-----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, QrDESzwRkBYnKYNv50YmNEuhRAYs1svi/JpmJM0PmVbLUMPmlzRi6SMdUDhJUQGC 6XvOy6PY+k+oFSRo/XG+XA== 0000034616-97-000001.txt : 19970115 0000034616-97-000001.hdr.sgml : 19970115 ACCESSION NUMBER: 0000034616-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19961130 FILED AS OF DATE: 19970114 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: 97505226 BUSINESS ADDRESS: STREET 1: 3315 N FARMLAND TRAFFICWAY STREET 2: DEPT 140 CITY: KANSAS CITY STATE: MO ZIP: 64116-0005 BUSINESS PHONE: 816-459-6882 FORMER COMPANY: FORMER CONFORMED NAME: CONSUMERS COOPERATIVE ASSOCIATION DATE OF NAME CHANGE: 19681201 10-Q 1 10-Q FOR 1ST QUARTER END 11/30/96 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 November 30, 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 November 30 1996 1996 (Amounts in Thousands) Current Assets: Accounts receivable - trade................................ $ 624,002 $ 622,573 Inventories (Note 2)....................................... 736,620 729,653 Other current assets....................................... 101,748 85,799 Total Current Assets.................................. $ 1,462,370 $ 1,438,025 Investments and Long-Term Receivables (Note 4)............... $ 241,124 $ 249,073 Property, Plant and Equipment: Property, plant and equipment, at cost..................... $ 1,506,460 $ 1,526,552 Less accumulated depreciation and amortization............................................ 789,236 800,706 Net Property, Plant and Equipment.......................... $ 717,224 $ 725,846 Other Assets................................................. $ 147,728 $ 154,789 Total Assets................................................. $ 2,568,446 $ 2,567,733 FN> See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS LIABILITIES AND EQUITIES
August 31 November 30 1996 1996 (Amounts in Thousands) Current Liabilities: Checks and drafts outstanding................................... $ 30,944 $ 132,075 Demand loan certificates........................................ 40,099 37,970 Short-term notes payable ....................................... 315,428 199,355 Current maturities of long-term debt ........................... 41,080 39,529 Accounts payable - trade........................................ 392,436 368,463 Customers' allowances on product purchases...................... 17,007 119,064 Other current liabilities....................................... 303,326 216,667 Total Current Liabilities................................... $ 1,140,320 $ 1,113,123 Long-Term Liabilities: Long-term borrowings (excluding current maturities)............. $ 616,258 $ 618,976 Other long-term liabilities..................................... 35,983 33,359 Total Long-Term Liabilities................................. $ 652,241 $ 652,335 Deferred Income Taxes............................................... $ 6,709 $ 10,575 Minority Owners' Equity in Subsidiaries............................. $ 13,845 12,614 Net Income (Note 1)................................................. $ 0 $ 23,892 Capital Shares and Equities: Common shares, $25 par value--Authorized 50,000,000 shares.............................................. 414,503 467,874 Earned surplus and other equities............................... 340,828 287,320 Total Capital Shares and Equities........................... $ 755,331 $ 755,194 Contingent Liabilities and Commitments (Note 3) Total Liabilities and Equities...................................... $ 2,568,446 $ 2,567,733 See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended November 30 November 30 1995 1996 (Amounts in Thousands) Sales.......................................................... $ 2,156,949 $ 2,389,279 Cost of sales.................................................. 2,009,590 2,272,215 Gross income................................................... $ 147,359 $ 117,064 Selling, general and administrative expenses................... $ 81,261 $ 94,312 Other income (deductions): Interest expense............................................ $ (14,289) $ (16,019) Other, net.................................................. 4,185 9,131 Total other income (deductions)................................ $ (10,104) $ (6,888) Income before income taxes, equity in net income of investees and minority owners' interest in net (income) loss of subsidiaries.......................... $ 55,994 $ 15,864 Income tax expense............................................ (12,162) (3,051) Income before equity in net income of investees and minority owners' interest in net (income) loss of subsidiaries............................................ $ 43,832 $ 12,813 Equity in net income of investees (Note 4).................................................... 9,832 10,002 Minority owners' interest in net (income) loss of subsidiaries............................................. (1,380) 1,077 Net income .................................................... $ 52,284 $ 23,892 See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended November 30 1995 November 30 1996 (Amounts in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................................................. $ 52,284 $ 23,892 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.......................................... 17,749 22,822 Equity in net income of investees...................................... (9,832) (10,002) Other................................................................... 3,908 4,843 Changes in operating assets and operating liabilities, net of acquisitions: Accounts receivable.................................................. (73,314) (869) Inventories.......................................................... (34,934) 6,827 Other assets......................................................... (26,599) 22,128 Accounts payable..................................................... 71,319 (23,973) Advances on product purchases........................................ 69,613 102,057 Other liabilities.................................................... 3,726 (59,785) Net cash provided by operating activities................................... $ 73,920 $ 87,940 CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of investments and collection of notes receivable.......................................................... $ 1,335 $ 1,968 Acquisition of investments and notes receivable............................. (11,878) (34,251) Capital expenditures........................................................ (41,905) (30,163) Acquisition of other long-term assets....................................... (3,046) (6,947) Proceeds from sale of fixed assets.......................................... 799 4,182 Distributions from joint ventures........................................... 487 28,868 Other....................................................................... (2,145) (3,515) Net cash used in investing activities....................................... $ (56,353) $ (39,858) CASH FLOWS FROM FINANCING ACTIVITIES: Net (decrease) in demand loan certificates.................................. $ (597) $ (2,129) Proceeds from bank loans and notes payable.................................. 107,316 88,127 Payments of bank loans and notes payable.................................... (123,171) (191,217) Proceeds from issuance of subordinated debt certificates.................... 11,525 30,216 Payments for redemption of subordinated debt certificates................... (11,487) (16,493) Net increase in checks and drafts outstanding............................... 58,901 101,130 Payments for redemption of equities......................................... (23,380) (25,258) Payments of patronage refunds and dividends................................. (32,594) (32,459) Other, increase (decrease).................................................. (4,080) 1 Net cash used in financing activities....................................... $ (17,567) $ (48,082) Net increase in cash and cash equivalents................................... $ -0- $ -0- Cash and cash equivalents at beginning of period............................ -0- -0- Cash and cash equivalents at end of period.................................. $ -0- $ -0- See accompanying Notes to 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 "members" 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 three months ended November 30, 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 as patronage refunds to members of Farmland. 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 members. 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 in 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 November 30, 1996 Condensed Consolidated Balance Sheet. (2) INVENTORIES Major components of inventories at August 31, 1996 and November 30, 1996 are as follows:
August 31 November 30 1996 1996 (Amounts in Thousands) Finished and in-process products.............. $ 620,794 $ 592,283 Materials..................................... 58,526 74,459 Supplies...................................... 57,300 62,911 $ 736,620 $ 729,653
(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 patronage income against which certain patronage-sourced operating losses could be offset. The statutory notice further asserts that, among other things, Farmland incorrectly characterized for tax purposes gains aggregating approximately $14.6 million, and a loss of approximately $2.3 million from dispositions of certain other assets. On June 11, 1993, Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. The case was tried on June 13-15, 1995. The parties submitted post-trial briefs to the court in September 1995 and reply briefs were submitted to the court in November 1995. If the United States Tax Court decides in favor of the IRS on all unresolved issues raised in the statutory notice, Farmland would have additional federal and state income tax liabilities aggregating approximately $85.8 million plus accumulating statutory interest thereon (approximately $217.2 million, before tax benefits of the interest deduction, through November 30, 1996), or $303.0 million in the aggregate at November 30, 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 accumulating statutory interest thereon (approximately $7.1 million), or $12.1 million in the aggregate at November 30, 1996. 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 Credit Agreement (the "Agreement"), 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 the obligation related to such unresolved issues been due and payable on November 30, 1996, Farmland's borrowing capacity under the Agreement would have been adequate to finance the liability. However, Farmland's capacity to finance such an adverse decision with borrowings under the Agreement will depend substantially on the financial effects of future operating events and on its ability to satisfy the financial covenants in the Agreement. 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 National Priority List ("NPL") sites. The Company currently is aware of probable obligations for environmental matters at 39 properties. At November 30, 1996, the Company has an environmental accrual in its Condensed Consolidated Balance Sheet for probable and reasonably estimated costs for remediation of contaminated property of $16.6 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 environmental matters are not quantifiable, and therefore have not been accrued, because such matters are in preliminary stages and the timing, extent and costs of various actions which governmental authorities may require are currently unknown. Management is aware of other environmental matters for which there is a reasonable possibility that the Company will incur costs to resolve. It is possible that the costs of resolution of the matters described in this paragraph may exceed the liabilities which, in the opinion of management, are probable and which costs are reasonably estimable at November 30, 1996. In the opinion of management, it is reasonably possible for such costs to be approximately an additional $21.2 million. Under the Resource Conservation Recovery Act of 1976 (''RCRA''), the Company has four closure and four post-closure plans in place for six locations. Closure and post-closure plans also are in place for three landfills and two injection wells as required by state regulations. Such closure and post-closure costs are estimated to be $5.1 million at August 31, 1996 (and is in addition to the $16.6 million accrual and the $21.2 million discussed in the prior paragraphs). 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. (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 three months ended November 30, 1995 and November 30, 1996 is as follows:
November 30 November 30 1995 1996 (Amounts in Thousands) Net sales..................................... $ 138,236 $ 229,080 Net income.................................... $ 19,362 $ 20,576 Farmland's equity in net income............... $ 9,832 $ 10,002
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. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained herein and the Condensed Consolidated Financial Statements and Accompanying Notes presented in this Form 10-Q should be read in conjunction with information set forth in Part II, Items 7 and 8, in the Company's Annual Report on Form 10-K for the year ended August 31, 1996. 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 three months ended November 30, 1996, the outstanding balance of demand loan and subordinated debt certificates increased $11.7 million. In May 1996, Farmland entered into a five year Credit Agreement (the "Agreement") with various participating banks. The Agreement provides a $1.1 billion facility, subject to compliance with financial covenants as set forth in the Agreement, 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 Agreement 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 Agreement'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 Agreement are subject to review and renewal annually by the lenders and the Company. The next renewal date is in May 1997. Management believes that the short-term commitment will be renewed. The Agreement matures in May 2001. At November 30, 1996, under the Agreement the Company had short-term borrowings of $151.6 million, long-term borrowings of $150.0 million and $61.1 million was being utilized to support letters of credit issued on behalf of Farmland by participating banks. As of November 30, 1996, under the short-term credit the Company had capacity to finance additional working capital of $480.1 million and under the long-term credit provisions the Company had capacity to borrow up to an additional $257.2 million. The Company maintains other borrowing arrangements with banks and financial institutions. Under such agreements at November 30, 1996, $14.9 million was borrowed. National Beef Packing Company, L.P. ("NBPC") 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 November 30, 1996, $90.0 million was available under this facility of which $62.9 million was borrowed and $0.6 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 conducts international grain trading operations, 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 November 30, 1996, such borrowings totaled $47.7 million. 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 three months ended November 30, 1996 include: $64.4 million for capital expenditures and acquisition of investments; $32.5 million for patronage refunds and dividends distributed from income of the 1996 fiscal year; $25.3 million for the redemption of equities under the Farmland base capital plan and for other allocated equity redemptions; and net payments of bank loans and notes payable of $103.1 million. Major sources of cash include: $87.9 million from operations (including receipts of $102.1 million from advanced payments by customers on product purchases, principally plant nutrients which are expected to be shipped later in the current fiscal year); $28.9 million in distributions from joint ventures; and $101.1 million from an increase in the balance of checks and drafts outstanding. 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 (which is incorporated herein by reference). 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 three months ended November 30, 1996 should not be annualized to project a full year's results. RESULTS OF OPERATIONS FOR THREE MONTHS ENDED NOVEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED NOVEMBER 30, 1995 SALES Sales for the three months ended November 30, 1996 increased $232.3 million, or 10.8%, compared with the prior period primarily reflecting $143.4 million higher sales of agricultural output products and $94.9 million higher sales of farm production input products. The increased sales of output businesses includes $131.1 million higher sales of the food processing and marketing segment and $12.3 million higher sales of grain. Approximately half of the sales increase in the food processing and marketing business was attributable to acquisitions of additional pork slaughter and processing facilities subsequent to the first quarter of 1996. The remainder of this sales increase primarily results from increases in pork and beef unit prices. The increased sales of grain reflects primarily higher grain prices largely offset by a 9.5% decrease in unit sales. On the input side of the Company's business, sales of the petroleum and feed segments in the three months ended November 30, 1996 increased $124.1 million and $24.0 million, respectively, compared with the prior year, and sales of the crop production segment decreased $53.2 million. The petroleum sales increase was the result of increases in unit sales and prices and feed sales increased primarily due to higher prices. Crop production sales decreased primarily due to lower unit sales resulting from a relatively wet and cold fall season in the geographic area served by the Company. NET INCOME Net income for the three months ended November 30, 1996 decreased $28.4 million compared with the prior period. This decrease was principally attributable to lower operating income in crop production and food processing and marketing of $25.2 million and $21.1 million, respectively. The impact of these decreases on net income was partially offset by a $7.9 million increase in petroleum's operating income and by a $9.1 million decrease in the provision for income taxes. Operating income in the crop production business decreased reflecting primarily the adverse impact of higher natural gas prices on nitrogen unit margins. The lower nitrogen unit margins, combined with lower unit sales of nitrogen- and phosphate-based plant nutrients, resulted in lower operating income. Operating income of the food processing and marketing business for the three months ended November 30, 1996 decreased $21.1 million compared to the prior period. This decline resulted primarily from decreased margins and increased selling and administrative costs related to operating the additional pork slaughter and processing facilities. Operating income for the petroleum business was $6.1 million for the three months ended November 30, 1996 compared with an operating loss of $1.8 million for the three months ended November 30, 1995. This improvement was due, in part, to the adverse effect on last year's operating income of an extended turnaround and, in part, to a short-term improvement in the spread between the cost of crude oil and the selling price of refined products combined with higher unit sales of refined products. Selling, general and administrative ("SG&A") expenses increased $13.1 million, or 16.1%, over the prior period. SG&A expenses directly connected to business segments increased approximately $13.6 million (primarily food processing and marketing relating to the acquisition of the additional pork slaughtering and processing facilities) and these expenses have been included in the determination of net income of the business segments. General corporate expenses not identified to business segments decreased $0.5 million, or 2.6%. The decrease in income before taxes is the primary reason for the $9.1 million decrease in the provision for income taxes. The level of operating income in the crop production, petroleum 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, crude oil in the case of petroleum 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 are volatile. 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 generally and the costs and markets for the Company's products change. RECENT ACCOUNTING PRONOUNCEMENTS In the first quarter of 1997, the Company adopted the provisions of 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"), which was issued by the Financial Accounting Standards Board in March 1995. Statement 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The effect of the Company's implementation of Statement 121 at September 1, 1996 was insignificant. 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 10-K to make applicable and take advantage of the new "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 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. The words "believe", "expect" and "anticipate" and similar expressions identify forward-looking statements. 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 reserves. 9.The factors identified in "Business and Properties - Business - Business Risk Factors" included in the Company's Annual Report on Form 10-K for the year ended August 31, 1996. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS The exhibits listed below are filed as part of Form 10-Q for quarter ended November 30, 1996. Exhibit No. Description of Exhibits 3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc. effective December 5, 1996. 27 Financial Data Schedule (B) NO REPORTS ON FORM 8-K WERE FILED DURING THE QUARTER ENDED NOVEMBER 30, 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/ TERRY M. CAMPBELL Terry M. Campbell Executive Vice President and Chief Financial Officer Date: January 14, 1997 EX-99 2 EXHIBIT INDEX Exhibit 99 EXHIBIT INDEX The exhibits listed below are filed as part of Form 10-Q for quarter ended November 30, 1996. Exhibit No. Description of Exhibits 3.A Articles of Incorporation and Bylaws of Farmland Industries, Inc. effective December 5, 1996. 27 Financial Data Schedule EX-3.A 3 ARTICLES AND BYLAWS Exhibit 3.A ARTICLES OF INCORPORATION AND BYLAWS OF FARMLAND INDUSTRIES, INC. KANSAS CITY, MISSOURI (Effective 12-5-96) ARTICLES OF INCORPORATION ARTICLE I - NAME Section 1. Name. The name of this corporation shall be FARMLAND INDUSTRIES, INC. ARTICLE II - PURPOSES Section 1. Purposes. The purposes for which the Association is organized are to engage in any activity in connection with the marketing or selling of the agricultural products of its members and other patrons; or with the harvesting, threshing, milling, preserving, drying, processing, canning, packing, storing, handling, shipping, or utilization thereof, including (without limitation) doing a public warehouse business and storing agricultural products in interstate commerce; or the manufacturing or marketing of the by-products thereof; or in connection with the manufacturing, selling, or supplying to its members and other patrons of machinery, equipment or supplies, or in connection with agricultural education, research, legislation and economic and social conditions; or in connection with the improvement of livestock breeds by means of artificial breeding or otherwise; or in the financing of the above-enumerated activities; or in any one or more of the activities specified herein. ARTICLE III - PLACE OF BUSINESS Section 1. Place. The place where its business is to be transacted is at 3315 North Oak Trafficway, Kansas City, Missouri, and at such other places either within or outside the State of Kansas as may be provided by the bylaws or as determined by the Board of Directors. ARTICLE IV - TERM Section 1. Term. The term for which this corporation is to exist is fifty years. (By a Certificate of Renewal filed with the Secretary of State of Kansas on September 7, 1973, the term was extended for a period of fifty years from and after September 1, 1973.) ARTICLE V - NUMBER OF DIRECTORS Section 1. Number of Directors. The number of directors of this corporation shall be twenty-two (22), and the term of office of each thereof shall be three (3) years and until a successor is elected and has qualified. ARTICLE VI - CAPITAL STOCK Section 1. Authorized Capital Stock. The capital stock of this Association shall be $1,500,000,000, consisting of 50,000,000 shares of common stock of the par value of $25 per share, 2,000,000 shares of associate member common stock of the par value of $25 per share and 8,000,000 shares of preferred stock of the par value of $25 per share. Section 2. Common Stock. The common stock of this Association may be purchased, owned or held only by producers of agricultural products and associations of such producers, who patronize the Association in accordance with uniform terms and conditions and only such producers and associations of such producers shall be regarded as eligible voting members of the Association. In the event the Board of Directors of the Association shall determine that any holder of the common stock of this Association does not meet the qualifications as may be established by the Board of Directors for holders thereof, such person shall have no rights or privileges on account of such common stock to vote for director(s) or to vote on the management or affairs of the Association, and the Association shall have the right, at its option, (a) to purchase such common stock at its book or par value, whichever is less, as determined by the Board of Directors of the Association, or (b) in exchange for such common stock, to record on the books of the Association an equivalent par value amount of associate member common stock or to record on the books of the Association, capital credits in an equivalent amount. On the failure of any holder, following any demand by the Association therefor, to deliver any certificate or certificates evidencing any common stock, the Association may cancel the same on its books and record on the books of the Association an equivalent amount of common stock, associate member common stock or capital credits, in lieu thereof. The common stock of this Association may be transferred, and associate member common stock and capital credits may be converted to common stock and transferred, only with the consent of the Board of Directors of the Association and on the books of the Association and then only to persons eligible to hold the same; and no purported assignment or transfer of common stock shall pass to any person not eligible to hold the same, any rights or privileges on account of such stock to vote on the management or affairs of the Association. Each holder of common stock shall be entitled to a minimum of one vote. Common shareholders will receive one additional vote for each complete increment of $1,000 in common stock above membership requirements and one additional vote for each complete increment of dollar volume of business in an amount equal to the product of $1,000 multiplied by a fraction the numerator of which is the total dollar volume of patronage business of the Association during the preceding fiscal year with common shareholders and the denominator of which is the total dollar amount of the Association's common stock outstanding at the close of the preceding fiscal year. No common shareholder shall be entitled to vote more than five percent (5%) of the total votes of the Association available to be cast. This Association shall have a lien on (and right of setoff against) all of its common stock for all indebtedness of the holder(s), whether due or to become due, thereof to the Association. No interest or dividend shall be paid on outstanding common stock. The Board of Directors, in its sole discretion, may at any time or times and on any basis deemed appropriate authorize the retirement of any common stock, in whole or in part. Section 3. Associate Member Common Stock. The associate member common stock of the Association may be purchased, owned or held by any person having the qualifications as may be established by the Board of Directors. Associate member common stock shall have all of the rights and privileges attendant to that of common stock, except that such associate member common stock shall not entitle the holder thereof to vote, irrespective of the number of shares held, for director(s) or to vote on the management or affairs of the Association. In the event the Board of Directors of the Association shall determine that any holder of the associate member common stock of the Association does not meet the qualifications as may be established by the Board of Directors for holders thereof, the Association shall have the right, at its option, (a) to purchase such associate member common stock at its book or par value, whichever is less, as determined by the Board of Directors of the Association, or (b) to convert the associate member common stock held by any such person to capital credits by notifying such holder, after which such associate member common stock shall be cancelled on the books of the Association. The associate member common stock of this Association may be transferred, and common stock and capital credits may be converted to associate member common stock and transferred, only with the consent of the Board of Directors of the Association and then only to persons eligible to hold the same; and no purported assignment or transfer of associate member common stock shall pass to any person not eligible to hold the same, any rights or privileges on account of such stock. This Association shall have a lien on (and right of setoff against) all of its associate member common stock for all indebtedness of the holder(s), whether due or to become due, thereof to the Association. No interest or dividend shall be paid on outstanding associate member common stock. The Board of Directors, in its sole discretion, may at any time or times and on any basis deemed appropriate authorize the retirement of any associate member common stock, in whole or in part. Section 4. Preferred Stock. The preferred stock shall be nonvoting and may be (1) made subject to redemption at such time or times, and at such price or prices, and (2) issued in such series, with such designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions as shall be stated and expressed in the Articles of Incorporation of this Association, or in the resolution or resolutions adopted by the Board of Directors thereof for the issue of such stock; and the said Board of Directors is hereby granted authority (1) to provide from time to time for the issue of preferred stock, in one or more series, and with such designations, preferences, and relative, participating, optional or other special rights, and qualifications, limitations or restrictions, and (2) to make such stock, or any part thereof, subject to redemption at such time or times, and at such price or prices, as the said Board of Directors, in its sole discretion, may from time to time determine. Section 5. Capital Credits. The Association may issue at any time, and record or transfer on its books and records, one or more classes of capital credits in the Association. Holders of capital credits shall not be entitled to vote. The capital credits of this Association may be transferred, and common stock and associate member common stock may be converted to capital credits and transferred, only with the consent of the Board of Directors of the Association and on the books of the Association. The Board of Directors, in its sole discretion, may at any time or times and on any basis deemed appropriate authorize the transfer or retirement of any capital credits, in whole or in part. No interest or dividend shall be paid on outstanding capital credits. This Association shall have a lien on (and right of setoff against) all of its capital credits for all indebtedness of the holder(s), whether due or to become due, thereof to the Association. ARTICLE VII - INDEMNIFICATION Section 1. Indemnification. The Association may agree to the terms and conditions upon which any director, officer, employee or agent accepts his office or position and in its bylaws, by contract or in any other manner may agree to indemnify and protect any director, officer, employee or agent of the Association, or any person who serves at the request of the Association as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, to the fullest extent permitted by the laws of the State of Kansas. Section 2. Limitation of Liability. Without limiting the generality of the foregoing provisions of this ARTICLE VII, to the fullest extent permitted or authorized by the laws of the State of Kansas, including without limitation the provisions of subsection (b)(8) of Kan. Stat. Ann. Section 17-6002 (1981) as now in effect and as it may from time to time hereafter be amended, no person who is currently or shall hereinafter become a director of the Association shall have personal liability to the Association for monetary damages for breach of fiduciary duty as a director for any act or omission occurring subsequent to the date this provision becomes effective. If the Kansas General Corporation Code is amended after approval of this provision by the shareholders of the Association, to authorize corporate action further limiting or eliminating the personal liability of directors, then the liability of a director of the Association shall be limited or eliminated to the fullest extent permitted by the Kansas General Corporation Code, as so amended. BYLAWS ARTICLE I - CAPITAL STOCK Section 1. Stock Certificates. Certificates of stock may be issued at the discretion of the Board of Directors of the Association, but a record shall be kept of each holder of fully-paid shares. The record shall state the par value of the shares, the number of shares represented, and the name of the person to whom issued. Any outstanding certificates of stock may be cancelled by the Board of Directors of the Association provided that an equivalent record of ownership is maintained. Section 2. Certificates of Indebtedness. The Association shall have the authority to issue certificates of indebtedness in such form and containing such terms as may be approved by the Board of Directors, which certificates shall bear such rate or rates of interest as the Board of Directors may from time to time determine. ARTICLE II - DISTRIBUTION OF EARNINGS (LOSSES) Section 1. Current Year's Net Earnings (Losses) and Patronage Refund Obligation. (a) The Association shall determine annually its earnings or loss including the appropriate portions thereof constituting net earnings for patronage refunds. It shall then allocate and distribute its net overall earnings from its allocation units as patronage refunds to its Members and Patrons with the amounts distributed being determined on the basis of their patronage with such units during the year. The patronage-sourced portion of an overall net loss shall be handled in accordance with Section 3. (b) The Association's overall net earnings or loss shall be determined using generally accepted accounting principles and shall be divided into (i) a patronage-sourced portion, determined on the basis of the quantity or value of business done by the Association with or for its Members or Patrons who are eligible to receive patronage refunds and who acquire supplies or services from, provide services to, or market products through the Association, and (ii) a non- patronage-sourced portion which shall include amounts determined on the basis of the quantity or value of business done with or for persons who are not eligible to receive patronage refunds from the Association, plus such net amounts of income, expenses or loss which are unrelated to the marketing, purchasing or service operations carried on by the Association for its Members and Patrons on a cooperative basis. (c) If one or more of the Association's allocation units experience losses during any fiscal year, the losses of such allocation unit(s) shall be ratably allocated to and netted with the earnings of the remaining allocation units of the Association in order to determine the Association's overall net earnings or loss. The Association's Patrons and Members shall be notified in any fiscal year for which such netting has occurred. (d) Any patronage-sourced net earnings shall be further reduced (but not below zero) by the ratably determined portion of dividends on stock applicable to such net earnings that are paid or payable for the fiscal year. Losses shall be handled as determined by the Board of Directors in accordance with Section 3. (e) If at the conclusion of any fiscal year, the amount of retained earnings (which shall include the current year's non-patronage-sourced net earnings) is less than thirty percent (30%) of the face amount of capital credits and par value of Member and Associate Member common stock issued and outstanding, and patronage refunds for reinvestment balances as of the end of the previous year then, in order to provide for the Association's reasonable member reserves, there shall be transferred to retained earnings, from patronage-sourced net earnings, as members' contribution to reserves, an amount equal to the lesser of (i) fifteen percent (15%) of the current year's remaining patronage-sourced net earnings, or (ii) such amount necessary to increase retained earnings (which shall include the current year's non-patronage-sourced net earnings) to thirty percent (30%) of the face amount of capital credits and par value of Member and Associate Member common stock outstanding at the conclusion of the previous fiscal year. (f) Any amount then remaining shall constitute the net earnings of the Association from which Members' and Patrons' patronage refunds shall be paid, and such amount shall be apportioned among the Members and Patrons of the appropriate allocation units on any equitable patronage basis approved by the Board of Directors, and the amounts so determined, shall be paid as patronage refunds in the form of cash, qualified or non-qualified written notices of allocation, provided, however, that a payment by qualified written notice of allocation shall be accompanied by no less than twenty percent (20%) of the stated dollar amount thereof in cash with the balance at par value in Member common stock, Associate Member common stock or capital credits at par value or stated value as determined by the Board of Directors. The Board of Directors shall determine the cash and non-cash amounts, if any, of a Member's or Patron's patronage refund to be retained for purposes of collecting amounts due the Association for any or all of such Member's or Patron's outstanding indebtedness to the Association, provided that no retention of cash hereunder shall reduce the cash portion of any Member's or Patron's patronage refund otherwise paid by qualified written notice of allocation, to an amount which is less than twenty percent (20%) of the total stated dollar amount thereof. Section 2. Bylaw Consent. Each applicant for membership who continues as a voting member after having been accepted to membership in the Association and after receiving a copy of this bylaw consent provision, shall, by such act alone, consent that the amount of any distributions paid by qualified written notices of allocation, respecting such person's patronage with the Association occurring after it has received a copy of the bylaw consent and while such person remains a voting member thereafter, shall be taken into account by such person at its stated dollar amount for the taxable year in which such distribution(s) are received, in the manner provided by 26 U.S.C. 1385(a). Section 3. Losses. The Board of Directors of this Association shall have complete discretion to determine the handling and ultimate disposition of the Association's patronage-sourced net losses (including allocation unit losses) and the form, priority and manner in which such losses or portions thereof shall be taken into account, retained, and ultimately disposed of or recovered. The Board may retain such losses of the Association and subsequently (i) dispose of them by offset against the net earnings of the Association of subsequent years, (ii) apply such losses to prior years' patronage allocations at any time in order to dispose of them by means of offset and cancellation against members' and patrons' equity account balances, (iii) select and use any other method of disposition of such losses as the Board of Directors, in its sole discretion, shall from time to time determine. Section 4. Definitions. (a) As used in this Article, the term "Member" shall mean a holder of common stock or Associate Member common stock of the Association; the term "Patron" shall include any person, firm or association which is not also a Member or Associate Member of the Association, with whom the Association has in effect an agreement pursuant to which it has agreed to pay patronage refunds to such person on the basis of the quantity or value of the Association's business done with or for such person during the fiscal year. (b) As used in this Article, the term "allocation unit" shall mean any business or other unit of the Association with respect to which patronage refunds are to be paid (or patronage-sourced losses are to be taken into account) on the basis of the quantity or value of business done during the year with the Association by its Members and Patrons. ARTICLE III - CAPITALIZATION Section 1. Base Capital Plan. For the purposes of acquiring and maintaining adequate capital to finance the business of the Association, the Board of Directors may establish a Base Capital Plan. The Plan may provide a mechanism for determining the Association's total capital requirements and each member's or patron's share thereof (the base capital requirement). As part of the Plan, the Board of Directors may, in its discretion, provide for redemption of capital held by members or patrons in excess of their base capital requirements and may provide a mechanism under which the cash portion of the patronage refund payable to members or patrons will depend upon the degree to which such members or patrons meet their base capital requirements. Such Plan may be amended or modified from time to time or suspended by the Board of Directors as it deems fit. ARTICLE IV - MEMBERS' AND PATRONS' INVESTMENTS Section 1. Common Stock, Associate Member Common Stock, Capital Credits. As a condition of the right to receive patronage refunds as hereinbefore provided, and as a condition of each purchase from, or other transaction with, the Association, and in consideration of similar subscriptions by others, each Member and Patron entitled to receive patronage refunds under the bylaws shall and does hereby, as of the first day of each fiscal year of the Association, irrevocably subscribe for and agree to purchase common stock, associate member common stock or other capital credit(s) of the Association, at par, in an amount of not more than eighty percent (80%) of the amount to be paid to such patron by the Association as patronage refunds resulting from business transacted during such year, as conclusively determined by the Board of Directors of the Association at the time of payment of such refunds. Such subscriptions shall be payable in cash on or before the last day of such fiscal year, without the execution and delivery of any further agreement, and without any acceptance, call or notice by the Association, but only out of such patronage refunds. ARTICLE V - MEETINGS Section 1. Annual Meeting. The annual meeting of the shareholders shall be held each year at such time and at such place as may be fixed from time to time by the Board of Directors. Section 2. Special Meetings. The chairman of the board shall call a special meeting of the shareholders upon a written request of at least ten percent (10%) of the shareholders, or upon a majority vote of the directors. The notice of the time, place, and purpose of such special meeting shall be issued within fifteen (15) days from and after the presentation of such petition, and such special meeting shall be held within thirty (30) days from and after the date of presenting such petition. Section 3. Notice of Meetings. Notice shall be given by the secretary of all annual and special meetings of the shareholders by mailing a notice thereof to each shareholder not less than fifteen (15) days preceding the date of the proposed meeting. Section 4. Presiding Officer. The chairman of the board of the Association shall preside at all meetings of shareholders, and shall cast the deciding vote in all cases of a tie. Section 5. Absent Members Voting. Voting by proxy shall not be permitted, but absent shareholders entitled to vote may vote on specific questions, other than the removal of directors, by ballots transmitted to the secretary, and such ballots shall be counted only in the meeting at the time at which such vote is taken. Section 6. Quorum. A quorum for the transaction of business shall consist of at least two hundred (200) shareholders entitled to vote and at least one- third of the total votes eligible to be cast. All absentee shareholders voting and all absentee votes cast shall be counted as present in determining a quorum for the consideration of a specified question on which absentee votes may be cast. ARTICLE VI - DIRECTORS AND OFFICERS Section 1. Directors. The business and affairs of the Association shall be managed under the direction and control of the Board of Directors, consisting of twenty-two (22) members, elected at annual meetings by the shareholders entitled to vote from their own numbers for three-year terms. Twenty-one members of the Board of Directors shall be elected according to districts as hereinafter provided and shall be known as district directors. The remaining member of the Board of Directors shall be nominated and elected from the floor and shall be known as a director-at-large. Section 2. Election of Directors. (a) The territory in which the Association operates shall, for the purpose of electing district directors, be divided into districts, each of which shall be entitled to the number of directors herein specified. District 1 (Missouri and Kentucky) -- 1 director; District 2 (Kansas) -- 4 directors; District 3 (Colorado, Wyoming, Utah, Oregon and Idaho) -- 1 director; District 4 (Nebraska) -- 4 directors; District 5 (South Dakota, North Dakota and Montana) -- 1 director; District 6 (Iowa, Illinois, Indiana and Ohio) -- 4 directors; District 7 (Oklahoma and Arkansas) -- 3 directors; District 8 (Michigan, Minnesota, Wisconsin and Canada) -- 1 director; and District 9 (Texas and New Mexico) -- 2 directors. (b) The Board of Directors may from time to time assign to any of the aforesaid districts any member or members residing in any state or states or foreign country or foreign countries, other than the states named in the foregoing paragraph. In any such case a member so assigned to any district shall for all purposes be deemed to belong to such district and shall be entitled to attend and participate in the hereinafter mentioned caucus of that district. (c) The various districts shall, by caucus, nominate their candidate or candidates for director as herein provided. The following persons shall be eligible for election as a director at the annual meeting of members: individual shareholders; members, directors, officers, or employees of a shareholder; owners, directors, managers or employees of a member of a shareholder; and, employees of the Association. In the event the number of directors who are employees of association shareholders entitled to vote totals ten or more at any given time, no employee of an association shareholder may be elected or appointed to the Board of Directors, provided however, this limitation shall not disqualify any director in office from being eligible for election or re- election as a director. No person shall be eligible for nomination as a director if such person has attained 65 years of age. Five months prior to the annual meeting the Chairman of the Board shall appoint a nominating committee for each district in which the term of a director expires at the next annual meeting. The District Nominating Committee shall consist of three persons (one person to be appointed as Chairman) meeting the qualifications required to be a director as set forth above. As promptly as possible after the appointment of District Nominating Committees, the Secretary of the Association shall notify the eligible voting members in each such district, by mail, of the members of the District Nominating Committee. Each member may notify the Chairman of the District Nominating Committee of the member's candidate or candidates for director at least three months prior to the date of the annual meeting. The District Nominating Committee shall mail its report to each eligible voting member in each such district at least one month prior to the annual meeting and shall render its report at the caucus of such district and in doing so, shall provide at least one candidate, but not more than three candidates, for each director term which is expiring. In addition to the names of candidate or candidates provided by members for consideration by the District Nominating Committee, such Committee may also consider as candidates persons the Committee feels qualified. Any official delegate may make nominations at the district caucus. Such district shall thereupon nominate its nominee or nominees for directors and the names of said nominee or nominees shall be placed before the members at the annual meeting for election. Should said nominee or nominees fail to receive a majority of the votes cast by shareholders entitled to vote and present and voting, nominations may be made from the floor, of nominee or nominees from the district involved, and such shareholders shall thereupon vote on said nominee or nominees. In each district caucus wherein directors are nominated and in the election of directors at the annual meeting, shareholders entitled to vote shall have the number of votes as determined under the Articles of Incorporation, of the Association, for each director to be elected. (d) A redistricting of the territory served by the Association, or a reapportionment of the number of directors for each district, may be made by the members at any annual meeting. Section 3. Officers. The officers shall be elected by the Board of Directors or appointed by the President. The officers elected by the Board of Directors, each of whom shall serve at the will of the Board of Directors, shall consist of a Chairman of the Board, Vice Chairman, President, Vice President, Secretary, one or more Assistant Secretaries, Treasurer, one or more Assistant Treasurers, and such other officers as the Board of Directors may from time to time deem advisable. Only the Chairman of the Board, Vice Chairman, President, and the elected Vice President need be members of the Board of Directors. No person may hold the offices of Chairman of the Board and President at the same time. The officers appointed by the President, each of whom shall serve at the will of the President, shall be such Vice Presidents as the President may from time to time deem advisable. Section 4. Vacancies. Any vacancy on the Board of Directors shall be filled by appointment by the remainder of the board until the next annual meeting when a replacement for the unexpired term shall be elected. Section 5. Meetings. The board shall meet upon the call of the chairman of the board who shall determine the time and place of meetings, or upon call by a majority of the directors; and meetings shall be held at least quarterly. Section 6. Quorum. A majority of the qualified members shall constitute a quorum both for the Board of Directors and the executive committee. Section 7. Compensation. The compensation of the directors shall be Three Hundred Dollars ($300.00) per day of Association business, plus necessary expenses. 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. Section 8. Removal. Any director of the Association may be removed for cause, by vote of not less than two-thirds of the members present, at any annual meeting or at any special meeting called for the purpose. A director shall be informed in writing of the charges preferred against him at least fifteen (15) days before the meeting and at such meeting shall have an opportunity to be heard in person or by counsel and by witnesses thereto. Officers or agents of the Board of Directors may be removed from office or employment at any time by action of the Board of Directors. Section 9. Indemnification of Directors, Officers and Employees. Each person who is or was a director, officer, manager, employee or agent of the Association or is or was serving at the request of the Association as a director, officer, manager, employee or agent of another corporation, partnership, joint venture or other enterprise (including the heirs, executors, administrators or estate of such person) shall be indemnified by the Association as of right to the full extent permitted or authorized by the laws of the State of Kansas, as now in effect and as hereafter amended, against any liability, judgment, fine, amount paid in settlement, cost and expense (including attorneys' fees) asserted or threatened against and incurred by such person in his capacity as or arising out of his status as a director, officer, manager, employee or agent of the Association, or, if serving at the request of the Association, as a director, officer, manager, employee or agent of another corporation, partnership, joint venture or other enterprise. The indemnification provided by this bylaw provision shall not be exclusive of any other rights to which those indemnified may be entitled under any other bylaw or under any agreement, vote of shareholders or disinterested directors or otherwise, and shall not limit in any way any right which the Association may have to make different or further indemnifications with respect to the same or different persons or classes of persons. ARTICLE VII - DUTIES OF DIRECTORS Section 1. Management of Business. The Board of Directors shall direct the management of the affairs of the Association and shall make all necessary rules and regulations, not inconsistent with the law or the articles of incorporation or bylaws of the Association, for the management and control of the affairs of the Association and the guidance of the officers, agents, and employees thereof. The day-to-day business affairs of the Association shall be in the management and control of the president, selected by the board. Section 2. Executive Committee. An executive committee of six, which shall include the chairman, vice chairman, and president of the Association and three other members to be elected by the board from among its own members at its first meeting after the annual meeting shall have all the powers and exercise all the functions of the Board of Directors, subject to the Board of Directors' general control and direction. Section 3. Bonds. The Board of Directors shall require all officers and employees charged by the Association with responsibility for the custody of any of its funds or property to give adequate bonds, and the costs thereof shall be paid by the Association. Section 4. Audits. As often as the Board of Directors may consider necessary, but at least once a year, the Board of Directors shall obtain the services of a competent and disinterested auditor, who shall make a careful audit of the books and accounts of the Association and render a report in writing thereon. The annual audit report shall be submitted to the members of the Association at the annual meeting. ARTICLE VIII - DUTIES OF OFFICERS Section 1. Duties of Chairman of the Board. The Chairman of the Board shall preside over all meetings of the shareholders and of the Board of Directors and call special meetings of the shareholders and of the Board of Directors. Section 2. Duties of Vice Chairman. In the absence or disability of the Chairman, the Vice Chairman shall perform the duties and exercise the powers of the Chairman. The Vice Chairman shall perform such other duties as may be assigned from time to time by the Board. Section 3. Duties of President. The President shall be the Chief Executive Officer; shall sign or delegate to such other officers or employees of the Association the authority to sign certificates, deeds, leases, bills of sale and other instruments conveying any interest in real estate or personal property of the Association and such other instruments or documents as the Board of Directors may authorize or direct from time to time; shall have and exercise the power to hire and fire all employees other than officers, administrative officers, agents or employees selected by the Board of Directors; see that the management and business operations of the Association are exercised and conducted in accordance with general policies established by the Board of Directors; and perform such other duties and exercise such other power or powers as the Board of Directors may from time to time authorize or direct. Section 4. Duties of Vice Presidents. One Vice President shall be elected from the membership of the Board. The President may appoint such additional Vice Presidents as deemed appropriate to conduct the affairs of the Association. The duties of appointed Vice Presidents shall be assigned to them by the President. The President may delegate to one or more officer(s) the authority to perform his/her duties during his/her absence in such manner as deemed appropriate. In the event of the total disability or death of the President, the Vice President who has been elected by the Board of Directors shall perform the duties of the President until such time as the Board shall otherwise direct or until a successor to the President is elected. Section 5. Duties of Secretary. The Secretary shall (1) keep a complete record of the meetings of the shareholders and of the directors; (2) sign all papers or documents pertaining to the Association as may be authorized or directed by the directors; (3) serve all notices and make all reports required by law and these bylaws, and perform such other secretarial duties as may be required by the Board of Directors. The Assistant Secretaries shall perform the duties and exercise the powers of the Secretary during the absence or disability of the Secretary. Section 6. Duties of Treasurer. The Treasurer shall keep such records and perform such other duties pertaining to the office as the Board of Directors may require. The Assistant Treasurers shall perform the duties and exercise the powers of the Treasurer during the absence or disability of the Treasurer. ARTICLE IX - GENERAL PROVISIONS Section 1. Fiscal Year. The fiscal year of this Association shall commence September 1 and end on August 31. Section 2. Amendments. These bylaws may be amended or altered, in whole or in part, as provided by law, at any regular meeting of the members or at any special meeting, when such action has been duly announced in the call, provided that a majority of the votes cast by the shareholders entitled to vote and voting, including those absentee votes, shall approve such amendment or alteration. Section 3. Official Publication. The Association may publish an official publication. It may be mailed to subscriber lists provided by member associations and the subscription price may be deducted from patronage refunds earned by members. Section 4. Membership Vote for Sale of Principal Business. The Association shall not, without approval by a vote of the majority of the votes cast by members entitled to vote and voting at a duly called meeting of the Association, sell or convey or cause or permit the sale or conveyance of more than forty-nine percent (49%) of the voting shares in any subsidiary which accounted for fifty percent (50%) or more of the Association's gross sales on a consolidated basis during any one of the Association's three (3) most recently completed fiscal years or during such shorter period as such subsidiary has been in existence. ARTICLE X - DISSOLUTION Section 1. Upon dissolution or liquidation of the Association in any manner, except as may be otherwise provided by law, the assets of the Association shall be distributed in the following order and manner, to wit: 1. To pay all costs and expenses of dissolution, liquidation and distribution; 2. To pay and discharge all indebtedness of the Association, exclusive of any liability for the distribution of net earnings; 3. To retire, at par value plus unpaid accrued dividends thereon, if any, the five and one-half percent (51/2%) and the six percent (6%) preferred stock; 4. To retire, at par value plus unpaid accrued dividends thereon, if any, all other preferred stock of the Association, in the order and in accordance with such priority as may be provided for by the terms and provisions of the outstanding certificates therefor; 5. To pay all patronage refunds payable from current net earnings; and 6. All remaining assets, if any, shall be distributed among the holders of common stock and associate member common stock or other capital credit(s) in proportion to the amounts thereof held by each. EX-27 4 FINANCIAL DATA SCHEDULE FOR PERIOD ENDING 11-30-96
5 The Schedule contains summary financial information extracted from the Form 10-Q dated November 30, 1996 and is qualified in its entirety by reference to such financial statements. 1,000 3-MOS AUG-31-1997 SEP-01-1996 NOV-30-1996 0 0 622,573 0 729,653 1,438,025 1,526,552 800,706 2,567,733 1,113,123 618,976 0 1,262 467,874 309,950 2,567,733 2,359,948 2,389,279 2,255,292 2,272,215 0 0 16,019 15,864 3,051 23,892 0 0 0 23,892 0 0
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