-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, IIucXnsVxcWORJ0YZZMDwKxjZpUI8h3Wels33kMPHc2kJ6UO66blqfz0ZQC0XKf2 5dNB+gUdCxEKZhX2BxXtBA== 0000034616-95-000013.txt : 19950415 0000034616-95-000013.hdr.sgml : 19950414 ACCESSION NUMBER: 0000034616-95-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950228 FILED AS OF DATE: 19950413 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMLAND INDUSTRIES INC CENTRAL INDEX KEY: 0000034616 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 440209330 STATE OF INCORPORATION: KS FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 002-07250 FILM NUMBER: 95528612 BUSINESS ADDRESS: STREET 1: 3315 N OAK TRAFFICWAY CITY: KANSAS CITY STATE: MO ZIP: 64116 BUSINESS PHONE: 8164596000 FORMER COMPANY: FORMER CONFORMED NAME: CONSUMERS COOPERATIVE ASSOCIATION DATE OF NAME CHANGE: 19681201 10-Q 1 10-Q FOR 2ND QUARTER END 02/28/95 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File February 28, 1995 Number 2-67985 FARMLAND INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Kansas 44-0209330 (State of Incorporation) (I.R.S. Employer Identification No.) 3315 North Oak Trafficway, Kansas City, Missouri (Address of principal executive offices) 64116 (Zip Code) 816-459-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes {X} No { } FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
February 28 August 31 1995 1994 (Amounts in Thousands) Current Assets: Cash and cash equivalents . . . . . . . . . . . . . . . $ -0- $ 44,084 Accounts receivable . . . . . . . . . . . . . . . . . . 447,043 394,906 Inventories (note 2) . . . . . . . . . . . . . . . . . 646,857 538,314 Prepaid expenses . . . . . . . . . . . . . . . . . . . 26,169 15,159 Other current assets . . . . . . . . . . . . . . . . . 106,929 103,980 Total Current Assets . . . . . . . . . . . . . . . . . . . . $ 1,226,998 $ 1,096,443 Investments and Long-Term Receivables . . . . . . . . . . . $ 182,922 $ 189,601 Property, Plant and Equipment: Property, plant and equipment, at cost . . . . . . . . $ 1,247,679 $ 1,202,159 Less accumulated depreciation and amortization . . . . 721,000 700,869 Net Property, Plant and Equipment . . . . . . . . . . . . . . $ 526,679 $ 501,290 Other Assets . . . . . . . . . . . . . . . . . . . . . . $ 135,393 $ 139,297 Total Assets . . . . . . . . . . . . . . . . . . . . . . $ 2,071,992 $ 1,926,631 See Accompanying notes to condensed consolidated financial statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND EQUITIES
February 28 August 31 1995 1994 (Amounts in Thousands) Current Liabilities: Accounts and notes payable . . . . . . . . . . . . . . $ 501,509 $ 548,476 Current maturities of long-term debt . . . . . . . . . 36,474 27,840 Customers' advances on product purchases . . . . . . . 198,576 24,438 Other current liabilities . . . . . . . . . . . . . . . 190,740 204,985 Total Current Liabilities . . . . . . . . . . . . . . . . . . $ 927,299 $ 805,739 Long-Term Debt (excluding current maturities) . . . . . . . . $ 468,724 $ 517,806 Deferred Income Taxes (note 1) . . . . . . . . . . . . . . . $ 11,944 $ 6,340 Minority Owners' Equity in Subsidiaries . . . . . . . . . . . $ 11,043 $ 11,733 Net Income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 68,161 $ -0- Capital Shares and Equities: Common shares, $25 par value - Authorized 50,000,000 shares . . . . . . . . . . . . . . . . $ 399,217 $ 363,562 Other equities . . . . . . . . . . . . . . . . . . . . 185,604 221,451 Total Capital Shares and Equities . . . . . . . . . . . . . . $ 584,821 $ 585,013 Total Liabilities and Equities . . . . . . . . . . . . . . . $ 2,071,992 $ 1,926,631
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended February 28 February 28 1994 1995 Restated (Amounts in Thousands) Sales . . . . . . . . . . . . . . . . . . . . . . $ 3,307,659 $ 3,000,903 Cost of sales . . . . . . . . . . . . . . . . . . . . . . 3,069,326 2,841,579 Gross income . . . . . . . . . . . . . . . . . . . . . . $ 238,333 $ 159,324 Selling, general & administrative expenses . . . . . . . . . $ 152,027 $ 135,226 Other income (deductions): Interest expense . . . . . . . . . . . . . . . . . . . $ (27,133) $ (27,111) Other, net . . . . . . . . . . . . . . . . . . . . . . 10,077 6,660 Total other income (deductions) . . . . . . . . . . . . . . . $ (17,056) $ (20,451) Income before income taxes, equity in net income of investees and minority owners' interest in net loss of subsidiaries . . . . . . . . . . . . . . . $ 69,250 $ 3,647 Income tax (expense) (note 1) . . . . . . . . . . . . . . . . (10,706) (241) Income before equity in net income of investees and minority owners' interest in net loss of subsidiaries . . . . . . . . . . . . . . . $ 58,544 $ 3,406 Equity in net income of investees (note 4) . . . . . . . . . 9,075 301 Minority owners' interest in net loss of subsidiaries . . . . . . . . . . . . . . . . . . . . 542 3,226 Net income (note 1) . . . . . . . . . . . . . . . . . . . . . $ 68,161 $ 6,933 See Accompanying notes to condensed consolidated financial statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended February 28 February 28 1994 1995 Restated (Amounts in Thousands) Sales . . . . . . . . . . . . . . . . . . . . . . $ 1,691,492 $ 1,526,911 Cost of sales . . . . . . . . . . . . . . . . . . . . . . 1,587,437 1,457,815 Gross income . . . . . . . . . . . . . . . . . . . . . . $ 104,055 $ 69,096 Selling, general & administrative expenses . . . . . . . . . $ 76,681 $ 69,321 Other income (deductions): Interest expense . . . . . . . . . . . . . . . . . . . $ (13,690) $ (13,978) Other, net . . . . . . . . . . . . . . . . . . . . . . 5,435 3,730 Total other income (deductions) . . . . . . . . . . . . . . . $ (8,255) $ (10,248) Income (loss) before income taxes, equity in net income of investees and minority owners' interest in net loss of subsidiaries . . . . . . . . . . . . . . . $ 19,119 $ (10,473) Income tax (expense) benefit (note 1) . . . . . . . . . . . . (1,938) 518 Income (loss) before equity in net income of investees and minority owners' interest in net loss of subsidiaries . . . . . . . . . . . . . . . $ 17,181 $ (9,955) Equity in net income of investees . . . . . . . . . . . . . 2,705 4,368 Minority owners' interest in net loss of subsidiaries . . . . . . . . . . . . . . . . . . . 330 1,785 Net income (loss) (note 1) . . . . . . . . . . . . . . . . . $ 20,216 $ (3,802) See Accompanying notes to condensed consolidated financial statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended February 28 February 28 1995 1994 (Amounts in Thousands) Cash flows from operating activities: Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,161 $ 6,933 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization . . . . . . . . . . . . . . . . 32,637 30,828 Equity in net income of investees . . . . . . . . . . . . . . (9,075) (301) Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . 4,782 (3,698) Changes in assets and liabilities: Accounts receivable . . . . . . . . . . . . . . . . . . . (53,835) 25,270 Inventories . . . . . . . . . . . . . . . . . . . . . . . (108,543) (144,619) Other assets . . . . . . . . . . . . . . . . . . . . . . (4,060) (55,843) Accounts payable . . . . . . . . . . . . . . . . . . . . (42,501) (6,742) Advances on product purchases . . . . . . . . . . . . . . 174,138 130,795 Accrued interest and other liabilities . . . . . . . . . 68,380 19,772 Net cash provided by operating activities . . . . . . . . . . . . . . . . $ 130,084 $ 2,395 Cash flows from investing activities: Capital expenditures . . . . . . . . . . . . . . . . . . . . . . . $ (56,574) $ (35,183) Proceeds from disposal of investments and notes receivable . . . . . . . . . . . . . . . . . . . . . 27,218 8,789 Acquisition of investments and notes receivable . . . . . . . . . . (16,262) (17,936) Acquisition of businesses . . . . . . . . . . . . . . . . . . . . -0- (33,251) Proceeds from sale of fixed assets . . . . . . . . . . . . . . . . 2,023 12,438 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 173 -0- Net cash used in investing activities . . . . . . . . . . . . . . . . . . $ (43,422) $ (65,143) Cash flows from financing activities: Net decrease of demand loan certificates . . . . . . . . . . . . . $ (6,994) $ (8,378) Proceeds from bank loans and notes payable . . . . . . . . . . . . 251,374 609,795 Payments on bank loans and notes payable . . . . . . . . . . . . . (380,179) (596,852) Proceeds from issuance of subordinated debt certificates . . . . . 16,157 31,829 Payments for redemption of subordinated debt certificates . . . . . (10,638) (23,835) Increase of checks and drafts outstanding . . . . . . . . . . . . . 38,040 20,585 Payments for redemption of equities . . . . . . . . . . . . . . . . (12,198) (46) Payments of patronage refunds and dividends . . . . . . . . . . . . (26,308) -0- Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . -0- 1,277 Net cash provided by (used in) financing activities . . . . . . . . . . . $ (130,746) $ 34,375 Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . $ (44,084) $ (28,373) Cash and cash equivalents at beginning of period . . . . . . . . . . . . 44,084 28,373 Cash and cash equivalents at end of period . . . . . . . . . . . . . . . $ -0- $ -0- See accompanying notes to condensed consolidated financial statements
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (1) INTERIM FINANCIAL STATEMENTS The information included in these condensed consolidated financial statements of Farmland and subsidiaries (the "Company") reflects all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. In accordance with the bylaws of Farmland Industries, Inc. ("Farmland") and its cooperative subsidiaries, the member-sourced portion of income before income taxes is determined annually and distributed to members of Farmland as patronage refunds. The member-sourced portion of such income is determined on the basis of the quantity or value of business done by Farmland during the year with or for patrons entitled to receive patronage refunds. As this determination is made only after the end of the fiscal year, and since the appropriation of earned surplus is dependent on the determination of the amount of patronage refunds, and in view of the fact that the portion of the annual patronage refund to be paid in cash and Farmland equity (common stock, associate member common stock or capital credits) is determined (by the Farmland Board of Directors at its discretion) after the amount of the annual patronage refund has been determined, Farmland makes no provision for patronage refunds in its interim financial statements. Therefore, the amount of net income has been reflected as a separate item in the accompanying February 28, 1995 condensed consolidated balance sheet. As patronage refunds are an integral part of the computation of income taxes, the Company had historically not provided for income taxes in interim period financial statements. However, in accordance with generally accepted accounting principles, effective with the filing of the 1995 fiscal year first quarter Form 10-Q, the Company commenced including a provision for estimated income taxes in its interim financial statements. For the six months and three months ended February 28, 1995, the Company estimated an effective tax rate based on historic effective rates. The actual effective rate may be subject to revision. Based on the effective tax rate for the prior year, interim results for the six months and three months ended February 28, 1994 have been restated to include an interim income tax benefit of $740,000 and $1,499,000, respectively. (2) INVENTORIES Major components of inventories at February 28, 1995, and August 31, 1994, are as follows:
February 28 August 31 1995 1994 (Amounts in Thousands) Finished and in-process products . . . . . . . . . . . $ 347,624 $ 286,381 Materials . . . . . . . . . . . . . . . . . . . . . . 41,166 51,428 Supplies . . . . . . . . . . . . . . . . . . . . . . . 41,317 39,885 Beef . . . . . . . . . . . . . . . . . . . . . . . . 25,486 24,267 Grain . . . . . . . . . . . . . . . . . . . . . . . . 191,264 136,353 $ 646,857 $ 538,314
All inventories, other than supplies, grain and certain beef and petroleum inventories, are valued at the lower of first-in, first-out (FIFO) cost or market. Supplies are valued at cost. Grain inventories are valued at market adjusted for the net unrealized gains or losses on open grain contracts. Crude oil, refined petroleum products, beef and beef by-products are valued at the lower of last-in, first-out (LIFO) cost or market. In applying the lower of cost or market valuation method in the case of petroleum LIFO inventory, the general practice is modified to conform to the integral view of interim financial statements. Accordingly, a seasonal market value decline below cost of LIFO inventories, at an interim date, which is reasonably expected to be restored by year-end, is not recognized in interim results of operations since no loss is expected to be incurred in the annual period. At February 28, 1995, the carrying value of petroleum inventories stated under the LIFO method was $93,076,000. This exceeded the market value of such inventory by $10,053,000. However, based on historical prices of energy products and seasonal market price variations, the market value decline below cost is expected to be a temporary seasonal price fluctuation. The carrying value of beef inventories stated under the LIFO method was $20,434,000 at February 28, 1995. The LIFO method of accounting for beef inventories had no effect on the carrying value of inventories or on the income reported for the six months and three months ended February 28, 1995 because market value of these inventories was lower than LIFO or FIFO cost. (3) CONTINGENCIES On July 28, 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 $237,200,000 for tax reporting purposes. During 1983, and prior to the sale of the Terra stock, Farmland received certain distributions from Terra totaling $24,800,000. For tax purposes, Farmland claimed intercorporate dividends-received deductions for the entire amount of such distributions. 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 $70,775,000. The asserted deficiencies relate primarily to the Company's tax treatment of the sale of the Terra stock and the distributions received from Terra prior to the sale. The IRS asserts that Farmland incorrectly treated the Terra sale gain as income against which certain patronage-sourced operating losses could be offset, and that, as a nonexempt cooperative, Farmland was not entitled to an intercorporate dividends-received deduction in respect of the 1983 distribution by Terra. It further asserts that Farmland incorrectly characterized gains for tax purposes aggregating approximately $14,600,000, and a loss of approximately $2,300,000, from the disposition 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. Discovery and other pre-trial phases of the case have been substantially completed. The originally scheduled trial date of March 6, 1995 has been vacated. It is presently contemplated that a limited court hearing, if necessary, will be held in June 1995, and that briefs in the case will be filed by late fall of 1995. If the IRS ultimately prevails on all of the adjustments asserted in the statutory notice, Farmland would have additional federal and state income tax liabilities aggregating approximately $85,800,000 plus accumulating statutory interest thereon through March 31, 1995, of approximately $166,409,000 (before tax benefits of the interest deduction). In addition, such adjustments 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 $5,000,000 plus applicable statutory interest thereon. No provision has been made in the consolidated financial statements for federal or state income taxes (or interest thereon) in respect of the IRS claims described above. Farmland believes that it has meritorious positions with respect to all of these claims and will continue to vigorously pursue their favorable resolution through the pending litigation. In the opinion of Bryan Cave, Farmland's special tax counsel, it is more likely than not that the courts will ultimately conclude that (i) Farmland's treatment of the Terra sale gain was substantially, if not entirely, correct; and (ii) Farmland properly claimed a dividends-received deduction in respect of the 1983 distributions which it received from Terra prior to the sale of the Terra stock. Counsel has further advised, however, that none of the issues involved in these disputes is free from doubt, and that there can be no assurance that the courts will ultimately rule in favor of Farmland on any of these issues. Should the IRS ultimately prevail on all of its asserted claims, the claimed federal and state income taxes as well as accrued interest would become immediately due and payable, and would be charged to current operations. In such case, the Company would be required to renegotiate its agreements with its banks to maintain compliance with various provisions of such agreements, including working capital and funded indebtedness provisions. However, no assurance can be given that such renegotiation would be successful. Alternatives could include other financing arrangements or the possible sale of assets. 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 probable and reasonably determinable obligations for resolution of environmental matters at NPL and other sites are estimated to be $7,958,000 and such amount has been accrued at February 28, 1995. The ultimate costs of resolving 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 determinable at February 28, 1995. In the opinion of management, it is reasonably possible for such costs to approximate up to $36,700,000 and to extend over 30 years. (4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD Summarized financial information of investees accounted for by the equity method for six months ended February 28, 1995 and 1994 is as follows:
February 28 February 28 1995 1994 (Amounts in Thousands) Net sales . . . . . . . . . . . . . . . . . . . . . . $ 515,424 $ 365,380 Net Income (loss) . . . . . . . . . . . . . . . . . . $ 17,957 $ 1,809 Farmland's equity in net income . . . . . . . . . . . $ 9,075 $ 301
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES The Company maintains two primary sources for debt capital: a continuous public offering of its debt securities and bank lines of credit. The Company's debt securities are offered on a best-efforts basis by Farmland Securities Company and American Heartland Investments, Inc. and may be offered by other selected broker-dealers. The types of securities offered include certificates payable on demand and five- and ten-year subordinated debt certificates. The total amount of such debt outstanding and the flow of funds to, or from, the Company as a result of this public offering is influenced by the rate of interest which Farmland establishes for each type of debt certificate offered and by options of Farmland to call and redeem certain of its outstanding debt certificates. During the six months ended February 28, 1995, the outstanding balance of demand loan and subordinated debt certificates decreased $1.5 million. Farmland's primary source of bank credit is through a $650.0 million syndicated credit facility provided by nine domestic and international banking institutions. This agreement provides short-term credit of up to $450.0 million to finance seasonal operations and inventory, and revolving term credit of up to $200.0 million. At February 28, 1995, short-term borrowings under this facility were $140.6 million, revolving term borrowings were $50.0 million and $47.6 million was being utilized to support letters of credit issued on behalf of Farmland by participating banks. Farmland pays commitment fees of 1/8 of 1% annually on the unused portion of the short-term commitment and 1/4 of 1% annually on the unused portion of the revolving term commitment. In addition, Farmland must maintain consolidated working capital of not less than $150.0 million, consolidated net worth of not less than $475.0 million and funded indebtedness and senior funded indebtedness of not more than 52% and 43% of capitalization, respectively. All computations are based on consolidated financial data adjusted to exclude nonrecourse subsidiaries (as defined in the credit agreement). At February 28, 1995, Farmland was in compliance with all covenant provisions of the agreement. The Company maintains other borrowing arrangements with banks and financial institutions. Under such agreements, at February 28, 1995, $42.8 million was borrowed. Financial covenants of these arrangements are not more restrictive than the Company's syndicated credit facility. In the opinion of management, these arrangements for debt capital are adequate for the Company's present operations and capital plans. However, alternative financing arrangements are continuously evaluated. National Beef Packing Company, L.P. ("NBPC"), 58%-owned by Farmland, maintains borrowing agreements with a bank which provides financing support for its beef packing operations. Borrowings under this credit agreement are nonrecourse to Farmland or Farmland's other affiliates. At February 28, 1995, $82.6 million was available under this agreement of which $61.8 million was borrowed and $9.0 million was utilized to support letters of credit. All assets of NBPC (carried at $169.4 million) are pledged to support its borrowings. Tradigrain, which is comprised of seven international grain trading subsidiaries of Farmland, has borrowing agreements with various international banks which provide financing and letters of credit to support current international grain trading transactions. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland or Farmland's other affiliates. Major uses of cash during the six months ended February 28, 1995 include net payments of $128.8 million to reduce the outstanding balance of bank loans and other notes payable, $56.6 million for capital expenditures, $26.3 million for patronage refunds and dividends distributed from income of the 1994 fiscal year, $16.3 million for acquisition of investments and $12.2 million for the redemption of equities under the Farmland base capital plan and special redemption plan. Major sources of cash include $130.1 million from operations, $38.0 million from an increase in the balance of checks and drafts outstanding and $27.2 million from the disposition of investments and notes receivables. The Internal Revenue Service issued a statutory notice to Farmland asserting significant deficiencies in federal income taxes and statutory interest thereon. Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. See note 3 of the notes to the condensed consolidated financial statements. RESULTS OF OPERATIONS GENERAL The Company's revenues 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 direct imports or exports. In addition, global variables which affect supply, demand and price of crude oil and refined fuels impact the Company's petroleum operations. Management cannot determine the extent to which future operations of the Company may be impacted by these factors. 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. Operating results for any quarter are not necessarily indicative of the results expected for the full year. The principal businesses of the Company are highly seasonal. Historically, the majority of sales of farm supply products occur in the spring. Revenues in the beef business and in grain marketing historically have been concentrated in the summer and summer is the lowest sales period for pork products. In view of the seasonality of the Company's businesses, it must be emphasized that the results for the six months and three months ended February 28, 1995 should not be annualized to project a full year's results. SIX MONTHS ENDED FEBRUARY 28, 1995 COMPARED WITH SIX MONTHS ENDED FEBRUARY 28, 1994 SALES Sales for the six months ended February 28, 1995 increased $306.8 million or 10.2% compared with the corresponding period of the prior year. The increase includes $213.5 million higher sales of agricultural output products (grain and food) and $97.1 million higher sales of farm production input products (crop production, petroleum and feed). Sales of agricultural output products increased for the six months ended February 28, 1995 compared with the corresponding period of the prior year principally because of higher domestic unit sales of wheat and higher wheat prices. In addition, sales of pork and beef increased due to higher unit sales of these products partially offset by lower prices of fresh and processed pork and beef. Sales of input products increased reflecting higher sales of crop production and petroleum products partially offset by lower sales of feed. Sales of crop production products increased because prices of nitrogen and phosphate based plant nutrients increased approximately 22% and 16%, respectively, and total unit sales of these products increased approximately 13%. Sales of petroleum products increased due to higher production levels at the Coffeyville refinery partly offset by the effect of the mild winter on sales of distillate and propane. Feed sales decreased because unit sales and prices of formula feed and feed ingredients declined reflecting the mild winter and a decrease of the number of cattle on feed. NET INCOME Net income for the six months ended February 28, 1995, increased $61.2 million compared with the corresponding period of the prior year. The increase reflects higher operating profits in crop production, food processing and marketing and grain marketing. In addition, the net results of joint ventures engaged in crop production and beef operations increased. The effect of these increases on net income was reduced by decreased operating profit in the petroleum and feed businesses and higher general corporate expenses. Operating profit of the Company's crop production business increased primarily as a result of a 22% increase in the average price of nitrogen products and because unit sales of nitrogen products increased by 15%. Net income from phosphate operations (conducted through joint ventures) increased because of a global recovery of phosphate demand and the ensuing increase of phosphate export volume and worldwide market prices. Operating profit of the food processing and marketing business increased due to higher margins on pork and beef, particularly margins on fresh pork which are attributable to a decline of live hog and cattle costs without a corresponding decline in selling prices. In addition, unit sales of fresh pork and processed pork increased approximately 12% and 9%, respectively, and unit sales of beef increased approximately 20%. Operating results in grain increased were due to higher volume and more favorable unit margins on all grains handled. For the six months ended February 28, 1995, results from petroleum operations were negative due to lower unit margins on all refined fuels, particularly the margins on low sulfur diesel fuel, and because distillate and propane unit sales decreased reflecting the relatively mild winter. Selling, general and administrative expenses increased in the six months ended February 28, 1995 compared with the corresponding period of the prior year. Approximately $7.6 million of the increase is directly connected to business segments (primarily the output businesses - grain, beef and pork) and has been included in the determination of the operating profit of business segments. Corporate general expenses, not identified to business segments, increased reflecting the higher cost of variable compensation plans and employee pension expenses. The estimated effective tax rate for the six months and three months ended February 28, 1995 is based on historical effective rates. The actual effective tax rate may be subject to subsequent revision. The effective tax rate for fiscal year 1994 has been used to provide income taxes for the six months and three months ended February 28, 1994. THREE MONTHS ENDED FEBRUARY 28, 1995 COMPARED WITH THREE MONTHS ENDED FEBRUARY 28, 1994 The changes in sales and net income for the three months ended February 28, 1995, compared to the corresponding period of the prior year are primarily as discussed in the six months comparison. RECENT ACCOUNTING PRONOUNCEMENTS In the first quarter of fiscal year 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 112, "Employer's Accounting for Postemployment Benefits." Statement 112 establishes standards of accounting and reporting for the estimated cost of benefits provided to former employees. The effect of implementation of Statement 112 at September 1, 1994 was insignificant. In the first quarter of fiscal year 1995, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Statement 115 expands the use of fair value accounting and the reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. The effect of implementation of Statement 115 at September 1, 1994 was insignificant. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits The exhibit listed below is filed as part of Form 10-Q for quarter ended February 28, 1995. Exhibit No. Exhibit 27 Financial Data Schedule (b) No reports on Form 8-K were filed during the quarter ended February 28, 1995. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. FARMLAND INDUSTRIES, INC. (Registrant) By: /s/ JOHN F. BERARDI John F. Berardi Executive Vice President and Chief Financial Officer Date: April 13, 1995 EX-27 2 FDS FOR 10-Q 2ND QUARTER PERIOD ENDING 02/28/95
5 This schedule contains summary financial information extracted from the Form 10-Q for the period ending February 28, 1995 and is qualified in its entirety by reference to such Form 10-Q. 6-MOS AUG-31-1995 SEP-01-1994 FEB-28-1995 0 0 447,043 0 646,857 1,226,998 1,247,679 721,000 2,071,992 927,299 468,724 399,217 0 3,699 181,905 2,071,992 3,261,130 3,307,659 3,043,408 3,069,326 0 0 27,133 69,250 10,706 68,161 0 0 0 68,161 0 0
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