-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BIGFf4Ve4CFi8elE88rqt/urQ1fFg0f9WJsh9pW7ByVLVeJOOcP/J6NHDBPKabRl lztLVr/LAEs3qaporbxs3A== 0000034616-96-000004.txt : 19960416 0000034616-96-000004.hdr.sgml : 19960416 ACCESSION NUMBER: 0000034616-96-000004 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960229 FILED AS OF DATE: 19960415 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: 001-11629 FILM NUMBER: 96547057 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 2/29/96 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Quarter Ended Commission File February 29, 1996 Number 2-67985 FARMLAND INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Kansas 44-0209330 (State of Incorporation) (I.R.S. Employer Identification No.) 3315 North Farmland Trafficway, Kansas City, Missouri (Address of principal executive offices) 64116-0005 (Zip Code) 816-459-6000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS ASSETS
August 31 February 29 1995 1996 ((Amounts in Thousands) Current Assets: Accounts receivable - trade $ 446,232 $ 553,670 Inventories (Note 2) .................................................... 772,528 1,011,892 Other current assets .................................................... 60,883 81,289 Total Current Assets...............................................$ 1,279,643 $ 1,646,851 Investments and Long-Term Receivables.....................................$ 185,687 $ 203,570 Property, Plant and Equipment: Property, plant and equipment, at cost ..................................$ 1,334,849 $ 1,431,182 Less accumulated depreciation and amortization .......................... 742,704 $ 770,345 Net Property, Plant and Equipment .......................................$ 592,145 $ 660,837 Other Assets .............................................................$ 128,468 $ 154,570 Total Assets .............................................................$ 2,185,943 $ 2,665,828 See Accompanying Notes to Condensed Consolidated Financial Statements
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND EQUITIES
August 31 February 29 1995 1996 (Amounts in Thousands) Current Liabilities: Checks and drafts outstanding ..................................$ 37,088 $ 92,660 Accounts and notes payable .............................................. 633,249 857,343 Customers' advances on product purchases ................................ 13,862 182,748 Other current liabilities ............................................... 275,931 210,643 Total Current Liabilities..........................................$ 960,130 $ 1,343,394 Long-Term Liabilities: Long-term debt (excluding current maturities) ...........................$ 461,436 $ 501,415 Other long-term liabilities ............................................. 44,597 $ 38,669 Total Long-Term Liabilities........................................$ 506,033 $ 540,084 Deferred Income Taxes.....................................................$ 12,501 $ 19,007 Minority Owners' Equity in Subsidiaries...................................$ 19,992 $ 11,178 Net Income (Note 1).......................................................$ -0- $ 65,137 Capital Shares and Equities: Common shares, $25 par value - Authorized 50,000,000 shares..................................................$ 385,409 $ 434,889 Other equities .................................................... 301,878 252,139 Total Capital Shares and Equities..................................$ 687,287 $ 687,028 Contingent Liabilities and Commitments (Note 3) Total Liabilities and Equities............................................$ 2,185,943 $ 2,665,828
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Six Months Ended February 28 February 29 1995 1996 (Amounts in Thousands) Sales ...........................................................$ 3,307,659 $ 4,356,078 Cost of sales ................................................. 3,069,326 4,102,967 Gross income .................................................$ 238,333 $ 253,111 Selling, general & administrative expenses.......................$ 152,027 $ 172,460 Other income (deductions): Interest expense ...........................................$ (27,133) $ (29,594) Other, net ................................................. 10,077 7,724 Total other income (deductions)..................................$ (17,056) $ (21,870) Income before income taxes, equity in net income of investees and minority owners' interest in net (income) loss of subsidiaries ..........................$ 69,250 $ 58,781 Income tax (expense)............................................. (10,706) (12,767) Income before equity in net income of investees and minority owners' interest in net (income) loss of subsidiaries ..........................$ 58,544 $ 46,014 Equity in net income of investees (Note 4)....................... 9,075 20,269 Minority owners' interest in net (income) loss of subsidiaries ............................................ 542 (1,146) Net income .................................................$ 68,161 $ 65,137 See Accompanying Notes to Condensed Consolidated Financial Statements
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended February 28 February 29 1995 1996 (Amounts in Thousands) Sales ............................................................$ 1,691,492 $ 2,199,129 Cost of sales .................................................. 1,587,437 2,093,377 Gross income ..................................................$ 104,055 $ 105,752 Selling, general & administrative expenses........................$ 76,681 $ 91,199 Other income (deductions): Interest expense ............................................$ (13,690) $ (15,305) Other, net .................................................. 5,435 3,539 Total other income (deductions)...................................$ (8,255) $ (11,766) Income before income taxes, equity in net income of investees and minority owners' interest in net loss of subsidiaries ....................................$ 19,119 $ 2,787 Income tax (expense).............................................. (1,938) (605) Income before equity in net income of investees and minority owners' interest in net loss of subsidiaries ....................................$ 17,181 $ 2,182 Equity in net income of investees ................................ 2,705 10,437 Minority owners' interest in net loss of subsidiaries ............................................ 330 234 Net income ..................................................$ 20,216 $ 12,853 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 29 1995 1996 (Amounts in Thousands) Cash flows from operating activities: Net income ...........................................................$ 68,161 $ 65,137 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ......................................... 32,637 36,428 Equity in net income of investees ..................................... (9,075) (20,269) Other, net ............................................................ 4,782 4,373 Changes in assets and liabilities: Accounts receivable .............................................. (53,835) (102,517) Inventories ...................................................... (108,543) (232,518) Other current assets ............................................. (4,060) (20,578) Accounts payable ................................................. (42,501) 91,329 Customers' advances on product purchases ......................... 174,138 168,886 Other current liabilities ........................................ 68,380 18,386 Cash flows from operating activities........................................$ 130,084 $ 8,657 Cash flows from investing activities: Capital expenditures ..................................................$ (56,574) $ (100,552) Proceeds from disposal of investments and notes receivable ............................................. 27,218 7,771 Acquisition of investments and notes receivable ....................... (16,262) (13,068) Acquisition of businesses ............................................ -0- (32,438) Other ............................................................ 2,196 6,409 Net cash used in investing activities.......................................$ (43,422) $ (131,878) Cash flows from financing activities: Net increase (decrease) of demand loan certificates ...................$ (6,994) $ 1,519 Proceeds from bank loans and notes payable ............................ 251,374 458,654 Payments on bank loans and notes payable .............................. (380,179) (332,896) Proceeds from issuance of subordinated debt certificates .............. 16,157 26,545 Payments for redemption of subordinated debt certificates ............. (10,638) (20,949) Increase of checks and drafts outstanding ............................. 38,040 55,572 Payments for redemption of equities ................................... (12,198) (27,280) Payments of patronage refunds and dividends ........................... (26,308) (32,662) Other ............................................................ -0- (5,282) Net cash provided by (used in) financing activities.........................$ (130,746) $ 123,221 Net decrease in cash and cash equivalents...................................$ (44,084) $ -0- Cash and cash equivalents at beginning of period............................ 44,084 -0- 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 Unless the context requires otherwise, (i) "Farmland" or the "Company" herein refers to Farmland Industries, Inc. and its consolidated subsidiaries, (ii) all references herein to "year" or "years" are to fiscal years ended August 31 and (iii) all references herein to "membership" are to persons eligible to receive patronage refunds from Farmland including voting members, associate members and other patrons with which Farmland has a currently effective patronage refund agreement. Operating results for any quarter are not necessarily indicative of the results expected for the full year. The principal businesses of the Company are highly seasonal and subject to price volatility. Historically, the majority of farm supply products are sold in the spring. Sales in the beef business and in grain marketing historically have been concentrated in the summer. Summer is the lowest sales period for pork products. In view of the seasonality of the Company's businesses, it must be emphasized that the results for the six months and three months ended February 29, 1996 should not be annualized to project a full year's results. The information included in these Condensed Consolidated Financial Statements of Farmland reflects all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. In accordance with the bylaws of Farmland and its cooperative subsidiaries, the member-sourced portion of income before income taxes is determined annually and distributed 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 persons 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 29, 1996 Condensed Consolidated Balance Sheet. (2) INVENTORIES Major components of inventories at August 31, 1995 and February 29, 1996 are as follows:
August 31 February 29 1995 1996 (Amounts in Thousands) ............................. Finished and in-process products...$ 682,801 $ 908,945 Materials.......................... 39,399 49,825 Supplies........................... 50,328 53,122 $ 772,528 $ 1,011,892
Grain inventories are valued at market adjusted for the net unrealized gains or losses on open grain contracts. Crude oil, refined petroleum products, cattle and beef by-products 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. 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, at an interim period-end, a seasonal market value decline below cost of LIFO inventories 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 29, 1996, the carrying values of crude oil and refined petroleum inventories stated under the LIFO method was $96.9 million. This exceeded the market value of such inventory by $4.6 million. 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 and, accordingly, such decline has not been recognized in the accompanying Condensed Consolidated Financial Statements. If the lower of first-in, first-out (FIFO) cost or market had been used to value these products, the carrying values of inventories at February 29, 1996 would have been lower by $5.3 million. (3) CONTINGENCIES (A) TAX LITIGATION In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"), a wholly owned subsidiary engaged in oil and gas exploration and production operations, and exited its oil and gas exploration and production activities. The gain from the sale of Terra amounted to $237.2 million for tax reporting purposes. On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory notice to Farmland asserting deficiencies in federal income taxes (exclusive of statutory interest thereon) in the aggregate amount of $70.8 million. The asserted deficiencies relate primarily to the Company's tax treatment of the $237.2 million gain resulting from its sale of the stock of Terra and the IRS's contention that Farmland incorrectly treated the Terra sale gain as 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 $196.5 million before tax benefits of the interest deduction, through March 31, 1996), or $282.3 million in the aggregate at March 31, 1996. In addition, such a decision would affect the computation of Farmland's taxable income for its 1989 tax year and, as a result, could increase Farmland's federal and state income taxes for that year by approximately $5.0 million plus applicable statutory interest thereon. Finally, the additional federal and state income taxes and accrued interest thereon, which would be owed based on an adverse decision, 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 would be charged to current operations and would have a material adverse effect on the Company and may affect its ability to pay, when due, principal and interest on the Company's indebtedness. In order to pay any such tax claim, the Company would have to consider new financing arrangements, including the incurrence of indebtedness and the sale of assets. Moreover, the Company would be required to renegotiate the Credit Agreement with its bank lenders, as well as other existing financing agreements with certain other parties, not only to permit such new financing arrangements, but also to cure events of default under the Credit Agreement and certain of such other existing agreements and to maintain compliance with various requirements of the Credit Agreement and such other existing financing agreements, including working capital and funded indebtedness provisions, in order to avoid default thereunder. No assurance can be given that such financing arrangements or such renegotiation would be successfully concluded. No provision has been made in the consolidated financial statements for federal or state income taxes (or interest thereon) in respect of the IRS claims described above. Farmland believes that it has meritorious positions with respect to all of these claims. In the opinion of Bryan Cave LLP, Farmland's special tax counsel, it is more likely than not that the courts will ultimately conclude that Farmland's treatment of the Terra sale gain was substantially, if not entirely, correct. Such counsel has further advised, however, that none of the issues involved in this dispute is free from doubt, and there can be no assurance that the courts will ultimately rule in favor of Farmland on any of these issues. (B) ENVIRONMENTAL MATTERS The Company has been designated by the Environmental Protection Agency as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), at various sites. The Company currently is aware of probable obligations for environmental matters at 38 properties. At February 29, 1996, the Company has made an environmental accrual of $18.6 million. The Company periodically reviews and, as appropriate, revises its environmental accruals. Based on current information and regulatory requirements, the Company believes that the accruals established for environmental expenditures are adequate. The Company's actual final costs of addressing certain other environmental matters are not quantifiable, and therefore have not been accrued, because such matters are in preliminary stages and the timing, extent and costs of various actions which governmental authorities may require are currently unknown. Management also is aware of other environmental matters for which there is a reasonable possibility that the Company will incur costs to resolve. It is possible that the costs of resolution of the matters described in this paragraph may exceed the liabilities which, in the opinion of management, are probable and which costs are reasonably estimable at February 29, 1996. In the opinion of management, it is reasonably possible for such costs to be approximately an additional $19.4 million. Under the Resource Conservation Recovery Act of 1976 ("RCRA"), the Company has five closure and five post-closure plans in place for six locations. Closure and post-closure plans also are in place for three landfills and two injection wells as required by state regulations. Operations are being conducted at these locations and the Company does not plan to terminate such operations in the foreseeable future. Therefore, the Company has not accrued these environmental exit costs. The Company accrues these liabilities when plans for termination of plant operations have been made. Such closure and post-closure costs are estimated to be $5.2 million at February 29, 1996 (and is in addition to the $18.6 million accrual and the $19.4 million discussed in the prior paragraphs). The Company is currently involved in three administrative proceedings brought by Region VII of the Environmental Protection Agency (''EPA'') with respect to alleged violations under the Clean Air Act, the Emergency Planning and Community Right-to-Know Act and RCRA at the Coffeyville refinery. The Company is currently negotiating with the EPA concerning these matters and believes that such negotiations may result in compromise settlements, including the possible implementation of a Supplemental Environmental Project. Absent such settlement, the Company may contest the EPA's allegations. Management's estimate of probable civil fines and penalties for these three proceedings has been included in the environmental accrual discussed above. See "Legal Proceedings", contained in the Company's Annual Report on Form 10-K for the year ended August 31, 1995 ("1995 Form 10-K"). (4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD Summarized financial information of investees accounted for by the equity method for the six months ended February 28, 1995 and February 29, 1996 is as follows:
February 28 February 29 1995 1996 (Amounts in Thousands) Net sales ......................$ 515,424 $ 367,928 Net income ......................$ 17,957 $ 40,634 Farmland's equity in net income ..$ 9,075 $ 20,269
The Company's investments accounted for by the equity method consist principally of 50% equity interests in two phosphate fertilizer manufacturing ventures (Farmland Hydro, L.P. and SF Phosphates Limited Company) and, through March 31, 1995, a 50% interest in Hyplains Beef, L.C. ("Hyplains") (such interest having been contributed by the Company to National Beef Packing Company, L.P. ("NBPC"), a majority-owned subsidiary, in return for an additional 10% ownership interest in NBPC). 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 debt securities (the ''continuous debt program'') and bank lines of credit. The Company's debt securities issued under the continuous debt program generally are offered on a best-efforts basis through the Company's wholly owned broker-dealer subsidiary, Farmland Securities Company, and through American Heartland Investments, Inc. (which is not affiliated with Farmland), and also may be offered by selected unaffiliated broker-dealers. The types of securities offered in the continuous debt program include certificates payable on demand and five- and ten-year subordinated debt certificates. The total amount of such debt outstanding and the flow of funds to, or from, the Company as a result of the continuous debt program are influenced by the rate of interest which Farmland establishes for each type of debt certificate offered and by options of Farmland to call for redemption certain of its outstanding subordinated debt certificates. During the six months ended February 29, 1996, the outstanding balance of demand loan and subordinated debt certificates increased $7.1 million. Farmland has a $650.0 million Credit Agreement. The Credit 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 29, 1996, short-term borrowings under the Credit Agreement were $341.6 million, revolving term borrowings were $100.0 million and $45.3 million was being utilized to support letters of credit issued on behalf of Farmland by participating banks. The Company and the bank participants annually renew the short-term commitments of the Credit Agreement. The next renewal date is in May 1996. Management believes that the short-term commitment will be renewed. The revolving term loan facility expires in May 1997 but is expected to be revised and extended in connection with the May 1996 annual review of the short-term commitment portion of the Credit Agreement. The Company maintains other borrowing arrangements with banks and financial institutions. Under such agreements at February 29, 1996, $43.7 million was borrowed. NBPC maintains a $90.0 million borrowing agreement 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 million). At February 29, 1996, $59.0 million was borrowed and $1.0 million was utilized to support letters of credit. In addition, NBPC has incurred certain long-term borrowings from Farmland. NBPC has pledged certain assets to Farmland and such group of banks to support its borrowings. Tradigrain, which 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. At February 29, 1996, such short-term borrowing by Tradigrain totaled $107.4 million. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland or Farmland's other affiliates. Leveraged leasing has been used to finance railcars and a substantial portion of the Company's fertilizer production equipment. In the opinion of management, these arrangements for debt capital are adequate for the Company's present operating and capital plans. However, additional financing arrangements are continuously evaluated. Major uses of cash during the six months ended February 29, 1996 include: $232.5 million to build inventories (mostly plant nutrients and grain inventories); $133.0 million for capital expenditures and acquisition of pork processing businesses; $102.5 million for additions to the accounts receivable balance; $32.7 million for patronage refunds and dividends distributed from income of the 1995 fiscal year; $27.3 million for the redemption of equities under the Farmland base capital plan and special allocated equity redemption plan; and $13.1 million for additional investment and long-term notes receivable. Major sources of cash include: receipts of $168.9 million from advanced payments by customers on product (principally plant nutrients) expected to be shipped later in the current fiscal year; $132.9 million in net proceeds from bank loans and other debt sources; $91.3 million from an increase of accounts payable; $55.6 million from an increase in the balance of checks and drafts outstanding; and $65.1 million and $36.4 million from net income and depreciation, respectively. In 1993, the IRS issued a statutory notice to Farmland asserting significant deficiencies in federal income taxes and statutory interest thereon. Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. See Note 3 of the Notes to the Condensed Consolidated Financial Statements. RESULTS OF OPERATIONS GENERAL Operating results for any quarter are not necessarily indicative of the results expected for the full year. The principal businesses of the Company are highly seasonal and subject to price volatility. Historically, the majority of farm supply products are sold in the spring. Sales in the beef business and in grain marketing historically have been concentrated in the summer. Summer is the lowest sales period for pork products. In view of the seasonality of the Company's businesses, it must be emphasized that the results for the six months and three months ended February 29, 1996 should not be annualized to project a full year's results. RESULTS OF OPERATIONS FOR SIX MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO SIX MONTHS ENDED FEBRUARY 28, 1995 SALES Sales for the six months ended February 29, 1996 increased $1,048.4 million, or 31.7%, vis-a-vis the prior period owing principally to increased sales of agricultural output products ($894.4 million) and farm production input products ($149.3 million). Sales of the food processing and marketing business increased $286.7 million, or 23.3%, vis-a-vis the prior period. Pork sales increased $75.4 million owing to higher unit prices which were partially offset by lower unit sales. Beef sales increased $211.3 million owing principally to the March 31, 1995 NBPC acquisition of the Hyplains beef plant. Grain sales increased $608.2 million, or 76.0%, over the prior period owing principally to a 46.7% increase in units sold and increased grain prices. Sales of crop production, feed and petroleum products increased $73.3 million, or 13.7%, $39.0 million, or 15.7%, and $37.0 million, or 8.5%, respectively, owing principally to higher unit sales in plant nutrients, feed and petroleum and higher prices in feed and petroleum. NET INCOME Net income for the six months ended February 29, 1996 decreased $3.0 million from the prior period owing principally to lower income in pork processing and marketing which was partially offset by increased operating income in the Company's crop production business. Operating income of the Company's crop production business increased $17.5 million over the prior period primarily as a result of increased unit sales and higher prices. Operating income of the food processing and marketing business decreased $9.9 million from the prior period owing principally to decreased pork margins which were only partially offset by increased beef margins. Operating income in the grain business decreased $1.0 million owing principally to decreased unit margins which were partially offset by increased unit sales volume. The petroleum loss improved slightly ($0.4 million) from the prior period as improved operating efficiencies were mostly offset by the extension of a scheduled maintenance period. Selling, general and administrative ("SG&A") expenses increased $20.4 million over the prior period owing principally to acquisition of the plant formerly owned by Hyplains and to higher promotional, incentive and legal expenses. The estimated effective tax rate, based on the Company's estimate of the full year's tax rate, increased to 21.3% from 17.8% in the prior period owing to the availability of tax credits in the prior period. The actual effective tax rate may be subject to subsequent refinement or revision. The level of operating income in the crop production and food processing and marketing businesses are, to a significant degree, attributable to the spread between selling prices and raw material costs (natural gas in the case of nitrogen-based plant nutrients and live hogs and cattle in the food processing and marketing business). These price and cost factors are beyond the control of the Company's management and have been volatile in the past. Accordingly, management cannot determine the direction or magnitude to which these factors will affect the Company's business. The Company's cash flow and income may be volatile as conditions affecting agriculture, costs and markets for the Company's products change. RESULTS OF OPERATIONS FOR THREE MONTHS ENDED FEBRUARY 29, 1996 COMPARED TO THREE MONTHS ENDED FEBRUARY 28, 1995 SALES Sales for the three months ended February 29, 1996 increased $507.6 million, or 30.0%, over the prior period owing principally to increased sales of agricultural output products and farm production input products. Crop production sales were lower for the quarter owing to delays caused by severe winter weather. All other segment sales are as discussed above in the six months comparison. NET INCOME Net income for the period was $12.9 million vis-a-vis $7.4 million in 1995 owing principally to the lower crop production sales. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed of," ("Statement 121") was issued by the Financial Accounting Standards Board in March 1995 and is effective for fiscal years beginning after December 15, 1995 (the Company's 1997 fiscal year). Statement 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangible, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. Management expects that the adoption of Statement 121 will not have a significant impact on the Company's Consolidated Financial Statements. 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 29, 1996. 27. Financial Data Schedule (B) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED FEBRUARY 29, 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FARMLAND INDUSTRIES, INC. (Registrant) By: /s/ JOHN F. BERARDI John F. Berardi Executive Vice President and Chief Financial Officer Date: April 15, 1996 EX-27 2 FDS FOR 10-Q 2ND QUARTER PERIOD ENDING 2/29/96
5 The schedule contains summary financial information extracted from Form 10-Q for the period ending February 29, 1996 and is qualified in its entirety by refeence to such financial statements. 1,000 6-MOS AUG-31-1996 SEP-01-1995 FEB-29-1996 0 0 553,670 0 1,011,892 1,646,851 1,431,182 770,345 2,665,828 1,343,394 540,084 0 2,454 434,889 314,822 2,665,828 4,291,803 4,356,078 4,073,981 4,102,967 0 0 29,594 58,781 12,767 65,137 0 0 0 65,137 0 0
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