ITEM 3. LEGAL PROCEEDINGS
The Company believes there is no litigation existing or pending against Farmland or any of its subsidiaries that, based on the amounts involved or the defenses available to the Company, would have a material adverse effect on the financial position of the Company except for the pending tax litigation relating to Terra, 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.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO VOTE ON SECURITIES HOLDERS
No matter was submitted during the fourth quarter of the fiscal year covered by this report to a vote of equity holders, through the solicitation of proxies or otherwise.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public market for the voting common stock, associate member common stock and capital credits of Farmland. The Company believes that it is unlikely that a public market for these equities will develop in the foreseeable future for the following reasons:
1.the common stock, associate member common stock and capital credits are nondividend bearing;
2.the common stock, associate member common stock and capital credits are not transferable without consent of the Farmland Board of Directors.
3.the amount of patronage refunds a holder, who is eligible to receive patronage refunds, may receive is dependent on the earnings of Farmland attributable to the quantity or value of business such holder transacts with Farmland and not on the amount of equity held. See "Business and Properties - Business - Patronage Refunds and Distribution of Annual Earnings" included herein; and
4.Farmland intends to redeem its equities in accordance with provisions of Plans, which provisions may be changed at any time or from time to time at the sole and absolute discretion of the Board of Directors and which may be amended or otherwise changed at any time by the Board of Directors. See "Business and Properties - Business - Equity Redemption Plans" included herein.
At August 31, 1997 there are approximately 3,500 holders of common shares, 670 holders of associate member shares, and 10,400 holders of capital credits based on holders of record.
ITEM 6.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data as of the end of and for each of the years in the five-year period ended August 31, 1997 are derived from the Consolidated Financial Statements of the Company, which Consolidated Financial Statements have been audited by KPMG Peat Marwick LLP, independent certified public accountants. The Consolidated Financial Statements as of August 31, 1996 and 1997 and for each of the years in the three-year period ended August 31, 1997 (the "Consolidated Financial Statements"), and the independent auditors' report thereon, are included elsewhere herein. The information set forth below should be read in conjunction with information appearing elsewhere herein: "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and related notes.
[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.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
The Company has historically maintained two primary sources for debt capital: a substantially continuous public offering of its subordinated debt and demand loan securities (the "continuous debt program") and bank lines of credit.
The Company's debt securities issued under the continuous debt program generally are offered on a best-efforts basis through the Company's wholly owned broker-dealer subsidiary, Farmland Securities Company, and through American Heartland Investments, Inc. (which is not affiliated with Farmland), and also may be offered by selected unaffiliated broker-dealers. The types of securities offered in the continuous debt program include certificates payable on demand and subordinated debt certificates. The total amount of such debt outstanding and the flow of funds to, or from, the Company as a result of the continuous debt program are influenced by the rate of interest which Farmland establishes for each type or series of debt security offered and by options of Farmland to call for redemption certain of its outstanding debt securities. During the year ended August 31, 1997, the outstanding balance of demand certificates increased by $10.4 million and the outstanding balance of subordinated debt certificates increased by $48.9 million.
In May 1996, Farmland entered into a five year Syndicated Credit Facility (the "Facility") with various participating banks. The Facility provides a $1.1 billion credit, subject to compliance with financial covenants as set forth in the 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 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 Facility's financial covenants regarding working capital, the ratio of certain debts to average cash flow, and the ratio of equity to total capitalization, all as defined therein. The short-term credit provisions of the Facility are reviewed and/or renewed annually. The next scheduled review date is in May 1998. The revolving term provisions of the Facility expire in May 2001.
At August 31, 1997, the Company had $185.5 million of short-term borrowing under the Facility and $160.0 million of revolving term borrowings; additionally, $44.2 million of the Facility was being utilized to support letters of credit issued on behalf of Farmland. As of August 31, 1997, under the short-term credit provisions, the Company had capacity to finance additional current assets of $425.6 million and, under the long-term credit provisions, the Company had capacity to borrow up to an additional $284.7 million.
FNBPC maintains borrowing agreements with a group of banks which provide financing support for its beef packing operations. Such borrowings are nonrecourse to Farmland or Farmland's other affiliates (except to the extent of $10.0 million). At August 31, 1997, $90.0 million was available under this facility of which $29.1 million was borrowed and $0.6 million was utilized to support letters of credit. In addition, FNBPC has certain long-term borrowings from Farmland. FNBPC has pledged certain assets to Farmland and such group of banks to support its borrowings.
Leveraged leasing has been utilized to finance railcars and a significant portion of the Company's fertilizer production equipment.
The Company maintains other borrowing arrangements with banks and financial institutions. Under such agreements, at August 31, 1997, $40.8 million was borrowed.
Tradigrain has borrowing agreements with various international banks which provide financing and letters of credit to support current international grain trading transactions. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland or Farmland's other affiliates. At August 31, 1997, such borrowings totaled $72.8 million.
In the opinion of management, these arrangements for debt capital are adequate for the Company's present operating and capital plans. However, alternative financing arrangements are continuously evaluated.
In the normal course of business, the Company utilizes derivative commodity instruments, primarily related to grain, to hedge its exposure to price volatility. These instruments consist mainly of grain contracts traded on organized exchanges and forward purchase and sales contracts in cash markets. These hedging activities limit both the risk of loss and the potential for gain which otherwise could result from changes in market prices. Also, in the ordinary course of its international grain trading business, the Company may take long or short grain positions. Such positions are accounted for on a mark- to-market basis and the gain or loss is recognized currently as a component of net earnings. See "Business and Properties - Business - Grain Marketing".
Farmland operates on a cooperative basis. In accordance with its bylaws, Farmland determines its annual net earnings from transactions with members ("member-sourced earnings"). For this purpose, annual net earnings is before income tax determined in accordance with generally accepted accounting principles. Losses (including patronage allocation unit losses), if any, are handled in accordance with the Company's bylaws. The remaining member-sourced earnings are returned to members as patronage refunds in the form of qualified or nonqualified written notice of patronage refund allocation. Each member's portion of the annual patronage refund is determined by the earnings of Farmland attributed to the quantity or value of business transacted by the member with Farmland during the year for which the patronage is paid. Other income is classified as either nonmember-sourced income (earnings attributed to transactions with persons not eligible to receive patronage refunds, i.e. nonmembers) or nonpatronage income or loss (income or loss from activities not directly related to the cooperative marketing or purchasing activities of Farmland) and is subject to income taxes. Nonpatronage and nonmember after-tax earnings are transferred to earned surplus.
Under Farmland's bylaws, patronage refunds, determined as stated above, are distributed to members unless the earned surplus account after such distribution is lower than 30% of the sum of the prior year-end balance of outstanding common shares, associate member shares, capital credits and patronage refunds for reinvestment. In such cases, the patronage refund is reduced by the lesser of 15% or an amount required to increase the earned surplus account to the required 30%. The amount by which the patronage refund income is so reduced is treated as nonmember-sourced income. The patronage refund income remaining is distributed to members as in the form of qualified or nonqualified written notices of allocation. For the years 1995, 1996 and 1997, the earned surplus account exceeded the required amount by $62.8 million, $84.7 million and $101.7 million, respectively.
The patronage refunds may be paid in the form of qualified or nonqualified written notices of allocation or cash. The qualified patronage refund, if any, must be paid at least 20% in cash and is deductible by the Company for federal income tax purposes. The portion of the qualified patronage refund not paid in cash (the allocated equity portion) is distributed in common shares, associate member common shares or capital credits (depending on the membership status of the recipient), or the Board of Directors may determine to distribute the allocated equity portion in any other form or forms of equities. The allocated equity portion of the qualified patronage refund is determined annually by the Board of Directors, but is limited to no more than 80% of the total qualified patronage refund. The nonqualified patronage refund, if any, is recorded as book credits in the form of common shares, associate member common shares or capital credits (depending on the membership status of the recipient), or the Board of Directors may determine to record the nonqualified patronage refund in any other form or forms of nonpreferred equities. The nonqualified patronage refund is deductible by the Company for federal income tax purposes only upon redemption of the equity or equities issued. The nonqualified patronage refund and the allocated equity portion of the qualified patronage refund are sources of funds from operations which are retained for use in the business and which increase Farmland's equity base. Common shares and associate member common shares may be redeemed by cash payments from Farmland to holders thereof who participate in Farmland's base capital plan. Common stock, associate member common stock, capital credits and other equities of Farmland and Foods may also be redeemed under other equity redemption plans. The base capital plan and other equity redemption plans are described under "Business and Properties - Business - Equity Redemption Plans" included herein.
Major sources of cash during 1997 include: $222.3 million from operating activities; $55.2 million from cash distributions from ventures; $59.1 million of net proceeds from issuance of subordinated debt and demand loan certificates; and $24.8 million from the sale of investments and collection of long-term notes receivable.
Major uses of cash during 1997 include: $184.4 million for capital expenditures and acquisition of other long-term assets; $89.7 million for net payments on bank loans and notes payable; $46.2 million for acquisition of investments and notes receivable; $32.5 million for cash patronage refunds distributed from income of the 1996 fiscal year; and $25.4 million for the redemption of equities under the Farmland base capital and other equity redemption plans.
In July 1983, Farmland sold the stock of Terra, a wholly owned subsidiary engaged in oil and gas exploration and production operations, and exited its oil and gas exploration and production activities. The gain from the sale of Terra amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the IRS issued a statutory notice to Farmland asserting deficiencies in federal income taxes (exclusive of statutory interest thereon) in the aggregate amount of $70.8 million. The asserted deficiencies relate primarily to the Company's tax treatment of the $237.2 million gain resulting from its sale of the stock of Terra and the IRS's contention that Farmland incorrectly treated the Terra sale gain as income against which certain patronage-sourced operating losses could be offset. The statutory notice further asserts that Farmland incorrectly characterized for tax purposes gains aggregating approximately $14.6 million, and a loss of approximately $2.3 million, from dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. The case was tried on June 13-15, 1995. The parties submitted post-trial briefs to the court in September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all unresolved issues raised in the statutory notice, Farmland would have additional federal and state income tax liabilities aggregating approximately $85.8 million plus accumulating statutory interest thereon (approximately $243.2 million through August 31, 1997), or $329.0 million (before tax benefits of the interest deduction) in the aggregate at August 31, 1997. In addition, such a decision would affect the computation of Farmland's taxable income for its 1989 tax year and, as a result, could increase Farmland's federal and state income taxes for that year by approximately $5.0 million plus accumulating statutory interest thereon (approximately $8.1 million), or $13.1 million in the aggregate at August 31, 1997. The asserted federal and state income tax liabilities and accumulated interest thereon would become immediately due and payable unless the Company appealed the decision and posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision by the United States Tax Court would be charged to current earnings and would have a material adverse effect on the Company. In the event of such an adverse determination of the Terra tax issue, certain financial covenants of the Company's Syndicated Credit Facility (the "Facility") become less restrictive. Had the United States Tax Court decided in favor of the IRS on all unresolved issues, and had all related additional federal and state income taxes and accumulated interest thereon been due and payable on August 31, 1997, Farmland's borrowing capacity under the 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 Facility.
No provision has been made in the Consolidated Financial Statements for federal or state income taxes (or interest thereon) in respect of the IRS claims described above. The Company believes that it has meritorious positions with respect to all of these claims.
In the opinion of Bryan Cave LLP, the Company's special tax counsel, it is more likely than not that the courts will ultimately conclude that the Company's treatment of the Terra sale gain was substantially, if not entirely, correct. Such counsel has further advised, however, that none of the issues involved in this dispute is free from doubt, and there can be no assurance that the courts will ultimately rule in favor of the Company on any of these issues.
RESULTS OF OPERATIONS FOR YEARS ENDED AUGUST 31, 1995, 1996 AND 1997
The Company's revenues, margins and net income depend, to a large extent, on conditions in agriculture and may be volatile due to factors beyond the Company's control, such as weather, crop failures, federal agricultural programs, production efficiencies and U.S. imports and exports. In addition, various federal and state regulations to protect the environment encourage farmers to reduce the use of fertilizers and other chemicals. Global variables which affect supply, demand and price of crude oil, refined fuels, natural gas and other commodities may impact the Company's operations. Historically, changes in the costs of raw materials used in the manufacture of the Company's finished products have not necessarily resulted in corresponding changes in the prices at which such products have been sold by the Company. Management cannot determine the extent to which these factors may impact future operations of the Company. The Company's cash flow and net income may continue to be volatile as conditions affecting agriculture and markets for the Company's products change.
The increase (decrease) in sales and operating income by business segment in each of the years in the three-year period ended 1997, compared with the respective prior year, is presented in the below table.
Management's discussion of industry segment sales, operating income or loss and other factors affecting the Company's net income during 1995, 1996 and 1997 follows the table.
In computing the operating income or loss of an industry segment, none of the following have been added or deducted: corporate expenses (included in the Consolidated Statements of Operations as selling, general and administrative expenses) which cannot be identified or allocated, practicably, to an industry segment, interest expense, interest income, equity in net income (loss) of investees, other income (deductions) and income taxes.
PETROLEUM
SALES
Sales of the petroleum business increased $273.5 million, or 25.8%, in 1997 compared with 1996. This increase was primarily attributable to expansion of the refinery's capacity, which resulted in increased unit sales of gasoline, distillates and diesel fuel, as well as to increased unit prices for these products.
Sales of the petroleum business increased $181.5 million in 1996 compared with 1995. This increase was primarily the result of increased fuel (gasoline, distillate, diesel and propane) prices and unit sales of approximately 11% and 9.5%, respectively.
Sales of the petroleum business increased $21.3 million in 1995 compared with 1994, or 2.5%. Sales of gasoline increased $42.1 million due to 9.6% higher unit sales and 2.4% higher prices. Sales of distillates and propane decreased $14.3 million and $3.0 million, respectively, and sales of other petroleum products decreased $3.5 million. Unit sales of distillates and propane decreased as a result of the mild winter and a wet spring.
OPERATING INCOME
Operating income of the petroleum business increased $31.3 million in 1997 compared with 1996. This increase was primarily a result of higher margins coupled with increased unit sales. The higher margins are primarily attributable to an increase in the difference between crude oil prices and finished product prices, the ability of the refinery to process crude oil streams containing a higher proportion of sulfur and to higher production efficiencies resulting from increased refinery capacity.
The petroleum business had operating income of $5.0 million in 1996 compared to an operating loss of $8.0 million in 1995. This improvement was primarily attributable to higher unit margins resulting from seasonal demand pressure on product price movements. In addition, petroleum realized some margin improvement resulting from increased production capacity at the Company's refinery.
The petroleum business incurred an operating loss of $8.0 million in 1995 compared with operating income of $27.2 million in 1994. This loss was attributable to increased crude oil costs (approximately 9%) without corresponding increases in finished product selling prices.
CROP PRODUCTION
SALES
Crop production sales, consisting primarily of plant nutrients, decreased $72.7 million, or 5.4%, in 1997 compared with 1996. This decrease was primarily a result of lower unit sales of phosphate and nitrogen fertilizers and lower phosphate prices partially offset by higher nitrogen prices.
Crop production sales increased $164.9 million or 14.1% in 1996 compared with 1995. This increase was primarily a net result of increased unit sales of phosphate and nitrogen fertilizers and higher phosphate prices, partly offset by a slight decline of nitrogen prices.
Sales of the crop production business increased $8.0 million in 1995 compared with 1994. Sales of plant nutrients increased $117.9 million due to higher selling prices. Unit sales of plant nutrients decreased slightly from 1994. Sales of crop protection products reflect a decrease of $109.9 million as a result of placing the Company's crop protection operations in WILFARM.
OPERATING INCOME
Operating income of the Company's crop production business decreased $20.0 million, or 11.2%, in 1997 compared with 1996. This decrease was primarily a result of higher natural gas costs which resulted in lower nitrogen unit margins, partially offset by higher unit margins related to the distribution of phosphate fertilizers. Crop production's share of net income from the Company's phosphate manufacturing and WILFARM ventures decreased slightly in 1997 to $41.2 million compared with $41.9 million in 1996.
Operating income of the Company's crop production business reflects a decrease of $19.7 million in 1996 compared with 1995. However, the aggregate contribution to net income from all crop production operations (including joint ventures) was at about the same level in 1996 as in 1995. The Company's crop production operations reflect a decrease primarily because of lower fertilizer margins. The approximately $6.0 million, or 2.8%, decrease in nitrogen fertilizer margins was the result of lower average unit selling prices combined with higher raw material costs. Unit margins from the Company's phosphate fertilizer operations decreased approximately $17.0 million. The effect of these decreases were largely offset by an increase of approximately $17.1 million in the Company's share of net income from joint ventures engaged in phosphate fertilizer manufacturing operations and an increase of approximately $2.4 million in the Company's share of net income from WILFARM.
Operating income of the crop production business increased $72.7 million in 1995 compared with 1994. In addition, the Company's share of the net income of joint ventures engaged in phosphate manufacturing increased $4.6 million and the Company's share of net income of WILFARM was $2.2 million. The increased operating results from crop production operations was principally attributable to the effect of higher selling prices on unit margins and contributed significantly to the Company's increased net income in 1995.
FEED
SALES
Sales of the feed business increased $48.1 million in 1997 compared with 1996. This increase resulted primarily from higher unit prices of feed ingredients combined with a slight increase in volume.
Sales of feed products increased 21.9% to $569.9 million in 1996 compared with $467.7 million in 1995. The increase was primarily attributable to higher unit prices which reflected higher cost of raw materials. In addition, unit sales of formula feed and feed ingredients increased approximately 2% and 10%, respectively.
Sales of the feed business decreased $60.1 million in 1995 compared with 1994. This decrease reflected lower unit sales in traditional markets for beef, dairy and swine feed partly offset by increased commercial (bulk) feed sales. Unit sales of dairy feed decreased because the number of dairy cattle on feed programs in the Company's trade territory decreased in 1995. Beef and swine feed unit sales decreased because the relatively low market prices available to
livestock producers encouraged such producers to reduce input costs wherever possible and such efforts were aided by the mild winter during which pastures in most of the Company's trade area remained open and provided suitable grazing for beef cattle.
OPERATING INCOME
Operating income of the feed business decreased $6.3 million in 1997 compared with 1996. This decrease was primarily attributable to declining sales through traditional local cooperative channels and an increase in sales to lower margin commercial accounts.
Operating income of the feed business increased $2.9 million in 1996 compared with 1995. This increase was attributable primarily to increased unit margins on feed grade phosphate and to increased sales of feed ingredients.
Operating income of the feed business decreased $7.0 million in 1995 compared with 1994. This decrease was attributable to decreased unit sales in traditional markets with cooperatives combined with a net loss on sales to commercial accounts.
FOOD PROCESSING AND MARKETING
SALES
The Company's food processing and marketing business sales increased $338.3 million in 1997 compared with 1996. This increase was largely attributable to increased unit volume primarily resulting from the operations of pork processing plants acquired during the third and fourth quarters of 1996. Unit price increases of approximately 4% also contributed to the increase in sales.
Sales of the food processing and marketing business increased $528.1 million in 1996 compared with 1995. Beef sales increased $308.7 million due primarily to the effect of including operations of the Hyplains Beef L.C. ("Hyplains") beef plant in the Company's financial statements for a full year in 1996. The Company acquired a majority ownership in this plant in March 1995. Pork sales increased $219.4 million primarily as a result of higher unit sales of branded products mostly as a result of acquisitions (OhSe and Farmstead brands).
Sales of the food processing and marketing business increased $337.3 million in 1995 compared with 1994. Sales of beef increased $350.6 million. Approximately $235.0 million of this increase resulted from FNBPC's purchase of assets from Hyplains (formerly 50%-owned by Farmland). The balance of the increased sales of beef resulted primarily from increased volume (approximately 16%) at FNBPC's plant. Sales of pork decreased $13.3 million reflecting the net effect of lower wholesale pork prices, partly offset by higher unit sales.
OPERATING INCOME
Operating income of the Company's food processing and marketing business decreased $21.9 million in 1997 compared with 1996. This decrease was primarily
attributable to the increased cost to acquire live hogs and to the increased selling and administrative expenses related to the food processing business, partially offset by increased beef unit margins.
Operating income of the food processing and marketing business of $66.0 million in 1996 represented an $11.1 million decrease compared to 1995. This decrease primarily resulted from decreased margins on fresh pork and increased administrative expenses, partially offset by increased beef unit sales.
Operating income of the food processing and marketing business increased $56.5 million in 1995 compared with 1994. This increase included increased operating income of $43.5 million in beef operations and $13.0 million in pork operations. In addition, the Company's share of net income of Hyplains in 1995 (for the period prior to its acquisition by FNBPC) increased $5.2 million compared with 1994. These increases reflected increased unit margins (mostly a result of lower cattle and hog market prices) and an increased number of cattle and hogs processed.
GRAIN MARKETING
SALES AND OPERATING INCOME
The Company's grain marketing sales decreased $1.2 billion in 1997 compared with 1996. This decrease resulted from decreases in both unit sales (primarily due to a reduction in export sales) and unit prices. The grain marketing business had operating income of $6.8 million in 1997 compared with an operating loss of $18.2 million in 1996. This increase in operating income was primarily attributable to higher margins combined with increased storage income.
Grain sales increased $1.6 billion, or 82%, in 1996 compared to 1995 principally owing to a 40% increase in units sold combined with increased grain prices. Grain had a $18.2 million operating loss in 1996 compared with $17.9 million operating income in 1995. The operating loss was principally attributable to drought conditions in certain major wheat producing regions of the United States which resulted in both shortages of and significantly higher prices for wheat. Due to this shortage, the Company had to source wheat (in order to meet contractual obligations), from domestic geographic areas further from the Company's gulf coast export elevator than expected, resulting in higher than anticipated purchase prices and transportation charges. The Company's policy is to hedge its exposure to price fluctuations. However, in order to avoid influencing price movement in certain commodity futures markets, significant contracts are hedged over a period of time, but as soon as practical, after such contracts are written. In 1996, the Company entered into a significant fixed price sales contract. During the time required to fully hedge this contract, the market for wheat was relatively volatile but generally trended upward. The joint effect of these factors contributed to the loss in the Company's grain operations.
Sales of grain increased $279.0 million in 1995 compared with 1994. This increase resulted from higher grain prices and unit sales, primarily export sales. Operating income of the grain business totaled $17.9 million in 1995 compared with a loss of $33.5 million in 1994. The increase in operating results was attributable to approximately 59.0 million bushels higher export volume by the NAGD, increased volume of international grain brokered by Tradigrain and more favorable unit margins which developed as market prices increased in response to decreased worldwide production in 1995.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses ("SG&A") increased $40.4 million, or 11%, in 1997 compared with 1996. SG&A directly associated with business segments increased $48.8 million (primarily the food processing and marketing segment) and has been included in the determination of the operating income of business segments. General corporate expenses not identified to business segments decreased $8.4 million primarily as a result of lower employee-related costs.
SG&A increased $24.6 million, or 7.1%, in 1996 compared with 1995. Approximately $13.5 million of the increase was directly connected to business segments (primarily the food processing and marketing and grain segments) and has been included in the determination of the operating income of business segments. The increase of general corporate expenses, not identified to business segments ($11.1 million), included higher expenses from improving the management information systems and higher employee-related costs.
SG&A increased $39.1 million in 1995 compared with 1994. Approximately $25.3 million of the increase was directly connected to business segments (primarily the food processing and marketing and grain segments) and has been included in the determination of the operating income of business segments. The increase of general corporate expenses, not identified to business segments ($13.8 million), reflected higher variable compensation, pension and other employee costs and higher costs for legal services.
OTHER INCOME (DEDUCTIONS)
INTEREST EXPENSE
Interest expense decreased $0.1 million in 1997 compared with 1996, reflecting lower average borrowings offset by a slight increase in the average interest rate.
Interest expense increased $8.6 million in 1996 compared with 1995, reflecting higher average borrowings, partly offset by a slight decline in the average interest rate.
Interest expense increased $2.4 million in 1995 compared with 1994, reflecting a higher average interest rate, partly offset by a lower amount of average borrowings.
OTHER, NET
In May 1996, the Company sold its interest in a communications joint venture, Broadcast Partners. The sale resulted in a gain before income taxes of $10.9 million, which has been included in the caption "Other income (deductions): Other, net" in the Company's Consolidated Statement of Operations. See Note 15 of the Notes to Consolidated Financial Statements included herein.
CAPITAL EXPENDITURES
See "Business and Properties - Business - Capital Expenditures and Investments in Ventures" included herein.
MATTERS INVOLVING THE ENVIRONMENT
See "Business and Properties - Business - Business Risk Factors" and " - - Matters Involving the Environment" included herein.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income," and Statement No. 131, "Disclosures about Segments of an Enterprise and Related Information." These statements, which are effective for periods beginning after December 15, 1997, expand or modify disclosures and, accordingly, will have no impact on the Company's reported financial position, results of operations or cash flows.
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Company is including the following cautionary statement in this Form 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 and pending legislation and regulation upon the Company's business (including, but not limited to, the effects of FAIR, "fast-track" and certain environmental laws), the anticipated expenditures for environmental remediation, the consequences of an adverse judgment in certain litigations (including the Terra litigation), the Company's ability to fully and timely complete modifications and expansions with respect to certain of the Company's manufacturing facilities, the redemption of the Company's various equities, the adequacy of certain raw material reserves and supplies, the Company's objectives with respect to certain strategic acquisitions and dispositions and the Company's ability to resolve Year 2000 issues with respect to its financial, informational and operational systems. Discussion containing such forward- looking statements is found in the material set forth under "Business and Properties" (including, without limitation, "Business Risk Factors"), "Market for the Registrant's Common Equity and Related Stockholder Matters", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Consolidated Financial Statements", as well as within this Form 10-K generally.
Taking into account the foregoing, the following are identified as important factors that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company:
1. Weather patterns (flood, drought, frost, etc.) or crop failure.
2. Federal or state regulations regarding agricultural programs and production efficiencies.
3. Federal or state regulations regarding the amounts of fertilizer and other chemical applications used by farmers.
4. Factors affecting the export of U.S. agricultural produce (including foreign trade and monetary policies, laws and regulations, political and governmental changes, inflation and exchange rates, taxes, operating conditions and world demand).
5. Factors affecting supply, demand and price of crude oil, refined fuels, natural gas and other commodities.
6. Regulatory delays and other unforeseeable obstacles beyond the Company's control that may affect growth strategies through acquisitions and investments in joint ventures.
7. Competitors in various segments which may be larger than the Company, offer more varied products or possess greater resources.
8. Unusual or unexpected events such as, among other things, litigation settlements, adverse rulings or judgments, and environmental remediation costs in excess of amounts accrued.
9. The factors identified in "Business and Properties - Business - Business Risk Factors" included herein.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information specified under Item 7A is not required for fiscal 1997, because of the Company's market capitalization was less than $2.5 billion as of January 28, 1997.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO FARMLAND CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report ...............................32
Consolidated Balance Sheets, August 31, 1996 and 1997 .......................................................33
Consolidated Statements of Operations for each of the years in the three-year period ended August 31, 1997 ...................................................35
Consolidated Statements of Cash Flows for each of the years in the three-year period ended August 31, 1997 ................36
Consolidated Statements of Capital Shares and Equities for each of the years in the three-year period ended August 31, 1997 ...............................38
Notes to Consolidated Financial Statements .................39
INDEPENDENT AUDITORS' REPORT
The Board of Directors Farmland Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Farmland Industries, Inc. and subsidiaries as of August 31, 1996 and 1997, and the related consolidated statements of operations, cash flows and capital shares and equities for each of the years in the three-year period ended August 31, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Farmland Industries, Inc. and subsidiaries as of August 31, 1996 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended August 31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Kansas City, Missouri October 17, 1997
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
LIABILITIES AND EQUITIES
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CAPITAL SHARES AND EQUITIES
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Farmland Industries, Inc., a Kansas corporation, is organized and operated as a cooperative and its mission is to be a producer-driven, customer- focused and profitable agricultural supply to consumer foods cooperative system.
General -- The consolidated financial statements include the accounts of Farmland Industries, Inc. and all of its majority-owned subsidiaries ("Farmland" or the "Company", unless the context requires otherwise). All significant intercompany accounts and transactions have been eliminated. When necessary, the financial statements include amounts based on informed estimates and judgments of management. The Company's fiscal year ends August 31. Accordingly, all references to "year" or "years" are to fiscal years ended August 31.
Cash and Cash Equivalents -- Investments with maturities of less than three months are included as cash and cash equivalents.
Investments -- Investments in companies over which the Company exercises significant influence (20% to 50% voting control) are accounted for by the equity method. Other investments are stated at cost, less any provision for impairment (other than temporary impairment).
Accounts Receivable -- The Company uses the allowance method to account for doubtful accounts and notes.
Inventories -- Grain inventories are valued at market adjusted for net unrealized gains or losses on open commodity contracts. Crude oil, refined petroleum products, cattle and beef inventories are valued at the lower of last-in, first-out ("LIFO") cost or market. Other inventories are valued at the lower of first-in, first-out ("FIFO") cost or market. Supplies are valued at cost.
Property, Plant and Equipment -- Assets, including assets under capital leases, are stated at cost. Depreciation and amortization are computed principally using the straight-line method over the estimated useful lives of the assets and the remaining terms of the capital leases, respectively.
Goodwill -- The excess of cost over the fair market value of assets of businesses purchased is amortized on a straight-line basis over a period of 15 to 25 years. The Company assesses the recoverability of goodwill and measures impairment, if any, by determining whether the unamortized balance can be recovered over its remaining life through undiscounted future operating cash flows. Goodwill is reflected in the accompanying Consolidated Balance Sheets net of accumulated amortization of $10.3 million and $12.9 million, respectively, at August 31, 1996 and 1997.
Sales -- The Company's policy is to recognize sales at the time product is shipped. Net margins on grain merchandised by the Company's international grain trading subsidiaries (collectively referred to as "Tradigrain"), rather than the gross value of such products merchandised, are included in net sales. The gross value of grain merchandised by Tradigrain in 1995, 1996 and 1997 was $1.6 billion, $2.6 billion and $2.3 billion, respectively.
Derivative Commodity Instruments -- The Company uses derivative commodity instruments, including forward contracts, futures contracts, purchased options and collars, primarily to reduce its exposure to risk of loss from changes in commodity prices. Derivative commodity instruments which are designated as hedges and for which changes in value exhibit "high" correlation to changes in value of the underlying position are accounted for as hedges. Gains and losses on hedges of inventory are deferred as part of the carrying amount of the related inventories and, upon sale of the inventory, recognized in cost of sales. Gains and losses related to qualifying hedges of firm commitments or anticipated transactions also are deferred and are recognized as an adjustment to the carrying amounts of the commodities when the underlying hedged transaction occurs. When a qualifying hedge is terminated or ceases to meet the specified criteria for use of hedge accounting, any deferred gains or losses through that date continue to be deferred. To the extent an anticipated transaction is no longer likely to occur, related hedges are closed with gains or losses charged to operations. Tradigrain uses derivative commodity instruments to establish positions for trading purposes. Instruments used for this purpose are marked-to-market and all related gains and losses are included in operations. Cash flows from commodity instruments are classified in the same category as cash flows from the hedged commodities in the Consolidated Statements of Cash Flows.
Environmental Expenditures -- Liabilities related to remediation of contaminated properties are recognized when the related costs are considered probable and can be reasonably estimated. Estimates of these costs are based upon currently available facts, existing technology, undiscounted site specific costs and currently enacted laws and regulations. In reporting environmental liabilities, no offset is made for potential recoveries. All liabilities are monitored and adjusted as new facts or changes in law or technology occur. Environmental expenditures are capitalized when such costs provide future economic benefits.
Federal Income Taxes -- Farmland is subject to income taxes on all income not distributed to patrons as qualified patronage refunds. Farmland files consolidated federal and state income tax returns.
(2) INVENTORIES
Major components of inventories are as follows:
August 31
1996 1997 (Amounts in Thousands)
Finished and in-process products...................$620,794 $625,577 Materials.................. 58,526 62,001 Supplies................... 57,300 57,723
$736,620 $745,301
The carrying values of crude oil and refined petroleum inventories stated under the lower of LIFO cost or market at August 31, 1996 and 1997, were $111.8 million and $125.5 million, respectively. Replacement cost approximated the LIFO carrying values of inventories at both August 31, 1996 and 1997.
The carrying values of beef inventories stated under the lower of LIFO or market at August 31, 1996 and 1997, were $32.3 million and $37.0 million, respectively. At both August 31, 1996 and 1997, market value was lower than LIFO and, accordingly, such inventories were valued at market.
(3) INVESTMENTS AND LONG-TERM RECEIVABLES
Investments and long-term receivables are as follows:
National Bank for Cooperatives ("CoBank") requires its borrowers to maintain an investment in stock of the bank. The amount of investment required is based on the average amount borrowed from CoBank during the previous five years. At August 31, 1996 and 1997, Farmland's investment in CoBank approximated its requirement. CoBank maintains a statutory lien on the investment held by the Company in CoBank.
Summarized financial information of investees accounted for by the equity method is as follows:
The Company's investments accounted for by the equity method consist principally of 50% equity interests in three manufacturers of crop production products, Farmland Hydro, L.P., SF Phosphates Limited Company and Farmland MissChem, Limited (expected to commence production in 1998) and a 50% equity interest in a distributor of crop protection products, WILFARM, LLC. At August 31, 1997, undistributed earnings from all ventures accounted for by the equity method totaled $58.9 million.
(4) PROPERTY, PLANT AND EQUIPMENT
A summary of cost for property, plant and equipment is as follows:
(5) BANK LOANS, SUBORDINATED DEBT CERTIFICATES AND NOTES PAYABLE
Bank loans, subordinated debt certificates and notes payable are as follows:
The Company has a $1.1 billion Syndicated Credit Facility with a group of domestic and international banks ("the Facility"). The Facility provides revolving short-term credit of up to $650.0 million to finance seasonal operations and inventory, and revolving term credit of up to $450.0 million. At August 31, 1997, the Company had $185.5 million of revolving short-term borrowings under the Facility and $160.0 million of revolving term borrowings; additionally, $44.2 million of the Facility was being utilized to support letters of credit issued on behalf of the Company.
The Company pays commitment fees under the 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 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 Facility are reviewed and/or renewed annually. The next review date is in May 1998. The revolving term provisions of the Facility expire in May 2001.
Farmland National Beef Packing Company, L.P. ("FNBPC") maintains a $90.0 million borrowing agreement with a group of banks which provides financing support for its beef packing operations. The provisions of this agreement expire in May 1998. Such borrowings are nonrecourse to Farmland or Farmland's other affiliates (except to the extent of $10 million). At August 31, 1997, $29.1 million was borrowed under this agreement and $0.6 million was utilized to support letters of credit. In addition, FNBPC has certain long-term borrowings from Farmland. FNBPC has pledged certain assets to Farmland and such group of banks to support its borrowings.
The Company maintains other borrowing arrangements with banks and financial institutions. At August 31, 1997, $40.8 million was borrowed under such agreements.
Tradigrain has borrowing agreements with various international banks which provide financing and letters of credit to support current international grain trading transactions. At August 31, 1997, such short-term borrowings totaled $72.8 million. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland or Farmland's other affiliates.
Subordinated debt certificates have been issued under several indentures. Certain subordinated capital investment certificates may be redeemed prior to maturity at the option of the owner in accordance with the indenture. Subject to limitations in the indenture, the Company has options to redeem certain subordinated capital investment certificates in advance of scheduled maturities. Additionally, upon written request the Company redeems subordinated capital investment certificates and subordinated monthly income certificates in the case of death of an owner.
Outstanding subordinated debt certificates are subordinated to senior indebtedness ($459.8 million at August 31, 1997) and additional financings (principally long-term operating leases). See Note 9.
At August 31, 1997, under industrial revenue bonds and other agreements, property, plant and equipment with a carrying value of $14.1 million have been pledged.
Borrowings from CoBank, totaling $93.6 million at August 31, 1997, are partially secured by liens on the equity investment held by the Company in CoBank. See Note 3.
Bank loans, subordinated debt certificates and notes payable mature during future fiscal years ending August 31 in the following amounts:
(Amounts in Thousands)
1998................. $ 91,643 1999................. 38,272 2000................. 30,467 2001................. 211,736 2002................. 66,662 2003 and after....... 233,528
$ 672,308
At August 31, 1996 and 1997, the Company had demand loan certificates and short-term bank debt outstanding of $355.5 million (weighted average interest rate of 6.29%) and $308.9 million (weighted average interest rate of 6.07%), respectively.
During 1995, 1996 and 1997, the Company capitalized interest of $0.7 million, $1.6 million and $4.0 million, respectively.
(6) INCOME TAXES
A. TERRA RESOURCES, INC.
In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"), a wholly owned subsidiary engaged in oil and gas exploration and production operations, and exited its oil and gas exploration and production activities. The gain from the sale of Terra amounted to $237.2 million for tax reporting purposes.
On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory notice to Farmland asserting deficiencies in federal income taxes (exclusive of statutory interest thereon) in the aggregate amount of $70.8 million. The asserted deficiencies relate primarily to the Company's tax treatment of the $237.2 million gain resulting from its sale of the stock of Terra and the IRS's contention that Farmland incorrectly treated the Terra sale gain as income against which certain patronage-sourced operating losses could be offset. The statutory notice further asserts that Farmland incorrectly characterized for tax purposes gains aggregating approximately $14.6 million, and a loss of approximately $2.3 million, from dispositions of certain other assets.
On June 11, 1993, Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. The case was tried on June 13-15, 1995. The parties submitted post-trial briefs to the court in September 1995 and reply briefs were submitted to the court in November 1995.
If the United States Tax Court decides in favor of the IRS on all unresolved issues raised in the statutory notice, Farmland would have additional federal and state income tax liabilities aggregating approximately $85.8 million plus accumulating statutory interest thereon (approximately $243.2 million through August 31, 1997), or $329.0 million (before tax benefits of the interest deduction) in the aggregate at August 31, 1997. In addition, such a decision would affect the computation of Farmland's taxable income for its 1989 tax year and, as a result, could increase Farmland's federal and state income taxes for that year by approximately $5.0 million plus accumulating statutory interest thereon (approximately $8.1 million), or $13.1 million in the aggregate at August 31, 1997. The asserted federal and state income tax liabilities and accumulated interest thereon would become immediately due and payable unless the Company appealed the decision and posted the requisite bond to stay assessment and collection.
The liability resulting from an adverse decision by the United States Tax Court would be charged to current earnings and would have a material adverse effect on the Company. In the event of such an adverse determination of the Terra tax issue, certain financial covenants of the Company's Syndicated Credit Facility (the "Facility"), dated May 15, 1996, become less restrictive. Had the United States Tax Court decided in favor of the IRS on all unresolved issues, and had all related additional federal and state income taxes and accumulated interest thereon been due and payable on August 31, 1997, Farmland's borrowing capacity under the 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 Facility.
No provision has been made in the Consolidated Financial Statements for federal or state income taxes (or interest thereon) in respect of the IRS claims described above. The Company believes that it has meritorious positions with respect to all of these claims.
In the opinion of Bryan Cave LLP, the Company's special tax counsel, it is more likely than not that the courts will ultimately conclude that the Company's treatment of the Terra sale gain was substantially, if not entirely, correct. Such counsel has further advised, however, that none of the issues involved in this dispute is free from doubt, and there can be no assurance that the courts will ultimately rule in favor of the Company on any of these issues.
B. OTHER INCOME TAX MATTERS
Income tax expense (benefit) is comprised of the following:
Income tax expense differs from the "expected" income tax expense using a statutory rate of 35% as follows:
The tax effect of temporary differences that give rise to significant portions of deferred tax liabilities and deferred tax assets at August 31, 1996 and 1997 are as follows:
A valuation allowance of $1.5 million and $1.6 million for deferred tax assets was provided at August 31, 1996 and 1997, respectively. The valuation allowance was provided because of limitations imposed by the tax laws on the Company's ability to realize the benefit of income tax credits obtained through an acquisition.
At August 31, 1997, Farmland has member-sourced loss carryforwards, expiring in 2012, amounting to $13.5 million available to offset future member- sourced income. No deferred tax asset has been established for these carryforwards since member-sourced losses offset future patronage refunds.
(7) MINORITY OWNERS' EQUITY IN SUBSIDIARIES
A summary of the equity in subsidiaries owned by others is as follows:
The Company has agreed to sell up to a 25% interest in FNBPC to an unrelated party, U.S. Premium Beef, LTD. ("USPB"). Therefore, the Company's ownership in FNBPC could be reduced to 50%. At this time, there is no assurance USPB will raise the capital necessary to consummate part or all of this transaction.
(8) PREFERRED STOCK, EARNED SURPLUS AND OTHER EQUITIES
A summary of preferred stock is as follows:
Dividends on the 5-1/2% and 6% preferred stock are cumulative if declared by the Farmland Board of Directors and only to the extent earned each year. Upon liquidation, preferred stock holders are entitled to the par value thereof and any declared or unpaid earned dividends.
A summary of earned surplus and other equities is as follows:
In accordance with the bylaws of Farmland, the member-sourced portion of its net income or loss and the resulting patronage refund payable to members and patrons are determined annually. In 1997, a portion of the patronage refund was paid in the form of qualified written notices of allocation and a portion was paid in the form of nonqualified written notices of allocation. The qualified patronage refund was paid 70% in cash and the remainder was distributed in the form of common shares, associate member common shares or capital credits, depending on the patron's status. The member or patron must take the total amount of the qualified patronage refund into income for income tax purposes in the year issued. The nonqualified patronage refund was recorded as book credits in the form of common shares, associate member common shares or capital credits, depending on the member or patron's status. The nonqualified distribution is not taxable income to the member or patron until redeemed in cash.
Capital credits are issued: 1) for payment of patronage refunds to patrons who do not satisfy requirements for membership or associate membership and 2) upon conversion of common stock or associate member common stock held by persons who no longer meet qualifications for membership or associate membership in Farmland.
Additional paid-in surplus results from members donating Farmland equity to Farmland.
Farmland maintains a base capital plan. The plan's objectives are as follows: 1) to achieve proportionality between the dollar amount of business a member or associate member of Farmland ("Participant") transacts with Farmland and the equity of Farmland which the Participant should hold (hereinafter referred to as the Participant's "Base Capital Requirement") and 2) provide a method for the Board of Directors, in its discretion, to redeem equities held by a Participant when the amount of such equity held by the Participant exceeds the Participant's Base Capital Requirement. Under this plan, the cash portion of the patronage refund payable to voting members or associate members depends upon the degree to which such voting members or associate members meet their Base Capital Requirements.
The Base Capital Requirement is determined annually by the Board of Directors at its sole discretion. At August 31, 1996 and 1997, common stock and associate member common stock with an aggregate par value of $14.0 million and $17.2 million, respectively, were approved for redemption by the Board of Directors under the base capital plan and such amounts have been included in "Other current liabilities" in the Consolidated Balance Sheets at August 31, 1996 and 1997, respectively.
Farmland maintains an estate settlement plan for redemption of equities held by estates of deceased individuals (except purchased equities held less than five years) and special equity redemption plans. Under these plans, the Board of Directors, in its discretion, may redeem equities based on certain factors, including the financial position and consolidated net income of the Company.
At August 31, 1996 and 1997, certain equities with a face amount of $11.4 million and $11.5 million were approved by the Board of Directors for redemption under the estate settlement, preferred shares and other special equity redemption plans and such amounts have been included in "Other current liabilities" in the Consolidated Balance Sheets at August 31, 1996 and 1997, respectively.
None of the aforementioned equities are held by or for the account of Farmland or in any sinking or other special fund of Farmland and none have been pledged by Farmland.
(9) CONTINGENT LIABILITIES AND COMMITMENTS
The Company leases various equipment and real properties under long-term operating leases, and also has certain throughput and take-or-pay agreements for processing services and raw material supplies. For 1995, 1996 and 1997, rental expenses and purchases under the throughput and take-or-pay agreements totaled $44.6 million, $42.1 million and $55.7 million, respectively. Rental expense is reduced for sublease income, primarily mileage credits received on leased railroad cars ($1.8 million in 1995, $1.4 million in 1996 and $5.4 million in 1997).
The lease and throughput and take-or-pay agreements have various remaining terms ranging from one year to twenty years. Some agreements are renewable, at the Company's option, for additional periods. The minimum required payments for these agreements during the fiscal years ending August 31 are as follows:
(Amounts in Thousands) 1998...........................$ 72,234 1999........................... 63,477 2000........................... 53,477 2001........................... 45,786 2002........................... 30,981 2003 and after................. 121,019
$ 386,974
Commitments for capital expenditures and investments in joint ventures aggregated $39.2 million at August 31, 1997.
The Company has been designated by the Environmental Protection Agency as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), at various National Priority List ("NPL") sites. In addition, the Company is aware of possible obligations associated with environmental matters at other sites, including sites where no claim or assessment has been made. The Company's accrued liability for probable and reasonably estimable obligations for resolution of environmental matters at NPL and other sites was $18.9 million and $16.9 million at August 31, 1996 and 1997, respectively.
The ultimate costs of resolving certain environmental matters are not quantifiable because many such matters are in preliminary stages and the timing and extent of actions which governmental authorities may ultimately require are unknown. It is possible that the costs of such resolution may be greater than the liabilities which, in the opinion of management, are probable and reasonably estimable at August 31, 1997. In the opinion of management, it is reasonably possible for such costs to approximate an additional $17.5 million.
In the ordinary course of conducting international grain trading, Tradigrain, as of August 31, 1997, was contingently liable in the amount of $56.0 million of guarantees, performance and bid bonds, and letters of credit.
The Company is involved in various lawsuits arising in the normal course of business. In the opinion of management, except for the tax litigation relating to Terra as explained in Note 6, the ultimate resolution of these litigation issues will not have a material adverse effect on the Company's Consolidated Financial Statements.
(10) EMPLOYEE BENEFIT PLANS
The Farmland Industries, Inc. Employee Retirement Plan (the "Plan") is a defined benefit plan in which substantially all employees of the Company who meet minimum age and length-of-service requirements are eligible to participate. Benefits payable under the Plan are based on years of service and the employee's average compensation during the highest four of the employee's last ten years of employment.
The assets of the Plan are maintained in a trust fund. The majority of the Plan's assets are invested in common stocks, corporate bonds, United States Government securities and short-term investment funds.
The Company's funding strategy is to make the maximum annual contribution to the Plan's trust fund that can be deducted for federal income tax purposes. The Company charges pension cost as accrued based on actuarial valuation of the Plan.
The discount rate, the rate of increase in future compensation levels used in determining the actuarial present value of the projected benefit obligations and the expected long-term rate of return on assets were 8.0%, 4.5% and 8.5%, respectively, at August 31, 1995, 1996 and 1997.
The following table sets forth the Plan's funded status and amounts recognized in the Company's Consolidated Balance Sheets at August 31, 1996 and 1997. Such prepaid pension cost is based on the Plan's funded status as of May 31, 1996 and 1997.
During 1997, certain employees transferred to a newly formed venture and were no longer eligible to participate in the Plan. As a result of such transfer, the Company recognized a curtailment gain of $3.6 million.
(11) INDUSTRY SEGMENT INFORMATION
The Company conducts business primarily in two operating areas: agricultural inputs and outputs. On the input side of the agricultural industry, the Company operates as a farm supply cooperative. On the output side of the agricultural industry, the Company operates as a processing and marketing cooperative.
The Company's farm supply operations consist of three principal product divisions: petroleum, crop production and feed. Principal products of the petroleum division are refined fuels, propane, jet fuels and by-products of petroleum refining. Principal products of the crop production division are nitrogen-, phosphate- and potash-based fertilizers, and, through the Company's ownership in the WILFARM, LLC and Omnium L.L.C. joint ventures, a complete line of insecticides, herbicides and mixed chemicals. Principal products of the feed division include swine, dairy, pet, beef, poultry, mineral and specialty feeds, feed ingredients and supplements, animal health products and livestock services.
On the output side, the Company's processing and marketing operations include the processing of pork and beef, the marketing of fresh pork, processed pork and fresh beef and the storage and marketing of grain.
Other operations primarily includes livestock production and services such as computer services, accounting, financial, management, printing and transportation.
The operating income (loss) of each industry segment includes the revenue generated on transactions involving products within that industry segment less identifiable and allocated expenses. In computing operating income (loss) of industry segments, none of the following items has been added or deducted: interest expense, interest income, other income (deductions) or corporate expenses (included in the statements of operations as selling, general and administrative expenses), which cannot practicably be identified or allocated by industry segment. Corporate assets include cash, investments in other cooperatives, the Company's corporate headquarters and certain other assets.
Following is a summary of industry segment information as of and for the years ended August 31, 1995, 1996 and 1997.
Export sales from the Company's United States operations to unaffiliated customers were as follows:
(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
****Investments in National Bank for Cooperatives and other cooperatives' equities which have been purchased are carried at cost and equities received as patronage refunds are carried at par value, less provisions for other than temporary impairment. The Company believes it is not practicable to estimate the fair value of these equities because there is no established market for these equities and estimated future cash flows, which are largely dependent on the future equity redemptions policy of each cooperative, are not determinable.
The estimated fair value of notes receivable has been estimated by discounting future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings.
The estimated fair value of the subordinated debt certificates was calculated using a discount rate equal to the interest rate on subordinated debt certificates with similar maturities currently offered for sale by the Company. The carrying amounts of the Company's other debt borrowings approximate their fair market value.
(14) RELATED PARTY TRANSACTIONS
The Company has a 50% interest in two manufacturers of phosphate products, Farmland Hydro, L.P. and SF Phosphates Limited Company, and a 50% interest in a distributor of crop protection products, WILFARM, LLC. During 1995, 1996 and 1997, the Company purchased $106.2 million, $117.4 million and $109.7 million, respectively, of product from these ventures. Accounts payable includes $2.9 million and $9.6 million due to these ventures at August 31, 1996 and 1997, respectively. The Company also has notes receivable from these ventures in the amount of $12.9 million and $8.9 million at August 31, 1996 and 1997, respectively.
During 1997, the Company entered into an agreement with OneSystem Group, LLC ("OSG"), a 50% owned venture, to provide information technology services for a monthly fee plus certain other expenses. Fees and expenses for these services amounted to $22.2 million for the year ended August 31, 1997. Accounts payable of $0.3 million were due to OSG at August 31, 1997.
(15) OTHER INCOME
In May 1996, the Company sold its interest in a communications joint venture, Broadcast Partners. The sale resulted in a gain before income taxes of $10.9 million, which has been included in the caption "Other income (deductions): Other, net" in the Company's 1996 Consolidated Statement of Operations.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors are elected for a term of three years by the shareholders of Farmland at its annual meeting. The expiration dates for such three-year terms are sequenced so that about one-third of the Board of Directors is elected each year. H. D. Cleberg is serving as director-at-large; the remaining 21 directors were elected from nine geographically defined districts. The executive committee consists of Ronald Amundson, Ben Griffith, Otis Molz, Monte Romohr, Albert Shivley and H. D. Cleberg. With the exception of H. D. Cleberg, President and Chief Executive Officer, members of the executive committee serve as chairman of standing committees of the Board of Directors as follows: Ronald Amundson, corporate responsibility committee; Ben Griffith, audit committee; Otis Molz, compensation committee; Monte Romohr, finance committee; and Albert Shivley, nominating committee.
The executive officers of Farmland are as follows:
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the annual compensation awarded to, earned by, or paid to the Chief Executive Officer and the Company's next four most highly compensated executive officers for services rendered to the Company in all capacities during 1995, 1996 and 1997.
An Annual Employee Variable Compensation Plan, a Management Long-Term Incentive Plan ("LTIP") and an Executive Deferred Compensation Plan have been established by the Company to meet the competitive salary programs of other companies and to provide a method of compensation which is based on the Company's performance.
Under the Company's Annual Employee Variable Compensation Plan, all regular salaried employees' total compensation is based on a combination of base and variable pay. The variable compensation payment is dependent upon the employee's position, the performance of the Company for the fiscal year or other performance criteria of the individual's operating unit. Variable compensation is awarded only in years that the Company achieves a threshold performance level as approved each year by the Board of Directors. The Company intends for its total cash compensation (base plus variable) to be competitive, recognizing that in the event the Company fails to achieve a predetermined threshold level of performance, the base pay alone will place the employees well under market rates. This system of variable compensation allows the Company to keep its fixed costs (base salaries) lower and only increase payroll costs consistent with the Company's ability to pay. Distributions under this plan are made annually after the close of each fiscal year.
During 1997, under the Company's Management Long-Term Incentive Plan for 1997 through 1999, certain management employees, including those executives set forth below, became eligible for future payments contingent on satisfying the terms and conditions of the Plan as set forth below herein.
Under the Management Long-Term Incentive Plan, certain of the Company's management employees are paid cash incentive amounts determined by a formula which takes into account the level of management and the aggregate income of the Company over a three year period. The Management Long-Term Incentive Plan provides for three year performance and reward cycles and, in general, participants must be active employees of the Company at the end of the cycle in order to receive payment of the award with respect to such cycle. Periods currently covered by the Management Long-Term Incentive Plan are: 1995 through 1997 ("1997 Plan"); 1996 through 1998 ("1998 Plan") and 1997 through 1999 ("1999 Plan"). The income threshold ("Threshold") for the three year period of the 1997 Plan, the 1998 Plan and 1999 Plan is $235,043,000, $393,481,000 and $541,768,000, respectively. For each plan, if the aggregate income is less than the Threshold or if the sum of the cash returned to members during the 1997 Plan, the 1998 Plan and the 1999 Plan, as patronage refunds, redemptions under the base capital plan, estate settlement plans and special allocated equity redemption plans is less than $61,938,000, $90,000,000 and $147,285,000, respectively, subject to the following sentence, no payment will occur with respect to such plan. The Board of Directors may, in its sole discretion, amend or discontinue the Management Long-Term Incentive Plan, adjust or cancel any awards otherwise payable thereunder should the Company incur a loss in the final year of any performance cycle or impact the goals and rewards of the plan by approving for inclusion or exclusion in the calculation of performance results the financial results of extraordinary events occurring during the cycle. Subject to the preceding sentence, if aggregate income equals or exceeds the Threshold and the cash returned to members equals or exceeds the specified amounts, then .83% of aggregate income for the 1997 Plan, the 1998 Plan and the 1999 Plan is allocated to an incentive pool for each such plan from which awards to management will be paid. Absent a significant change in their status, in which event such percentages may be adjusted, of the amount, if any, allocated to the incentive pool Messrs. Cleberg, Evans, Honse, Berardi and Dees will receive at least : 12%, 6% 6%, 5.7% and 4.25%, respectively, for the 1997 Plan; 12%, 6%, 6%, 6% and 4.25%, respectively, for the 1998 Plan; and 11.2%, 5.6%, 5.6%, 5.6% and 4.0%, respectively, for the 1999 Plan.
The Company's Executive Deferred Compensation Plan permits executive employees to defer part of their salary and/or part or all of their variable and incentive compensation. The amount to be deferred and the period for deferral is specified by an election made semi-annually. Payments of deferred amounts shall begin at the earlier of the end of the specified deferral period, retirement, disability or death. The employee's deferred account balance is credited annually with interest at the highest rate of interest paid by the Company on any subordinated debt certificate sold during the year. Payment of an employee's account balance shall, at the employee's election, be a lump sum or in ten annual installments. Amounts deferred pursuant to the plan for the accounts of the named individuals during the years 1995, 1996 and 1997 are included in the cash compensation table.
The Company established the Farmland Industries, Inc. Employee Retirement Plan (the "Plan") in 1986 for all employees whose customary employment is at the rate of at least 1,000 hours per year. Participation in the Plan is optional prior to age 34, but mandatory thereafter. Approximately 7,630 active and 8,140 inactive employees were participants in the Plan on August 31, 1997. The Plan is funded by employer and employee contributions to provide lifetime retirement income at normal retirement age 65, or a reduced income beginning as early as age 55. The Plan also contains provisions for death and disability benefits. The Plan has been determined qualified under the Internal Revenue Code. The Plan is administered by a committee appointed by the Board of Directors, and all funds of the Plan are held by a bank trustee in accordance with the terms of the trust agreement. It is the present intent to continue this plan indefinitely. The Company's funding strategy is to make the maximum annual contributions to the Plan's trust fund that can be deducted for federal income tax purposes. Company contributions made to the Plan for the years ended August 31, 1995, 1996 and 1997 were $5.3 million, $12.2 million and $ -0-, respectively.
Payments to participants in the Plan are based upon length of participation and compensation reported to the Plan for the four highest of the last ten years of employment. Compensation for this purpose includes base salary and compensation earned under the Company's Annual Employee Variable Compensation Plan discussed above. However, at the present time, the maximum compensation (per participant) which may be covered by a qualified pension plan is limited to $160,000 annually and the maximum retirement benefit which may be paid by such plan is limited to $125,000 annually by the Internal Revenue Code ("IRC").
The Company established the Farmland Industries, Inc. Supplemental Executive Retirement Plan ("SERP") effective January 1, 1994. The SERP is intended to supplement the retirement income of executive participants in the Farmland Industries, Inc. Employee Retirement Plan whose retirement benefit is reduced because of the limitation of the IRC on the amount of annual salary which can be included in the computation of retirement income (currently $160,000) or the amount of annual retirement benefit which may be paid by a qualified retirement plan (currently $125,000).
The Board of Directors has appointed an Administrative Committee to administer the SERP. The Company purchased cash value life insurance polices on the lives of certain plan participants to recover its cost of providing benefits under the SERP. The Company owns these insurance policies and has the sole right to name policy beneficiaries. The total SERP premiums charged to operations for the years ended August 31, 1995, 1996 and 1997 were $0.6 million, $0.6 million and $0.6 million, respectively.
The Company's obligation to pay supplemental retirement benefits under the SERP is limited to the aggregate cash value of the life insurance policies designated by the Administrative Committee as policies of the SERP. If the benefit payments under this Plan for a year would, when added to all prior benefit payments made from this Plan, exceed (a) the total cash value, on August 31 of the preceding year, of the policies designated by the Administrative Committee, increased by (b) any previous reductions in cash value caused by withdrawals from the policies by the Corporation, each Participant's payment shall be reduced.
The following table sets forth, for compensation levels up to $160,000, the estimated annual benefits payable at age 62 for members of the Retirement Plan, which benefits are not reduced by virtue of Social Security payments. The following table also sets forth, for compensation levels exceeding $160,000, the combined estimated annual benefits payable under the Retirement Plan and SERP for each of the first 10 years following retirement (no SERP payouts are to be made after 10 years) assuming: retirement occurs on or after age 62; the portion of the employee's benefit lost (due to the IRC limitations) which would have been provided by the employer's contribution to the Retirement Plan is 85%; the employee lives for 10 years after retirement; and, the aggregate payments under the SERP are less than the cash value of life insurance policies designated (see above) as SERP policies.
The following table sets forth the credited years of service for certain executive officers of the Company at August 31, 1997.
Name Years of Creditable Service
H. D. Cleberg 32 G. E. Evans 23 R. W. Honse 23 J. F. Berardi 5 S. P. Dees 13
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The following persons, none of whom, except as indicated below, is either currently or formerly an officer or employee of the Company or any of its subsidiaries, served as members of the Company's compensation committee during 1997: Messrs. Otis Molz, Lyman Adams, Jody Bezner, Harry Fehrenbacher and Joe Royster. Mr. Molz was Chairman of the Board of the Company from December 1991 to December 1992 and has served as Vice Chairman and Vice President of the Board of the Company from December 1992 to the current date. No executive officer of the Company (i) served as a member of a compensation committee (or other board committee performing equivalent functions or, in the absence of such committee, the entire board of directors) of another entity, one of whose executive officers served on the compensation committee of the Company, (ii) served as a director of another entity, one of whose executive officers served on the compensation committee of the Company, or (iii) served as a member of a compensation committee (or other board committee performing equivalent functions or, in the absence of such committee, the entire board of directors) of another entity, one of whose executive officers served as a director of the Company.
COMPENSATION OF DIRECTORS
Directors' compensation consists of payment of three hundred dollars ($300.00) per day of Farmland business (including, for example, board and committee meetings, and other similar activities), plus reimbursement of necessary expenses incurred in connection with their official duties. In addition, annual retainers of $30,000 for the Chairman; $25,000 for each member of the Executive Committee, other than the Chairman and President; and $20,000 for all other directors shall be paid.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Farmland's equity consists of preferred shares, common shares, associate member common shares and capital credits. Only the common shares have voting rights.
At August 31, 1997, no person was known by Farmland to be the beneficial owner of more than five percent of Farmland's common shares.
At August 31, 1997, none of the directors of Farmland and the executive officers listed under the first table under "Executive Compensation" above, either individually or as a group, beneficially owned in excess of one percent of any class of Farmland's equity.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company transacts business in the ordinary course with its directors and with its local cooperative members with which the directors are associated on terms no more favorable than those available to its other members.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) Listing of Financial Statements, Financial Schedules and Exhibits
(1) FINANCIAL STATEMENTS
Consolidated Balance Sheets, August 31, 1996 and 1997
Consolidated Statements of Operations for each of the years in the three-year period ended August 31, 1997
Consolidated Statements of Cash Flows for each of the years in the three-year period ended August 31, 1997
Consolidated Statements of Capital Shares and Equities for each of the years in the three-year period ended August 31,
Notes to Consolidated Financial Statements
(2) 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.
(3) EXHIBITS
Exhibit No. Description of Exhibits
ARTICLES OF INCORPORATION AND BYLAWS:
3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc. effective December 5, 1996. (Incorporated by Reference - Form 10-Q, filed January 14, 1997)
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES:
4.(i)A Trust Indenture dated November 20, 1981, as amended January 4, 1982, including specimen of Demand Loan Certificates. (Incorporated by Reference - Form S-1, No. 2-75071, effective January 7, 1982)
4.(i)B Trust Indenture dated November 8, 1984, as amended January 3, 1985, including specimen of 10-year Subordinated Capital Investment Certificates. (Incorporated by Reference - Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)B(1) Amendment Number 2, dated December 3, 1991, to Trust Indenture dated November 8, 1984 as amended January 3, 1985 covering Farmland Industries, Inc.'s 10-Year Subordinated Capital Investment Certificates. (Incorporated by Reference - Form SE, dated December 3, 1991)
4.(i)C Trust Indenture dated November 8, 1984, as amended January 3, 1985, including specimen of 5-year Subordinated Capital Investment Certificates. (Incorporated by Reference - Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)C(1) Amendment Number 2, dated December 3, 1991, to Trust Indenture dated November 8, 1984 as amended January 3, 1985 covering Farmland Industries, Inc.'s 5-Year Subordinated Capital Investment Certificates. (Incorporated by Reference - Form SE, dated December 3, 1991)
4.(i)D Trust Indenture dated November 8, 1984, as amended January 3, 1985 and November 20, 1985, including specimen of 10-year Subordinated Monthly Income Capital Investment Certificates. (Incorporated by Reference - Form S-1, No. 2-94400, effective December 31, 1984)
4.(i)E Trust Indenture dated November 11, 1985 including specimen of the 5-year Subordinated Monthly Income Capital Investment Certificates. (Incorporated by Reference - Form S-1, No. 33-1970, effective December 31, 1985)
4.(ii)A Syndicated Credit Facility between Farmland Industries, Inc. and various banks dated May 15, 1996, (Incorporated by Reference - Form 10-Q filed July 15, 1996)
4.(ii)A(1) First Amendment dated May 14, 1997 (including Exhibits A, B, C, D and Schedule 101A) to Syndicated Credit Facility dated May 15, 1996 between Farmland Industries, Inc. and various banks.
MATERIAL CONTRACTS:
LEASE CONTRACTS:
10.(i)A Leveraged lease dated September 6, 1991, among the First National Bank of Chicago, not individually but solely as Trustee for AT&T Commercial Finance Corporation, The Boatmen's National Bank of St. Louis, Firstier Bank, N.A. and Norwest Bank Minnesota, National Association and Farmland Industries, Inc. in the amount of $73,153,000. (Incorporated by Reference - Form SE, filed December 3, 1991)
10.(i)B Leveraged lease dated March 17, 1977, among the First National Bank of Commerce as Trustee for General Electric Credit Corporation as Beneficiary and Farmland Industries, Inc. in the amount of $51,909,257.90. (Incorporated by Reference - Form S-1, No. 2-60372, effective December 22, 1977)
MANAGEMENT REMUNERATIVE PLANS:
10.(iii)A Employee Variable Compensation Plan (September 1, 1997 - August 31, 1998)
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)
10.(iii)B(2) Exhibit F (Fiscal years 1998 through 2000)
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)
21 Subsidiaries of the Registrant
24 Power of Attorney
27 Financial Data Schedule
(B) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter of the period covered by the report.
(C) The exhibits required by Item 601 of Regulation S-K are filed herewith or have been filed with the Securities and Exchange Commission and are incorporated by reference as a part of this Form 10-K.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO SECTION 12 OF THE ACT
As of the filing of this Form 10-K, no annual report covering the Registrant's last fiscal year, and no proxy statement, form of proxy or other proxy soliciting material, has been sent to holders of the Registrant's
securities. At such time as any such annual report or proxy soliciting material is sent to holders of the Registrant's securities subsequent to the filing of this Form 10-K, four copies of the same will be furnished to the Commission as and to the extent required by the Instructions to Form 10-K.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934, FARMLAND INDUSTRIES, INC. HAS DULY CAUSED THIS REPORT ON FORM 10-K TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF KANSAS CITY, STATE OF MISSOURI ON NOVEMBER 7, 1997.
FARMLAND INDUSTRIES, INC.
BY /s/ TERRY M. CAMPBELL Terry M. Campbell Executive Vice President and Chief Financial Officer
BY /s/ ROBERT B. TERRY Robert B. Terry Vice President and General Counsel
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1934, THIS FORM 10-K HAS BEEN SIGNED FOR THE FOLLOWING PERSONS ON BEHALF OF FARMLAND INDUSTRIES, INC. AND IN THE CAPACITIES AND ON THE DATE INDICATED PURSUANT TO VALID POWER OF ATTORNEY EXECUTED ON OCTOBER 22, 1997.
/s/ TERRY M. CAMPBELL Executive Vice President November 7, 1997 Terry M. Campbell and Chief Financial Officer (Principal Financial Officer)
/s/ MERL DANIEL Vice President and November 7, 1997 Merl Daniel Controller (Principal Accounting Officer)
*BY /s/ TERRY M. CAMPBELL Terry M. Campbell Attorney-In-Fact