause:
. Shifts in demand that result in price changes for agricultural input
products; and
. Shifts in supply that result in cost changes for agricultural output
products.
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.
YEAR 2000: The Company does not know with certainty all of the consequences of
its most reasonably likely worst case Year 2000 contingency.
OTHER FACTORS: Domestic variables, such as crop failures, federal agricultural
programs and production efficiencies, and global variables, such as general
economic conditions, conditions in financial markets, embargoes, political
instabilities and local conflicts, affect the supply, demand and price of crude
oil, refined fuels, natural gas and other commodities and may unfavorably impact
the Company's operations.
Management cannot determine the extent to which these factors may impact future
operations of the Company. The Company's revenues, margins, net income and cash
flow may be volatile as conditions affecting agriculture and markets for the
Company's products change. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Results of Operations for Years
Ended August 31, 1996, 1997 and 1998" and "Business and Properties - Business -
Raw Materials" and "Crop Production - Raw Materials."
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
The Company is subject to various stringent federal, state and local
environmental laws governing the use, storage, discharge and disposal of
hazardous materials. These laws may impose liability for cleanup of
environmental contamination. The Company uses hazardous materials and generates
hazardous wastes in the ordinary course of its manufacturing processes. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Conditions Liquidity and Capital Resources - Matters
Involving the Environment" beginning on page 47 of this Prospectus.
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
Farmland Securities Company ("FSC") is our wholly owned subsidiary. FSC's
business is limited to the offer and sale of securities issued by our company.
Because FSC is wholly owned by Farmland, the offering requires a partial
exemption from requirements of Rule 2720 of the National Association of
Securities Dealers ("NASD") manual. 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, 1998 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, 1997 and 1998 and for each of the years in the three-year
period ended August 31, 1998 (the "Consolidated Financial Statements") and the
independent auditors' report thereon, are included elsewhere in this Prospectus.
The information set forth below should be read in conjunction with information
appearing elsewhere in this Prospectus: "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
1994 1995 1996 1997 1998
(Amounts in Thousands except ratios)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:(1)
Net Sales..................... $ 6,677,933 $ 7,256,869 $ 9,788,587 $ 9,147,507 $ 8,775,046
Operating Income of Industry
Segments.................... 154,799 295,933 240,452 248,263 140,725
Interest Expense.............. 51,485 53,862 62,445 62,335 73,645
Net Income.................... 73,876 162,799 126,418 135,423 58,770
DISTRIBUTION OF NET INCOME:
Patronage Refunds:
Allocated Equity............ $ 44,032 $ 61,356 $ 60,776 $ 68,079 $ 35,528
Cash and Cash
Equivalents................. 26,580 33,061 32,719 40,228 23,593
Earned Surplus and Other
Equities.................... 3,264 68,382 32,923 27,116 (351)
$ 73,876 $ 162,799 $ 126,418 $ 135,423 $ 58,770
RATIO OF EARNINGS TO
FIXED CHARGES (2)........... 2.1 4.0 3.0 3.0 1.6
BALANCE SHEETS:
Working Capital............... $ 290,704 $ 319,513 $ 322,050 $ 242,211 $ 373,638
Property, Plant and
Equipment, Net.............. $ 501,290 $ 592,145 $ 717,224 $ 783,108 $ 827,149
Total Assets.................. $ 1,926,631 $ 2,185,943 $ 2,568,446 $ 2,645,312 $ 2,812,774
Long-Term Borrowings
(excluding
current maturities)......... $ 506,531 $ 469,718 $ 616,258 $ 580,665 $ 728,103
Capital Shares and
Equities.................... $ 585,013 $ 687,287 $ 755,331 $ 821,993 $ 912,696
</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 and 20%-to 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 20%-to 50%-owned affiliates.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Farmland 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.
Our 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. The debt securities are also
being offered by American Heartland Investments, Inc. and Iron Street Securities
Inc. (which are 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
debenture bonds. 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, 1998, the outstanding balance of demand certificates decreased by
$22.1 million and the outstanding balance of subordinated debenture bonds
increased by $33.4 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 Credit Facility, 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 in the agreement. The Company is in
compliance with all covenants of the Credit Facility. The short-term credit
provisions of the Credit Facility are reviewed and/or renewed annually. The
next scheduled review date is in May 1999. The long-term credit provisions of
the Credit Facility expire in May 2001.
At August 31, 1998, the Company had $328.2 million of short-term
borrowing and $170.0 million of long-term borrowings under the Facility.
Additionally, $30.3 million of the Facility was being utilized to support
letters of credit issued on behalf of Farmland. As of August 31, 1998, under
the short-term credit provisions, the Company had capacity to finance additional
current assets of $297.0 million and, under the long-term credit provisions, the
Company had capacity to borrow up to an additional $274.5 million.
During April 1998, Farmland National Beef Packing Company, L.P.
("FNBPC") replaced its existing borrowing arrangements with a new five year
$130.0 million credit facility. This facility, which expires March 31, 2003, is
provided by various participating banks and all borrowings thereunder are
nonrecourse to Farmland or Farmland's other affiliates. FNBPC used a portion of
this facility to repay in full its borrowings from Farmland. At August 31,
1998, FNBPC had borrowings under this facility of $86.2 million and $1.3 million
of the facility was being utilized to support letters of credit. FNBPC has
pledged certain assets to support its borrowings under the new facility.
Leveraged leasing has been utilized to finance railcars and a significant
portion of the Company's fertilizer production equipment. In December 1997, the
Company entered into a series of agreements which provide for the construction
and operation under a long-term lease of facilities adjacent to the Company's
petroleum refinery at Coffeyville, Kansas. These facilities are designed to
convert petroleum coke by-products into fertilizers. When the facilities are
completed (presently scheduled for early in fiscal year 2000), Farmland will be
obligated to make future minimum lease payments which, at that time, will have
an approximate present value of $223 million. Alternatively, Farmland has an
option to purchase the facilities. The Company's subordinated debt securities
are subordinated in right of payment to the future lease obligations. In the
event Farmland should default on the obligations described above, future lease
obligations may be accelerated. If accelerated, obligations due and payable
would total approximately $263 million, all of which would be senior to the
subordinated debt securities. Upon payment of such amount, Farmland would
receive title to the assets.
The Company maintains other borrowing arrangements with banks and
financial institutions. Under such agreements, at August 31, 1998, $36.0 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, 1998, such borrowings totaled $34.9 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 December 1997, the Company sold 2 million shares of 8% Series A
Cumulative Redeemable Preferred Shares (the "Preferred Shares") at $50 per
Preferred Share with an aggregate liquidation preference of $100 million ($50
liquidation preference per share). The Preferred Shares are not redeemable
prior to December 15, 2022. On and after December 15, 2022, the Preferred
Shares may be redeemed for cash at the option of the Company, in whole or in
part, at specified redemption prices declining to $50 per share on and after
December 15, 2027, plus accumulated and unpaid dividends, if any, thereon. The
Preferred Shares do not have any stated maturity, are not subject to any sinking
fund or mandatory redemption provisions and are not convertible into any other
securities of the Company. Proceeds from the issuance of the Preferred Shares
have been used to call for early redemption approximately $47.6 million of
principal and accumulated interest on certain subordinated debt securities and
to redeem approximately $50.0 million of capital shares and equity.
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. See ""Business - Grain - Marketing" beginning on page 99 of this
Prospectus.
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 means income
before income tax determined in accordance with generally accepted accounting
principles. 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. The member-sourced earnings (after handling of member-
sourced losses) are returned to members as patronage refunds in the form of
qualified and/or nonqualified written notices 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.
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.
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 1996, 1997 and 1998,
the earned surplus account exceeded the required amount by $84.7 million, $101.7
million and $87.0 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 -
Equity Redemption Plans" included below.
Major sources of cash during 1998 include: $37.7 million from
operating activities; $57.6 million from cash distributions from ventures;
$100.0 million from the issuance of preferred shares; $11.2 million of net
proceeds from issuance of subordinated debt and demand loan certificates;
$118.4 million of net proceeds on bank loans and notes payable; and
$61.5 million from the collection of long-term notes receivable, the sale of
fixed assets and investments. Cash provided by operating activities decreased
in 1998 compared with 1997 primarily due to the decrease of net income, accounts
payable and other current operating liability accounts.
Major uses of cash during 1998 include: $136.1 million for capital
expenditures and acquisition of other long-term assets; $69.5 million for
acquisition of investments and notes receivable; $47.2 million of net decrease
in checks and drafts outstanding; $40.4 million for cash patronage refunds
distributed from income of the 1997 fiscal year; and $80.2 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 $279.9 million
through August 31, 1998), or $365.7 million (before tax benefits of the interest
deduction) in the aggregate at August 31, 1998. 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 $15.3 million (including accumulated statutory
interest thereon). 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.
In March 1998, Farmland received notice from the IRS assessing the $15.3
million tax and accumulated statutory interest related to the Company's 1989 tax
year (as described above). In order to establish the trial court in which
initial litigation, if any, of the dispute would occur and to stop the
accumulation of interest, the Company deposited funds with the IRS in the amount
of the assessment. After making the deposit, the Company filed for a refund of
the entire amount deposited.
The liability resulting from an adverse decision by the United States
Tax Court would be charged to current earnings and would have a material adverse
effect on the Company. In the event of such an adverse determination of the
Terra tax issue, certain financial covenants of the Company's Credit 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, 1998, 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, 1996, 1997 AND 1998
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.
<TABLE>
<CAPTION>
Change in Sales
1996 1997 1998 Compared
Compared Compared with 1997
with 1995 with 1996
(Amount in Millions)
<S> <C> <C> <C>
INCREASE (DECREASE) OF INDUSTRY SEGMENT SALES:
Petroleum........................................................ $ 181 $ 274 $ (195)
Crop Production.................................................. 165 (73) (105)
Feed............................................................. 102 48 (68)
Food Processing and Marketing.................................... 535 338 90
Grain Marketing.................................................. 1,562 (1,230) (106)
Other............................................................ (14) 2 12
TOTAL CHANGE IN SALES.............................................. $2,531 $ (641) $ (372)
/TABLE>
</TABLE>
<TABLE>
<CAPTION>
Change in Operating and Net Income
1996 1997 1998 Compared
Compared Compared with 1997
with 1995 with 1996
(Amount in Millions)
<S> <C> <C> <C>
INCREASE (DECREASE) OF OPERATING INCOME OR LOSS:
Petroleum........................................................ $ 13 $ 32 $ (36)
Crop Production.................................................. (20) (19) (112)
Feed............................................................. 3 (6) 4
Food Processing and Marketing.................................... (12) (19) 9
Grain Marketing.................................................. (36) 25 24
Other............................................................ (3) (5) 3
TOTAL CHANGE IN OPERATING INCOME................................... $ (55) $ 8 $ (108)
<S> <C> <C> <C>
CORPORATE EXPENSES AND OTHER:
General corporate expenses (increase) decrease..................... $ (10) $ 2 $ (6)
Interest expense (increase) decrease............................... (8) - (11)
Other income and deductions increase (decrease).................... 9 (2) 8
Equity in net income of investees increase......................... 18 1 11
Minority owners' interest in net income of subsidiaries
(increase) decrease.............................................. 2 (1) 2
Income taxes decrease.............................................. 8 1 28
Net income increase (decrease)..................................... $ (36) $ 9 $ (76)
</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 practicably identified or allocated to an industry
segment, interest expense, interest income, equity in net income (loss) of
investees, other income (deductions) and income taxes.
Following is management's discussion of industry segment sales, operating
income or loss and other factors affecting the Company's net income during 1996,
1997 and 1998.
PETROLEUM
SALES
The petroleum business's unit sales of refined fuels increased by 7.5% in
1998 compared to 1997. However, aggregate petroleum dollar sales decreased by
$194.9 million, or 14.6%, in 1998 compared with 1997 primarily due to a 15.3%
decrease in the average unit price of refined fuels (gasoline, distillates and
diesel) and a 29.3% decrease in the average unit price of propane products.
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 an increase of the unit price for
these products.
Sales of the petroleum business increased $181.5 million in 1996 compared
with 1995. This increase was primarily the result of an 11% increase of the
average price of refined fuels and increased unit sales of approximately 9.5%.
OPERATING INCOME
The petroleum business had operating income of $0.4 million in 1998
compared with $36.3 million in 1997. This decrease resulted primarily from a
$27.6 million adjustment of year-end last-in, first-out ("LIFO") inventories to
market value. Petroleum operating income also decreased as finished goods
prices declined more than crude oil prices declined, resulting in lower gross
margins on units sold.
Operating income of the petroleum business increased $31.5 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.
CROP PRODUCTION
SALES
Although crop production unit sales increased 2.3% in 1998 compared to
1997, unit prices for nitrogen-based fertilizers decreased 15.0% and unit prices
for phosphate-based fertilizers decreased 6.7%. As a result, crop production
sales decreased $105.7 million, or 8.4%, in 1998 compared with 1997. The
decline in nitrogen-based fertilizer prices resulted from pressures of rising
capacity and inventories in the industry combined with decreased demand from
East Asia and China.
Crop production sales 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-based fertilizer 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-based fertilizer prices,
partly offset by a slight decline of nitrogen prices.
OPERATING INCOME
Operating income of the Company's crop production business decreased
$111.9 million, or 70%, in 1998 compared with 1997. This decrease was primarily
a result of lower nitrogen fertilizer unit margins partially offset by higher
unit margins for phosphate fertilizers. Nitrogen margins decreased primarily
due to lower selling prices which declined as a result of additional global
fertilizer production capacity combined with lower demand in the East Asian
market, particularly China. The Company's share of net income from crop
production ventures, primarily phosphate manufacturing and WILFARM, increased in
1998 to $46.9 million compared with $41.2 million in 1997.
Operating income of the Company's crop production business decreased $18.8
million, or 10.5%, in 1997 compared with 1996. This decrease was primarily a
result of higher natural gas costs which resulted in lower nitrogen fertilizer
unit margins, partially offset by higher unit margins related to the
distribution of phosphate fertilizers. The Company's share of net income from
crop production ventures, primarily phosphate manufacturing and WILFARM,
decreased slightly in 1997 to $41.2 million compared with $41.9 million in 1996.
Operating income of the Company's crop production business in 1996
decreased $19.7 million from 1995, primarily because of lower fertilizer
margins. 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. Nitrogen fertilizer margins decreased by approximately $6.0
million, or 2.8%, as a result of lower average unit selling prices combined with
higher raw material costs. Unit margins from the Company's phosphate fertilizer
operations decreased approximately $16.7 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
FEED
SALES
Sales of the feed business decreased $68.3 million in 1998 compared with
1997. The decrease resulted primarily from the sale of approximately the same
volume as in the prior year combined with lower per ton ingredient prices in
livestock feed and feed ingredients.
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 formula feed and feed ingredients increased approximately 2% and 10%,
respectively.
OPERATING INCOME
Operating income in the feed business increased $4.3 million in 1998
compared with 1997. The increase was primarily attributable to higher margins
per ton in livestock feed, feed ingredients and pet/specialty/equine feeds as
well as lower expenses.
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.
FOOD PROCESSING AND MARKETING
SALES
Sales from the Company's food processing and marketing business increased
$90.2 million in 1998 compared with 1997. The increase was attributable to
increases of approximately 15% and 9% in the number of cattle and hogs
processed, respectively, partly offset by lower wholesale prices for beef and
pork.
The Company's food processing and marketing business sales increased
$338.4 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).
OPERATING INCOME
Operating income of the Company's food processing and marketing business
increased $9.0 million in 1998 compared with 1997. The increase was primarily
due to increased gross margins in pork processing and marketing operations due
to lower hog prices. This increase was partly offset by losses in livestock
production, also resulting from lower hog prices and by losses on the beef
processing and marketing operations.
Operating income of the Company's food processing and marketing business
decreased $18.8 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 $65.1
million in 1996 represented a $12.0 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.
GRAIN MARKETING
SALES AND OPERATING INCOME
Although sales volume in bushels increased 3.7%, lower commodity prices
resulted in a 4.8% decrease in total grain marketing sales, from $2.2 billion in
1997 to $2.1 billion in 1998. Operating income in the grain business increased
$23.6 million in 1998 compared with 1997. This increase resulted from
significantly improved margins on certain international grain transactions and
from higher storage revenues.
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 farther
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 1996 loss
in the Company's grain operations.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $22.6
million, or 5.5%, in 1998 compared with 1997. SG&A directly associated with
business segments increased $16.4 million (primarily related to the grain
marketing and meats businesses) and has been included in the determination of
the operating income of business segments. General corporate expenses not
identified to business segments increased $6.2 million primarily as a result of
the increased cost of management information systems and the acquisition of SF
Services, Inc. ("SF Services").
SG&A increased $40.4 million, or 11%, in 1997 compared with 1996.
SG&A directly associated with business segments increased $42.3 million
(primarily associated with 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 $1.9
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 $11.8 million of the increase was directly connected to business
segments (primarily the food processing and marketing and grain marketing
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 ($12.81 million), included higher expenses from improving
the management information systems and higher employee-related costs.
OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense increased $11.3 million in 1998 compared with 1997,
primarily reflecting higher average borrowings.
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.
OTHER, NET
During 1998, the Company sold: (1) an approximate 3.8% interest in FNBPC,
resulting in a gain before income taxes of $7.2 million; and (2) all of its
interest in Cooperative Services Company, formerly a 100% owned subsidiary,
resulting in a gain before income taxes of $2.2 million.
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
CAPITAL EXPENDITURES
See "Business - Capital Expenditures and Investments in Ventures."
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 24 grain elevators and
75 manufacturing properties and has potential responsibility for environmental
conditions at a number of former manufacturing facilities and at waste disposal
facilities operated by third parties. The Company also has been identified as a
potentially responsible party ("PRP") under the federal Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 ("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 26 properties under CERCLA and/or the state and
federal hazardous waste management laws. During 1996, 1997 and 1998, the
Company paid approximately $1.8 million, $4.6 million and $3.1 million,
respectively, for environmental investigation and remediation.
The Company currently is aware of probable obligations for
environmental matters at 36 properties. As of August 31, 1998, the Company has
an environmental accrual in its Consolidated Balance Sheet for probable and
reasonably estimated cost for remediation of contaminated property of
$14.4 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. Also,
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, 1998. In the opinion of
management, it is reasonably possible for such additional costs to be
approximately $19.2 million.
Under the Resource Conservation Recovery Act of 1976 (' 'RCRA''), the
Company has three closure and four post-closure plans in place for five
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 $4.9 million at August 31, 1998 (and is in
addition to the $19.2 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
1996, 1997 and 1998, the Company had capital expenditures of approximately $10.9
million, $8.4 million and $8.7 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
Statements of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," No. 131, "Disclosures about Segments of an Enterprise and
Related Information," and No. 132, "Employer's Disclosures About Pensions and
Other Postretirement Benefits" have been issued by the Financial Accounting
Standards Board ("FASB") and are effective for fiscal periods beginning after
December 15, 1997. These statements expand or modify disclosures and,
accordingly, will have no impact on the Company's reported financial position,
results of operations or cash flows. SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" was issued in June 1998 by the FASB and is
effective for fiscal periods beginning after June 15, 1999. The Company is
currently evaluating the impact, if any, that adoption of the provisions of SFAS
No. 133 will have on its financial statements.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement in this
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, 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, pending and possible 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. A discussion of such
forward-looking statements is found in the material set forth under"""""'"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and in "Notes to 10-K 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.Technological changes (including "Year 2000" compliance issues) are more
difficult or expensive to implement than anticipated.
9.Unusual or unexpected events such as, among other things, litigation
settlements, adverse rulings or judgments and environmental remediation costs
in excess of amounts accrued.
10.The factors identified in "Risk Factors" included above.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SENSITIVITY ANALYSIS
The Company is exposed to various market risks, including commodity price
risk, foreign currency risk and interest rate risk. To manage the volatility
related to these risks, the Company enters into various derivative transactions
pursuant to the Company's policies in areas such as counter-party exposure and
hedging practices. Within limits approved by the Company's Board of Directors,
the Company's international grain trading subsidiary, Tradigrain, may take net
long or short commodity positions. Otherwise, the Company does not hold or
issue derivative instruments for trading purposes. Commodities to which the
Company has risk exposure include: wheat, corn and milo, soybeans, cattle,
hogs, natural gas, crude oil and refined fuels. The Company maintains risk
management control systems to monitor its commodity risks and the offsetting
hedge positions.
The following table presents one measure of market risk exposure using
sensitivity analysis. Market risk exposure is defined as the change in the fair
value of the derivative commodity instruments assuming a hypothetical change of
10% in market prices Actual changes in commodity market prices may differ from
hypothetical changes. Fair value was determined for derivative commodity
contracts using the average quoted market prices for the three near-term
contract periods. For derivative commodity instruments, fair value was based on
the Company's net position by commodity at year-end. The market risk exposure
excludes the underlying positions that are being hedged. The underlying
commodities hedged have a high inverse correlation to price changes of the
derivative commodity instruments.
Effect of 10% Change in Fair Value
As of August 31, 1998
(In millions)
DERIVATIVE COMMODITY CONTRACTS:
Grains:
Trading.................... $4.9
Other than Trading......... $0.9
Energy, other than trading... $8.9
Meats, other than trading.... $0.6
The Company uses interest rate swaps to hedge a portion of its variable
interest rate exposure and uses foreign currency forward contracts to hedge its
exposure related to certain foreign currency denominated transactions. Assuming
an adverse interest rate movement of 100 basis points and assuming an adverse
movement in the foreign currency spot price of 10%, the impact on fair value of
interest and currency positions held would be $3.1 million and $4.1 million,
respectively. Market risk on these transactions is not material to the
Company's results of operations or financial position.
DETERMINATION OF INTEREST RATES
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. 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.
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.
On the date of this Prospectus, the CIR on Demand Loan Certificates and
the BIR on Subordinated Debenture Bonds is as follows:
Minimum Certificate
Initial InvestmentInterest Rate
Demand Loan Certificates.............$ 1,000 5.5%
Bond
Subordinated Debenture Bonds: Interest Rates
Ten-Year, Series A .................$ 1,000 7.00
Ten-Year, Series B ................$ 100,000 7.15
Five-Year, Series C ................$ 1,000 6.5
Five-Year, Series D ................$ 100,000 6.65
Ten-Year Monthly Income, Series E ..$ 5,000 7.00
Ten-Year Monthly Income, Series F ..$ 100,000 7.15
Five-Year Monthly Income, Series G .$ 5,000 6.50
Five-Year Monthly Income, Series H .$ 100,000 6.65
Whenever the CIR or BIR is changed, we will amend this Prospectus to
specify the interest rate in effect, after the date of the change. Whenever the
CIR or BIR is changed, Farmland will notify holders of Demand Loan Certificate
and Subordinated Debenture Bond of the change. Information concerning the CIR
and BIR 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 Bond.
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
(collectively the "Offered Debt Securities") 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 are sold, net proceeds to the
Company will be approximately $253.2 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 $40.0 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 $146.5 million through the two-year period ending
August 31, 2000; 2) to refinance approximately $28.7 million of subordinated
debt with interest rates of 6.0% to 9.25% which mature at various times prior to
August 31, 2000; 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 in this Prospectus and the
subcaptions "Redemption by Farmland" and "Redemption by the Holder" within the
description of each type of Subordinated Debenture Bond included in this
Prospectus.
PLAN OF DISTRIBUTION
The securities offered by this Prospectus for cash and for exchange are
offered by Farmland Securities Company ("FSC"), American Heartland Investments,
Inc. ("AHI") and Iron Street Securities Inc. ("ISS"), 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 Exchange
Act 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, ISS 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 and ISS 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. AHI is located at 110
East Iron Avenue, P.O. Box 1303, Salina, Kansas 67402. ISS is located at 112
East Iron Street, P.O. Box 1186, Salina, Kansas 67402. 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, ISS 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 ISS, 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, ISS and other selected broker-dealers sell. In
addition, Farmland will pay to AHI and ISS, 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, ISS 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 or bonds
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 or bonds, 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 in this Prospectus) or by telephone to (816) 459-6360. This
exchange offer will expire at 12:00 P.M. Eastern Standard Time on December 31,
1999, unless terminated prior to such date. We will notify holders of
certificates or bonds eligible for exchange 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 or bonds. 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 or bonds 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 or bond 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 or bond had been held by
the owner as of the date of the exchange. Owners of these certificates or bonds
should seek advice from their tax advisor before accepting the exchange offer.
HOW TO ACCEPT EXCHANGE OFFER
Registered holders may accept the exchange offer by delivering any of the
certificates or bonds 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, AHI or ISS. 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 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 $1,000. (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
To ensure accuracy, much of the language in this section has been taken directly
from the indentures. This language may be legalistic and complex. To help you
understand the provisions, we have provided a summary, immediately following
this paragraph, of critical characteristics of the subordinated debt securities.
The summaries are not meant to be complete. If you have questions regarding the
meaning or intent of any section, please contact your selling agent or Farmland
Securities Company. Farmland Securities Company may be contacted by calling
(816) 459-6360 or writing to:
Farmland Securities Company
P.O. Box 7305
Kansas City, Missouri 64116
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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 $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 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 76.
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 $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 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, 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, 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 31,1998, (i) Farmland had $605.8
million aggregate principal amount of Senior Indebtedness outstanding. In
addition, Senior Indebtedness includes certain obligations with a present value
of approximately $223 million for future payments over seven years under long-
term leases, (ii) Farmland had outstanding $406.4 million aggregate principal
amount of other subordinated indebtedness and (iii) certain of Farmland's
subsidiaries had outstanding $173.8 million aggregate principal amount of
indebtedness, of which $169.3 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)
TAX CONSEQUENCE OF INTEREST ELECTION
Holders of Demand Loan Certificates and Subordinated Debenture Bonds
should be aware that the election to receive interest on the payment date or to
have the interest compounded semi-annually and paid at the date of redemption of
the related security will not affect the reporting of interest for federal
income tax purposes. All interest whether paid on the payment date or left to
accumulate and be paid at the date of redemption of the related security will be
credited to the Holder's account on the payment or compounding date. All
interest credited to the Holder's account will be reported on a Form 1099 INT to
the Holder and the Internal Revenue Service ("IRS") as interest income for the
calendar year in which such interest is credited to the Holder's account.
Therefore, a Holder who elects to have interest paid at the date of redemption
of the related security may have taxable income for a year and not receive such
interest income in cash. However, the Holder could terminate the election to
have interest paid at the date of redemption. On the effective date of such
termination, the Holder would receive payment of all interest accumulated
through the date of termination.
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
approximately $8.8 billion during 1998. 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."
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). Unless the context requires otherwise, (i) "Farmland"
or the "Company" herein refers to Farmland Industries, Inc. and its consolidated
subsidiaries, (ii) all references herein to "year" or "years" are to fiscal
years ended August 31, and (iii) all references herein to "tons" are to United
States short tons.
MEMBERSHIP
Membership requirements are determined by Farmland's Articles of
Incorporation and the Board of Directors of Farmland (the ''Board of
Directors'').
As of August 31, 1998, Farmland's membership, associate membership and
patrons eligible for patronage refunds consisted of approximately 1,500
cooperative associations of farmers and ranchers and 5,800 pork or beef
producers or associations of such producers. See ''Business and Properties -
Business - Patronage Refunds and Distribution of Annual Earnings."
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, as described below in "Voting Members" and "Associate Members,"
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.
VOTING MEMBERS
As of August 31, 1998, 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; (2) actively transact business with Farmland on a patronage basis
(the Board of Directors may deem a member to be inactive when business is not
transacted with Farmland for two consecutive years); (3) not be a significant
direct competitor with Farmland in any of Farmland's major business lines; and
(4) (a) be a natural person, a family farm corporation or a family farm
partnership that (i) derives a majority of earned income from a farming
operation (excluding any earned income of a spouse from other sources) and (ii)
is a vendor of livestock to Farmland and/or a contract producer of livestock for
Farmland; or (b) be an association of producers of agricultural products that
(i) is organized and conducts business on a cooperative basis; (ii) distributes
its earnings based on patronage; and (iii) is controlled directly by its voting
producer members.
ASSOCIATE MEMBERS
To qualify for associate membership in Farmland, all of the following
conditions must be met: the associate member must (1) own a minimum of $1,000
of Farmland's associate member common stock; (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; (b) be an
association conducting business on a cooperative basis; (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.
BUSINESS
GENERAL
The Company is one of the largest cooperatives in the United States in
terms of revenues. In 1998, Farmland had export sales in excess of $1.3 billion
to customers in over 90 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 and
phosphate-based fertilizers ("plant nutrients") and, through the Company's
ownership in WILFARM, L.L.C. ("WILFARM") and Omnium, LLC ("Omnium"),(each 50%-
owned) 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. Approximately 60% of the Company's farm
supply products sold in 1998 was produced in plants owned by the Company or
operated by the Company under long-term lease arrangements. Approximately 64%
of the Company's farm supply products sold in 1998 was sold at wholesale to farm
cooperative associations which are members of Farmland. These farm cooperative
associations 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 1998, approximately 60% of the hogs
processed, 30% of the beef cattle processed and 60% of the domestic grain
marketed by the Company were supplied to the Company by its members.
Substantially all of the pork and beef products sold by the Company in 1998 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, grain,
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 50% of petroleum
refined fuels products sold in 1998 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 car, truck and tractor tires, batteries and
accessories. Sales of petroleum products as a percent of the Company's
consolidated sales for 1996, 1997 and 1998 were 11%, 15% and 13%, respectively.
Competitive methods in the petroleum industry include service, product
quality and price. However, in refined fuel markets, price competition is
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.
Effective September 1, 1998, Country Energy LLC, a joint venture with Cenex
Harvest States, commenced operations. Country Energy LLC provides refined
fuel, propane and lubricants marketing and distribution services for its
owners.
PRODUCTION
The Company owns a refinery at Coffeyville, Kansas. Production volume for
1996, 1997 and 1998 was as follows:
Barrels of Crude Oil Processed
Daily Average
Based on 365 Days per year
1996 1997 1998
(barrels)
Coffeyville, Kansas 64,276 81,397 91,808
The refinery produced approximately 25 million barrels of motor fuels,
heating fuels and other petroleum products in 1996, 32 million barrels in 1997
and 35 million barrels in 1998. 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 and 1998 compared with 1996. Approximately 66%
of refined fuel sales in 1998 represented products produced at this location.
RAW MATERIALS
Farmland's refinery was originally 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 the cost and availability
for coastal refineries with the capacity for processing and access to lower
quality crude with high sulfur content ("sour crude"). In April 1997, the
Company entered various operating, service and lease agreements with Tessenderlo
Kerley Inc. ("TKI"), whereby TKI's assets or technologies would be utilized to
extract sulfur from the intermediate gas streams generated from crude oil. As a
result of extracting this sulfur, crude oil supplies of lower quality were made
available for processing by the refinery. This allowed the Company to decrease
raw material costs as sour crude is lower priced. In 1998, the Company's
pipeline/trucking gathering system collected approximately 17% of its crude oil
supplies from producers near its refinery. Additional supplies are acquired
from diversified sources, including sour crude oil from foreign sources.
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 various petroleum futures contracts. See
"Business and Properties - 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 oil 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
1996, 1997 and 1998 were 14%, 14% and 13%, 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 the largest producer of synthetic
anhydrous ammonia-based fertilizers in the United States. Natural gas is the
major raw material used in production of nitrogen-based fertilizer, including
synthetic anhydrous ammonia, urea, urea ammonium nitrate ("UAN") and other forms
of nitrogen-based fertilizers.
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. The Company and Mississippi Chemical
Company are each 50% owners of a joint venture, Farmland MissChem, Limited
("Farmland MissChem"), which owns an anhydrous ammonia production facility
located in The Republic of Trinidad and Tobago. All output from this facility
is sold to and distributed by the owners of the venture. Annual production for
fiscal years 1996, 1997 and 1998 including Farmland's 50% share of the output of
Farmland MissChem, totaled approximately 2.8 million tons, 2.8 million tons and
3.0 million tons, respectively.
The Company further processes synthetic anhydrous ammonia products at five
plants, one of which is leased under a long-term lease arrangement, at five
locations in Kansas, Oklahoma and Nebraska. Production of urea, UAN solutions
and other forms of nitrogen fertilizer from synthetic anhydrous ammonia for
1996, 1997 and 1998 approximated 1.5 million tons, 1.6 million tons and 1.9
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, which may be applied directly or blended with other
fertilizers.
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 65,000 tons,
44,000 tons and 56,000 tons in 1996, 1997 and 1998, respectively and production
of feed grade phosphate approximated 160,000 tons, 163,000 tons and 167,000 tons
in 1996, 1997 and 1998, respectively.
The Company and Norsk Hydro a.s. are each 50% owners of a joint venture,
Farmland Hydro, L.P. ("Hydro"), which owns a phosphate fertilizer manufacturing
plant at Green Bay, Florida. Hydro's plant produces products such as super
phosphoric acid, diammonium phosphate and monoammonium. Annual production in
tons of such products for 1996, 1997 and 1998 was 1,459,000, 1,504,000 and
1,428,000, respectively. The Company provides management and administrative
services and Norsk Hydro a.s. provides marketing services to Hydro. Products of
this plant are distributed principally to international markets.
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. Hydro 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 phosphate rock which the Company owns
in Florida).
During 1998, Hydro began obtaining various permits and licenses necessary
for mining the aforementioned properties. This process will take several years
to complete and, therefore, neither the Company nor Hydro anticipate mining any
of their respective phosphate rock reserves within the next year.
The Company is a 50% owner of a venture, SF Phosphates Limited Liability
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 1996,
1997 and 1998 of 483,000, 529,000 and 527,000, respectively. Under the venture
agreement, the owners 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.
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 and Properties - Business - Business
Risk Factors - External Factors That May Affect the Company."
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, animal
health products and farm and ranch supplies. 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%, 7% and 6% of
consolidated sales for the years 1996, 1997 and 1998, respectively.
Approximately 52% of the feed business segment's sales in 1998 was attributable
to products manufactured in the Company's feed mills. The Company operates feed
mixing plants at 15 locations throughout its territory, an animal protein plant
in Maquoketa, Iowa, an animal protein plant 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 1996, 1997 and 1998, for feed mills owned by Farmland
as of August 31, 1998, was as follows:
<TABLE>
<CAPTION>
Approximate Annual Production
1996 1997 1998
(tons)
<S> <C> <C> <C>
20 feed mills (combined).................. 861,000 914,000 817,000
</TABLE>
In June of 1998, the Company acquired six feed mills with an aggregate
capacity of 520,000 tons through the acquisition of SF Services, Inc. In
addition, feed mills with an aggregate capacity of approximately 469,000 tons
were disposed of or sold to ventures in 1997 and 1998.
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
11 food processing facilities, including leased facilities in Albert Lea,
Minnesota and Omaha, Nebraska.
Meat processing facilities at Springfield, Massachusetts 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.
In 1996, 1997 and 1998 total weekly pork processed approximated 16.2
million pounds, 16.8 million pounds and 16.7 million pounds, respectively.
Average weekly head slaughter at the Company's four abattoirs (three abattoirs
in 1996) was approximately 111,000, 132,000 and 148,000 in 1996, 1997 and 1998,
respectively.
MARKETING
The Company's pork products marketed 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, brand and 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 at August
31, 1998, was 71.2%-owned by Farmland. The beef processing facilities 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 1996, 1997 and 1998, the two plants
slaughtered an aggregate of 2.1 million, 2.1 million and 2.4 million cattle,
respectively.
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, brand and product differentiation and customer
service.
GRAIN
MARKETING
The Company, through its North American Grain Division ("NAGD") and
through its international grain trading subsidiaries (collectively referred to
as "Tradigrain"), markets wheat, corn, soybeans, milo, barley and oats, with
wheat and corn constituting the majority of the marketing business. 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.
In 1998, the Company formed two 50%-owned alliances, Concourse Grain, LLC
("Concourse") and Farmland-Atwood, LLC ("Farmland-Atwood"), with ConAgra, Inc.
("ConAgra"). Concourse, a marketing alliance, will provide both domestic and
international customers with multiple classes of wheat. Concourse is expected
to improve access to international customers through its ability to export from
multiple points across the United States. Farmland-Atwood will provide risk
management services, financial and grain support services and grain brokerage
to its customers.
The Company is exposed to risk of loss in the market value of its grain
inventory and on fixed price purchase contracts that require the Company to take
delivery of grain at a specified date in the future 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 1996, 1997
and 1998, the Company maintained hedges on approximately 94.8%, 92.9% and 93.0%,
respectively, of its grain positions. Based on total assets at the beginning
and end of 1998, 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, 1996,
1997 and 1998 - Grain Marketing" included herein.
Approximately 42%, 41% and 43% of grain revenues were from export sales or
sales to domestic customers for export in 1996, 1997 and 1998, respectively.
Export-related sales are affected by the level of grain production in foreign
countries. Furthermore, export-related sales are subject to international
political events 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") transact business in all major grains traded in
international markets. Final consumers are either governmental entities,
private companies or other major grain companies throughout the world.
Tradigrain's purchases of grain are made on a cash basis and its sales of
grain are mostly made 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, 24
inland elevators in the United States with a total capacity of approximately
147.6 million bushels of grain.
RESEARCH
The Company operates a research and development farm for the primary
purpose of developing improvements in nutrition, breeding and feeding practices
of livestock and pets. The Company also conducts research at its pork
processing facilities directed toward product development and process
improvement. Additionally, the Company formed a five-year alliance, beginning
in 1997, with Kansas State University.
Expenditures related to Company-sponsored product research and process
improvements amounted to $2.4 million, $2.1 million and $2.4 million for 1996,
1997 and 1998, respectively.
CAPITAL EXPENDITURES AND INVESTMENTS IN VENTURES
In 1998, the Company made capital expenditures and investments in
ventures totaling $179.3 million.
The Company has approved expenditures (of which $44.1 million was
committed as of August 31, 1998) of $146.5 million for capital additions and
improvements during the years 1999 and 2000. 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."
YEAR 2000
As the end of this century nears, there are concerns about potential
problems which may arise at the turn of the millennium because many current
computer systems and software products are coded to accept only two digit
entries in date code fields. Before the year 2000, these systems and software
products will need an upgrade in order to recognize differences between dates in
the 21st century and dates in the 20th century. If not adequately addressed,
these technology problems have a potential to cause widespread business
interruptions, litigation and liability. Significant uncertainty exists, as to
whether adequate resources are available to minimized these potentially serious
problems by the year 2000.
The Company is assessing, but has not completed assessing, its Year 2000
issues. Since the mid-1980's, the Company has strived to maintain Year 2000
compliance for all applications developed in-house. The challenge is that a
substantial percentage of the applications used for normal business processing
have been purchased from outside vendors. Historically, vendors were not
required to commit to Year 2000 compliance. However, all new software contracts
include Year 2000 compliance warranties.
In April 1997, Farmland and Ernst & Young, LLP formed One System Group,
LLC ("OSG"), a joint venture. OSG has approximately 400 employees and is the
sole supplier of information technology ("IT") services to the Company. The
initial focus of OSG involves the implementation of Systems, Applications,
Products in Data Processing ("SAP") software as an enterprise wide solution for
processing the Company's business transactions and for management reporting.
One of the many important benefits of the implementation of SAP is that it is
Year 2000 compliant and, therefore, its installation will eliminate a large
amount of the Year 2000 risk inherent in the Company's systems and software.
Mission critical (critical to the basic operation of Farmland's businesses) IT
projects have not been deferred because of Year 2000 readiness efforts.
The Company formalized its Year 2000 program with OSG in the fall of 1997.
Through this program, Year 2000 readiness was defined by criteria which, if
satisfied, would demonstrate that systems and applications programs function
correctly after the turn of the century without abnormal results. In addition,
systems and applications were categorized as "high risk" or "low risk" according
to the respective level of impact on the continuation of business by the Company
at the turn of the century. Further, the program established minimum acceptance
testing procedures for evaluating whether systems and applications met Year 2000
compliant criteria.
A comprehensive IT software inventory and assessment was then completed by
OSG. As a result of this readiness assessment, the Company believes that certain
of its systems and software are Year 2000 compliant and that substantially all
noncompliant systems have been identified.
To address the state of readiness condition, Farmland established an
Oversight Committee consisting of the Chief Information Officer of OSG, the
Chief Financial Officer and the General Counsel of Farmland, and a Year 2000
Program Office.
The Oversight Committee has responsibility for both IT and non-IT systems
(embedded technologies such as microcontrollers built into machinery) and has a
direct reporting relationship to the Farmland Board of Directors. The Oversight
Committee has delegated Year 2000 compliance responsibility for non-IT systems
to management of the respective plants or facilities. Generally, progress with
respect to non-IT systems is in an assessment phase. However, the Year 2000
issues of many process control systems and other non-IT systems have been
identified and fixed or the respective system or application programs have been
replaced and tested. The Company has not separately tracked the replacement
cost and time related to non-IT systems.
The Program Office organizes and administers Year 2000 projects related to
IT systems. The Program Office maintains a detailed project plan to complete and
test projects within discrete time frames. The Program Office continuously
monitors the status of the SAP implementation and re-assesses the risk areas
depending on movement of that system's implementation schedule. The Program
Office provides a quarterly update of Year 2000 progress to the Oversight
Committee. The Program Office has estimated that overall Year 2000 projects
related to IT systems will require approximately $2.5 million (18,000 hours).
Through October 1998, approximately 4,000 hours of such work had been performed.
The targeted completion of the remaining work is September 1, 1999.
The Company believes that the quantity and quality of resources it has
committed to address its Year 2000 project are adequate to obtain a Year 2000
state of readiness and it believes all significant modifications required to
reach a state of readiness for Year 2000 will be completed by the year 2000.
However, despite all reasonable efforts of the Company to resolve its Year 2000
issues, as described above, no assurances can be given that the level of Year
2000 readiness actually attained will eliminate all potential material effects
that Year 2000 problems might have on the Company's business, results of
operation, or financial condition. It is not, and will not, be possible for the
Company to represent that it has achieved complete Year 2000 compliance.
The Company does not know all of the consequences of its most reasonably
likely worst case Year 2000 scenario. The Company cannot address the virtually
unlimited number of differing circumstances relating to what might be its most
reasonably likely worst case. The Company is and intends to continue to address
this uncertainty through activities of its Oversight Committee and Program
Office, as described above.
For all applications that are determined to be mission critical (critical
to the basic operation of Farmland's businesses), a contingency plan will be
developed to outline the actions that will be taken if Year 2000 complications
are encountered. The plan will describe what will be done, both short-term and
long-term, to minimize any interruption to Farmland's business.
The Company has distributed a survey of its significant customers and
vendors to determine their state of Year 2000 readiness. However, responses to
the survey questionnaire have not provided a basis to conclude whether such
customers and vendors are Year 2000 compliant. Further, the Company has not
conducted and does not plan to conduct tests designed to confirm compatibility
of its information systems as modified for Year 2000 issues with those of its
significant customers and vendors. The Company will rely on the integrity of its
vendors and customers to resolve their Year 2000 issues.
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.
The Federal Agriculture Improvement and Reform Act ("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 over a long period of time. This increase may
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 has in the past considered and may consider trade
measures which, if passed, could enhance agricultural export potential. The
Company believes "fast-track" (legislation 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), China normal trading
relations, removal of trade sanctions and language to prohibit embargoes could
benefit U.S. agricultural interests by opening markets, increasing exports and
expanding trade opportunities with countries which import agricultural products.
Absent such legislation, the Company's access to international markets may be
adversely impacted.
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, 1998, the Company had approximately 16,100 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
September 2001.
PATRONAGE REFUNDS AND DISTRIBUTION OF ANNUAL 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 means income
is before income tax determined in accordance with generally accepted accounting
principles. 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. The member-sourced earnings (after handling of member-
sourced losses) are returned to members as patronage refunds in the form of
qualified and/or nonqualified written notices 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.
A qualified patronage refund must be paid at least 20% in cash. The
portion of the qualified patronage refund not paid in cash (the allocated equity
portion) is currently paid by Farmland in common shares, associate member common
shares or capital credits (depending on the membership status of the recipient).
The Board of Directors may determine to pay 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
Company is allowed an income tax deduction for the total amount (the cash
portion and the allocated equity portion) of its qualified patronage refunds.
Nonqualified patronage refunds paid by Farmland have been 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). The Board of
Directors may determine to record the nonqualified patronage refund in any other
form or forms of nonpreferred equities. The Company is not allowed an income
tax deduction for the year a nonqualified patronage refund is paid. The
nonqualified patronage refund is deductible for federal income tax purposes only
when such nonqualified written notices of allocation are redeemed for cash or
other property.
For the years ended 1996, 1997 and 1998, 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>
1996............... $ 32,719 $ 60,776 $ 93,495
1997............... $ 40,228 $ 68,079 $ 108,307
1998............... $ 23,593 $ 35,528 $ 59,121
</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 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 have been and 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 providing a 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 three-year period ended 1998. During the third quarter of 1998,
the Company approved and paid a special equity redemption of approximately $50.0
million. Substantially all other amounts approved for redemptions are paid in
cash in the year following approval.
<TABLE>
<CAPTION>
Estate
Base Capital Settlement and
Plan Redemptions Special Equity Total Plan
Redemptions(A) Redemptions
(Amounts in Thousands)
<S> <C> <C> <C>
1996....... $ 14,024 $ 11,415 $ 25,439
1997....... $ 17,228 $ 11,492 $ 28,720
1998....... $ 8,868 $ 50,103 $ 58,971
</TABLE>
(a)ncludes 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, as explained in Note 6 of the Notes to Consolidated Financial
Statements. See "Business and Properties - Business - Business Risk Factors"
and "Management's Discussion and Analysis of Financial Condition and Results of
Operations - Financial Condition, Liquidity and Capital Resources" included
herein.
MANAGEMENT
<TABLE>
<CAPTION>
The directors of Farmland are as follows:
Total Years
Expiration of of Service
Age as of Positions Present Term as Board
August 31, Held With as Member
1998 Farmland Director
Name
Business Experience During Last Five Years
<S> <C> <C> <C> <C> <C>
Albert J. Shivley 55 Chairman of the 1998 14 General Manager--American Pride Co-op
Board Association, Brighton, Colorado, a local
cooperative association of farmers and
ranchers.
H. D. Cleberg 59 President and 2000 8 Mr. Cleberg has been with Farmland since
Chief Executive 1968. He was named as president-elect in
Officer February 1991 and became President in April
1991. His tenure includes senior leadership
positions in all of Farmland's input and
output businesses and in corporate areas
responsible for transportation and logistics,
sales, marketing and research.
Jody Bezner 57 Vice Chairman 2000 7 Producer--Texline, Texas. Mr. Bezner serves
and Vice as President of Dalhart Consumers Fuel
President Association, Inc., Board of Directors,
Dalhart, Texas, a local cooperative
association of farmers and ranchers.
Lyman Adams, Jr. 47 1998 6 General Manager--Cooperative Grain and
Supply, Hillsboro, Kansas, a local
cooperative association of farmers and
Expiration of Total Years
Age as of Positions Present Term of Service
August 31, Held With as as Board
Name 1998 Farmland Director Member Business Experience During Last Five Years
Ronald J. Amundson 54 2000 10 General Manager--Central Iowa Cooperative,
Jewell, Iowa, a local cooperative association
of farmers and ranchers.
Baxter Ankerstjerne 62 1999 8
Producer--Peterson, Iowa.
From 1988 to 1997, Mr. Ankerstjerne served as
Chairman of the Board of Directors of Farmers
Cooperative Association, Marathon, Iowa.
Richard L. Detten 64 1999 11 Producer--Ponca City, Oklahoma.
Steven Erdman 48 1998 6 Producer--Bayard, Nebraska.
Mr. Erdman serves as Secretary, Panhandle Co-
op, Scottsbluff, Nebraska, a local
cooperative association of farmers and
ranchers.
Harry Fehrenbacher 50 1999 2 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.
Martie Floyd 50 2000 1 Producer--Johnson, Kansas. Mr. Floyd serves
as Secretary of the Board of Directors of
Johnson Cooperative Grain Co, Inc., Johnson,
Kansas, a local cooperative association of
farmers and ranchers
Warren Gerdes 50 1998 5 General Manager--Farmers Cooperative Elevator
Company, Buffalo Lake, Minnesota, a local
cooperative association of farmers and
ranchers.
Ben Griffith 49 1998 9 General Manager--Central Cooperatives, Inc.,
Pleasant Hill, Missouri, a local cooperative
association of farmers and ranchers.
Gail D. Hall 56 2000 10 General Manager--Lexington Cooperative Oil
Company, Lexington, Nebraska, a local
cooperative association of farmers and
ranchers.
Barry Jensen 53 1999 8 Producer--White River, South Dakota.
Mr. Jensen currently serves as a Director, of
Dakota Pride Cooperative, Winner, South
Dakota, a local cooperative association of
farmers and ranchers.
Ron Jurgens 60 1998 3 General Manager-Agri Co-op in Holdrege,
Nebraska, a local cooperative association of
farmers and ranchers.
William F. Kuhlman 49 1999 2 Producer--Oakley, Kansas. Mr. Kuhlman serves
on the Boards of Directors of Kansas Retail
Venture Group. 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 49 2000 6 Producer--Hobart, Oklahoma. Director of The
Farmers Cooperative Association, Hobart
Oklahoma, a local cooperative association of
farmers and ranchers.
Monte Romohr 45 1999 8 Producer--Gresham, Nebraska Mr. Romohr serves
as a Director of Farmers Co-op Business
Association, Shelby, Nebraska, a local
cooperative association of farmers and
ranchers.
Joe Royster 46 1999 5 General Manager--Dacoma Farmers Cooperative,
Inc., Dacoma, Oklahoma, a local cooperative
association of farmers and ranchers.
E. Kent Stamper 52 1999 2 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
Eli F. Vaughn 49 2000 1 General Manager--Farmers Cooperative Company,
Afton, Iowa, a local cooperative association
of farmers and ranchers.
Frank Wilson 50 1998 3 General Manager-Elkhart Farmers Co-op
Association, Elkhart, Texas, a local
cooperative association of farmers and
ranchers.
</TABLE>
Directors are elected for a term of three years by the shareholders of
Farmland at its annual meeting. The expiration dates for such three-year terms
are sequenced so that about one-third of the Board of Directors is elected each
year. H. D. Cleberg is serving as director-at-large; the remaining 21 directors
were elected from nine geographically defined districts. The executive
committee consists of Ronald Amundson, Ben Griffith, Jody Bezner, 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 chairmen of standing committees of the Board of Directors as follows: Ronald
Amundson, corporate responsibility committee; Ben Griffith, audit committee;
Jody Bezner, 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 1998 Principal Occupation and Other Positions
<S> <C> <C>
J. F. Berardi 55 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.
T. M. Campbell 48 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.
H. D. Cleberg 59 President and Chief Executive Officer - Mr. Cleberg has been with Farmland since
1968. He was appointed to his present position effective April 1991. Prior to
April 1991 Mr. Cleberg held senior leader positions in all of Farmland's input and
output businesses and in corporate areas responsible for transportation and
logistics, sales, marketing and research.
G. E. Evans 54 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.
R. W. Honse 55 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.
B. L. Sanders 57 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.
</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 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Employee
Year Variable
Ending Compensation LTIP
Name and Principal Position August 31 Salary Plan Payouts
<S> <C> <C> <C> <C>
H. D. Cleberg, 1996 $ 497,713 $ 356,485 $ 1,296,482
President and 1997 $ 540,292 $ 469,954 $ 514,999
Chief Executive Officer 1998 $ 578,878 $ 213,564 $ 400,436
G. E. Evans, 1996 $ 298,848 $ 216,121 $ 648,241
Executive Vice President and 1997 $ 317,568 $ 245,352 $ 257,499
Chief Operating Officer 1998 $ 333,456 $ 110,144 $ 200,218
Meats Group
R. W. Honse, 1996 $ 303,364 $ 216,121 $ 648,241
Executive Vice President and 1997 $ 322,125 $ 245,352 $ 257,499
Chief Operating Officer 1998 $ 347,328 $ 110,144 $ 200,218
Ag Input Businesses
J. F. Berardi, 1996 $ 244,770 $ 154,372 $ 549,204
Executive Vice President and 1997 $ 286,814 $ 245,352 $ 243,194
Chief Operating Officer, 1998 $ 326,016 $ 110,144 $ 200,218
Grain and Grain Businesses
T. M. Campbell 1996 $ 154,232 $ 90,050 $ 205,576
Executive Vice President and 1997 $ 197,973 $ 170,382 $ 116,828
Chief Financial Officer 1998 $ 211,824 $ 63,739 $ 123,282
</TABLE>
[FN]
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 award is dependent upon the
employee's position, the performance of the Company for the fiscal year or the
selected performance criteria of the operating unit where the individual is
employed. 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.
Under the Management Long-Term Incentive Plan, selected management
employees of the Company are paid cash incentive amounts determined by a formula
which takes into account the position held and the aggregate income of the
Company over periods specified in the plan. Periods covered by the Management
Long-Term Incentive Plan are: 1997 through 1999 ("1999 Plan"), 1998 through 2000
("2000 Plan") and 1999 through 2001 ("2001 Plan"). For each plan, if the
aggregate income is less than the Threshold or if the sum of the cash returned
to members as patronage refunds, redemptions under the base capital plan, estate
settlement plans and special allocated equity redemptions is less than the
amount specified for the 1999 Plan, the 2000 Plan and the 2001 Plan,
respectively, subject to the following paragraph, no payment will occur with
respect to such plan.
The Board of Directors may, in its sole discretion, amend or
discontinue, adjust or cancel any award otherwise payable under the Management
Long-Term Incentive Plan, should the Company incur a loss in the final year of
any plan. In addition, the Board of Directors may impact the payout amount of a
plan by approving for inclusion or exclusion in the calculation of performance,
the effects of extraordinary events occurring during a plan period.
Subject to the preceding paragraph, 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 of the three year plan period
is made available to pay incentive awards. In general, participants must be
active employees of the Company at the end of a plan in order to receive payment
of the award with respect to such plan. Absent a significant change in their
status, in which event such percentages may be adjusted, of the amount made
available to pay incentives, Messrs. Cleberg, Evans, Honse, Berardi and Campbell
will receive at least 11.2%, 5.6%, 5.6%, 5.6% and 4.0%, respectively, for the
1999 Plan, the 2000 Plan and the 2001 Plan.
Under the Company's Management Long-Term Incentive Plan for the 1999
Plan, the 2000 Plan and the 2001 Plan, certain management employees, including
those executives set forth below, may be eligible for future awards, contingent
on satisfying the terms and conditions of the Plan as set forth above.
<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> <C> <C> <C>
H. D. Cleberg 1997 - 1999 $ 503
1998 - 2000 463
1999 - 2001 460
G. E. Evans 1997 - 1999 $ 251
1998 - 2000 232
1999 - 2001 230
R. W. Honse 1997 - 1999 $ 251
1998 - 2000 232
1999 - 2001 230
J. F. Berardi 1997 - 1999 $ 251
1998 - 2000 232
1999 - 2001 230
T. M. Campbell 1997 - 1999 $ 179
1998 - 2000 165
1999 - 2001 164
</TABLE>
[FN]
(1) Rights in the incentive pool are expressed as a minimum percentage
of the total pool.
(2) The plan does not specify a target or maximum payment. Payouts are
only made when income over the three year plan period reaches the
threshold amount, and then the amount available for payment is a
fixed percentage of total income.
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 1996, 1997 and 1998 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
7,410 active and 8,670 inactive employees were participants in the Plan on
August 31, 1998. 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, 1996, 1997 and 1998 were $12.2 million, $-0- million and
$ 1.7 million, respectively.
Payments to participants in the Plan are based upon length of
participation and compensation reported to the Plan for the four highest of the
last ten years of employment. Compensation for this purpose includes base
salary and compensation earned under the Company's Annual Employee Variable
Compensation Plan discussed above. However, at the present time, the maximum
compensation (per participant) which may be covered by a qualified pension plan
is limited to $160,000 annually and the maximum retirement benefit which may be
paid by such plan is limited to $130,000 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 $130,000).
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, 1996, 1997 and 1998 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. Under this
plan, each Participant's payment shall be reduced if the benefit payments to be
made, when added to all prior benefit payments made from this Plan, are greater
than the sum of (a) the total cash value, on August 31 of the preceding year, of
the policies designated by the Administrative Committee and (b) any previous
reductions in cash value caused by withdrawals from the policies by the
Corporation.
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 cash value of life
insurance
policies designated (see above) as SERP policies do not cause the aggregate
payments under the SERP to be reduced.
<TABLE>
<CAPTION>
Final Averag Years of Service
Wage 15 20 25 30 35
<S> <C> <C> <C> <C> <C>
$ 100,000 $ 26,250 $ 35,000 $ 43,750 $ 52,500 $ 61,250
125,000 32,812 43,750 54,687 65,625 76,563
150,000 39,375 52,500 65,625 78,750 91,875
200,000 47,950 63,933 79,917 95,900 111,883
250,000 55,388 73,850 92,313 110,775 129,238
300,000 62,825 83,767 104,708 125,650 146,592
350,000 70,263 93,683 117,104 140,525 163,946
400,000 77,700 103,600 129,500 155,400 181,300
450,000 85,138 113,517 141,896 170,275 198,654
500,000 92,575 123,433 154,292 185,150 216,008
600,000 107,450 143,267 179,083 214,900 250,717
700,000 122,325 163,100 203,875 244,650 285,425
800,000 137,200 182,933 228,667 274,400 320,133
900,000 152,075 202,767 253,458 304,150 354,842
1,000,000 166,950 222,600 278,250 333,900 389,550
1,100,000 181,825 242,433 303,042 363,650 424,258
1,200,000 196,700 262,267 327,833 393,400 458,967
1,300,000 211,575 282,100 352,625 423,150 493,675
1,400,000 226,450 301,933 377,417 452,900 528,383
1,500,000 241,325 321,767 402,208 482,650 563,092
</TABLE>
The following table sets forth the credited years of service for
certain executive officers of the Company at August 31, 1998.
Name Years of Creditable Service
H. D. Cleberg 33
G. E. Evans 24
R. W. Honse 24
J. F. Berardi 6
T. M. Campbell 6
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
1998: Messrs. Jody Bezner, Lyman Adams, Harry Fehrenbacher, Barry Jensen and Joe
Royster. Mr. Bezner has served as Vice Chairman and Vice President of the Board
of the Company from December 1997 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 are paid.
EQUITY 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, 1998, no person was known by Farmland to be the
beneficial owner of more than five percent of Farmland's common shares.
At August 31, 1998, the directors and executive officers of Farmland,
neither individually nor as a group, beneficially owned in excess of one percent
of any class of Farmland's equity.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company transacts business in the ordinary course with its
directors and with its local cooperative members with which the directors are
associated on terms no more favorable than those available to its other 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, 1997
and 1998 and for each of the years in the three-year period ended August 31,
1998 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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ..............................161
Consolidated Balance Sheets, August 31, 1997 and
1998 ......................................................163
Consolidated Statements of Operations for each of
the years in the three-year period ended August
31, 1998 ..................................................171
Consolidated Statements of Cash Flows for each of
the years in the three-year period ended August
31, 1998 ..................................................176
Consolidated Statements of Capital Shares and
Equities for each of the years in the three-year
period ended August 31, 1998 ..............................183
Notes to Consolidated Financial Statements ................188
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, 1997 and 1998, 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, 1998.
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, 1997 and 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended August 31, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Kansas City, Missouri
October 16, 1998
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Current Assets:
Cash and cash equivalents............................................ $ -0- $ 7,334
Accounts receivable - trade........................................ 589,028 596,415
Inventories (Note 2)............................................... 745,301 725,967
Other current assets............................................... 94,239 145,151
Total Current Assets.......................................... $ 1,428,568 $ 1,474,867
Investments and Long-Term Receivables (Note 3) $ 266,554 $ 298,402
Property, Plant and Equipment (Notes 4 and 5):
Property, plant and equipment, at cost............................. $ 1,585,824 $ 1,680,373
Less accumulated depreciation and amortization..................... 802,716 853,224
Net Property, Plant and Equipment.................................. $ 783,108 $ 827,149
Other Assets......................................................... $ 167,082 $ 212,356
Total Assets......................................................... $ 2,645,312 $ 2,812,774
FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
<TABLE>
<CAPTION>
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Current Liabilities:
Demand loan certificates............................................... $ 50,523 $ 28,407
Short-term notes payable (Note 5)...................................... 258,342 380,232
Current maturities of long-term debt (Note 5).......................... 91,643 38,946
Accounts payable - trade............................................... 366,345 330,043
Other current liabilities.............................................. 419,504 323,601
Total Current Liabilities......................................... $ 1,186,357 $ 1,101,229
Long-Term Liabilities (Note 5):
Long-term borrowings (excluding current maturities).................... $ 580,665 $ 728,103
Other long-term liabilities............................................ 33,480 31,942
Total Long-Term Liabilities....................................... $ 614,145 $ 760,045
Deferred Income Taxes (Note 6)........................................... $ 3,974 $ 3,333
Minority Owners' Equity in Subsidiaries (Note 7) $ 18,843 $ 35,471
Capital Shares and Equities (Note 8):
Preferred shares, Authorized 8,000,000 shares, 8% Series A cumulative
redeemable preferred shares, stated at redemption value, $50 per share,
2,000,000 shares issued and outstanding (0 shares in 1997) ............ $ -0- $100,000
Other preferred shares, $25 par value, 2,838 shares issued and
outstanding (2,886 shares in 1997) .... 72 71
Common shares, $25 par value -
Authorized 50,000,000 shares,
18,072,136 shares issued and outstanding
(17,680,493 shares in 1997) ........................................... 442,012 451,804
Associate member common shares
(nonvoting), $25 par value - Authorized 2,000,000 shares, 1,140,304
shares issued and outstanding
(889,913 shares in 1997) .............................................. 22,248 28,508
Earned surplus and other equities...................................... 357,661 332,313
Total Capital Shares and Equities................................. $ 821,993 $ 912,696
Contingent Liabilities and Commitments (Notes 5, 6 and 9)
Total Liabilities and Equities............................................. $ 2,645,312 $2,812,774
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Sales....................................................... $ 9,788,587 $ 9,147,507 $ 8,775,046
Cost of sales............................................... 9,272,002 8,580,826 8,271,912
Adjustment of LIFO inventories to market.................... -0- -0- 27,593
Gross income................................................ $ 516,585 $ 566,681 $ 475,541
Selling, general and administrative expenses................ $ 368,954 $ 409,378 $ 431,999
Other income (deductions):
Interest expense......................................... $ (62,445) $ (62,335) $ (73,645)
Interest income.......................................... 5,021 5,352 5,436
Other, net (Note 15)..................................... 24,257 22,486 30,265
Total other income (deductions)............................. $ (33,167) $ (34,497) $ (37,944)
Income before income tax (expense) benefit, equity in
net income of investees and minority owners'
interest in net income of subsidiaries................... $ 114,464 $ 122,806 $ 5,598
Income tax (expense) benefit (Note 6)....................... (21,755) (20,907) 6,912
Income before equity in net income of investees and minority
owners' interest in net
income of subsidiaries.................................. $ 92,709 $ 101,899 $ 12,510
Equity in net income of investees (net of allocated
tax expense of $7,581, $7,343 and $3,169 in 1996,
1997 and 1998, respectively) (Note 3).................... 41,092 42,108 53,216
Minority owners' interest in net income
of subsidiaries.......................................... (7,383) (8,584) (6,956)
Net income ................................................. $ 126,418 $ 135,423 $ 58,770
Distribution of net income (Note 8):
Patronage refunds:
Farm supply patrons.................................. $ 83,739 $ 101,262 $ 51,513
Pork marketing patrons............................... 6,998 -0- 1,274
Beef marketing patrons............................... 2,753 6,458 3,817
Grain marketing patrons.............................. -0- 585 2,517
Livestock production................................. 5 2 -0-
$ 93,495 $ 108,307 $ 59,121
Earned surplus and other equities........................ 32,923 27,116 (351)
$ 126,418 $ 135,423 $ 58,770
<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
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 126,418 $ 135,423 $ 58,770
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................... 77,741 90,351 101,833
Equity in net income of investees........................... (41,092) (42,108) (53,216)
Minority owners' equity in net
income of subsidiaries.................................... 7,383 8,584 6,956
Gain on disposition of investments.......................... (11,300) (552) (9,450)
Patronage refunds received in equities...................... (2,244) (1,830) (1,099)
Proceeds from redemption of patronage equities.............. 5,112 5,106 6,546
Deferred income taxes....................................... 11,034 (1,469) (641)
Adjustment of LIFO inventories to market.................... -0- -0- 27,593
Other....................................................... (3,302) 1,951 1,029
Changes in assets and liabilities (exclusive
of assets and liabilities of businesses acquired):
Accounts receivable....................................... (175,991) 27,644 25,398
Inventories............................................... 47,220 (9,343) 17,295
Other assets.............................................. (40,774) 6,249 6,893
Accounts payable.......................................... 140,721 (26,091) (67,286)
Other liabilities......................................... 41,194 28,393 (82,953)
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Net cash provided by operating activities..................... $ 182,120 $ 222,308 $ 37,668
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.......................................... $ (168,272) $ (158,655) $ (108,837)
Distributions from joint ventures............................. 22,239 55,238 57,635
Acquisition of investments and notes receivable............... (51,923) (46,243) (69,466)
Acquisition of other long-term assets......................... (23,768) (25,724) (27,267)
Proceeds from sale of investments
and collection of notes receivable.......................... 31,003 24,758 40,884
Proceeds from sale of fixed assets............................ 5,996 6,895 20,632
Acquisition of businesses..................................... (39,536) (3,515) -0-
Other......................................................... (6,803) -0- (124)
Net cash used in investing activities......................... $ (231,064) $ (147,246) $(86,543)
<FN>
See accompanying Notes to Consolidated Financial Statements
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of patronage refunds................................. $ (32,777) $ (32,511) $ (40,449)
Payments for redemption of equities........................... (27,470) (25,440) (80,243)
Payments of dividends on preferred shares..................... (4) (4) (4,937)
Proceeds from bank loans and notes payable.................... 597,959 337,407 612,634
Payments of bank loans and notes payable...................... (526,814) (427,139) (494,275)
Proceeds from issuance of subordinated debt
certificates.............................................. 67,965 86,132 99,309
Payments for redemption of subordinated
debt certificates......................................... (43,803) (37,455) (66,000)
Net increase (decrease) in checks
and drafts outstanding.................................... (6,144) 16,299 (47,243)
Net increase (decrease) in demand loan certificates........... 26,575 10,424 (22,116)
Proceeds from issuance of preferred shares.................... -0- -0- 100,000
Other (decrease).............................................. (6,543) (2,775) (471)
Net cash provided by (used in) financing activities........... $ 48,944 $ (75,062) $ 56,209
Net increase in cash and cash equivalents..................... $ -0- $ -0- $ 7,334
Cash and cash equivalents at beginning of year................ -0- -0- -0-
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Cash and cash equivalents at end of year...................... $ -0- $ -0- $ 7,334
SUPPLEMENTAL SCHEDULE OF CASH PAID FOR INTEREST AND INCOME TAXES
Interest...................................................... $ 58,125 $ 57,650 $ 76,087
Income taxes (net of refunds)................................. $ 27,943 $ 14,399 $ 14,475
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Equities and minority owners' interest called
for redemption............................................ $ 25,214 $ 28,579 $ 8,868
Transfer of assets in exchange for investment in
joint ventures............................................ $ -0- $ 10,292 $ 4,601
Appropriation of current year's net income as
patronage refunds......................................... $ 93,495 $ 108,307 $ 59,121
Acquisition of businesses:
Fair value of net assets acquired......................... $ 52,401 $ -0- $ 168,409
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Goodwill.................................................. 3,181 2,550 14,819
Minority owners' investment............................... -0- 965 -0-
Equity issuable........................................... -0- -0- (26,323)
Cash paid or payable...................................... (39,536) (3,515) (2,766)
Liabilities assumed........................................... $ 16,046 $ -0- $ 154,139
<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, 1996, 1997 and 1998
Associate Earned
Member Surplus and Total 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, 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 patronage refund allocation............. -0- 49,644 6,493 (56,294) (157)
Dividends on preferred shares...................... -0- -0- -0- (4) (4)
Exchange of common shares, associate
member common shares 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 patronage refund allocation............. -0- 53,269 5,640 (59,103) (194)
Dividends on preferred shares...................... -0- -0- -0- (4) (4)
Exchange of common shares, associate
member common shares and other equities.......... -0- (2,566) 1,929 637 -0-
Issue, redemption and cancellation of equities..... (3) 326 (151) (89) 83
BALANCE AT AUGUST 31, 1997......................... $ 72 $ 442,012 $ 22,248 $ 357,661 $ 821,993
Appropriation of current year's net income......... -0- -0- -0- 58,770 58,770
Patronage refund payable in cash transferred
to current liabilities........................... -0- -0- -0- (23,593) (23,593)
Base capital redemptions transferred
to current liabilities........................... -0- (8,738) (130) -0- (8,868)
Prior year patronage refund allocation............. -0- 60,238 7,551 (67,789) -0-
Dividends on preferred shares...................... -0- -0- -0- (6,933) (6,933)
Exchange of common shares, associate
member common shares and other equities.......... -0- (2,058) 123 1,935 -0-
Equity issuable for purchase of
SF Services, Inc................................. -0- -0- -0- 26,323 26,323
Issue,,redemption and cancellation of equities..... 99,999 (39,650) (1,284) (14,061)
BALANCE9AT AUGUST 31, 1998......................... $100,071 $ 451,804 $ 28,508 $ 332,313 $
<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 global, consumer-driven,
producer-owned, farm-to-table 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 which is other than temporary.
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 and Other Intangible Assets -- 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
$12.9 million and $16.4 million, respectively, at August 31, 1997 and 1998.
Other intangible assets, primarily software, are amortized over three to ten
years.
Sales -- The Company recognizes sales at the time product is shipped.
Net margins of the Company's international grain trading subsidiaries
(collectively referred to as "Tradigrain"), rather than the gross value of such
products, are included in net sales. The gross value of Tradigrain's grain
trading transactions in 1996, 1997 and 1998 was $2.6 billion, $2.3 billion and
$1.7 billion, respectively.
Derivative Commodity Instruments -- The Company uses derivative commodity
instruments, including forward contracts, futures and options contracts,
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.
Reclassifications -- Certain prior year amounts have been reclassified
to conform with the current year presentation.
(2) INVENTORIES
Major components of inventories are as follows:
August 31
1997 1998
(Amounts in Thousands)
Finished and in-process $625,577 $ 605,876
products.................
Materials................ 62,001 62,578
Supplies................. 57,723 57,513
$745,301 $ 725,967
Income before income taxes for the year ended August 31, 1998 has been
reduced by $27.6 million to recognize a non-cash charge for the adjustment of
crude oil and refined petroleum inventories to market value. The carrying
values of crude oil and refined petroleum inventories stated under the lower of
LIFO cost or market at August 31, 1997 and 1998, were $125.5 million and $112.7
million, respectively.
The carrying values of beef inventories stated under the lower of LIFO
cost or market at August 31, 1997 and 1998, were $37.0 million and
$42.7 million, respectively. At both August 31, 1997 and 1998, 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
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Investments accounted for by the equity method................ $ 177,994 $ 196,106
Investments in and advances to other cooperatives............. 43,585 39,112
National Bank for Cooperatives................................ 20,958 16,554
Other investments and long-term receivables................... 24,017 46,630
$ 266,554 $ 298,402
</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, 1997 and 1998, 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
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Current Assets................................................ $ 269,565 $ 614,845
Long-Term Assets.............................................. 492,966 596,869
Total Assets.............................................. $ 762,531 $ 1,211,714
Current Liabilities........................................... $ 214,662 $ 513,293
Long-Term Liabilities......................................... 186,344 308,382
Total Liabilities......................................... $ 401,006 $ 821,675
Net Assets.................................................... $ 361,525 $ 390,039
</TABLE>
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Net sales.................................. $ 1,154,195 $ 1,366,038 $ 1,859,159
Net income................................. $ 83,075 $ 84,536 $ 108,517
Farmland's equity in net income............ $ 41,092 $ 42,108 $ 53,216
</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 and a 50% equity interest in a distributor of crop protection
products, WILFARM, LLC. At August 31, 1998, the Company's share of the
undistributed earnings of all ventures accounted for by the equity method
totaled $58.3 million.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of cost for property, plant and equipment is as follows:
<TABLE>
<CAPTION>
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Land and improvements..................... $ 51,586 $ 57,381
Buildings................................. 275,835 296,163
Machinery and equipment................... 947,836 1,043,831
Automotive equipment...................... 67,021 70,676
Furniture and fixtures.................... 53,391 59,859
Capital leases............................ 54,467 54,467
Leasehold improvements.................... 28,981 30,750
Other..................................... 8,283 7,598
Construction in progress.................. 98,424 59,648
$ 1,585,824 $ 1,680,373
</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
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Subordinated capital investment certificates
--6% to 9%, maturing 1999 through 2014......................... $ 284,493 $ 318,733
Subordinated monthly income certificates
--6.25% to 9.25%, maturing 1999 through 2008................... 88,546 87,675
Syndicated Credit Facility
--5.84% to 6.28%, maturing 2001................................ 160,000 170,000
Other bank notes-6.39% to 10.75%,
maturing 1999 through 2008..................................... 69,943 122,214
Industrial revenue bonds-6.75% to 9.25%,
maturing 1999 through 2021..................................... 17,430 25,475
Promissory notes-5% to 8.5%,
maturing 1999 through 2007..................................... 11,707 8,927
Other-3% to 14.92%................................................ 40,189 34,025
$ 672,308 $ 767,049
Less current maturities........................................... 91,643 38,946
$ 580,665 $ 728,103
</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, 1998, the Company had outstanding $328.2 million of revolving short-
term borrowings under the Credit Facility and $170.0 million of revolving term
borrowings; additionally, $30.3 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 1999. The revolving term provisions of the
Credit Facility expire in May 2001.
During April 1998, Farmland National Beef Packing Company, L.P.
("FNBPC") replaced its existing borrowing arrangements with a new five-year
$130.0 million credit facility. This facility, which expires March 31, 2003, is
provided by various participating banks and all borrowings thereunder are
nonrecourse to Farmland or Farmland's other affiliates. FNBPC used a portion of
this facility to repay in full its borrowings from Farmland. At August 31,
1998, FNBPC had borrowings under this facility of $86.2 million and $1.3 million
of the facility was being utilized to support letters of credit. FNBPC has
pledged certain assets to support its borrowings under the new facility.
The Company maintains other borrowing arrangements with banks and
financial institutions. At August 31, 1998, $36.0 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, 1998, such short-term borrowings
totaled $34.9 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 ($604.0 million at August 31, 1998) and certain additional
financings (principally long-term operating leases). See Note 9.
At August 31, 1998, under industrial revenue bonds and other
agreements, assets with a carrying value of $12.9 million have been pledged.
Borrowings from CoBank, under both the Syndicated Credit Facility and
short-term notes payable, totaling $187.9 million at August 31, 1998, 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)
1999................. $ 38,946
2000................. 35,203
2001................. 206,689
2002................. 59,069
2003................. 153,687
2004 and after....... 273,455
$ 767,049
At August 31, 1997 and 1998, the Company had demand loan certificates and
short-term bank debt outstanding of $308.9 million (weighted average interest
rate of 6.07%) and $391.5 million (weighted average interest rate of 6.06%),
respectively.
During 1996, 1997 and 1998, the Company capitalized interest of $1.6
million, $4.0 million and $3.9 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 of the stock of
Terra and the IRS's contention that Farmland incorrectly treated the Terra sale
gain as patronage-sourced income against which certain patronage-sourced
operating losses could be offset. The statutory notice further asserts that,
among other things, Farmland incorrectly characterized for tax purposes gains
aggregating approximately $14.6 million and a loss of approximately $2.3
million, from dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax
Court contesting the asserted deficiencies in their entirety. The case was
tried on June 13-15, 1995. The parties submitted post-trial briefs to the court
in September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all
unresolved issues raised in the statutory notice, Farmland would have additional
federal and state income tax liabilities aggregating approximately $85.8 million
plus accumulating statutory interest thereon (approximately $279.9 million
through August 31, 1998), or $365.7 million (before tax benefits of the interest
deduction) in the aggregate at August 31, 1998. 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 $15.3 million (including accumulating statutory
interest thereon). 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.
In March 1998, Farmland received notice from the IRS assessing the $15.3
million tax and accumulated statutory interest thereon related to the Company's
1989 tax year (as described above). In order to establish the trial court in
which initial litigation, if any, of the dispute would occur and to stop the
accumulation of interest, the Company deposited funds with the IRS in the amount
of the assessment. After making the deposit, the Company filed for a refund of
the entire amount deposited.
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, 1998, 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 before income taxes include the following components:
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Foreign..................... $13,950 $9,709 $30,269
Domestic.................... 141,804 153,964 24,758
Total....................... $155,754 $163,673 $ 55,027
</TABLE>
Income tax expense (benefit) is comprised of the following:
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Federal:
Current.................................. $ 7,322 $ 18,712 $ (7,852)
Deferred................................. 9,430 (1,129) (956)
$ 16,752 $ 17,583 $ (8,808)
State:
Current................................. $ 1,292 $ 3,303 $ (1,386)
Deferred................................ 1,664 (199) (168)
$ 2,956 $ 3,104 $ (1,554)
Foreign:
Current................................. $ 2,107 $ 361 $ 2,967
Deferred................................ (60) (141) 483
$ 2,047 $ 220 $ 3,450
Total income tax expense................... $ 21,755 $ 20,907 $ (6,912)
</TABLE>
Income tax expense (benefit) differs from the "expected" income tax
expense using a statutory rate of 35% as follows:
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
<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 ....................... (20.4) (22.4) (95.8)
State income tax expense, net of
federal income tax effect.............. 2.5 1.6 3.3
Minority interest of pass through
entities............................... (2.6) (2.6) (47.7)
Other, net .............................. 4. 5 5.4 (18.3)
Income tax expense (benefit)............... 19.0 % 17.0 % (123.5) %
</TABLE>
The tax effect of temporary differences that give rise to significant
portions of deferred tax liabilities and deferred tax assets at August 31, 1997
and 1998 are as follows:
<TABLE>
<CAPTION>
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment,
principally due to differences
in depreciation......................... $ 51,632 $ 75,808
Prepaid pension cost ....................... 19,242 16,388
Income from foreign subsidiaries ........... 3,765 11,187
Basis differences in pass-through
ventures................................ 3,929 4,677
Other ...................................... 3,144 6,169
Total deferred tax liabilities.......... $ 81,712 $ 114,229
Deferred tax assets:
Safe harbor leases ......................... $ 4,143 $ 3,802
Accrued expenses ........................... 49,747 61,700
Benefit of nonqualified
written notices......................... 19,456 33,761
Alternative minimum tax credit ............. -0- 5,829
Accounts receivable, principally due to
allowance for doubtful accounts......... 1,844 3,024
Other ...................................... 2,548 2,780
Total deferred tax assets............... $ 77,738 $ 110,896
Net deferred tax liability ................. $ 3,974 $ 3,333
</TABLE>
A valuation allowance of $1.6 million and $1.5 million for deferred
tax assets was provided at August 31, 1997 and 1998, 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, 1998, Farmland has member-sourced loss carryforwards,
expiring in 2012, amounting to $11.3 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 of subsidiaries owned by others is as follows:
<TABLE>
<CAPTION>.
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Farmland National Beef Packing Company, L.P................ $ 11,491 $ 30,084
Farmland Foods, Inc........................................ 4,423 4,061
Other subsidiaries......................................... 2,929 1,326
$ 18,843 $ 35,471
</TABLE>
(8) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES
A summary of preferred stock is as follows:
<TABLE>
<CAPTION>
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Preferred shares - Authorized 8,000,000 shares:
8%, Series A cumulative redeemable preferred shares,
stated at redemption value, $50 per share, 2,000,000
shares issued and outstanding (0 shares in 1997)........... $ -0- $ 100,000
6%, $25 par value - 530 shares issued and outstanding
(570 shares in 1997)....................................... 13 14
5-1/2%, $25 par value - 2,308 shares issued and
outstanding (2,316 shares in 1997).........................
58 58
$ 72 $ 100,071
</TABLE>
Dividends on the Series A preferred shares accumulate whether or not the
Company has earnings, whether or not there are funds legally available for the
payment of such dividends and whether or not such dividends are declared. These
preferred shares are redeemable, beginning on December 15, 2022, at the sole
discretion of the Company. No redemption by the Company is allowed prior to
that time. Series A preferred shares each have a liquidation preference of $50
per share, plus an amount equal to accumulated and unpaid dividends, if any,
thereon. The preferred shares are not entitled to vote.
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 stockholders 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
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Earned surplus............................................ $ 257,044 $ 249,108
Patronage refund payable in equities...................... 68,079 35,528
Capital credits........................................... 30,879 19,694
Equity issuable for the purchase of SF Services, Inc...... -0- 26,323
Additional paid-in surplus................................ 1,616 1,596
Currency translation adjustment........................... 43 64
$ 357,661 $ 332,313
</TABLE>
Patronage refunds payable in equities represent the portion of
patronage refunds payable from 1998 earnings, in the form of common shares,
associate member common shares and capital credits.
In July 1998, the Company acquired all of the common stock of SF Services,
Inc. ("SF Services") in exchange for $26.3 million in Farmland equity, $2.8
million in cash and warrants which, when exercisable, may be exchanged for $21.7
million in Farmland equity. The right to exercise the warrants is contingent on
the achievement of a specified minimum volume of business done by the holder
with Farmland. SF Services operated as a regional farm supply cooperative,
serving local cooperative members in Arkansas, Mississippi, Louisiana and
Alabama.
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.
(9) CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various equipment and real properties under
long-term operating leases. For 1996, 1997 and 1998, rental expense totaled
$42.1 million, $53.9 million and $64.3 million, respectively. Rental expense is
reduced for sublease income, primarily mileage credits received on leased
railroad cars ($1.4 million in 1996, $5.4 million in 1997 and $1.1 million in
1998).
The lease agreements have various remaining terms ranging from one
year to fourteen years. Some agreements are renewable, at the Company's option,
for additional periods. The minimum required payments for these agreements
during the fiscal years ending August 31 are as follows:
(Amounts in Thousands)
1999...........................$ 57,543
2000........................... 56,354
2001........................... 48,034
2002........................... 42,795
2003........................... 16,293
2004 and after................. 62,712
$ 283,731
Commitments for capital expenditures and investments in joint ventures
aggregated $44.1 million at August 31, 1998.
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 $16.9 million and $14.4 million
at August 31, 1997 and 1998, 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, 1998. In the opinion of management, it is reasonably
possible for such costs to approximate an additional $19.2 million.
In the ordinary course of conducting international grain trading,
Tradigrain, as of August 31, 1998, was contingently liable in the amount of
$63.9 million of performance and bid bonds, guarantees and letters of credit.
In December 1997, the Company entered into a series of agreements which
provide for the construction and operation under a long-term lease of facilities
adjacent to the Company's petroleum refinery at Coffeyville, Kansas. These
facilities are designed to convert petroleum coke by-products into fertilizers.
When the facilities are completed (presently scheduled for early in fiscal
2000), Farmland will be obligated to make future minimum lease payments which,
at that time, will have an approximate present value of $223 million.
Alternatively, Farmland has an option to purchase the facilities. The Company's
subordinated debt securities are subordinated in right of payment to the future
lease obligations. In the event Farmland should default on the obligations
described above, future lease obligations may be accelerated. If accelerated,
obligations due and payable would total approximately $263 million, all of which
would be senior to the subordinated debt securities and, upon payment of such
amount, Farmland would receive title to the assets.
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 is not expected to 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 domestic and foreign common stocks,
corporate bonds, United States Government securities, short-term investment
funds, private REITS and Venture Capital 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>
<CAPTION>
Components of the Company's pension cost are as follows:
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Service cost - benefits earned during the period................... $ 10,886 $ 11,333 $ 12,013
Interest cost on projected benefit obligation...................... 18,843 19,816 21,403
Actual return on Plan assets....................................... (46,630) (37,816) (52,300)
Net amortization and deferral...................................... 24,634 12,252 24,315
Pension expense.................................................... $ 7,733 $ 5,585 $ 5,431
</TABLE>
At August 31, 1996 and 1997 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, and at August 31, 1998 were
7.25%, 4.5% and 9.0%, respectively.
The following table sets forth the Plan's funded status and amounts
recognized as assets in the Company's Consolidated Balance Sheets at August 31,
1997 and 1998. Such prepaid pension cost is based on the Plan's funded status
as of May 31, 1997 and 1998.
<TABLE>
<CAPTION>
August 31
1997 1998
(Amounts in Thousands)
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefits.................................................... $ 196,063 $ 226,175
Nonvested benefits................................................. 16,730 30,847
Accumulated benefit obligation..................................... $ 212,793 $ 257,022
Increase in benefits due to future compensation increases.......... 51,730 85,526
Projected benefit obligation....................................... $ 264,523 $ 342,548
Estimated fair value of Plan assets................................ 331,822 385,112
Plan assets in excess of projected benefit obligation.............. $ 67,299 $ 42,564
Unrecognized net (gain) loss from past experience different
from that assumed and effects of changes
in assumptions.................................................. (15,405) 5,387
Unrecognized prior service cost.................................... 621 414
Prepaid pension cost at end of year.................................. $ 52,515 $ 48,365
</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-based and phosphate-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; livestock production; and the storage and marketing of
grain.
Other operations primarily includes computer, financial, management,
printing and transportation services.
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, 1996, 1997 and 1998.
<TABLE>
<CAPTION>
Unallocated
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>
1996
Sales to
unaffiliated
customers.........$1,058,258 $1,336,307 $569,869 $3,227,652 $3,468,686 $ 127,815 $ -0- $ 9,788,587
Transfers between
segments.......... 7,895 16,392 13,672 40,042 72,819 56,061 (206,881) -0-
Total sales and
transfers.........$1,066,153 $1,352,699 $583,541 $3,267,694 $3,541,505 $ 183,876 $(206,881) $ 9,788,587
Operating income
(loss) of industry
segments..........$ 4,766 $ 178,861 $ 12,915 $ 65,077 $ (18,234) $ (2,933) $ 240,452
Equity in net income
(loss) of
investees
(Note 3).......... (98) 41,899 382 -0- (10) (1,081) 41,092
Combined operating
income (loss) and
equity in net
income (loss) of
investees of
industry segments.0 4,668 $ 220,760 $ 13,297 $ 65,077 $ (18,244) $ (4,014) $ 281,544
General corporate
expenses.......... (92,883)
Other corporate
income............ 29,340
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 $ 27,977 $ 5,010 $ 5,227 $ 7,081 $ 77,741
Capital expenditures
(Including $29.9
million of capital
assets of
businesses
acquired).........$ 42,075 $ 37,296 $ 5,083 $ 60,725 $ 6,643 $ 19,044 $ 27,342 $ 198,208
1997
Sales to
unaffiliated
customers.........$1,331,786 $1,263,566 $618,000 $3,566,100 $2,238,695 $ 129,360 $ -0- $ 9,147,507
Transfers between
segments.......... 5,153 15,752 18,134 61,885 160,313 53,668 (314,905) -0-
Total sales and
transfers.........$1,336,939 $1,279,318 $636,134 $3,627,985 $2,399,008 $ 183,028 $(314,905) $ 9,147,507
Operating income
(loss) of industry
segments..........$ 36,266 $ 160,036 $ 6,643 $ 46,320 $ 6,819 $ (7,821) $ 248,263
Equity in net income
of investees
(Note 3).......... 101 41,213 342 -0- 241 211 42,108
Combined operating
income (loss) and
equity in net
income (loss) of
investees of
industry segments.$ 36,367 $ 201,249 $ 6,985 $ 46,320 $ 7,060 $ (7,610) $ 290,371
General corporate
expenses.......... (90,957)
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 $ 33,353 $ 4,934 $ 7,649 $ 7,923 $ 90,351
Capital expenditures
(Including $3.5
million of capital
assets of
businesses
acquired).........$ 22,599 $ 78,728 $ 2,278 $ 38,106 $ 2,591 $ 12,172 $ 5,696 $ 162,170
1998
Sales to
unaffiliated
customers.........$1,136,928 $1,157,843 $549,732 $3,656,341 $2,131,999 $ 142,203 $ -0- $ 8,775,046
Transfers between
segments.......... 4,162 4,396 20,889 62,493 101,002 70,053 (262,995) -0-
Total sales and
transfers.........$1,141,090 $1,162,239 $570,621 $3,718,834 $2,233,001 $ 212,256 $(262,995) $ 8,775,046
Operating income
(loss) of industry
segments before
inventory adjustment
to market.........$ 27,979 $ 48,135 $ 10,960 $ 55,356 $ 30,411 $ (4,523) $ 168,318
Inventory adjustment
to market......... (27,593) -0- -0- -0- -0- -0- (27,593)
Operating income
(loss) of industry
segments.......... 386 48,135 10,960 55,356 30,411 (4,523) 140,725
Equity in net income
(loss) of
investees
(Note 3).......... 270 46,936 1,055 -0- 2,510 2,445 53,216
Combined operating
income (loss) and
equity in net
income of
investees of
industry segment..$ 656 $ 95,071 $ 12,015 $ 55,356 $ 32,921 $ (2,078) $ 193,941
General corporate
expenses.......... (97,179)
Other corporate
income............ 35,697
Interest expense.... (73,645)
Minority interest... (6,956)
Income tax benefit.. 6,912
Net income.......... $ 58,770
Identifiable assets at
August 31, 1998...$ 431,900 $ 510,357 $ 91,537 $ 613,633 $ 522,268 $ 238,187 $ 2,407,882
Investment in and
advances to
investees.........$ 1,087 $ 150,676 $ 7,308 $ -0- $ 18,245 $ 18,790 $ 196,106
Corporate assets.... 208,786
Total assets........ $ 2,812,774
Provision for
depreciation and
amortization......$ 14,609 $ 23,384 $ 4,500 $ 33,745 $ 5,036 $ 8,933 $ 11,626 $ 101,833
Capital expenditures
(including $45.4
million of capital
assets of
businesses
acquired $ 25,939 $ 28,513 $ 5,623 $ 38,988 $ 4,002 $ 47,661 $ 3,503 $ 154,229
</TABLE>
Export sales from the Company's United States operations to unaffiliated
customers were as follows:
<TABLE>
<CAPTION>
Year Ended August 31
1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C>
Asia................................. $ 705,905 $ 549,404 $ 474,721
Latin and South America.............. 695,404 441,912 485,004
Canada............................... 61,217 53,567 60,341
Other................................ 527,770 308,412 280,722
Total................................ $ 1,990,296 $ 1,353,295 $ 1,300,788
</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
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:
<TABLE>
<CAPTION>
August 31, 1997 August 31, 1998
Carrying Carrying
Amount Fair Value Amount Fair Value
(Amounts in Thousands)
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Investments:
National Bank for Cooperatives.............. $ 20,958 $ **** $ 16,554 $ ****
Other cooperatives:
Equities.................................. $ 27,871 $ **** $ 27,150 $ ****
Notes receivable.......................... $ 15,714 $ 15,010 $ 11,962 $ 11,557
FINANCIAL LIABILITIES:
Subordinated capital investment certificates
and subordinated monthly
income certificates........................... $ (373,039) $ (376,891) $ (406,408) $ (424,269)
</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 redemption 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 Company's other debt borrowings are at short-term variable rates and the
carrying amounts approximate the fair market values.
(14) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in two manufacturers of phosphate
products and a manufacturer of nitrogen products, Farmland Hydro, L.P., SF
Phosphates Limited Company and Farmland MissChem Limited, a 50% interest in a
distributor of crop protection products, WILFARM, LLC, a 50% interest in a
manufacturer and distributor of crop protection products, Omnium, LLC and a
50% interest in OneSystem Group, LLC ("OSG") which is an information technology
service. During 1998, the Company entered into agreements with ConAgra, Inc. to
form two 50% owned ventures, Concourse Grain, LLC, a grain marketer and
Farmland-Atwood, LLC, a provider of grain merchandising and support services.
During 1996, 1997 and 1998, the Company purchased $117.4 million,
$131.9 million and $231.5 million, respectively, of products and services from
these ventures. The Company had accounts payable of $10.0 million and $5.9
million due to these ventures at August 31, 1997 and 1998, respectively, and a
note payable due to a venture of $17.1 million at August 31, 1998. Accounts
receivable owed to the Company at August 31, 1998 totaled $22.3 million and a
notes receivable due from these ventures totaled $8.9 million and $35.0 million
at August 31, 1997 and 1998, respectively.
(15) OTHER INCOME
During 1998, the Company sold: (1) an approximate 3.8% interest in
FNBPC, resulting in a gain before income taxes of $7.2 million; and (2) all of
its interest in Cooperative Services Company, formerly a wholly-owned
subsidiary, resulting in a gain before income taxes of $2.2 million.
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.
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 $ 163,000
..................................
State taxes and fees.............. 7,000
Printing and engraving............ 162,000
Accounting and legal.............. 63,000
Trustee fee....................... 30,000
Advertising and administration.... 1,236,000
$1,661,000
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
In December 1997, the Company sold 2 million shares of 8% Series A Cumulative
Redeemable Preferred Shares (the "Preferred Shares") at $50 per Preferred Share
with an aggregate liquidation preference of $100 million ($50 liquidation
preference per share). The Preferred Shares were issued in a transaction which,
pursuant to Section 4(2) of the Securities Act of 1933, as amended, was exempt
from the registration requirements of the Securities Act and applicable state
securities laws. All Preferred Shares were sold in a private transaction to
Merrill Lynch, Pierce, Fenner & Smith Incorporated (the "Initial Purchaser"), a
qualified institutional investor. All Preferred Shares were sold for $100
million in cash, less a $3 million commission. The Preferred Shares do not have
any stated maturity, are not subject to any sinking fund or mandatory redemption
provisions and are not convertible into any other securities of the Company.
The Securities Act registration statement for the Preferred Shares was
declared effective in May 1998 and was assigned the SEC file number No. 333-
49373. The Company estimates that it incurred approximately $65,000 of expenses
to register the Preferred Shares, resulting in net proceeds from the issuance of
the Preferred Shares of approximately $96.9 million. Such proceeds were used to
redeem approximately $47.6 million of principal and accumulated interest on
certain subordinated debt securities; the remaining proceeds were used to redeem
capital shares and equity. Of the proceeds paid to redeem capital shares held
by producers or member cooperatives, approximately $2.5 million was paid to
member cooperatives with which members of the Company's Board of Directors are
affiliated, through either employment as General Manager or through service as a
Director on the cooperative's Board of Directors.
The Company did not sell any unregistered subordinated debt securities
during the three years ended August 31, 1998.
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.AUnderwriting 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.BSales 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)
** 1.C. Sales Agency Agreement between Farmland industries, Inc. and Iron
Street
Securities Inc. dated _, 1998.
ARTICLES OF INCORPORATION AND BYLAWS:
3.AArticles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q,
filed January 14, 1997)
3.BCertificate of Designation for a Series of Preferred Shares Designated as
8% Series A Cumulative Redeemable Preferred Shares, dated December 19,
1997. (Incorporated by Reference - Form S2, filed April 3, 1998)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.(i)A Form of Trust Indenture with UMB Bank, National Association,
providing for issuance of unsubordinated debt securities, including form
of Demand Loan Certificates. (Incorporated by Reference - Form S-1, No.
33-40759, effective December 31, 1997)
4.(i)B Form of Trust Indenture with Commerce Bank, National Association,
providing for issuance of subordinated debt securities, including forms
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. (Incorporated by
Reference - Form S-1, No. 33-40759, effective December 31, 1997)
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)
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
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Employee Variable Compensation Plan (September 1, 1998- August 31,
1999). (Incorporated by Reference - Form 10-K filed November 20,1998)
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)B(3) Exhibit G (Fiscal years 1999 through 2001)(Incorporated
by Reference-Form 10-K filed November 20, 1998).
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 20, 1998)
CONSENTS OF EXPERTS AND COUNSEL:
* 23.AIndependent Auditors' Consent
** 23.B Consent of Special Tax Counsel
* *23.CConsent of Qualified Independent Underwriter
* *23.DConsent of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. (included in Exhibit 5)
* 24 Power of Attorney
* 25.AStatement of Eligibility of Trustee and Qualification of UMB Bank,
National Association Trustee, Form T-1.
* 25.BStatement 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 DECEMBER 2, 1998.
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.
Signature Title Date
* Chairman of Board, December 2, 1998
Albert J. Shivley Director
/s/ H.D. CLEBERG President, December 2, 1998
H. D. Cleberg Chief Executive
Officer and Director
(Principal Executive Officer)
* Vice Chairman of Board December 2, 1998
Jody Bezner Vice President and Director
* Director December 2, 1998
Lyman L. Adams, Jr.
* Director December 2, 1998
Ronald J. Amundson
* Director December 2, 1998
Richard L. Detten
* Director December 2, 1998
Steven Erdman
* Director December 2, 1998
Harry Fehrenbacher
* Director December 2, 1998
Martie Floyd
* Director December 2, 1998
Warren Gerdes
* Director December 2, 1998
Ben Griffith
* Director December 2, 1998
Gail D. Hall
* Director December 2, 1998
Barry Jensen
* Director December 2, 1998
Ron Jurgens
* Director December 2, 1998
William F. Kuhlman
* Director December 2, 1998
Greg Pfenning
* Director December 2, 1998
Monte Romohr
* Director December 2, 1998
Joe Royster
* Director December 2, 1998
E. Kent Stamper
* Director December 2, 1998
Eli F. Vaughn
* Director December 2, 1998
Frank Wilson
/s/ TERRY M. CAMPBELL Executive Vice President December 2, 1998
Terry M. Campbell and Chief Financial Officer
(Principal Financial Officer)
/s/ MERL DANIEL Vice President and December 2, 1998
Merl Daniel Controller
(Principal Accounting Officer)
*BY /s/ TERRY M. CAMPBELL
Terry M. Campbell
Attorney-In-Fact
EXHIBIT 99
EXHIBIT INDEX
The following exhibits are filed as a part of this Form S-1 Registration
Statement. Certain of these exhibits are incorporated by reference. Items
marked with an asterisk (*) are filed herein.
Exhibit No. Description of Exhibits
UNDERWRITING AGREEMENT:
1.AUnderwriting 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.BSales 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)
** 1.C. Sales Agency Agreement between Farmland industries, Inc. and Iron
Street
Securities Inc. dated _, 1998.
ARTICLES OF INCORPORATION AND BYLAWS:
3.AArticles of Incorporation and Bylaws of Farmland Industries, Inc.
effective December 5, 1996. (Incorporated by Reference - Form 10-Q,
filed January 14, 1997)
3.BCertificate of Designation for a Series of Preferred Shares Designated as
8% Series A Cumulative Redeemable Preferred Shares, dated December 19,
1997. (Incorporated by Reference - Form S2, filed April 3, 1998)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.(i)A Form of Trust Indenture with UMB Bank, National Association,
providing for issuance of unsubordinated debt securities, including form
of Demand Loan Certificates. (Incorporated by Reference - Form S-1, No.
33-40759, effective December 31, 1997)
4.(i)B Form of Trust Indenture with Commerce Bank, National Association,
providing for issuance of subordinated debt securities, including forms
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. (Incorporated by
Reference - Form S-1, No. 33-40759, effective December 31, 1997)
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)
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
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Employee Variable Compensation Plan (September 1, 1998- August 31,
1999). (Incorporated by Reference - Form 10-K filed November 20,1998)
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)B(3) Exhibit G (Fiscal years 1999 through 2001)(Incorporated
by Reference-Form 10-K filed November 20, 1998).
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 20, 1998)
CONSENTS OF EXPERTS AND COUNSEL:
* 23.AIndependent Auditors' Consent
* *23.B Consent of Special Tax Counsel
* *23.CConsent of Qualified Independent Underwriter
* *23.DConsent of Robert B. Terry, Vice President and General Counsel of
Farmland Industries, Inc. (included in Exhibit 5)
* 24 Power of Attorney
* 25.AStatement of Eligibility of Trustee and Qualification of UMB Bank,
National Association Trustee, Form T-1.
* 25.BStatement 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
1994 1995 1996 1997 1998
(Amounts in Thousands)
<S> <C> <C> <C> <C> <C>
Earnings:
Pretax Income......................... $ 78,766 $ 197,641 $ 155,754 $ 163,672 $ 55,025
Minority Interest in Income of
Consolidated Subsidiary that
has Fixed Charges................. 333 9,793 7,604 10,586 8,346
Minority Interest in Loss of
Consolidated Subsidiary .......... (4,855) -0- (221) (1,902) (1,341)
Equity Interest in Loss (Income)
(Earnings less distributions) of
Investees (A)..................... 603 (623) 574 (868) (56,531)
Distributions from
Investees (A)..................... -0- -0- -0- 5 57,620
Total Fixed Charges (excluding
interest capitalized)............. 64,838 68,271 76,658 79,247 94,960
Total Earnings............................. $ 139,685 $ 275,082 $ 240,369 $ 250,740 $ 158,079
Fixed Charges:
Interest (including amounts
capitalized and amortization of
debt issuance costs).............. $ 52,297 $ 55,497 $ 65,361 $ 68,099 $ 79,421
Estimated Interest Component
of Rentals........................ 12,898 13,494 12,926 15,127 19,483
Total Fixed Charges........................ $ 65,195 $ 68,991 $ 78,287 $ 83,226 98,904
Ratio of Earnings to Fixed Charges......... 2.1 4.0 3.0 3.0 1.6
</TABLE>
(A) For 1994 through 1997, equity interest and distributions shown represent
less-than-50%-owned Investees. For 1998, equity interest and distributions
shown represent 50%-owned and less-than-50%-owned Investees.
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 30, 1998
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/s ALBERT J. SHIVLEY Chairman of Board October 21, 1998
Albert J. Shivley and Director
s/s H.D. CLEBERG President, October 21, 1998
H. D. Cleberg Chief Executive Officer
and Director
(Principal Executive Officer)
s/s JODY BEZNER Vice Chairman of Board October 21, 1998
Jody Bezner and Director
s/s LYMAN L. ADAMS Director October 21, 1998
Lyman L. Adams, Jr.
s/s RONALD J. AMUNDSON Director October 21, 1998
Ronald J. Amundson
s/s RICHARD L. DETTEN Director October 21, 1998
Richard L. Detten
s/s STEVEN ERDMAN Director October 21, 1998
Steven Erdman
s/s HARRY FEHRENBACHER Director October 21, 1998
Harry Fehrenbacher
s/s MARTIE FLOYD Director October 21, 1998
Martie Floyd
s/s WARREN GERDES Director October 21, 1998
Warren Gerdes
s/s BEN GRIFFITH Director October 21, 1998
Ben Griffith
s/s GAIL D. HALL Director October 21, 1998
Gail D. Hall
s/s BARRY JENSEN Director October 21, 1998
Barry Jensen
s/s RON JURGENS Director October 21, 1998
Ron Jurgens
s/s WILLIAM F. KUHLMAN Director October 21, 1998
William F. Kuhlman
s/s GREG PHENNING Director October 21, 1998
Greg Pfenning
s/s MONTE ROMOHR Director October 21, 1998
Monte Romohr
s/s JOE ROYSTER Director October 21, 1998
Joe Royster
s/s E. KENT STAMPER Director October 21, 1998
E. Kent Stamper
s/s ELI F. VAUGHN Director October 21, 1998
Eli F. Vaughn
s/s FRANK WILSON Director October 21, 1998
Frank Wilson
</TABLE>
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 November 24, 1998:
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 November 24,
1998.
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 November 24, 1998.
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 November 24, 1998.
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 November 24, 1998.
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
September 30, 1998.
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 November, 1998.
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: November 24, 1998
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
November, 1998.
/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
November, 1998.
/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
November 24, 1998
[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 othe 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: November 24, 1998
T-1 Exhibit 7
Legal 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
City, State Zip: KANSAS CITY, MO 64141-6226
FDIC Certificate No.: /1/3/6/0/1
Consolidated Report of Condition for Insured Commercial
and State-Chartered Savings Bank for September 30, 1998
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 | 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 523,362
b. Interest-bearing balances (2) 0071 2,321
2. Securities /////////////////////
a. Held-to-maturity securities (from Schedule RC-B, column A) 1754 232,002
b. Available-for-sale securities (from Schedule RC-B, column D) 1773 1,067,591
3. Federal funds sold and securities purchased under agreements to resell: 1350 201,908
4. Loans and lease financing receivables: /////////////////////
a. Loans and leases, net of unearned income (from Schedule RC-C) RCON 2122 1,449,605 /////////////////////
b. LESS: Allowance for loan and lease losses ....................RCON 3123 17,722 /////////////////////
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 1,431,883
5. Trading assets (from Schedule RC-D) 3545 85,070
6. Premises and fixed assets (including capitalized leases) 2145 140,622
7. Other real estate owned (from Schedule RC-M) 2150 730
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 0
9. Customers' liability to this bank on acceptances outstanding 2155 10,196
10. Intangible assets (from Schedule RC-M) 2143 20,328
11. Other assets (from Schedule RC-F 2160 19,726
12. Total assets (sum of items 1 through 11) 2170 3,825,739
</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 | 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 3,042,451
(1) Noninterest-bearing(1).................................. RCON 6631 740,423 ////////////////////
(2) Interest-bearing........................................ RCON 6636 2,308,028 ////////////////////
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 343,905
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 10,196
19. Subordinated notes and debentures 3200 0
20. Other liabilities (from Schedule RC-G) 2930 74,911
21. Total liabilities (sum of items 13 through 20) 2948 3,471,573
////////////////////
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 133,972
26. a. Undivided profits and capital reserves 3632 196,945
b. Net unrealized holding gains (losses) on available-for-sale securities 8434 6,749
27. Cumulative foreign currency translation adjustments ////////////////////
28. Total equity capital (sum of items 23 through 27) 3210 354,166
29. Total liabilities, limited-life preferred stock, and equity capital ///////////////////
(sum of items 21, 22, and 28) 3300 3,825,759
</TABLE>
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 November 20, 1998
___________________________________________________________________________
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 Capital Investment Certificates (under Indenture dated
July 29, 1974) 9%, due 15 years from date of issue(18th Indenture)
and
Subordinated Capital Investment Certificates (under Indenture dated
November 29, 1976) 9-1/2%, due 20 years from date of issue (21st Indenture)
and
Subordinated Capital Investment Certificates (under Indenture dated
October 24, 1978, as amended by Supplemental Indenture dated December 21,
1978) 9-1/2%, due 20 years from date of issue (23rd Indenture)
and
Subordinated Capital Investment Certificates (under Indenture dated
October 24, 1979) 10-1/2%, due 25 years from date of issue (26th Indenture)
and
Subordinated Capital Investment Certificates (under Indenture dated
November 8, 1984) due 5 years from date of issue (34th Indenture)
and
Subordinated Capital Investment Certificates (under Indenture dated
November 8, 1984) due 10 years from date of issue (35th Indenture)
and
Subordinated Capital Investment Certificates (under Indenture dated
November 8, 1984) due 20 years from date of issue (36th Indenture)
and
Subordinated Monthly Income Capital Investment Certificates
(under Indenture dated November 8, 1984) due 10 years from date
of issue (37th Indenture)
and
Subordinated Individual Retirement Account Certificates (under
Indenture dated November 8, 1984) due 10 years from date of issue
(38th Indenture)
and
Subordinated Monthly Income Capital Investment Certificates
(under Indenture dated November 11, 1985) due 5 years from date
of issue (39th Indenture)
and
Subordinated Debenture Bonds, Series A-H (under subordinated
Indenture dated as of December 4, 1997) (41st Indenture)
(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 November 20, 1998
___________________________________________________________________________
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 November 20, 1998
___________________________________________________________________________
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 November 20, 1998
___________________________________________________________________________ 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 November 20, 1998
__________________________________________________________________________
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 November 20, 1998
___________________________________________________________________________
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 November 20, 1998
___________________________________________________________________________
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 $ 1,541,548 1/26/99
Unsecured Line of Credit $ 1,847,709 11/30/98
Unsecured Line of Credit $ 5,000,000 11/24/98
Unsecured Line of Credit $ 4,000,000 11/24/98
"MoBucks" Loan $12,000,000 9/03/99
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 20th
day of November, 1998
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
EFFECTIVE WITH MERGER OF ST. LOUIS WITH AND INTO KANSAS CITY - 12/31/97
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.
SECTION 10
This Agreement shall be ratified and confirmed by the affirmative vote of
shareholders of each of the merging banks owning at least two-thirds of its
capital stock outstanding at a meeting to be held on the call of the directors;
and the Merger shall become effective at the time specified in a merger approval
to be issued by the Comptroller of the Currency of the United States.
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 November 20, 1998
BY-LAWS OF
COMMERCE BANK, NATIONAL ASSOCIATION
KANSAS CITY, MISSOURI
By-Laws as amended January 9, 1998
BY-LAWS OF
COMMERCE BANK, NATIONAL ASSOCIATION
KANSAS CITY, MISSOURI
ARTICLE I
STOCKHOLDERS' MEETING{TC \L1 " ARTICLE I STOCKHOLDERS'
MEETING}
SECTION 1.1 STOCKHOLDERS' ANNUAL MEETING{TC \L2 "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.,
or in lieu thereof the stockholders may elect such directors and transact such
other business by executing a written document evidencing their unanimous
consent thereto and causing such written document to be filed in the official
records of this Association by the Secretary.
SECTION 1.2 SPECIAL MEETINGS OF STOCKHOLDERS{TC \L2 "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{TC \L2 "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. The execution of a document evidencing the
unanimous consent of all stockholders shall constitute the waiver of any notice
required for the taking of such action.
SECTION 1.4 VOTES{TC \L2 "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 PROXIE{TC \L2 "SECTION 1.5 PROXIE}S. 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{TC \L1 "ARTICLE II DIRECTORS}
SECTION 2.1 BOARD OF DIRECTORS{TC \L2 "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 this Association; and the Board
delegates to the Chairman, Vice Chairman or President the power and authority to
appoint, from time to time, one or more Advisory Directors to serve in advisory
capacities in the various market regions of this Association and to establish
compensation for such Advisory Directors.
Advisory Directors shall be subject to the same requirements relating to
retirement as other directors. 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{TC \L2 "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. 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{TC \L2 "SECTION 2.3 BOARD MEETINGS}. Regular
meetings of the Board shall be held at the office of the Association in Kansas
City, Missouri, or such other place as the Board shall determine, either within
or without the State of Missouri at the hour of 9:00 in the morning, on the
second Monday of each month, 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. Meetings of the Board or any
Committee of the Board may be conducted in a manner such that members of the
Board may participate by means of conference video or similar communications
equipment whereby all persons participating in the meeting can see and hear each
other, and participation in this manner shall constitute presence in person at
the meeting.
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{TC \L2 "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{TC \L2 "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
and Advisory Directors of this Association for services shall be established by
the Board; 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.
ARTICLE III
COMMITTEES
SECTION 3.1 EXECUTIVE COMMITTEE. The Executive Committee shall consist
of five (5) 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. Three (3) 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 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 3.3 COMPENSATION OF COMMITTEE MEMBERS. The compensation of
committee members for service shall be established by the Board 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 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
Executive Vice President, Senior Vice President or otherwise as the Board may
deem appropriate. The office of Executive 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 Asso-
ciation 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 Executive Vice President
shall have and may exercise any and all powers and duties pertaining to the
office of Executive 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. The Board may elect one or more
Assistant Secretaries, from time to time, as may appear to be Board to be
required or desirable to transact the business of the Association.
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 4.10 OTHER OFFICERS. The Board may also elect, from time to time,
one or more individuals as "Officers" or "Corporate Officers" of this
Association and with respect to such Officers or Corporate Officers, the Board
may permit the additional use of community, market, group or division title by
such Officers or Corporate Officers. All such titles above the level of vice
president shall be approved by the Board. All titles of vice president and
below shall be conferred according to procedures adopted by the Director of
Human Resources. Such title designation shall not be deemed as conferring any
additional responsibility or authority on any such individual beyond that
approved in these By-Laws or by resolution of the Board.
SECTION 4.11 BONDS. 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 4.12 TENURE 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 without any
further order of the Board be executed and delivered by the Chairman of the
Board, any Vice Chairman, the President, or any Executive Vice President and
such other Officers of the Association as the Board, by resolution, may appoint,
sealed with the corporate seal of the Association and, if required, attested by
the Secretary or one of the Assistant Secretaries of the Association.
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, any Executive Vice President, or such other Officers of this
Association as the Board, by resolution, shall appoint, 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 Executive Vice President, and such other
Officers of this Association as the Board, by resolution, shall appoint, 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 Executive Vice President, or such Officers
as the Board, by resolution, shall appoint, 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 Executive Vice President, or such Officers
as the Board, by resolution shall approve, 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 Executive Vice President, and such Officers as the Board, by
resolution, shall appoint, 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 an
Officer 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 Officer together with such other Officers designated by the Board and
assigned to the Trust Division 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 two Officers or, if
designated by the Officer having general supervision of the Trust Division,
employees of the Trust Division.
SECTION 5.8 TRUSTS. The Chairman of the Board, any Vice Chairman, the
President, any Executive Vice President, the Officer having general supervision
of the Trust Division, or such other Officers as the Board may designate within
the Trust Division 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 Executive Vice
President or such other Officers as the Board shall, by resolution, designate,
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 5.10 PURCHASE OR TRANSFER OF SECURITIES. The Chairman of the
Board, any Vice Chairman, the President, and any Executive Vice President, the
Controller or such other Officers as the Board shall, by resolution, designate,
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 ,
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 Executive 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
canceled, 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
Exhibit 5
Page 1
COPIES OF INDENTURE
Copies 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 (k) as follows:
(a) 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
(b) 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 Certifi-
cates
(c) 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 Certifi-
cates
(d) Trust Indenture dated October 24, 1979, as amended January 29,
1982. (Form S-1, No. 2-66090 effective January 3, 1980).
10-1/2%, 25-Year Subordinated Capital Investment Certifi-
cates
(e) Trust Indenture dated November 8, 1984.
(Form S-1, No. 2-94400 effective December 31, 1984).
5-Year Subordinated Capital Investment Certificates
(f) Trust Indenture dated November 8, 1984.
(Form S-1, No. 2-94400 effective December 31, 1984).
10-Year Subordinated Capital Investment Certificates
(g) Trust Indenture dated November 8, 1984.
(Form S-1, No. 2-94400 effective December 31, 1984).
20-Year Subordinated Capital Investment Certificates
(h) Trust Indenture dated November 8, 1984
(Form S-1, No. 2-9440 effective December 31, 1984)
10-Year Subordinated Monthly Income Capital Investment
Certificates
(i) Trust Indenture dated November 8, 1984
(Forms S1, No. 2-94400 effective December 31, 1984)
10-year IRA Certificates
(j) Trust Indenture dated November 11, 1985
(Form S-1, No. 33-1970, effective December 3, 1985)
5-Year Subordinated Monthly Income Capital Investment
Certificates
(k) Subordinated Indenture dated as of December 4, 1997
(Form S-1, No. 333-40759, effective December 15, 1997)
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 20th day
of November, 1998.
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 93,808.000 $5,663,253,000
Investment Securities:
US Goverment and Federal Agency obligations $1,017,155,000
Obligation of states and political subdivisions 30,383,000
Other securities 748,722,000 1,796,260,000
Federal funds sold and securities purchased under
agreements to resell 294,035,000
Trading account securities 27,762,000
Net earning assets 7,781,310,000
Cash and due from banks 560,857,000
Land, buildings and equipment 156,422,000
Customers' acceptance liability 1,677,000
Other assets 133,782,000
Total Assets $8,634,058,000
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand $1,275,944,000
Savings and interest bearing demand 4,099,350,000
Time 1,884,685,000 $7,259,979,000
Federal funds purchased and securities sold under 570,205,000
agreements to repurchase
Accrued expenses and other liabilities 159,989,000
Acceptances outstanding 1,677,000
Total Liabilities $1,884,685,000
Stockholders' equity:
Capital stock 10,000,000
Capital surplus 518,865,000
Undivided profits 113,343,000
Total Stockholder's equity 642,208,000
Total liabilities and stockholders' equity $8,634,058,000
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