Form 10-Q

0000034616-03-000001.txt : 20030114 0000034616-03-000001.hdr.sgml : 20030114 20030114170248 ACCESSION NUMBER: 0000034616-03-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20021130 FILED AS OF DATE: 20030114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMLAND INDUSTRIES INC CENTRAL INDEX KEY: 0000034616 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-FARM PRODUCT RAW MATERIALS [5150] 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: 03513913 BUSINESS ADDRESS: STREET 1: 12200 N. AMBASSADOR DR. STREET 2: DEPT 140 CITY: KANSAS CITY STATE: MO ZIP: 64163-1244 BUSINESS PHONE: 8167137000 MAIL ADDRESS: STREET 1: P.O. BOX 20111 CITY: KANSAS CITY STATE: MO ZIP: 64195-0111 FORMER COMPANY: FORMER CONFORMED NAME: CONSUMERS COOPERATIVE ASSOCIATION DATE OF NAME CHANGE: 19681201 10-Q 1 finalfinal10qnov02.htm FORM 10-Q Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2002

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 001-11629

FARMLAND INDUSTRIES, INC.

Debtor-in-Possession as of May 31, 2002

(Exact name of registrant as specified in its charter)

Kansas	44-0209330
(State of incorporation)	(I.R.S. Employer Identification No.)

12200 North Ambassador Drive
Kansas City, Missouri	64163-1244
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: 816-713-7000

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13or 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 [ ]

Indicate by check mark whether registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes[ ] No [X]

PART I - FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

CONDENSEDCONSOLIDATED BALANCE SHEETS
(UNAUDITED)

ASSETS

			August 31			November 30
			2002			2002
			(Amounts in Thousands)
Current Assets:
Accounts receivable - trade (net of allowance for doubtful accounts of $23,934 at August 31, 2002 and $23,748 at November 30, 2002)	$	288,931		$	327,925
Inventories (Note 2)		337,222			333,169
Deferred income taxes		51,495			52,053
Other current assets		64,633			87,816
Current assets from discontinued operations (Note 12)		57,164			47,173
Total Current Assets	$	799,445		$	848,136


Investments and Long-term Receivables (Note 3)	$	347,008		$	314,465


Property, Plant and Equipment:
Property, plant and equipment, at cost	$	1,900,047		$	1,491,560
Less accumulated depreciation and
amortization		994,288			1,013,745

Net Property, Plant and Equipment	$	905,759		$	477,815

Other Assets:
Goodwill (Note 4)	$	28,942		$	28,740
Intangible assets (Note 4)		38,876			26,251
Other long-term assets		59,561			60,587
Long-term assets from discontinued operations (Note 12)		2,052			872
Total Other Assets	$	129,431		$	116,450

Total Assets	$	2,181,643		$	1,756,866

See accompanying Notes to Condensed Consolidated Financial Statements

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

CONDENSEDCONSOLIDATED BALANCE SHEETS

(UNAUDITED)

LIABILITIES AND EQUITIES

		August 31				November 30
		2002				2002
		(Amounts in Thousands)
	Current Liabilities:
	Current maturities of long-term debt		$	323,300			$	322,118
	Accounts payable - trade			75,418				71,261
	Other current liabilities			139,127				162,217
	Current liabilities from discontinued operations (Note 12)			35,120				23,652

	Total Current Liabilities		$	572,965			$	579,248

	Liabilities Subject to Compromise (Note 5)		$	912,887			$	885,559

	Long-Term Liabilities:
	Long-term borrowings (excluding current maturities)		$	139,869			$	148,779
	Other long-term liabilities			24,637				20,628

	Total Long-Term Liabilities		$	164,506			$	169,407

	Deferred Income Taxes		$	59,422			$	62,666

	Minority Owners' Equity in Subsidiaries		$	42,553			$	47,347

	Net Loss (Note 1)		$	-0-			$	(417,079)

	Capital Shares and Equities:
	Preferred shares, authorized 8,000,000 shares, 8% Series A cumulative redeemable preferred shares, stated
	at redemption value, $50 per share		$	100,000			$	100,000
	Common shares authorized
	50,000,000 shares, $25 par value			524,006				524,009
	Accumulated other comprehensive income (net of
	deferred tax expense of $558 at August 31, 2002 and $0 at November 30, 2002) (Notes 6 and 7)			3,907				4,312
	Earned surplus and other equities			(198,603)				(198,603)

	Total Capital Shares and Equities		$	429,310			$	429,718

Commitments and Contingent Liabilities (Note 8)

	Total Liabilities and Equities		$		2,181,643		$	1,756,866

See accompanying Notes to Condensed Consolidated Financial Statements

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

	Three Months Ended
	November 30			November 30
	2001			2002
	(Amounts in Thousands)
Sales	$	1,848,193		$	1,654,755
Cost of sales		1,760,272			1,577,220

Gross income	$	87,921		$	77,535

Selling, general and administrative expenses		(79,839)			(59,762)

Restructuring and other (charges) credits (Note 9)		6,340			1,736

Interest expense (excluding approximately $11.7 million of interest not accrued during 2003 on unsecured pre-petition borrowings)		(24,283)			(8,290)

Interest income		760			647

Other (Note 10)		18,759			8,467

Equity in net income of investees (Note 3)			1,957		943

Minority owners' interest in net income
of subsidiaries			(4,737)		(4,795)

Reorganization expense (Note 11)			-0-		(433,854)

Income (loss) from continuing operations before income tax expense	$		6,878	$	(417,373)

Income tax expense			(768)		-0-

Income (loss) from continuing operations	$		6,110	$	(417,373)

Discontinued operations (Note 12): Loss from operations of discontinued international grain division (net of applicable income tax benefit of $0 at November 2001)			(2,861)		-0-

Gain on disposal of international grain division (net of applicable income tax benefit of $144 at November 2002) income tax benefit of $144 at November 2002			-0-		294

Total discontinued operations	$		(2,861)	$	294

Net income (loss)	$		3,249	$	(417,079)

See accompanying Notes to Condensed Consolidated Financial Statements

FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES
(Debtors-in-Possession)

CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three Months Ended
	November 30 2001				November 30 2002
	(Amounts in Thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)		$		3,249		$		(417,079)
Reorganization expense (Note 11)				-0-				433,854
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization				29,059				27,970
Equity in net (income) of investees (Note 3)				(1,957)				(943)
Other				(16,733)				9,153
Changes in assets and liabilities:
Accounts receivable			20,013				(31,414)
Inventories				81,432				4,039
Other assets				(5,778)				(5,544)
Accounts payable				(48,451)				(8,557)
Other liabilities				20,650				(20,628)
Net cash provided by (used in) operating activities before reorganization items		$		81,484		$		(9,149)

REORGANIZATION ITEMS:
Reorganization expense (Note 11)		$		-0-		$		(433,854)
Adjustments for non-cash items:
Asset impairment charges				-0-				424,517
Gain on settlement with vendors				-0-				(289)
Gain on sale of fixed assets and investments				-0-				(181)
Net cash used in reorganization items		$		-0-		$		(9,807)

Net cash provided by (used in) operating activities		$		81,484		$		(18,956)

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		$		(10,629)		$		(16,054)
Distributions from joint ventures				2,062				4,143
Additions to investments and notes receivable				(5,397)				(309)
Acquisition of other long-term assets				(2,724)				(2,370)
Proceeds from disposal of investments and collection of notes receivable				30,450				1,259
Proceeds from sale of fixed assets				7,010				7,697

Net cash provided by (used in) investing activities		$		20,772		$		(5,634)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments of dividends		$		(2,000)		$		-0-
Proceeds from bank loans and notes payable				846,272				230,428
Payments on bank loans and notes payable				(864,987)				(223,237)
Payments for redemption of subordinated debt certificates				(12,732)				-0-
Net increase (decrease) in checks and drafts outstanding				(68,896)				17,102
Other increase (decrease)				87				297
Net cash provided by (used in) financing activities		$		(102,256)		$		24,590

Net decrease 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 Condensed Consolidated Financial Statements

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

(1) Interim Financial Statements

(A) The Company and Basis of Presentation

Unless the context suggests otherwise, (i) "Farmland", "we", "us" or "our" refers to Farmland Industries, Inc. and its consolidated subsidiaries, (ii) all references to "year" or "years" are to fiscal years ended August 31, and (iii) the term "member" means (a) any voting member, (b) any associate member, or (c) any other non-member individuals, cooperatives or other entities doing business with Farmland under an agreement to accept qualified patronage refunds as taxable income in the year received. Patronage refund is the term we use to refer to the distribution of income from transactions done on a cooperative basis with or for our patrons.

In view of the seasonality of Farmland's businesses, it must be emphasized that the results of operations for the periods presented are not necessarily indicative of the results for a full fiscal year.

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information; therefore, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. For further information, refer to the Consolidated Financial Statements and Notes to Consolidated Financial Statements thereto included in Farmland's Annual Report on Form 10-K for the year ended August 31, 2002.

Certain amounts pertaining to the three month period ended November 30, 2001 have been reclassified to conform with the current year presentation.

The unaudited Condensed Consolidated Balance Sheets and Statements of Operations have been restated to present our international grain trading subsidiaries (collectively referred to as "Tradigrain") as a discontinued operation. The international grain sales and related cost of sales and operating expenses have been reclassified as discontinued operations for all periods presented.

Our revenues, margins, net income or loss and cash flow depend, to a large extent, on conditions in agriculture and may be volatile due to factors beyond our control, such as weather, crop failures, federal agricultural programs, currency fluctuations, tariffs, concerns over food safety, and other factors affecting United States imports and exports. In addition, various federal and state regulations intended to protect the environment encourage farmers to reduce the use of fertilizers and other chemicals. Global variables, such as general economic conditions, conditions in financial markets, embargoes, political instabilities, terrorist activities, local conflicts and other incidents affect, among other things, the supply, demand and price of crude oil, refined fuels, natural gas and other commodities and may unfavorably impact Farmland's operations. Historically, changes in the costs of raw materials have not necessarily resulted in corresponding changes in the prices at which finished products have been sold by Farmland. For example, at times during the last few years, the results of our crop production business have been adversely affected by a combination of high natural gas prices and competition from imports. Also, for example changes in the prices of crude oil and refined fuels have caused, and will continue to cause, significant variations in the results of our petroleum business. Management cannot determine the extent to which these factors may impact our future operations.

In accordance with the bylaws of Farmland, we determine annually the members' portion of income or loss before income taxes. From this amount, patronage refunds, if any, are distributed or losses are allocated to our members or charged to retained earnings.

Farmland does not provide for patronage refunds in our interim financial statements as:

we determine the amount of members' income and the amount of members' loss only after the end of the fiscal year;
after consideration of member losses (if any), the Board of Directors, subject to Court approval, then determines the amount of patronage refund to be paid in cash and the portion to be paid in Farmland equity (common shares, associate member common shares and capital credits); and
the amount of income appropriated to earned surplus is dependent on the amount of patronage refunds and the handling of members' losses (if any).

Therefore, the amount of net income for the interim period presented is reflected as a separate item in the accompanying unaudited Condensed Consolidated Balance Sheet as of November 30, 2002.

Effective September 1, 2002, Farmland adopted Statement of Financial Accounting Standards ("SFAS") SFAS No. 143 "Accounting for Asset Retirement Obligations." This statement addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. The standard applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and (or) normal use of the asset.

SFAS No. 143 requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The fair value of the liability is added to the carrying amount of the associated asset and this additional carrying amount is depreciated over the life of the asset. The liability is accreted at the end of each period through charges to operating expense. If the obligation is settled for other than the carrying amount of the liability, Farmland will recognize a gain or loss on settlement. Adoption of this statement did not have a material effect on Farmland's reported financial position or our results of operations.

Effective September 1, 2002, Farmland adopted SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". This statement addressed financial accounting and reporting for the impairment or disposal of long-lived assets.

In our plan of reorganization, filed November 27, 2002, we stated our intent to dispose of our crop production and petroleum assets. Despite this stated intent, these assets are not classified as held for sale as, ultimately, any disposition must be approved by the Court and, to date, the Court has not approved such disposition. As a result, as of November 30, 2002, our crop production and petroleum assets were classified as held for operations. Since during the first quarter we determined that it was more likely than not that our crop production and petroleum assets would be disposed of, those assets were tested for impairment at November 30, 2002 pursuant to SFAS No. 144 using projected undiscounted cash flows based on management's best assumptions regarding the use and eventual disposition of these assets. Based on these tests and our assumptions and determinations as of November 30, 2002, these assets were impaired at November 30, 2002. Using managements' best estimate as of November 30, 2002, it appears that the estimated fair value we will receive on disposition of these assets exceeds the carrying value of these assets by approximately $424.5 million. Since the ultimate proceeds from disposition of these assets will result from a bidding and auction process conducted in our bankruptcy proceedings, the ultimate loss may differ from the amount recognized at November 30, 2002. This estimated loss is included in reorganization expense in these unaudited Condensed Consolidated Statements of Operations. This estimated loss is comprised of $275.9 million related to our crop production segment, $147.7 million related to our petroleum segment, and $0.9 million related to unallocated corporate assets.

SFAS No. 144 also supersedes the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions,", for the disposal of a segment of a business. However, it retains the requirement in APB Opinion No. 30 to report separately discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to owners) or is classified as held for sale. As we continue our strategy of repositioning and selling assets, additional businesses may be reported as discontinued operations pursuant to SFAS No. 144.

(B) Bankruptcy Proceedings

On May 31, 2002 (the "Petition Date"), Farmland Industries, Inc. and four of its subsidiaries, Farmland Foods, Inc., Farmland Pipe Line Company, Farmland Transportation, Inc., and SFA, Inc., (collectively, the "Debtors") filed voluntary petitions for protection under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code") in the United States Bankruptcy Court, Western District of Missouri (the "Court") (Joint Case Number 02-50557-JWV). The filings were made in order to facilitate the restructuring of the Debtors' trade liabilities, debt, and other obligations. We continue to manage the business, as debtors-in-possession, but may not engage in transactions outside the ordinary course of business without the approval of the Court.

On June 4, 2002, the Court appointed a committee to represent the interests of unsecured creditors (the "Creditors' Committee") and a committee to represent the interests of unsecured bondholders (the "Bondholders' Committee"). The Creditors' Committee and the Bondholders' Committee are comprised of representatives of the Debtors' unsecured creditors and unsecured bondholders, respectively. Both committees review and gather information about the Debtors' financial condition and restructuring activities. We are required to reimburse certain fees and expenses of each committee, including fees for attorneys and other professionals, to the extent allowed by the Court.

Subsequent to the Petition Date, the Court approved the Debtors' request to enter into a new credit facility with a syndicate of banks to provide up to $306.0 million of debtors-in-possession financing ("the DIP Credit Facility"). The DIP Credit Facility partially replaced a five-year $500 million credit facility entered into with a syndicate of banks on February 7, 2002 (the "Pre-petition Credit Facility").

As a result of the filing on May 31, 2002 of petitions under Chapter 11 of the Bankruptcy Code by the Debtors, Farmland's unaudited Condensed Consolidated Financial Statements have been prepared in accordance with AICPA Statement of Position ("SOP") 90-7, "Financial Reporting by Entities in Reorganization under the Bankruptcy Code" and generally accepted accounting principles applicable to a going concern which, unless otherwise noted, assumes the realization of assets and the payment of liabilities in the ordinary course of business.

SOP 90-7 requires (a) that pre-petition liabilities that are subject to compromise be segregated in Farmland's unaudited Condensed Consolidated Balance Sheets as Liabilities Subject to Compromise and (b) that revenues, expenses, realized gains and losses, and provisions for losses resulting from the reorganization and restructuring of the Debtors be reported separately as Reorganization expense in the unaudited Condensed Consolidated Statements of Operations. As a result of the reorganization proceedings under Chapter 11, the Debtors may be required to take actions that may cause assets to be realized, or liabilities to be liquidated, for amounts other than those reflected in the unaudited Condensed Consolidated Financial Statements.

As debtors-in-possession, the Debtors, subject to any required Court approval, may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts, and other unexpired executory pre-petition contracts prior to the confirmation of a plan of reorganization. Damages related to rejected contracts are a pre-petition claim. We have estimated and accrued our liability resulting from contracts rejected through November 30, 2002 and this estimated liability, in the amount of $14.2 million, is included in our unaudited Condensed Consolidated Balance Sheets as Liabilities Subject to Compromise.

As a result of the Chapter 11 proceedings, virtually all liabilities, litigation and other claims against the Debtors that were in existence as of the Petition Date are stayed unless the stay is modified or lifted or payment is authorized by the Court. As part of the reorganization process, the Debtors have attempted to notify all known or potential creditors of the Chapter 11 filings for the purpose of identifying all pre-petition claims against the Debtors. The Court set January 10, 2003 (the "Bar Date"), as the date by which creditors were required to file proof of claims against the Debtors. At this time, the ultimate amount of claims that will be allowed by the Court is not determinable.

Pursuant to the provisions of the Bankruptcy Code, on November 27, 2002, the Debtors filed with the Court a plan of reorganization under which the Debtors' liabilities and equity interests would be restructured. This plan of reorganization identifies various classes of creditors and equity interests. Classes that will be paid in full or whose rights are not altered are considered unimpaired and do not have a right to vote on the plan of reorganization. Classes that will not be paid in full are considered impaired. Impaired classes include holders of unsecured demand loan certificates and holders of unsecured subordinated debenture bonds, as well as general unsecured creditors of the Debtors. The equity interests in Farmland, including its preferred stock interests, are also impaired. As a general matter, each impaired class is entitled to vote as a class to accept or reject the plan of reorganization. Although management filed a plan of reorganization, there can be no assurance at this time whether it will be contested by any impaired class or whether it will be approved or confirmed by the Court.

As a part of the bankruptcy process, we are required to file a disclosure statement with the Court. The disclosure statement will provide all creditor classes with information regarding our proposed reorganization including identification of assets we intend to sell and estimated cash proceeds from those sales. Currently, the Court is considering our motion to postpone the date by which we must file our disclosure statement from January 15, 2003 to March 31, 2003. Once the disclosure statement is deemed adequate by the Court, the disclosure statement will be submitted to the various impaired classes, and the plan of reorganization will be voted on by those classes.

The plan of reorganization, as filed, in effect contemplates either that the Debtors will reorganize around our pork and beef marketing businesses, with other assets being sold, or that the Debtors will sell all or substantially all of their assets. The plan of reorganization also provides for the payment of obligations under the DIP Credit Facility and certain pre-petition liabilities under a prior bank credit agreement in full in cash on the effective date of the plan of reorganization. As to various impaired classes, including the classes pertaining to the holders of our demand loan certificates and our subordinated debenture bonds, as well as our general unsecured creditors, the plan provides that these classes will receive cash and/or securities of the reorganized entity. The amounts to be received by any particular class are subject to further negotiation and will depend, in part, on the amounts we realize from potential sales of assets. As a result, we will need to amend the plan of reorganization before it is confirmed. The plan of reorganization, if accepted and confirmed, will substantially change the amounts and characterization of liabilities currently disclosed in the accompanying unaudited Condensed Consolidated Financial Statements.

As provided in the DIP Credit Facility under certain circumstances it is an event of default if the Debtors fail to file a plan of reorganization approved by all lenders under the DIP Credit Facility (the "DIP Lenders") (such approval not to be unreasonably withheld) by November 27, 2002. Farmland believes, based on consultation with counsel, that the plan of reorganization, as filed on November 27, 2002, satisfies the requirements of the DIP Credit Facility. Subsequent to November 30, 2002, the DIP Lenders asserted that the plan of reorganization, as filed, did not satisfy the requirements of the DIP Credit Facility. Concurrent with this assertion, the DIP Lenders notified Farmland that the DIP Lenders were terminating the $25.0 million Tranche A loan commitment under the DIP Credit Facility and were increasing, by 200 basis points, the interest rate charged to Farmland on borrowings outstanding under the DIP Credit Facility. As a result of the DIP Lenders' assertion that the plan of reorganization did not satisfy the requirements of the DIP Credit Facility, the DIP lenders also might have sought, but to date have not done so, to take additional action including seeking to declare all unpaid loans under the DIP Credit Facility, and accrued interest on those loans, to be due and payable and seeking to terminate their obligation to make future loans under the DIP Credit Facility. The right of the DIP Lenders to charge this higher rate is unresolved and may be contested by Farmland.

On January 8, 2003, the DIP Lenders and Farmland entered into a proposed amendment to the DIP Credit Facility (the "DIP Amendment") in order to resolve issues surrounding the alleged event of default described in the preceding paragraph and to modify certain other terms of the agreement. Among other things, the proposed amendment would waive the alleged event of default, would confirm the termination of Tranche A, and would limit the 200 basis point increase in the interest rate charged to the period from December 9, 2002 until the effectiveness of the DIP Amendment. The effectiveness of the amendment requires approval of the Court, which Farmland is in the process of seeking.

The DIP Amendment, if approved by the Court requires Farmland to, among other things:

eliminate the Tranche A commitment as of December 9, 2002;
reduce the Tranche B commitment by $20 million to $256.5 million upon the effectiveness of the DIP Amendment
require prepayment of at least $40 million by February 28, 2003 and an additional $10 million by March 31, 2003 of loans under the DIP Credit Facility or the Pre-petition Credit Facility;
establish milestones relating to the progress of the sales of our crop produciton and beef marketing businesses;
permit us to issue new letters of credit under the Tranche B commitment;
waive the alleged event of default relating to our plan of reorganization; and
limit the default interest charge based on the alleged event of default to the period from December 9, 2002 until the effectiveness of the DIP Amendment.

The DIP Amendment, if approved by the Court, eliminates the requirement by Farmland to file a plan of reorganization approved by all DIP Lenders and eliminates the requirement that the auditors' report covering Farmland's Consolidate Financial Statements express no doubts about the ability of Farmland and its subsidiaries to continue as a going concern.

If the Court does not approve the DIP Amendment, Farmland continues to believe that the plan of reorganization satisfies the requirements of the DIP Credit Facility as the plan of reorganization, among other things, provides that the DIP Lenders will be paid in full in cash on or before the effective date of the plan of reorganization, which will be prior to the termination date of the DIP Credit Facility. Since, as described in the plan of reorganization, the DIP Lenders are unimpaired, the DIP Lenders will not be offered the opportunity to vote on the plan of reorganization. Based on consultation with counsel, Farmland believes that, absent Court approval of the DIP Amendment, if the DIP Lenders were to attempt to declare all unpaid loans and accrued interest under the DIP Credit Facility to be due and payable, or if the DIP Lenders were to seek to terminate their obligation to make future loans under Tranche B of the DIP Credit Facility, the Court, if presented with the issue, should not permit the DIP Lenders, in the present circumstances, to do so.

The ability of Farmland to continue as a going concern is dependent upon, but not limited to, the confirmation of the plan of reorganization, continued access to adequate sources of capital, the continued compliance with all covenants under the DIP Credit Facility, as proposed to be amended, the ability to secure new financing adequate to support our remaining businesses if and when we emerge from our Chapter 11 proceedings, retention of key suppliers, customers and employees, and the ability to sustain positive cash flows sufficient to fund operations and repay debt. No assurance can be given that the Debtors will be successful in reorganizing their affairs within the Chapter 11 proceedings. Because of the ongoing nature of the reorganization process, the outcome of which is not determinable until a plan of reorganization is confirmed and consummated, these unaudited Condensed Consolidated Financial Statements are subject to material uncertainties, and we cannot assure you that Farmland will successfully emerge from bankruptcy proceedings.

(2) Inventories

Major components of inventories are as follows:

	August 31			November 30
	2002			2002
	(Amounts in Thousands)

Finished and in-process products		$	234,056		$	226,494
Materials			60,003			61,100
Supplies			43,163			45,575
		$	337,222		$	333,169

The above table does not include inventories from discontinued operations with a value of $0.1 million at both August 31, 2002 and November 30, 2002.

At November 30, 2002, the carrying value of crude oil and refined petroleum inventories, stated at LIFO cost, was $63.1 million, which is approximately $7.5 million lower than the market value of such inventories.

(3) Summarized Financial Information of Investees Accounted for by the Equity Method

Summarized financial information of investees accounted for by the equity method is as follows:

	Three Months Ended
	November 30 2001		November 30 2002
	(Amounts in Thousands)

Net sales	$	1,391,816	$	1,610,066
Net income (loss)	$	(2,955)	$	(2,385)
Farmland's equity in net income	$	1,957	$	943

Our investments accounted for by the equity method consist principally of :

. 50% equity interests in three manufacturers of crop nutrient products, Farmland Hydro, L.P. (Farmland Hydro sold substantially all of its operating assets during November, 2002), SF Phosphates Limited Company and Farmland MissChem Limited;

. an approximate 50% equity interest in UCB LLC, which in turn holds a 50% equity interest in Agriliance LLC, an agronomy distribution and marketing venture; and

. an equity interest in Land O'Lakes Farmland Feed, LLC, a manufacturer and marketer of feed products.

At November 30, 2002, our share of the undistributed earnings of all ventures accounted for by the equity method totaled $84.1 million.

(4) Goodwill and Other Intangible Assets

Effective September 1, 2002, Farmland adopted SFAS No. 142 "Goodwill and Other Intangible Assets" as it relates to business combinations with non-cooperatives. With adoption of this standard, goodwill and certain other intangible assets resulting from business combinations with non-cooperatives are no longer being amortized; however, both goodwill and certain other intangible assets are tested annually for impairment. We did not incur any impairment of goodwill as a result of adoption of SFAS No. 142 for business combinations with non-cooperative companies. The carrying value of goodwill resulting from business combinations with non-cooperatives was $18.7 million at both August 31, 2002 and November 30, 2002, respectively. Had this statement been adopted for the three-month period ended November 30, 2001, our net income would have been $3.5 million (excluding $0.3 million amortized for goodwill resulting from business combinations with non-cooperatives).

For goodwill and other intangible assets arising out of business combinations with cooperatives, implementation of SFAS No. 142 is delayed pending additional interpretive guidance from the FASB. The carrying value of goodwill resulting from business combinations with cooperatives was $10.2 million and $10.0 million at August 31, 2002 and November 30, 2002, respectively. Goodwill amortization related to these combinations totaled $0.6 million and $0.2 million during the three-month periods ended November 30, 2001 and 2002, respectively.

The following table displays the carrying values of other intangible assets at August 31, 2002 and November 30, 2002:

	August 31, 2002				November 30, 2002
	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount			Accumulated Amortization
	(Amounts in Thousands)

Amortized intangible assets:
Software	$	72,417	$	33,601	$	43,020	$		16,784
Other		180		120		180			165
	$	72,597	$	33,721	$	43,200	$		16,949

Amortization of other intangible assets totaled $1.0 million and $0.6 million during the three-month periods ended November 30, 2001 and 2002, respectively.

During the three month period ended November 30, 2002, we recorded an $11.3 million charge to write-off a portion of our enterprise-wide integrated software system associated with businesses which we intend to sell as part of our bankruptcy proceedings. This charge is included as part of reorganization expense in our unaudited Condensed Consolidated Statements of Operations ($6.9 million for the crop production segment, $3.5 million for the petroleum segment and $0.9 million for the unallocated corporate segment).

Estimated amortization expense for future fiscal years ending August 31 is:


(Amounts in Thousands)

2003 (remaining 9 months)	$	3,922
2004		4,980
2005		4,940
2006		4,744
2007		2,551
2008 and after		5,114
	$	26,251

(5) Liabilities Subject to Compromise

As a result of the Chapter 11 filings, substantially all pre-petition indebtedness of the Debtors is subject to compromise or other treatment under the plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Chapter 11 liabilities are stayed. These claims are reflected in the accompanying unaudited Condensed Consolidated Balance Sheets as Liabilities Subject to Compromise. Pre-petition claims secured by the Debtors' assets are also stayed, although the holders of such claims have the right to move the Court for relief from the stay. Pre-petition secured claims (primarily representing amounts borrowed under the Debtors' Pre-petition Credit Facility) are secured by a substantial portion of our accounts receivable, inventories, property, plant and equipment and intangible assets. These secured claims have not been reflected as Liabilities Subject to Compromise. The Debtors are paying undisputed post-petition claims of all vendors and suppliers in the ordinary course of business.

As of November 30, 2002, the Debtors have Liabilities Subject to Compromise of approximately $885.6 million which include the following:

(Amounts in Thousands)

Accounts payable -- trade	$	230,929
Other current liabilities		50,332
Subordinated debt		474,674
Demand loan certificates		12,035
Accrued and accumulated interest on subordinated debt and demand loan securities		81,072
Other borrowings		16,616
Other long-term liabilities		28,781
Less liabilities due to subsidiaries not in reorganization		(8,880)

Liabilities Subject to Compromise	$	885,559

Condensed Consolidating Balance Sheet

As of August 31, 2002

	Farmland and Subsidiaries in Reorganization		Subsidiaries not in Reorganization				Eliminations		Consolidated
	(Amounts in Thousands)

Current assets	$	554,725		$	295,095	$		(50,375)		$	799,445
Property, plant and equipment, net		748,024			157,735			-0-			905,759
Other long-term assets		559,274			20,070			(102,905)			476,439

Total assets	$	1,862,023		$	472,900	$		(153,280)		$	2,181,643

Current liabilities	$	418,182		$	197,331	$		(42,548)		$	572,965
Liabilities subject to compromise		921,518			-0-			(8,631)			912,887
Long-term liabilities		45,720			119,476			(690)			164,506
Deferred income taxes		59,424			(2)			-0-			59,422
Minority owners' equity in subsidiaries		-0-			336			42,217			42,553
Capital shares and equities		417,179			155,759			(143,628)			429,310

Total liabilities and equity	$	1,862,023		$	472,900	$		(153,280)		$	2,181,643

Condensed Consolidating Balance Sheet

As of November 30, 2002

	Farmland and Subsidiaries in Reorganization		Subsidiaries not in Reorganization				Eliminations		Consolidated
	(Amounts in Thousands)

Current assets	$	602,230		$	307,445	$		(61,539)		$	848,136
Property, plant and equipment, net		315,481			162,334			-0-			477,815
Other long-term assets		505,541			18,818			(93,444)			430,915

Total assets	$	1,423,252		$	488,597	$		(154,983)		$	1,756,866

Current liabilities	$	434,910		$	187,625	$		(43,287)		$	579,248
Liabilities subject to compromise		894,439			-0-			(8,880)			885,559
Long-term liabilities		42,178			127,819			(590)			169,407
Deferred income taxes		62,671			(5)			-0-			62,666
Minority owners' equity in subsidiaries		-0-			347			47,000			47,347
Net income (loss)		(429,367)			12,510			(222)			(417,079)
Capital shares and equities		418,421			160,301			(149,004)			429,718

Total liabilities and equity	$	1,423,252		$	488,597	$		(154,983)		$	1,756,866

Condensed Consolidating Statement of Operations
For the Three Months Ended November 30, 2002

	Farmland and Subsidiaries in Reorganization		Subsidiaries not in Reorganization			Eliminations		Consolidated
	(Amounts in Thousands)

Total sales	$	807,308	$	866,299	$		(18,852)		$	1,654,755
Total cost of sales		756,527		839,545			(18,852)			1,577,220
Gross income	$	50,781	$	26,754	$		-0-		$	77,535

Restructuring and other credits	$	1,736	$	-0-	$		-0-		$	1,736
Reorganization expense		(433,854)		-0-			-0-			(433,854)
Other operating, non-operating and tax expenses		(48,030)		(14,538)			(222)			(62,790)

Income (loss) from continuing operations	$	(429,367)	$	12,216	$		(222)		$	(417,373)

Gain on disposal of international grain divisiongrain division		-0-		294			-0-			294

Net income (loss)	$	(429,367)	$	12,510	$		(222)		$	(417,079)

Condensed Consolidating Statement of Cash Flows
For the Three Months Ended November 30, 2002

	Farmland and Subsidiaries in Reorganization		Subsidiaries not in Reorganization			Eliminations		Consolidated
	(Amounts in Thousands)

Cash flows from operating activities:
Net income (loss)	$	(429,367)	$	12,510	$	(222)	$	(417,079)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Non-cash items, net		411,774		48,453		-0-		460,227
Changes in other assets and liabilities		(9,661)		(52,443)		-0-		(62,104)
Net cash provided by (used in) operating activities	$	(27,254)	$	8,520	$	(222)	$	(18,956)

Net cash provided by (used in) investing activities		3,910		(9,544)		-0-		(5,634)

Net cash provided by (used in) financing activities		(1)		24,591		-0-		- 24,590

Net increase (decrease) in cash	$	(23,345)	$	23,567	$	(222)	$	-0-

(6) Comprehensive Income

Changes in accumulated other comprehensive income (AOCI) during the three months ended November 30, 2001 were as follows:


	Cash Flow			Foreign Currency			Total
	Hedges			Translation			AOCI
	(Amounts in Thousands)

Balance at August 31, 2001	$	(21,436)	$		94	$		(21,342)
Foreign currency translation adjustment		-0-			6			6
Net (loss) on cash flow hedges, net of tax		(202)			-0-			(202)
Reclassification adjustments, net of tax		9,158			0-			9,158
Balance at November 30, 2001	$	(12,480)	$		100	$		(12,380)

Changes in accumulated other comprehensive income (AOCI) during the three months ended November 30, 2002 were as follows:


	Cash Flow			Foreign Currency			Total
	Hedges			Translation			AOCI
	(Amounts in Thousands)

Balance at August 31, 2002	$	3,803	$		104	$		3,907
Foreign currency translation adjustment		-0-			5			5
Net gain on cash flow hedges, net of tax		203			-0-			203
Reclassification adjustments, net of tax		197			-0-			197
Balance at November 30, 2002	$	4,203	$		109	$		4,312

Comprehensive income for the three months ended November 30, 2001 and 2002 is as follows:

	Three Months Ended
	November 30 2001		November 30 2002
	(Amounts in Thousands)

Net income (loss)	$	3,249	$	(417,079)
Net gains (losses) arising during the period
Cash flow hedges:
Net derivative gains (losses) during period	$	(239)	$	203
Reclassification adjustment		10,785		(361)
Foreign currency translation adjustment		6		5
Other comprehensive income before tax	$	10,552	$	(153)
Income tax benefit (expense) related to items of
other comprehensive income		(1,590)		558
Other comprehensive income	$	8,962	$	405
Comprehensive income (loss)	$	12,211	$	(416,674)

(7) Derivative Financial Instruments

Farmland is exposed to market risk, such as changes in commodity prices, currency exchange rates and interest rates. In Farmland's various production processes, we are subject to raw material price fluctuations caused by supply conditions, weather, economic conditions and other factors. To manage volatility associated with these exposures, Farmland may enter into various derivative transactions pursuant to our established policies. Generally, these contracts expire within twelve months, although we may enter into longer term contracts if deemed appropriate.

We account for derivative instruments in accordance with SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. This standard imposes extensive recordkeeping requirements in order to designate a derivative financial instrument as a hedge. As a result, certain of our segments may hold derivative instruments, such as exchange traded grain, crude oil and live hog and cattle futures, certain natural gas contracts and foreign currency forward positions that we believe provide an economic hedge of future transactions but have not been designated as a hedge. Gains or losses related to the change in fair value of these derivative instruments are classified as a component of other income (expense). At November 30, 2002, we recorded receivables of $0.3 million and $7.0 million in other current assets and other long-term assets, respectively, related to unrealized gains on derivative instruments, and we recorded payables of $2.4 million in other current liabilities related to unrealized losses on derivative instruments.

Farmland also uses derivative commodity instruments to manage our commodity price risk in the procurement of natural gas, the primary input necessary for the production of the various nitrogen-based crop production products we manufacture. These instruments have been designated as cash flow hedges for accounting purposes with gains and losses deferred in accumulated other comprehensive income ("AOCI"), to the extent the hedge is effective. These amounts are recognized within cost of goods sold in the period during which the hedged transaction affects earnings. Any hedge gain or loss resulting from ineffectiveness are immediately recognized to earnings as a component of other income (expense).

In this hedging activity, our objective is to use derivative commodity instruments to fix the price of a portion of our forecasted purchases of natural gas used to manufacture crop production products. To meet this objective, we enter into various types of derivative instruments to manage fluctuations in cash flows resulting from commodity price risk. The instruments we use may include exchange traded futures contracts, over the counter (OTC) swap contracts and OTC option or exchange traded option contracts. The changes in the market value of such contracts have historically been, and are expected to continue to be, highly effective at offsetting changes in price movements of the hedged item. The amount of hedge ineffectiveness, which is recognized as a component of other income (expense), was immaterial for the three months ended November 30, 2001 and 2002.

Based on management's assessment of our price risk exposure, we may use derivatives to reduce our exposure to the variability in future cash flows associated with natural gas. Gains and losses on closed contracts were recorded in AOCI and will be reclassified, on a first-in, first-out basis, as a component of cost of sales when the related crop production product is sold. We have closed contracts related to each month through December 2003. As a result, we anticipate that approximately $3.9 million of gains in AOCI as of November 30, 2002 will be reclassified into earnings within the next twelve months.

(8) Commitments and Contingencies

Farmland has been designated by the Environmental Protection Agency ("EPA") as a potentially responsible party ("PRP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), at various National Priority List ("NPL") sites. In addition, we are aware of possible obligations associated with environmental matters at other sites, including sites where no claim or assessment has been made. Our accrued liability for probable and reasonably estimable obligations for resolution of environmental matters at NPL and other sites was $14.2 million and $20.0 million at November 30, 2002 and August 31, 2002, respectively. We periodically review and, as appropriate, revise our environmental accruals. Based on current information and regulator requirements, we believe that the accruals established for environmental expenditures are adequate.

The ultimate costs of resolving certain environmental matters are not quantifiable because many such matters are in preliminary stages and the timing and extent of actions which governmental authorities may ultimately require are unknown. It is possible that the costs of such resolution may be greater than the liabilities which, in the opinion of management, are probable and which can be reasonably estimated at November 30, 2002. In the opinion of management, it is reasonably possible for such additional costs to approximate an additional $8.5 million.

Under the Resource Conservation Recovery Act of 1976 ("RCRA") and under state regulations, Farmland has four closure and six post-closure plans in place for five locations. Such closure and post-closure costs are estimated to be $10.0 million at November 30, 2002, of which $6.2 million has been accrued (and are in addition to the $14.2 million accrual and the $8.5 million discussed in the prior paragraphs). Certain environmental claims may be discharged by the Court, including certain amounts accrued at November 30, 2002.

The EPA has issued rules limiting sulfur in gasoline to 30 parts per million and in diesel fuel to 15 parts per million. The rules affecting gasoline have a January 1, 2004 compliance date. The EPA has issued Farmland a regulatory extension of the gasoline deadline until January 1, 2008. Furthermore, Congress is considering legislation which may result in classification of Farmland as a small refiner. Classification as a small refiner may provide Farmland with greater flexibility in meeting the low sulfur requirements. The rules affecting diesel fuel have a June 1, 2006 compliance date. Based on information currently available, we anticipate that, at our Coffeyville, Kansas petroleum refinery, expenditures in the range of approximately $75 million to $85 million will be required to achieve compliance with these rules. Our ability to make these expenditures is contingent on our ability to successfully implement a plan of reorganization and arrange adequate financing. There can be no assurance that we will be able to successfully implement a plan of reorganization or, if a plan of reorganization is successfully implemented, that we can arrange adequate financing to fund the capital expenditures necessary to bring the refinery into compliance with the EPA's low sulfur rules. As set forth in our plan of reorganization filed November 27, 2002, we intend to dispose of our petroleum assets, which consist principally of our Coffeyville, Kansas refinery. If we are unable to sell the refinery, we will explore all viable options, including additional discussions with the EPA to delay the required implementation date, but ultimately we may determine that we should cease refining operations and close the refinery.

During 2002, Agriliance offset approximately $15 to $20 million of payables due from Agriliance to Farmland against receivables due to Agriliance from Farmland. We have initiated a legal proceeding to challenge this offset on the grounds that Agriliance:

. overstated the amounts due from Farmland;

. did not have the legal right to offset certain amounts due from Farmland against payables due to Farmland; and

. offset amounts that are in dispute.

Accordingly, we have not recorded the offset in our unaudited Condensed Consolidated Financial Statements, and the unpaid amounts due from and to Agriliance are included in our unaudited Condensed Consolidated Balance Sheets as of November 30, 2002 and August 31, 2002.

As more fully described in Note 1(B) to these unaudited Condensed Consolidated Financial Statements, the Debtors have filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court. On November 27, 2002, the Debtors filed a joint plan of reorganization with the Court.

The Debtors are currently operating as debtors-in-possession under the supervision of the Court. As debtors-in-possession, the Debtors, subject to any required court approval, may elect to assume or reject real estate leases, employment contracts, personal property leases, service contracts, and other unexpired executory pre-petition contracts prior to the confirmation of a plan of reorganization. We have estimated and accrued our liability resulting from contracts rejected through November 30, 2002 and this estimated liability, in the amount of $14.2 million, is included in our unaudited Condensed Consolidated Balance Sheets as Liabilities Subject to Compromise.

Under the Bankruptcy Code, the rights and treatment of pre-petition creditors and equity holders will be substantially altered. As a result of the Chapter 11 proceedings, virtually all liabilities, litigation and other claims against the Debtors that were in existence as of the Petition Date are stayed unless the stay is modified or lifted or payment is authorized by the Court. The bankruptcy proceedings may substantially change the amount and characterization of liabilities currently presented in our unaudited Condensed Consolidated Financial Statements. The ultimate amount of the allowed claims against the Debtors and the manner in which those claims might be resolved are not presently determinable.

Because of the ongoing nature of the Debtors' Chapter 11 cases, the outcome of which is not determinable until a plan of reorganization is confirmed and consummated our unaudited Condensed Consolidated Financial Statements are subject to material uncertainties.

Farmland is involved in various lawsuits arising in the normal course of business. In the opinion of management, the ultimate resolution of these litigation issues is not expected to have a material adverse effect on our unaudited Condensed Consolidated Financial Statements.

(9) Restructuring and Other Charges

During fiscal year 2001, Farmland recognized a restructuring reserve as a result of restructuring activities. During the three months ended November 30, 2002, no additions or adjustments were made to the reserve. Deductions to the reserve in the amount of $0.4 million relate to a reduction in the accrual for catalyst maintenance at our fertilizer plant in Pollock, Louisiana. During the three months ended November 30, 2001, adjustments to the reserve reduced the balance by $2.8 million. The major component of this adjustment resulted from the sale, during October 2001, of the assets of Heartland Wheat Growers, our wheat gluten plant in Russell, Kansas. The sale released us from future plant maintenance, property taxes, and all other obligations associated with maintaining idle plant and property. Deductions to the reserve in the amount of $0.4 million represented severance payments and ongoing maintenance costs associated with the closure of the wheat gluten plant and our Mexico City office.

During the three months ended November 30, 2002, restructuring income of $1.7 million was recorded as a result of the recovery of precious metals contained in our catalyst when equipment was dismantled at our Lawrence, Kansas plant.

As part of the restructuring costs incurred in 2001, we recorded an asset impairment related to the closure of our wheat gluten plant to its estimated net realizable value. During October 2001, the assets of the plant were sold and a gain in the amount of $3.5 million was recorded, representing the excess of the net proceeds over the plant's estimated net realizable value.

The following table displays the activity and balances of the restructuring reserve account from August 31, 2001 to November 30, 2001:

Type of Cost	Aug 31, 2001 Balance		Additions		Adjustments		Deductions		Nov 30, 2001 Balance
	(Amounts in Thousands)

Employee separations	$	1,602	$	16	$	(228)	$	(324)	$	1,066
Facility closings		3,830		-0-		(2,598)		(114)		1,118
Other		2,500		-0-		-0-		-0-		2,500
Total	$	7,932	$	16	$	(2,826)	$	(438)	$	4,684

The following table displays the activity and balances of the restructuring reserve account from August 31, 2002 to November 30, 2002:

Type of Cost	Aug 31, 2002 Balance		Additions		Adjustments			Deductions			Nov 30, 2002 Balance
	(Amounts in Thousands)

Employee separations	$	-0-	$	-0-	$	-0-	$		-0-	$		-0-
Facility closings		1,238		-0-		-0-			(419)			819
Other		2,150		-0-		-0-			-0-				2,150
Total	$	3,388	$	-0-	$	-0-	$		(419)	$			2,969

(10) Other Income

Other income for the three months ended November 30, 2002 included $7.4 million in proceeds received from a settlement related to vitamin supplements and $2.3 million as a result of a refund of improperly assessed ad valorem tax related to natural gas purchases made in prior years.

Other income for the three months ended November 30, 2001 included a gain of $18.0 million recognized on the sale of our equity interest in Country Energy to Cenex Harvest States.

(11) Reorganization Expense

Costs directly related to our reorganization under Chapter 11 of the Bankruptcy Code are reflected as Reorganization expense in our unaudited Condensed Consolidated Statements of Operations. Reorganization expense for the three months ended November 30, 2002 was as follows:

(Amounts in Thousands)

Impairment of property, plant and equipment, and other assets	$	424,517
Legal and professional fees		8,848
Financing fees		35
Severance and employee retention		900
Bankruptcy trustee fees		24
Gain on settlement with customers and vendors		(289)
Gain on sale of property, plant and equipment		(531)
Loss on sale of investments		350
	$	433,854

(12) Discontinued Operations

During February 2002 (the "measurement date"), a decision was made to liquidate our international grain trading subsidiaries, Tradigrain. Tradigrain was acquired in 1993 and provided international grain marketing and brokerage services to our customers. The formation of ADM/Farmland, our domestic grain relationship, the changing environment which limited the availability of bank credit for trading businesses, and our continuing focus on core businesses were the primary reasons for exiting this business.

The disposal plan consists primarily of the termination of normal activity, the sale of existing inventories, the collection of receivables and other claims, and the settlement of trade and financing liabilities. For the three months ended November 30, 2001, the accompanying unaudited Condensed Consolidated Statements of Operations have been reclassified to reflect Tradigrain as discontinued operations. For business segment reporting purposes, Tradigrain business results are reported as discontinued operations within the "World Grain" segment. Proceeds from the liquidation of Tradigrain are being used to pay Tradigrain's operating expenses and to repay Tradigrain's debt obligations.

As of November 30, 2002, management estimates that Tradigrain's liquidation will not result in a loss in a future period. However, Tradigrain's remaining assets primarily consist of trade and insurance receivables. Such trade receivables may be difficult to fully collect during the windup of operations. As a part of our accounting process we have established reserves to reduce these receivables to our best estimate of net realizable value. The insurance receivables result from soybeans Tradigrain owned which were stored in a warehouse owned by a third party. These soybeans were misappropriated. The soybeans were insured and Tradigrain is currently involved in litigation to recover from the insurer the value of the soybeans. Based on information provided by our legal counsel, we believe Tradigrain has a meritorious case and is more likely than not to recover much of the value of the misappropriated soybeans and/or trading losses. Furthermore, the length of time required to liquidate our operations could vary from our estimate, which would affect total general and administrative expenses incurred during the liquidation. If actual events differ from our estimates, there could be a material impact on our results of operations and financial position.

The following tables summarize financial information for Farmland's discontinued operations.

Balance sheet of discontinued operations:

	August 31		November 30
	2002		2002
	(Amounts in Thousands)
Assets

Accounts receivable - trade	$	20,756	$	13,179
Inventories		104		118
Other current assets		36,304		33,876
Total current assets	$	57,164	$	47,173

Property, plant and equipment, net	$	1,197	$	145
Other long-term assets		855		727
Total long-term assets	$	2,052	$	872

Total assets	$	59,216	$	48,045

Liabilities

Short-term notes payable	$	2,614	$	2,180
Accounts payable - trade		13,254		8,854
Other current liabilities (less cash netted against bank overdrafts of $7.0 million at August 31, 2002 and $6.6 million at November 30, 2002) ………………………………………..		19,252		12,618
Total current liabilities	$	35,120	$	23,652

Intercompany liabilities due to Farmland		11,540		11,544

Total liabilities	$	46,660	$	35,196

Net assets of discontinued operations	$	12,556	$	12,849

Net sales and income from discontinued operations:

	Three Months Ended November 30
		2001	2002
	(Amounts in Thousands)

Net sales	$	404,290	$	177

Pretax income (loss) from discontinued operations	$	(2,861)	$	150
Income tax benefit		-0-		144
Net income (loss) from discontinued operations	$	(2,861)	$	294

Cash flows related to discontinued operations:

	Three Months Ended November 30
	2001			2002
	(Amounts in Thousands)
Net cash provided by operating activities	$	80,599	$		4,845
Net cash provided by investing activities		260			127
Net cash (used in) financing activities		(71,847)			(5,412)
Net increase (decrease) in cash and cash equivalents	$	9,012	$		(440)
Cash and cash equivalents at beginning of period		8,708			7,014

Cash and cash equivalents at end of period	$	17,720	$		6,574

(13) Industry Segment Information

As a result of changing our management structure, effective September 1, 2002, Pork Marketing and Beef Marketing are presented as separate segments rather than as components of the Refrigerated Foods segment. Segment results for the three months ended November 30, 2001 were reclassified to conform to our current operational structure.

Three months ended
November 30, 2001 (Page 1 of 3)
(Amounts in Thousands)
		CONSOLIDATED SEGMENTS
						Unallocated
				Combined Segments		Corporate Expenses		Consolidated
	Sales & transfers		$	2,620,222	$	-0-	$	2,620,222
	Transfers between segments			(772,029)		-0-		(772,029)
	Net sales		$	1,848,193	$	-0-	$	1,848,193

	Income (loss) from continuing operations		$	21,052	$	(14,942)	$	6,110

	Loss from discontinued operations, net of income tax benefit			(2,861)		-0-		(2,861)

	Net income (loss)		$	18,191	$	(14,942)	$	3,249

	Goodwill		$	30,760	$	21,848	$	52,608

	Total assets		$	2,330,451	$	288,967	$	2,619,418

Three months ended
November 30, 2002 (Page 1 of 3)
(Amounts in Thousands)
		CONSOLIDATED SEGMENTS
						Unallocated
				Combined Segments		Corporate Expenses		Consolidated
	Sales & transfers		$	1,884,039	$	-0-	$	1,884,039
	Transfers between segments			(229,284)		-0-		(229,284)
	Net sales		$	1,654,755	$	-0-	$	1,654,755

	Income (loss) from continuing operations before reorganization expense		$	17,811	$	(1,330)	$	16,481

	Reorganization expense			(422,845)		(11,009)		(433,854)

	Income (loss) from continuing operations		$	(405,034)	$	(12,339)	$	(417,373)

	Income from discontinued operations, net of income tax benefit			294		-0-		294

	Net income (loss)		$	(404,740)	$	(12,339)	$	417,079

	Goodwill		$	28,740	$	-0-	$	28,740

	Total assets		$	1,545,747	$	211,119	$	1,756,866

Three months ended
November 30, 2001 (Page 2 of 3)
(Amounts in Thousands)
		INPUT AND OTHER SEGMENTS
				Crop Production		Petroleum			Feed			Other Operating Units			Total Input and Other Segments
	Sales & transfers		$	169,623	$	387,591	$	-0-		$	539,173		$	1,096,387
	Transfers between segments			(2,822)		(5,251)		-0-			(512,702)			(520,775)
	Net sales		$	166,801	$	382,340	$	-0-		$	26,471		$	575,612

	Income (loss) from continuing operations		$	(42,061)	$	35,237	$	614		$	7,270		$	1,060

	Loss from discontinued operations, net of income tax benefit			-0-		-0-		-0-			-0-			-0-

	Net income (loss)		$	(42,061)	$	35,237	$	614		$	7,270		$	1,060

	Goodwill		$	-0-	$	-0-	$	-0-		$	-0-		$	-0-


	Total assets		$	670,025	$	399,064	$	57,066		$	50,010		$	1,176,165

Three months ended
November 30, 2002 (Page 2 of 3)
(Amounts in Thousands)
			INPUT AND OTHER SEGMENTS
							Crop Production				Petroleum				Feed				Other Operating Units				Total Input and Other Segments
		Sales & transfers			$		147,746		$		256,839		$		-0-		$		5,617		$		410,202
		Transfers between segments					(1,583)				(1,231)				-0-				-0-				(2,814)
	Net sales			$		146,163		$		255,608		$		-0-		$		5,617		$		407,388

	Income (loss) from continuing operations before reorganization expense			$		(10,657)		$		(1,219)		$		8,082		$		(1,063)		$		(4,857)

	Reorganization (expense)					(275,679)				(147,754)				-0-				297				(423,136)

	Income (loss) from continuing operations			$		(286,336)		$		(148,973)		$		8,082		$		(766)		$		(427,993)

	Income from discontinued operations, net of income tax benefit					-0-				-0-				-0-				-0-				-0-

		Net income (loss)			$		(286,336)		$		(148,973)		$		8,082		$		(766)		$		(427,993)

		Goodwill			$		-0-		$		-0-		$		-0-		$		-0-		$		-0-


		Total assets			$		455,348		$		119,145		$		59,489		$		14,580		$		648,562


Three months ended
November 30, 2001 (Page 3 of 3) (Amounts in Thousands)
	OUTPUT SEGMENTS
							Total
	Pork		Beef		World		Output
	Marketing		Marketing		Grain		Segments
Sales and transfers	$	690,843	$	830,407	$	2,585	$	1,523,835
Transfers between segments		(235,713)		(15,541)		-0-		(251,254)
Net sales	$	455,130	$	814,866	$	2,585	$	1,272,581

Income (loss) from continuing operations	$	10,073	$	11,387	$	(1,468)	$	19,992

Loss from discontinued operations, net of income tax benefit		-0-		-0-		(2,861)		(2,861)

Net income (loss)	$	10,073	$	11,387	$	(4,329)	$	17,131

Goodwill	$	2,859	$	16,638	$	11,263	$	30,760


Total assets	$	434,912	$	388,371	$	331,003	$	1,154,286


Three months ended
November 30, 2002 (Page 3 of 3) (Amounts in Thousands)
	OUTPUT SEGMENTS
							Total
	Pork		Beef		World		Output
	Marketing		Marketing		Grain		Segments
Sales and transfers	$	606,139	$	867,698	$	-0-	$	1,473,837
Transfers between segments		(207,620)		(18,850)		-0-		(226,470)
Net sales	$	398,519	$	848,848	$	-0-	$	1,247,367

Income (loss) from continuing operations before reorganization expense	$	11,252	$	11,943	$	(527)	$	22,668

Reorganization (expense)		279		-0-		12		291

Income (loss) from continuing operations	$	11,531	$	11,943	$	(515)	$	22,959

Income from discontinued operations, net of income tax benefit		-0-		-0-		294		294

Net income (loss)	$	11,531	$	11,943	$	(221)	$	23,253

Goodwill	$	2,767	$	15,889	$	10,084	$	28,740


Total assets	$	387,609	$	416,345	$	93,231	$	897,185

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information contained in this discussion and in the unaudited 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 Farmland's Annual Report on Form 10-K for the year ended August 31, 2002.

Recent Developments

Bankruptcy Proceedings

As a part of the bankruptcy process, we are required to file a disclosure statement with the Court. The disclosure statement will provide all creditor classes with information regarding our proposed reorganization, including identification of assets we intend to sell and estimated cash proceeds from those sales. Currently, the Court is considering our motion to postpone the date by which we must file our disclosure statement from January 15, 2003 to March 31, 2003. Once the disclosure statement is deemed adequate by the Court, the disclosure statement will be submitted to the various impaired classes, and the plan of reorganization will be voted on by those classes.

As provided in the DIP Credit Facility, under certain circumstances it is an event of default if the Debtors fail to file a plan of reorganization approved by all lenders under the DIP Credit Facility (the "DIP Lenders") (such approval not to be unreasonably withheld) by November 27, 2002. Farmland believes, based on consultation with counsel, that the plan of reorganization, as filed on November 27, 2002, satisfies the requirements of the DIP Credit Facility. Subsequent to November 30, 2002, the DIP Lenders asserted that the plan of reorganization, as filed, did not satisfy the requirements of the DIP Credit Facility. Concurrent with this assertion, the DIP Lenders notified Farmland that the DIP Lenders were terminating the $25.0 million Tranche A loan commitment under the DIP Credit Facility and were increasing, by 200 basis points, the interest rate charged to Farmland on borrowings outstanding under the DIP Credit Facility. As a result of the assertion by the DIP Lenders that an event of default exists as described in the preceding paragraph, Farmland entered into an amendment to the DIP Credit Facility on January 8, 2003 (the "DIP Amendment") in order to resolve issues surrounding the alleged event of default by the DIP Lenders and modify certain other terms of the agreement. The effectiveness of the amendment requires approval of the Court, which Farmland is in the process of seeking. See "Financial Condition, Liquidity and Capital Resources" for additional discussion regarding the DIP Amendment.

In the event that the Court does not approve the DIP Amendment, Farmland continues to believe that the plan of reorganization satisfies the requirements of the DIP Credit Facility as the plan of reorganization, among other things, provides that the DIP Lenders will be paid in full in cash on or before the effective date of the plan of reorganization, which will be prior to the termination date of the DIP Credit Facility. Since, as described in the plan of reorganization, the DIP Lenders are unimpaired, the DIP Lenders will not be offered the opportunity to vote on the plan of reorganization. Based on consultation with counsel, Farmland believes that, absent Court approval of the DIP Amendment, if the DIP Lenders were to attempt to declare all unpaid loans and accrued interest under the DIP Credit Facility to be due and payable, or if the DIP Lenders were to seek to terminate their obligation to make future loans under Tranche B of the DIP Credit Facility, the Court, if presented with the issue, should not permit the DIP Lenders, in the present circumstances, to do so.

The ability of Farmland to continue as a going concern is dependent upon, but not limited to, the confirmation of the plan of reorganization, continued access to adequate sources of capital, the continued compliance with all covenants under the DIP Credit Facility, as proposed to be amended, the ability to secure new financing adequate to support our remaining businesses if and when we emerge from our Chapter 11 proceedings, retention of key suppliers, customers and employees, and the ability to sustain positive cash flows sufficient to fund operations and repay debt. No assurance can be given that the Debtors will be successful in reorganizing their affairs within the Chapter 11 proceedings. Because of the ongoing nature of the reorganization process, the outcome of which is not determinable until a plan of reorganization is confirmed and consummated, the accompanying unaudited Condensed Consolidated Financial Statements are subject to material uncertainties, and we cannot assure you that Farmland will successfully emerge from bankruptcy proceedings.

Disposition of Assets

In conjunction with our reorganization proceedings, we are evaluating the potential sale or repositioning of a number of assets. Any sale of significant assets outside the normal course of business must be reviewed by our creditor committees and approved by the Court. If the Board approves the acceptance of a bid, then we would present the bid to the creditor committees for review, with a view, ultimately, to presenting the bid to the Court for approval.

Crop Production Nitrogen Assets

Subsequent to August 31, 2002, the Board authorized management to initiate a bid process for our crop production nitrogen assets, but did not commit to a plan to sell the assets. During mid-November 2002, we received various bids to purchase our crop production nitrogen assets. Management is currently evaluating the bids and, following negotiations regarding terms and conditions, will determine which, if any, bid or bids to recommend to the Board. The Board will determine whether to:

direct management to work with one or more bidders to restructure the bid or bids;
reject the bid or bids;
pursue another alternative; or
approve the acceptance of a bid or bids and commit to a plan to gain Court approval to sell our crop production assets.

In our plan of reorganization, filed November 27, 2002, we stated our intent to dispose of our crop production assets. Despite this stated intent, these assets are not classified as held for sale as, ultimately, any disposition must be approved by the Court and, to date, the Court has not approved such disposition. As a result, as of November 30, 2002, our crop production assets were classified as held for operations. Since during the first quarter we determined that it was more likely than not that our crop production assets would be disposed of, those assets were tested for impairment at November 30, 2002 pursuant to SFAS No. 144 using projected undiscounted cash flows based on management's best assumptions regarding the use and eventual disposition of these assets. Based on these tests and our assumptions and determinations as of November 30, 2002, these assets were impaired at November 30, 2002. Using management's best estimate as of November 30, 2002, it appears that the estimated fair value we will receive on disposition of these assets exceeds the carrying value of these assets by approximately $275.9 million. Since the ultimate proceeds from disposition of these assets will result from a bidding and auction process conducted in our bankruptcy proceedings, the ultimate loss may differ from the amount recognized at November 30, 2002. This estimated loss is included in reorganization expense in the accompanying unaudited Condensed Consolidated Statements of Operations.

Petroleum Assets

Subsequent to August 31, 2002, the Board authorized management to initiate a bid process for our petroleum assets, but did not commit to a plan to sell the assets. Subsequent to August 31, 2002, we received letters of interest to purchase our petroleum assets. Management is currently evaluating the bids and, following negotiations regarding terms and conditions, will determine which, if any, bid or bids to recommend to the Board. The Board will determine whether to:

direct management to work with one or more bidders to restructure the bid or bids;
reject the bid or bids;
pursue another alternative; or
approve the acceptance of a bid or bids and commit to a plan to gain Court approval to sell our petroleum assets.

In our plan of reorganization, filed November 27, 2002, we stated our intent to dispose of our petroleum assets. Despite this stated intent, these assets are not classified as held for sale as, ultimately, any disposition must be approved by the Court and, to date, the Court has not approved such disposition. As a result, as of November 30, 2002, our petroleum assets were classified as held for operations. Since during the first quarter we determined that it was more likely than not that our petroleum assets would disposed of, those assets were tested for impairment at November 30, 2002 pursuant to SFAS No. 144 using projected undisscounted cash flows based on management's best assumptions regarding the use and eventual disposition of these assets. Based on these tests and our assumptions and determinations as of November 30, 2002, these assets were impaired at November 30, 2002. Using management's best estimate as of November 30, 2002, it appears that the estimated fair value we will receive on disposition of these assets exceeds the carrying value of these assets by approximately $147.7 million. Since the ultimate proceeds from disposition of these assets will result from a bidding and auction process conducted in our bankruptcy proceedings, the ultimate loss may differ from the amount recognized at November 30, 2002. This estimated loss is included in reorganization expense in the accompanying unaudited Condensed Consolidated Statements of Operations.

North America Grain Assets

Our Board of Directors has authorized management to negotiate the possible sale of substantially all of our North America Grain assets. These assets are currently leased to ADM/Farmland, a subsidiary of the Archer Daniels Midland Company ("ADM"). Farmland receives 50% of the earnings or losses of the ADM/Farmland unit as a component of the lease

As of November 30, 2002, our grain assets were classified as held for operations. Consistent with this classification, the assets were tested for impairment at August 31, 2002 using projected undiscounted cash flows. Based on this test, the grain assets were not impaired at August 31, 2002.

Protein Assets

As part of the reorganization process, Farmland has a responsibility to consider whether it would be in the best interest of the unsecured creditors, unsecured bondholders, and other stakeholders to retain or to sell part or all of our protein assets, including Farmland Foods, Inc., Livestock Production and our investment in Farmland National Beef Packing Company. To help us determine the course of action that will provide the most benefit to our unsecured creditors, unsecured bondholders, and other stakeholders, Farmland requested, and has received, Court approval to enter into a contract with Trinity Capital to provide strategic and financial advisory and consulting services in connection with our evaluation of our Farmland Foods and Livestock Production assets. We anticipate amending our plan of reorganization to reflect that, in connection with our DIP Amendment, we have established a process for selling our beef marketing business, and this process includes certain milestone dates. See "Financial Condition, Liquidity and Capital Resources" for additional information regarding the proposed DIP Amendment. If we are able to pay, in full, our DIP Lenders prior to the date we would otherwise be required to sell our beef marketing business, we will not have any obligation to sell a part or all of our beef marketing business.

Critical Accounting Policies

The unaudited Condensed Consolidated Financial Statements of Farmland are prepared in conformity with accounting principles generally accepted in the United States. The preparation of these financial statements requires the use of estimates, judgments, and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. These critical accounting policies are identified and described more fully in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies" included in our Annual Report on Form 10-K for the year ended August 31, 2002.

One of the identified critical accounting policies disclosed our method for valuing long-lived and intangible assets, including goodwill. This policy has been modified as a result of the adoption of SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets", on September 1, 2002. Application of SFAS No. 144 requires management to make various estimates, including estimates as to the fair value of long-lived assets. While all such estimates by management have been in good faith, actual results will differ from management's estimates. See "Recent Developments - Disposition of Assets" for further information regarding application of SFAS No. 144.

Contractual Obligations

Farmland's contractual obligations, including commitments for future payments under non-cancelable lease arrangements and short and long-term debt arrangements, are summarized below.

	Payments due by period
	Total		Less than 1 year				1-3 years		4-5 years			After 5 years
	(Amounts in millions)

Long-term debt including capital leases	$	471.3		$	322.1	$		46.3		$	71.2		$	31.7
Liabilities subject to compromise⁽¹⁾		885.6			N/A			N/A			N/A			N/A
Operating leases⁽²⁾		126.2			24.2			40.6			22.9			38.5
Take or pay contracts		154.8			33.0			59.4			44.5			17.9
Forward purchase obligation ⁽³⁾		1,671.1			404.5			619.8			476.7			170.1
Purchase option for Enid, Oklahoma nitrogen facilities		25.5			25.5			-0-			-0-			-0-
Total contractual obligations	$	3,334.5		$	809.3	$		766.1		$	615.3		$	258.2

⁽¹⁾ As a result of the Chapter 11 filings, substantially all pre-petition indebtedness of the Debtors is subject to compromise or other treatment under the plan of reorganization. Generally, actions to enforce or otherwise effect payment of pre-Chapter 11 liabilities are stayed pending Court approval or the confirmation of a plan of reorganization.

⁽²⁾ Future minimum lease payments may be reduced as we complete our review of all executory contracts, including operating leases, and determine which we will assume and which we will reject. Once we reject an operating lease, we no longer owe the future minimum lease payments, but we may owe damages to the other party.

⁽³⁾ The forward purchase contracts are for a commodity and have variable pricing. The contractual obligation was calculated using a five year historical average price. We also have contracts to take, at variable formula prices, the output of our SF Phosphates and Farmland MissChem joint ventures. As the output is not controlled by Farmland, we have not included future purchases from these ventures in this table. During the year ended August 31, 2002, we purchased 423,000 tons at a cost of $80.5 million from these ventures.

Farmland also has contingent liabilities and commitments that are not reflected in our unaudited Condensed Consolidated Balance Sheets. These contingent liabilities and commitments primarily include the following:

letters of credit of $48.4 million (including $22.5 million which is nonrecourse to Farmland and Farmland's other affiliates) outstanding as of November 30, 2002;
Tradigrain has guarantees with banks of $2.2 million as of November 30, 2002, which are nonrecourse to Farmland and Farmland's other affiliates;
certain environmental matters that are in preliminary stages and the timing and extent of actions which governmental authorities may ultimately require are unknown, but it is reasonably possible that such liabilities could exceed the liability accrued at November 30, 2002 by approximately $8.5 million;
an estimated $3.8 million of unaccrued costs relating to closure and post-closure plans in place for five locations; and
the total damages related to rejected operating leases will ultimately depend on the number of operating leases rejected, the total value of future payments related to those rejected leases, the contract language of each lease and the ability of the lessor to mitigate damages.

Financial Condition, Liquidity and Capital Resources

Farmland's liquidity depends primarily on cash flow from operations and our access to debt capital. On May 31, 2002, due to significantly limited liquidity, the Debtors filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code. The filings were made in order to facilitate the restructuring of the Debtors' trade liabilities, debt, and other obligations. The Debtors are currently operating as debtors-in-possession under the supervision of the Court.

Farmland has historically maintained two primary sources for debt capital: (1) bank lines of credit and (2) a historically substantially continuous but now suspended public offering of its subordinated debt and demand loan securities.

On February 7, 2002, Farmland and a syndicate of banks, including Deutsche Bank Trust Company Americas, Rabobank, and CoBank, entered into the Pre-petition Credit Facility. The Chapter 11 petition filings constituted an event of default under the terms of our Pre-petition Credit Facility. As of the Petition Date, the Debtors were indebted under the Pre-petition Credit Facility in the amount of $399.7 million (consisting of $233.0 million in revolving loans, $31.7 million of letters of credit obligations and a $135.0 million term loan) plus additional fees, interest and expenses. The Pre-petition Credit Facility was collateralized by a substantial portion of our accounts receivable, inventories, property, plant and equipment and intangible assets.

Subsequent to the Petition Date, the Debtors and a syndicate of banks, including Deutsche Bank Trust Company Americas, entered into the DIP Credit Facility, which was subsequently revised and approved by the Court, to provide up to $306.0 million in post-petition financing. The DIP Credit Facility expires on the occurrence of an event that constitutes a commitment termination date as defined in the agreement or, if no such event has occurred, on November 30, 2003. All outstanding borrowings under the DIP Credit Facility are due and payable on the commitment termination date.

The DIP Credit Facility is collateralized by a first priority priming lien on all assets of the Debtors, including all real, personal and mixed property, both tangible and intangible, but excluding rights in respect to avoidance actions approved by the Court under the Bankruptcy Code. The DIP Credit Facility also allows for super priority administrative expense claim status in the Chapter 11 cases with priority over certain other administrative expenses of the kind specified or ordered pursuant to provisions of the Bankruptcy Code. The DIP Credit Facility also includes various restrictive covenants prohibiting the Debtors from, among other things, incurring additional indebtedness, permitting any liens or encumbrances to be placed on property or assets, making investments, or becoming liable for any contingent obligations, all as defined in the agreement.

As of November 30, 2002, the $306.0 million DIP Credit Facility was comprised of two separate commitments: a $25.0 million Tranche A commitment and a $281.0 million Tranche B commitment. The Tranche A commitment was intended to be a "backstop" to be used only if we needed to issue new letters of credit or we had exhausted our borrowing capacity under Tranche B as determined periodically, as described below, by a borrowing base calculation based on collateral values. Since inception of the DIP Credit Facility, Farmland has not had to utilize Tranche A for any borrowings under the DIP Credit Facility. Our ability to borrow under Tranche B of the DIP Credit Facility is limited by several factors, including:

the amount available under Tranche B is determined periodically through the use of a borrowing base formula based on the amount and nature of our inventory, receivables and required reserves;
we are subject to three budget covenants contained in the DIP Credit Facility: (1) a maximum amount of the DIP Credit Facility that can be utilized, (2) a minimum amount of excess availability determined by a borrowing base formula, and (3) a minimum level of operating revenues, all as described in the agreement; and
we are required to comply with all of the other terms and conditions of the DIP Credit Facility.

As provided in the DIP Credit Facility under certain circumstances it is an event of default if the Debtors fail to file a plan of reorganization approved by all DIP Lenders (such approval not to be unreasonably withheld) by November 27, 2002. Farmland believes, based on consultation with counsel, that the plan of reorganization, as filed on November 27, 2002, satisfies the requirements of the DIP Credit Facility. Subsequent to November 30, 2002, the DIP Lenders asserted that the plan of reorganization, as filed, did not satisfy the requirements of the DIP Credit Facility. Concurrent with this assertion, the DIP Lenders notified Farmland that the DIP Lenders were terminating the $25.0 million Tranche A loan commitment under the DIP Credit Facility and were increasing by 200 basis points, the interest rate charged on borrowings outstanding under the DIP Credit Facility. The right of the DIP Credit Facility to charge this higher rate is unresolved and may be contested by Farmland. Farmland entered into an amendment to the DIP Credit Facility on January 8, 2003 (the "DIP Amendment") in order to resolve issues surrounding the alleged event of default by the DIP Lenders and to modify certain other terms of the agreement. The effectiveness of the amendment requires approval of the Court, which Farmland is in the process of seeking.

The DIP Amendment, if approved by the Court, requires Farmland to, among other things:

eliminate the Tranche A commitment as of December 9, 2002;
reduce the Tranche B commitment by $20 million to $256.5 million upon the effectiveness of the DIP Amendment;
require prepayment of at least $40 million by February 28, 2003 and an additional $10 million by March 31, 2003 of loans under the DIP Credit Facility or the Pre-petition Credit Facility;
establish milestones relating to the progress of the sales of our crop production and beef marketing businesses;
permit us to issue new letters of credit under the Tranche B commitment;
waive the alleged event of default relating to our plan of reorganization; and
limit the default interest charge based on the alleged event of default to the period from December 9, 2002 until the effectiveness of the DIP Amendment.

The DIP Amendment, if approved by the Court, eliminates the requirement by Farmland to file a plan of reorganization approved by all DIP Lenders and eliminates the requirement that the auditors' report covering Farmland's Consolidated Financial Statements express no doubts about the ability of Farmland and its subsidiaries to continue as a going concern.

As discussed above, at November 30, 2002, we believe we were in compliance with all financial covenants, terms, and conditions of the DIP Credit Facility; although the DIP Lenders have asserted that the plan of reorganization, as filed, did not satisfy the requirements of the DIP Credit Facility.

Interest on the DIP Credit Facility is variable and, through November 30, 2002, was based on a 2.50% spread over the higher of (1) the Prime Rate or (2) the rate which is 50 basis points in excess of the Federal Funds Effective Rate, as such terms are defined in the DIP Credit Facility. As of November 30, 2002, the higher rate, as so determined, was 6.75%. Through November 30, 2002, commitment fees of up to 100 basis points per annum were paid periodically on the unused portion of Tranche A of the DIP Credit Facility.

As of November 30, 2002, Farmland had borrowings under the DIP Credit Facility of $175.0 million, and $25.9 million of the facility was being utilized to support letters of credits. As calculated at November 30, 2002 and January 5, 2003, additional availability under the DIP Credit Facility was approximately $25.9 million and $20.9 million, respectively. Management believes that our borrowing capacity under the DIP Credit Facility, as proposed to be modified by the DIP Amendment, is adequate to enable us to continue operations under the supervision of the Court.

As of November 30, 2002, $130.7 million of the pre-petition term loan remains outstanding and accrues interest at a rate of 4% over the base rate (8.25% at November 30, 2002). Farmland does not pay any commitment fees related to the pre-petition term loan. All other obligations under the Pre-petition Credit Facility were paid from the proceeds of the DIP Credit Facility or have otherwise been satisfied.

In August 2001, Farmland National Beef Packing Company, L.P. ("FNBPC") established a five year, $225 million credit facility with a syndicate of banks. This facility provides for a line of credit for up to $100 million, and a term loan of $125 million, both of which are nonrecourse to Farmland. Borrowings under the credit facility are collateralized by substantially all the assets of FNBPC and are subject to certain financial covenants. FNBPC was in compliance with all covenants at November 30, 2002. At November 30, 2002 FNBPC had borrowings of $120.5 million, and $20.0 million of the facility was being utilized to support letters of credit. At November 30, 2002, availability under the line of credit was approximately $68.9 million. FNBPC is not a Debtor entity and has continued normal operations.

During February 2002, a decision was made to dispose of our international grain trading subsidiaries (collectively referred to as Tradigrain), through an orderly liquidation of assets and settlement of liabilities. The disposal plan consists primarily of the termination of normal activity, the sale of existing inventories, the collection of receivables, and the settlement of trade and financing liabilities. Our Switzerland subsidiary, which held the primary credit facility to fund the operations of all Tradigrain subsidiaries, filed for creditor protection at that time and all unused lines of credit were rescinded. Continuing financing is negotiated with the banks on an as needed basis. As of November 30, 2002, Tradigrain had short-term borrowings of $2.2 million and additionally had $8.7 million of outstanding checks and drafts which will be funded by the banks. All obligations of Tradigrain are nonrecourse to Farmland and Farmland's other affiliates.

Farmland maintains other borrowing arrangements with banks and financial institutions. Under such arrangements, at November 30, 2002, $3.5 million was borrowed and an additional $2.6 million were being utilized to support letters of credit, which are nonrecourse to Farmland.

Farmland has issued and outstanding 2 million shares of 8% Series A Cumulative Redeemable Preferred Shares (the "Preferred Shares") with an aggregate liquidation preference of $100 million ($50 liquidation preference per share). The Preferred Shares are not redeemable prior to December 15, 2022. On and after December 15, 2022, the Preferred Shares may be redeemed for cash at our option, in whole or in part, at specified redemption prices declining to $50 per share on and after December 15, 2027, plus accumulated and unpaid dividends. The Preferred Shares do not have any stated maturity, are not subject to any sinking fund or mandatory redemption provisions and are not convertible into any other security. Subsequent to the Petition Date, our Board of Directors has not authorized any payments of dividends on the Preferred Shares. The status of the Preferred Shares, including accumulated but unpaid dividends, will be subject to the final terms established in the Debtors' plan of reorganization as confirmed by the Court.

For the three months ended November 30, 2002, Farmland primary sources of cash were:

. cash generated from operations, before reorganization expenses and changes in assets and liabilities, of $43.6 million; and

an increase in checks and drafts outstanding of $17.1 million.

Cash generated was primarily used to:

support a $31.4 million increase in receivables, primarily related to our beef marketing business;
pay reorganization costs, primarily professional fees, of $9.8 million; and
fund $16.1 million in capital expenditures, primarily related to our beef marketing business.

Results of Operations

General

Farmland's sales, gross margins and net income or loss depend, to a large extent, on conditions in agriculture and may be volatile due to factors beyond our control, such as weather, crop failures, federal agricultural programs, currency fluctuations, tariffs, concerns over food safety, and other factors affecting United States imports and exports. In addition, various federal and state regulations intended to protect the environment encourage farmers to reduce the use of fertilizers and other chemicals. Global variables, such as general economic conditions, conditions in financial markers, embargoes, political instabilities, terrorist activities, local conflicts and other incidents affect, among other things, the supply, demand and price of crude oil, refined fuels, natural gas and other commodities and may unfavorably impact Farmland's operations. Historically, charges in the costs of raw materials have not necessarily resulted in corresponding changes in the prices at which finished products have been sold by Farmland. For example, at times during the last few years, the results of our crop production business have been adversely affected by a combination of high natural gas prices and competition from imports. Also, for example changes in the prices of crude oil and refined fuels have caused, and will continue to cause, significant variations in the results of our petroleum business. Management cannot determine the extent to which these factors may impact our future operations.

The level of operating income in the crop production, petroleum, pork and beef businesses is, to a significant degree, attributable to the spread between selling prices and raw material costs (natural gas in the case of nitrogen-based crop nutrients, crude oil in the case of petroleum products, live hogs in the case of pork products, and live cattle in the case beef products). We cannot determine the direction or magnitude to which these factors will affect our cash flow and net income or loss.

Results of Operations for Three Months Ended November 30, 2002 Compared to Three Months Ended November 30, 2001.

Sales for the three months ended November 30, 2002 decreased approximately $193.4 million, or 10%, compared with the same period last year. This decrease is primarily due to a decrease in sales recorded by our petroleum segment as we no longer market product to retailers.

For the three months ended November 30, 2002, we had a net loss of $417.1 million compared with a net income of $3.2 million for the same period last year. The decrease is primarily related to reorganization expense of $433.9 million incurred in the three months ended November 30, 2002, primarily resulting from the impairment of our crop production and petroleum assets, and a decline in our petroleum segment results before reorganization expense. This decrease is partially offset by an improvement in the crop production segments operating results before the reorganization charge, a partial settlement of vitamin supplement litigation included in the feed segment results and a decrease in interest expense primarily as a result of discontinuing interest accruals on certain unsecured debt.

Pork Marketing

Sales of the pork marketing segment decreased $56.6 million, or 12%, during the three months ended November 30, 2002 compared with the same period last year. The decrease was primarily due to an approximate 14% decrease in unit selling price partially offset by an approximate 2% increase in unit sales volume. Unit selling prices declined primarily as a result of competing proteins on the domestic market due to the Russian import ban on poultry products.

Income in the pork marketing segment increased by $1.5 million, or approximately 14% during the three months ended November 30, 2002 to an income of $11.5 million compared to an income of $10.0 million in the same period last year. Significant factors which caused the income of the pork marketing segment to increase for the three months ended November 30, 2002 compared with the prior year included:

. margins increased $0.5 million primarily as a result of an increase in slaughter levels and a decrease in hogs costs, partly offset by a decrease in per unit selling price;

. Selling, general, and administrative ("SG&A") expenses decreased $0.8 million primarily due to the reduction in work force in fiscal 2002; and

. interest expense decreased $3.1 million primarily due to discontinuing interest on certain pre-petition debt and lower inventory levels.

These factors were partially offset by:

. during the three months ended November 30, 2002, we realized a loss of $0.4 million on the sale of cull sows in the livestock production area because the market was lower in 2002 compared to 2001; and

. during the three months ended November 30, 2002, we incurred losses from derivative commodity instruments of $1.2 million compared with a gain of $0.9 million during the same period last year.

Beef Marketing

Sales of the beef marketing segment increased $34.0 million, or 4%, during the three months ended November 30, 2002 compared with the same period last year. The increase was primarily due to an approximate 7% increase in unit sales volume partially offset by an approximate 3% decrease in unit selling price. The increase in unit sales volume was primarily due to an increase in the number of cattle slaughtered and fabricated as a result of improved operational efficiencies. Unit selling prices declined primarily as a result of abundant supplies of competing proteins.

Income in the beef marketing segment increased by $0.6 million, or approximately 5% during the three months ended November 30, 2002 to an income of $11.9 million compared to an income of $11.3 million in the same period last year. Both sales dollars per head and variable costs per head during the three months ended November 30, 2002 were comparable to the revenues and costs during the three months ended November 30, 2001, resulting in a consistent gross margin.

World Grain

Our world grain segment incurred a loss of $0.2 million for the three months ended November 30, 2002 compared with a loss of $4.3 million in the same period last year. This change is primarily attributable to our discontinued international grain operations which during the three months ended November 30, 2001, incurred a loss primarily due to low gross margins on barley, sugar and freight combined with an increase in bad debt expense.

Crop Production

Sales of the crop production segment decreased $20.6 million, or 12%, during the three months ended November 30, 2002 compared with the same period last year. The decrease was primarily due to a 9% decrease in unit sales volume combined with a 4% decrease in average unit selling price. The decrease in unit sales volume is primarily due to a 38% decrease in phosphate-based plant food sales resulting from the sale of our Joplin, Missouri phosphate plant during February 2002 and the sale by Farmland Hydro of substantially all the assets of Farmland Hydro to Cargill Fertilizer, Inc. during November 2002.

The crop production segment incurred a loss of $286.3 million for the three months ended November 30, 2002 compared with a loss of $42.1 million for the same period last year. This $244.2 million decrease is primarily attributable to:

. during the three months ended November 30, 2002, we incurred reorganization expense of $275.7 million primarily as a result of the impairment charge recorded against certain long-lived assets;

. during the three months ended November 30, 2001, we were working off relatively high cost inventories at the same time as average unit selling prices were declining; as a result, margins increased $17.4 million in the current period compared with the same period last year;

. interest expense decreased $6.4 million primarily due to discontinuing interest on certain pre-petition debt and lower inventory levels; and

. other income increased $4.7 million primarily as a result of a refund of improperly assessed ad valorem tax related to natural gas purchases made in prior years; and

. during the three months ended November 30, 2002 we recognized a gain of $1.7 million in restructuring and other credits from the recovery of precious metals contained in our catalyst following the closure of our Lawrence, Kansas plant.

Petroleum

Sales of the petroleum segment decreased $126.7 million, or approximately 33%, for the three months ended November 30, 2002 compared with the same period last year. The decrease was primarily the result of a 26% decrease in refined fuels units sold; offset by slightly higher unit selling prices for gasoline, distillates and diesel fuels; and a 92% decrease in units sold for propane. The increase in unit prices for refined fuels was a result of a stronger demand for gasoline and distillates compared to the previous year. The lower demand last year was primarily a result of the September 11^th terrorist attacks. The decrease in unit sales is primarily a result of the sale of our equity interest in Country Energy and the impact it had on our sales mix. During the three months ended November 30, 2001, our sales included 41% of all product sold through our agent, Country Energy. These sales arranged by Country Energy were derived from Cenex Harvest States' portion of the output of the NCRA refinery at McPherson, Kansas, the output of Cenex Harvest States' refinery at Laurel, Montana, the output of Farmland's refinery at Coffeyville, Kansas, sales of gasoline and distillates purchased from third parties for resale, and sales of wholesale propane, lubricants and petroleum equipment. During the three months ended November 30, 2002, our petroleum sales consisted of 100% of the output of our Coffeyville, Kansas refinery, and we no longer participated in sales related to the refineries at McPherson, Kansas or Laurel, Montana; in the resale of petroleum products to third parties; or in the selling of wholesale propane, lubricants and petroleum equipment.

The petroleum segment incurred a loss of $149.0 million during the three months ended November 30, 2002, compared with income of $35.2 million for the same period last year. This $184.2 million decrease is primarily attributable to:

. during the three months ended November 30, 2002, we incurred reorganization expense of $147.8 million primarily as a result of the impairment charge recorded against certain long-lived assets;

. during the three months ended November 30, 2002 as compared to the same period last year margins decreased by $24.5 million primarily due to the narrowing of the spread between crude oil costs and refined fuel selling prices; crack spreads for the prior year were very high in the month of September 2001 due to low inventories; and

. the results for the three months ended November 30, 2001 include an $18.0 million gain on the sale of our interest in Country Energy.

These factors were partly offset by:

. during the three months ended November 30, 2002 as compared to the same period last year SG&A expenses decreased $4.8 million primarily as a result of exiting the petroleum marketing business.

Feed

Income for the feed segment increased from $0.6 million during the three months ended November 30, 2001 to $8.1 million during the three months ended November 30, 2002. The increase primarily resulted from $7.4 million in proceeds received during the three months ended November 30, 2002 from a settlement related to vitamin supplements.

Other Operating Units

The other operating units segment incurred a loss of $0.8 million during the three months ended November 30, 2002, an $8.1 million decrease as compared to income of $7.3 million in the same period last year. The decrease in income was primarily the result of a $6.2 million gain realized on the sale of our wheat gluten production facility last year.

Selling, General and Administrative Expenses

Selling, general and administrative ("SG&A") expense decreased $20.1 million for the three months ended November 30, 2002 compared with the same period last year. SG&A expense directly associated with business segments decreased $11.8 million, primarily as a result of completing the transition of our grain operations to ADM/Farmland, the sale of Country Energy, and the closing of certain businesses included in our other operating units segment. SG&A expense not directly associated with business segments decreased $8.3 million for the three months ended November 30, 2002 compared with the same period last year. This decrease is primarily related to a reduction in employee related costs, information services costs and financial advisory fees subsequent to our bankruptcy filing.

Restructuring and Other Charges

During the three months ended November 30, 2002, we recorded no adjustments to the reserve created in previous years for restructuring activities. Deductions to the reserve in the amount of $0.4 million relate to a reduction in the accrual for catalyst maintenance at our fertilizer plant in Pollock, Louisiana. During the three months ended November 30, 2001, we recorded adjustments in the amount of $2.8 million to the reserve created during the prior year for restructuring activities. The major component of this adjustment resulted from the sale, during October 2001, of the assets of Heartland Wheat Growers, our wheat gluten plant in Russell, Kansas. This sale released us from future plant maintenance, property taxes, and all other obligations associated with maintaining idle plant and property. During the three months ended November 30, 2002, restructuring income of $1.7 million was recorded as a result of the recovery of precious metals contained in our catalyst when equipment was dismantled at our Lawrence, Kansas plant. As a part of the restructuring costs incurred in fiscal year 2001, we recorded an asset impairment related to the closure of our wheat gluten plant to its estimated net realizable value. During October 2001, the assets of the plant were sold and a gain in the amount of $3.5 million was recorded representing the excess of the net proceeds over the plant's estimated net realizable value. See Note 9 "Restructuring and Other Charges" in the accompanying Notes to unaudited Condensed Consolidated Financial Statements.

Interest Expense

Interest expense from continuing operations decreased $16.0 million during the three months ended November 30, 2002 compared with the same period last year. Interest expense directly charged to the business segments decreased $12.9 million. The decrease in interest expense is primarily a result of the following:

. due to our bankruptcy, we discontinued accruing interest on certain unsecured debt, primarily subordinated debt securities, resulting in $13.1 million decrease in interest expense; and

. interest expense from other borrowings decreased $2.9 million as a result of a decrease in both average borrowings and our average borrowing rate.

Other Income

Other income decreased $10.3 million for the three months ended November 30, 2002 compared with the same period last year. Other income directly associated with business segments decreased $9.5 million primarily as the result of an $18.0 million gain on the sale of Country Energy during the three months ended November 30, 2001, partly offset by a $7.4 million gain related to a feed vitamin supplement partial settlement recognized during the three months ended November 30, 2002. Other income not directly associated with business segments decreased $0.8 million for the three months ended November 30, 2002 compared with the same period last year.

Reorganization Expense

Reorganization expense of $433.9 million during the three months ended November 30, 2002 consisted of costs associated with the Chapter 11 proceedings that are not directly attributable to the on-going operations of Farmland. Such costs include $424.5 million from the impairment of certain long-lived assets, $8.8 million for professional fees, $0.9 million for employee severance and retention, and a $0.4 million loss on the sale of investments. These costs are partially offset by a $0.3 million gain on settlement with vendors and a $0.5 million gain on the disposal of property, plant and equipment. See Note 11 "Reorganization expense" in the accompanying Notes to unaudited Condensed Consolidated Financial Statements.

Income Tax Expense

During the year ended August 31, 2002, management concluded that it was more likely than not that we would be unable to utilize a substantial portion of our net operating loss carryforward. Accordingly, we established a valuation allowance to reduce the income tax asset related to the future benefit to be provided by our net loss operating carryforward to an amount equal to our future liability related to our net income tax timing differences Management estimates that our effective tax rate for the year ending August 31, 2003 will be 0% as:

. if we have net income for the year ending August 31, 2003, any related tax expense will be offset by a reduction in our valuation allowance; and

. if we have a net loss for the year ending August 31, 2003, any related tax benefit will be offset by an increase in our valuation allowance.

Recent Accounting Pronouncements

SFAS No. 142 "Goodwill and Other Intangible Assets" was issued during June 2001 by the FASB. On adoption of this standard, goodwill and other intangible assets with an indefinite life will no longer be amortized; however, both goodwill and other intangible assets are tested annually for impairment. For goodwill and intangible assets arising out of business combinations with non-cooperative enterprises, SFAS No. 142 was effective for fiscal years beginning after December 15, 2001 (our fiscal year 2003). As of September 1, 2002 (the beginning of our fiscal year 2003), Farmland adopted this statement for goodwill resulting from business combinations with non-cooperatives. In accordance with SFAS 142, we have tested our goodwill arising from business combinations with non-cooperatives and determined that no impairments exist. For goodwill and other intangible assets arising out of business combination with cooperatives, implementation of SFAS No. 142 is delayed pending additional interpretive guidance from the FASB. At November 30, 2002 the carrying value of goodwill in our Consolidated Balance Sheets was $28.7 million. For the three months ended November 30, 2002, Farmland recognized goodwill amortization of $0.2 million from business combinations with cooperatives.

SFAS No. 146 "Accounting for Costs Associated with Exit or Disposal Activities" was issued during June 2002 by the FASB. This statement addresses financial accounting and reporting for costs associated with exit or disposal activities and nullified Emerging Issues Task Force (EITF) Issue No. 94-3. Under Issue 94-3, a liability for an exit cost was recognized at the date of an entity's commitment to an exit plan. However, SFAS No. 146 concludes that a commitment to a plan, by itself, does not create a present obligation to others that meets the definition of a liability. Therefore, SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. The provisions of this Statement are effective for exit or disposal activities that are initiated after December 31, 2002. Previously issued financial statements may not be restated. We do not anticipate that adoption of this statement will have a material impact on our financial position and results of operations.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Farmland's market exposure to derivative transactions, entered into for the purpose of managing commodity price risk, foreign currency risk and interest rate risk, has not materially changed since August 31, 2002. Quantitative and qualitative disclosures about market risk are contained in Item 7A of our Annual Report on Form 10-K for the year ended August 31, 2002.

Item 4. CONTROLS AND PROCEDURES

Disclosure controls and procedures are defined by the Securities and Exchange Commission as those controls and other procedures that are designed to ensure that information required to be disclosed in our filings under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. Our Chief Executive Officer and Chief Financial Officer have evaluated our disclosure controls and procedures within 90 days prior to the filing of this Quarterly Report on Form 10-Q and have determined that such disclosure controls and procedures are effective.

Subsequent to our evaluation, there were no significant changes in internal controls or other factors that could significantly affect internal controls, including any corrective actions with regard to significant deficiencies and material weaknesses.

Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995

Farmland is including the following cautionary statement in this Form 10-Q to make applicable and take advantage of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995 for any forward-looking statement made by, or on behalf of, Farmland. The factors identified in this cautionary statement are important factors (but are not necessarily all of the potentially important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Farmland. Where any such forward-looking statement includes a statement of the assumptions or basis underlying such forward-looking statement, Farmland cautions that, while it believes such assumptions or basis to be reasonable and makes them in good faith, the assumed facts or basis will almost always vary from actual results and the differences between the assumed facts or basis and actual results can be material, depending upon the circumstances. Where, in any forward-looking statement, Farmland, or its management, expresses an expectation or belief as to future results, such expectation or belief is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the statement of expectation or belief will result or be achieved or accomplished. Such forward looking statements include, without limitation, statements regarding the seasonal effects upon the business, the anticipated expenditures for environmental remediation, the potential capital expenditures required to comply with recently enacted regulations related to low sulfur gasoline and diesel fuel, the level of capital expenditures and monetary sanctions which will be required as a result of EPA proceedings, Court approval of a plan of reorganization, our ability to successfully implement any Court approved plan of reorganization, the adequacy of the DIP Credit Facility to satisfy our liquidity requirements, our ability to comply with the covenants contained in the DIP Credit Facility, our ability to sell our crop production and petroleum assets at their estimated fair value, our ability to realize our deferred tax assets, and our ability to liquidate our Tradigrain operation without incurring future losses. Discussion containing such forward-looking statements is found in the material set forth under "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Notes to Condensed Consolidated Financial 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, Farmland:

1. Weather patterns (flood, drought, frost, etc.) or crop failure.

2. Federal or state regulations regarding agricultural programs.

3. Federal or state regulations regarding the amounts of fertilizer and other chemical applications used by farmers.

4. Factors affecting the export of United States 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, live hogs and cattle and other commodities.

6. Regulatory delays and other unforeseeable obstacles beyond our control that may affect growth strategies through unification, acquisitions and investments in ventures.

7. Competitors in various segments which may be larger than Farmland, offer more varied products or possess greater resources.

8. Technological changes that are more difficult or expensive to implement than anticipated.

9. Unusual or unexpected events such as, among other things, litigation settlements, adverse rulings or judgments and environmental remediation costs in excess of amounts accrued.

10. Material adverse changes in financial, banking or capital markets.

11. Federal or state regulations regarding environmental matters.

12. The continuing effects of terrorist attacks which disrupted the financial and credit markets and negatively impacted the United States economy and other economies.

13. Public perception of the safety of meat products and the level of government regulations of meat safety.

14. The factors identified in "Business and Properties - Business - Business Risk Factors" included in our Annual Report on Form 10-K for the year ended August 31, 2002.

PART II - OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

In November 1999, Farmland commissioned a voluntary audit at its Coffeyville, Kansas petroleum refinery to verify compliance with the construction permitting requirements of the state and federal Clean Air Acts. We submitted a report detailing the audit findings to Region VII of the United States Environmental Protection Agency ("EPA") on September 19, 2000. In order to satisfy procedural prerequisites to resolve the findings, on January 17, 2002, EPA issued us a notice of violation. The notice of violation seeks both injunctive relief in the form of installation of additional pollution control equipment and monetary sanctions. At this point, it is not possible to determine the cost of the control device installations necessary to satisfy the EPA; however, we believe it is reasonably possible that the costs may eventually exceed $15 million. Also, at this stage of these proceedings it is not possible to predict the final amount of monetary sanctions that will be necessary to resolve this matter. Although Farmland believes this matter will ultimately be resolved for an immaterial amount, it is reasonably possible that the associated monetary sanctions may exceed $100,000. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Environmental Matters" in our Annual Report on Form 10-K, filed November 27, 2002.

On May 31, 2002, Farmland and certain of our subsidiaries filed voluntary petitions to reorganize under Chapter 11 of the Bankruptcy Code. This action is described in "Management's Discussion and Analysis of Financial Condition and Results of Operations - Recent Developments - Bankruptcy Proceedings."

On July 30, 2002, J.R. Simplot ("Simplot") filed a complaint for declaratory judgment against Farmland in the United States Bankruptcy Court, Western District of Missouri, Adversary Proceeding No. 02-4147. In this proceeding, Simplot asserts that, by operation of Utah Revised Limited Liability Company Act (the "Act"), Farmland's commencement of the Chapter 11 proceeding caused Farmland to forfeit governance rights in our SF Phosphates venture. Farmland believes that this Utah state law is preempted by Federal Bankruptcy Code and, therefore, we maintain our governance rights in relation to SF Phosphates. See "Business and Properties - Crop Production - Production" in our Annual Report on Form 10-K, filed November 27, 2002.

During April 2001, we initiated a suit in the English High Court of Justice, Queen's Bench Division, Commercial Court, Royal Court of Justice against Ace Insurance SA NV , SIACI & Partners SA, and SIACI SA to recover from our insurers the value of misappropriated soybeans.

On June 27, 2002, we filed a complaint against Agriliance LLC in the United States Bankruptcy Court, Western District of Missouri, Adversary Proceeding No. 02-4113. In this proceeding, we assert that Agriliance improperly setoff certain receivables and other items owed by Agriliance to Farmland against certain payables and other claims that Agriliance asserted were due to Agriliance from Farmland. We are requesting that the Court disallow the setoff and require Agriliance to return to Farmland the amount improperly setoff. Also see Note 8 to the unaudited Condensed Consolidated Financial Statements.

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 November 30, 2002.

Exhibit No		Description of Exhibit
99.1		The proposed Debtors' Joint Plan of Reorganization, filed in the United States Bankruptcy Court, Western District of Missouri on November 27, 2002.

99.2		Certification by President and Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.3		Certification by Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(b) Reports on Form 8-K

No reports on Form 8-K were filed during the quarter ended November 30, 2002.

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/ Steven R. Rhodes
	Steven R. Rhodes
	Executive Vice President
	and Chief Financial Officer
Date: January 14, 2003

I, Robert B. Terry, President and Chief Executive Officer of Farmland Industries, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Farmland Industries, Inc.;

2. Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or person performing the equivalent functions):

a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: January 14, 2003

/s/ ROBERT B. TERRY

Robert B. Terry

President and
Chief Executive Officer

I, Steven R. Rhodes, Executive Vice President and Chief Financial Officer of Farmland Industries, Inc., certify that:

1. I have reviewed this quarterly report on Form 10-Q of Farmland Industries, Inc.;

b) evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

c) presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: January 14, 2003

/s/ STEVEN R. RHODES

Steven R. Rhodes

Executive Vice President and
Chief Financial Officer

EXHIBIT INDEX

Exhibit No		Description of Exhibit
99.1		The proposed Debtors' Joint Plan of Reorganization, filed in the United States Bankruptcy Court, Western District of Missouri on November 27, 2002.

99.2		Certification by President and Chief Executive Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.3		Certification by Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

EX-99 3 reorgplan3.htm REORGANIZATION PLOAN C:\Filing\tenqnov02\reorgplan2.htm

EXHIBIT 99.1

In re:	)	In Proceedings under Chapter 11
	)
FARMLAND INDUSTRIES, INC.,	)	Case No. 02-50557
FARMLAND FOODS, INC.,	)	Case No. 02-50561
SFA, INC.,	)	Case No. 02-50562
FARMLAND TRANSPORTATION, INC.,	)	Case No. 02-50564
FARMLAND PIPE LINE COMPANY,	)	Case No. 02-50565
	)
Debtors.	)	Joint Administration

DEBTORS’ JOINT PLAN OF REORGANIZATION

Dated: November 27, 2002

THE UNITED STATES BANKRUPTCY COURT HAS NOT APPROVED THE PLAN OR THE MERITS OF THE PLAN. THE PLAN HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE PLAN OR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THE PLAN. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO SOLICITATIONS OF ACCEPTANCES TO THE PLAN HAVE BEEN AUTHORIZED BY THE BANKRUPTCY COURT. ANY PERSON OR ENTITY PURPORTING TO SOLICIT SUCH ACCEPTANCE BY OR ON BEHALF OF ANY PERSON OR ENTITY, INCLUDING THE DEBTORS, IS NOT AUTHORIZED TO DO SO.

Article I DEFINITIONS, RULES OF INTERPRETATION, COMPUTATION OF TIME AND GOVERNING LAW *

1.1 "Administrative Claim" *

1.2 "Allowed Claim" *

1.3 "Allowed Class . . . Claim" *

1.4 "Allowed Interest" *

1.5 "Ballot" *

1.6 "Bankruptcy Code" *

1.7 "Bankruptcy Committees" *

1.8 "Bankruptcy Court" *

1.9 "Bankruptcy Rules" *

1.10 "Bar Date(s)" *

1.11 "Beef" *

1.12 "Bondholders’ Committee" *

1.13 "Business Day" *

1.14 "Cash" *

1.15 "Chapter 11 Case" *

1.16 "Chief Executive Officer" *

1.17 "Claim" *

1.18 "Class" *

1.19 "Class 4 Available Cash" *

1.20 "Class 4 Distribution Pool" *

1.21 "Class 5 Available Cash" *

1.22 "Class 5 Distribution Pool" *

1.23 "Class 8 Available Cash" *

1.24 "Class 8 Distribution Pool" *

1.25 "Collateral" *

1.26 "Confirmation" *

1.27 "Confirmation Date" *

1.28 "Confirmation Hearing" *

1.29 "Confirmation Order" *

1.30 "Convenience Claim" *

1.31 "Creditor" *

1.32 "Creditors’ Committee" *

1.33 "Cure" *

1.34 "Debtor" *

1.35 "Debtors" *

1.36 "Demand Certificates" *

1.37 "Demand Certificates Claim" *

1.38 "Dilution" *

1.39 "DIP Credit Agreement" *

1.40 "DIP Loan Claims" *

1.41 "Disclosure Statement" *

1.42 "Disbursing Agent" *

1.43 "Disputed Claim" *

1.44 "Disputed Claim Amount" *

1.45 "Disputed Interest" *

1.46 "Disputed Interest Amount" *

1.47 "Distribution Date" *

1.48 "Distribution Record Date" *

1.49 "Effective Date" *

1.50 "Estate(s)" *

1.51 "Exit Financing" *

1.52 "Face Amount" *

1.53 "Foods" *

1.54 "Final Order" *

1.55 "General Unsecured Claim" *

1.56 "Impaired" *

1.57 "Indemnification Obligation" *

1.58 "Indenture Trustees" *

1.59 "Industries" *

1.60 "Intercompany Claim" *

1.61 "Interest" *

1.62 "Lender" *

1.63 "Lien" *

1.64 "Litigation Claims" *

1.65 "Loan Documents" *

1.66 "Management Plan" *

1.67 "Management Plan Participants" *

1.68 "New Common Shares" *

1.69 "New Debt Securities" *

1.70 "New Securities" *

1.71 "Non-Core Assets" *

1.72 "Non-Debtor Subsidiaries" *

1.73 "Objection Deadline" *

1.74 "Old Common Shares" *

1.75 "Old Preferred Shares" *

1.76 "Old Securities" *

1.77 "Old Stock Options" *

1.78 "Old Warrants" *

1.79 "Other Priority Claim" *

1.80 "Other Secured Claim" *

1.81 "Person" *

1.82 "Petition Date" *

1.83 "Plan" *

1.84 "Plan Exhibit" *

1.85 "Pre-Petition Credit Agreement" *

1.86 "Pipeline" *

1.87 "Pork" *

1.88 "Priority Tax Claim" *

1.89 "Professional" *

1.90 "Professional Fee Claim" *

1.91 "Pro Rata" *

1.92 "Quarterly Distribution Date" *

1.93 "Reinstated" or "Reinstatement" *

1.94 "Reorganized Debtor(s)" *

1.95 "Reorganized . . . " *

1.96 "Restructuring Transactions" *

1.97 "Schedules" *

1.98 "Section 363 Scenario" *

1.99 "Secured Claim" *

1.100 "Secured Lender Claims" *

1.101 "Securities Act" *

1.102 "SFA" *

1.103 "Subordinated Claims" *

1.104 "Subordinated Debt" *

1.105 "Subordinated Debt Claim" *

1.106 "Subsidiaries" *

1.107 "Subsidiary Debtors" *

1.108 "Subsidiary Interests" *

1.109 "Substantial Contribution Claim" *

1.110 "Transportation" *

1.111 "Trust Indentures" *

1.112 "Unimpaired" *

1.113 "Voting Record Date" *

Article II CLASSIFICATION OF CLAIMS AND INTERESTS *

2.1 Class 1 (Other Priority Claims) *

2.2 Class 2 (Secured Lender Claims) *

2.3 Class 3 (Other Secured Claims) *

2.4 Class 4 (Demand Certificate Claims) *

2.5 Class 5 (Subordinated Debt Claims) *

2.6 Class 6 (Reserved) *

2.7 Class 7 (Convenience Claims against Industries) *

2.8 Class 8 (General Unsecured Claims against Industries) *

2.9 Class 9 (Old Securities of Industries) *

2.10 Class 10 (General Unsecured Claims against Foods) *

2.11 Class 11 (Old Securities of Foods) *

2.12 Class 12 (General Unsecured Claims against Transportation) *

2.13 Class 13 (Old Securities of Transportation) *

2.14 Class 14 (General Unsecured Claims against SFA) *

2.15 Class 15 (Old Securities of SFA) *

2.16 Class 16 (General Unsecured Claims against Pipeline) *

2.17 Class 17 (Old Securities of Pipeline) *

2.18 Class 18 (Intercompany Claims) *

2.19 Class 19 (Subordinated Claims) *

Article III TREATMENT OF CLAIMS AND INTERESTS *

3.1 Unclassified Claims *

3.2 Class 1 (Other Priority Claims) *

3.3 Class 2 (Secured Lender Claims) *

3.4 Class 3 (Other Secured Claims) *

3.5 Class 4 (Demand Certificate Claims) *

3.6 Class 5 (Subordinated Debt Claims) *

3.7 Class 6 (Reserved) *

3.8 Class 7 (Convenience Claims against Industries) *

3.9 Class 8 (General Unsecured Claims against Industries) *

3.10 Class 9 (Old Securities of Industries) *

3.11 Class 10 (General Unsecured Claims against Foods) *

3.12 Class 11 (Old Securities of Foods) *

3.13 Class 12 (General Unsecured Claims against Transportation) *

3.14 Class 13 (Old Securities of Transportation) *

3.15 Class 14 (General Unsecured Claims against SFA) *

3.16 Class 15 (Old Securities of SFA) *

3.17 Class 16 (General Unsecured Claims against Pipeline) *

3.18 Class 17 (Old Securities of Pipeline) *

3.19 Class 18 (Intercompany Claims) *

3.20 Class 19 (Subordinated Claims) *

3.21 Reservation of Rights Regarding Claims *

Article IV ACCEPTANCE OR REJECTION OF THE PLAN *

4.1 Impaired Classes of Claims and Interests Entitled to Vote. *

4.2 Acceptance by an Impaired Class. *

4.3 Presumed Acceptances by Unimpaired Classes. *

4.4 Classes Deemed to Reject Plan. *

4.5 Summary of Classes Voting on the Plan. *

4.6 Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code. *

Article V MEANS FOR IMPLEMENTATION OF THE PLAN *

5.1 Continued Corporate Existence *

5.2 Old Securities of Industries. *

5.3 Certificates of Incorporation and By-laws *

5.4 Restructuring Transactions *

5.5 Issuance of New Securities *

5.6 Compensation And Benefit Programs *

5.7 Directors And Officers of Reorganized Debtors *

5.8 Reverting Of Assets; Releases of Liens *

5.9 Preservation Of Rights Of Action. *

5.10 Effectuating Documents; Further Transactions *

5.11 Exemption From Certain Transfer Taxes *

5.12 Releases and Related Matters *

5.13 Exit Financing *

5.14 Section 363 Asset Sales Prior to Confirmation *

5.15 Implementation of the Plan in the Event of a Section 363 Scenario *

Article VI TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES *

6.1 Assumed Executory Contracts And Unexpired Leases *

6.2 Payments Related To Assumption Of Executory Contracts and Unexpired Leases *

6.3 Rejected Executory Contracts and Unexpired Leases *

6.4 Rejection Damages Bar Date *

Article VII PROVISIONS GOVERNING DISTRIBUTIONS *

7.1 Distributions For Claims Or Interests Allowed As Of The Effective Date *

7.2 Interest On Claims *

7.3 Distributions by Disbursing Agent *

7.4 (Reserved) *

7.5 Means Of Cash Payment *

7.6 Calculation Of Distribution Amounts Of New Securities *

7.7 Delivery Of Distributions *

7.8 Surrender of Securities and Instruments *

7.9 Withholding And Reporting Requirements *

7.10 Setoffs *

Article VIII PROCEDURES FOR RESOLVING DISPUTED, CONTINGENT, AND UNLIQUIDATED CLAIMS AND DISTRIBUTIONS WITH RESPECT THERETO *

8.1 Prosecution Of Objections to Claims *

8.2 Treatment of Disputed Claims *

8.3 Disputed Claims Reserves *

8.4 Distributions on Account of Disputed Claims Once They Are Allowed and Additional Distributions on Account of Previously Allowed Claims *

Article IX CONDITIONS PRECEDENT TO CONFIRMATION AND CONSUMMATION OF THE PLAN *

9.1 Conditions To Effective Date *

9.2 Waiver of Conditions *

9.3 Notice of Effective Date *

Article X RETENTION OF JURISDICTION *

Article XI MISCELLANEOUS PROVISIONS *

11.1 Professional Fee Claims *

11.2 Administrative Claims Bar Date *

11.3 Payment Of Statutory Fees *

11.4 Modifications and Amendments *

11.5 Severability Of Plan Provisions *

11.6 Successors And Assigns *

11.7 Compromises and Settlements *

11.8 (Reserved) *

11.9 Discharge Of The Debtors *

11.10 Injunction *

11.11 Exculpation And Limitation Of Liability *

11.12 Binding Effect *

11.13 Revocation, Withdrawal, Or Non-Consummation *

11.14 Plan Exhibits *

11.15 Notices *

11.16 Indemnification and Related Matters *

11.17 Prepayment *

11.18 Dissolution of the Bankruptcy Committees *

11.19 Term Of Injunctions Or Stays *

INTRODUCTION

Farmland Industries, Inc., Farmland Foods, Inc., Farmland Transportation, Inc., SFA, Inc. and Farmland Pipe Line Company (collectively, the "Debtors") hereby propose the following joint plan of reorganization (the "Plan") for the resolution of their outstanding creditor Claims (as defined herein) and equity Interests (as defined herein). Reference is made to the Disclosure Statement (as defined herein) distributed contemporaneously herewith for a discussion of the Debtors’ history, businesses, properties, results of operations, projections for future operations, risk factors, a summary and analysis of the Plan, and certain related matters, including the New Securities (as defined herein) to be issued under the Plan. The Debtors are the proponents of this Plan within the meaning of section 1129 of the Bankruptcy Code.

All holders of Claims are encouraged to read this Plan and the Disclosure Statement in their entirety before voting to accept or reject this Plan. Subject to certain restrictions and requirements set forth in section 1127 of the Bankruptcy Code, Fed. R. Bankr. P. 3019 and Article XI, including Section 11.4, of this Plan, the Debtors reserve the right to alter, amend, modify, revoke or withdraw this Plan prior to its substantial consummation.

ARTICLE I
DEFINITIONS, RULES OF INTERPRETATION,
COMPUTATION OF TIME AND GOVERNING LAW

A. Scope Of Definitions; Rules Of Construction

For purposes of this Plan, except as expressly provided or unless the context otherwise requires, all capitalized terms not otherwise defined shall have the meanings ascribed to them in Article I of this Plan. Any term used in this Plan that is not defined herein, but is defined in the Bankruptcy Code or the Bankruptcy Rules, shall have the meaning ascribed to that term in the Bankruptcy Code or the Bankruptcy Rules. Whenever the context requires, such terms shall include the plural as well as the singular number, the masculine gender shall include the feminine, and the feminine gender shall include the masculine.

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B. Definitions

1.1 "Administrative Claim"

means a Claim for payment of an administrative expense of a kind specified in section 503(b) or 1114(e)(2) of the Bankruptcy Code and entitled to priority pursuant to section 507(a)(1) of the Bankruptcy Code, including, but not limited to, (a) the actual, necessary costs and expenses, incurred after the Petition Date, of preserving the Estates and operating the businesses of the Debtors, including wages, salaries, or commissions for services rendered after the commencement of the Chapter 11 Case, (b) Professional Fee Claims, (c) all fees and charges assessed against the Estates under 28 U.S.C. section 1930 and (d) all Allowed Claims that are entitled to be treated as Administrative Claims pursuant to a Final Order of the Bankruptcy Court under section 546(c)(2)(A) of the Bankruptcy Code.

1.2 "Allowed Claim"

means a Claim or any portion thereof (a) that has been allowed by a Final Order, or (b) as to which, on or by the Effective Date, (i) no proof of Claim has been filed with the Bankruptcy Court and (ii) the liquidated and noncontingent amount of which is listed on the Schedules, other than a Claim that is listed on the Schedules as zero, in an unknown amount, or as disputed, or (c) for which a proof of Claim in a liquidated amount has been timely filed with the Bankruptcy Court pursuant to the Bankruptcy Code, any Final Order of the Bankruptcy Court or other applicable bankruptcy law, and as to which either (i) no objection to its allowance has been filed within the periods of limitation fixed by the Plan, the Bankruptcy Code or by any order of the Bankruptcy Court or (ii) any objection to its allowance has been settled or withdrawn, or has been denied by a Final Order, or (d) that is expressly allowed in a liquidated amount in this Plan.

1.3 "Allowed Class . . . Claim"

means an Allowed Claim in the particular Class described.

1.4 "Allowed Interest"

means an Interest that (a) is registered as of the Distribution Record Date in a stock register maintained by or on behalf of the Debtors and (b) is not a Disputed Interest.

1.5 "Ballot"

means each of the ballot forms distributed with the Disclosure Statement to holders of Impaired Claims entitled to vote as specified in Section 4.1 of this Plan, in connection with the solicitation of acceptances of the Plan.

1.6 "Bankruptcy Code"

means the Bankruptcy Reform Act of 1978, as codified in title 11 of the United States Code, 11 U.S.C. sections 101-1330, as now in effect or hereafter amended.

1.7 "Bankruptcy Committees"

means, collectively, the Bondholders’ Committee and the Creditors’ Committee.

1.8 "Bankruptcy Court"

means the United States Bankruptcy Court for the Western District of Missouri or such other court as may have jurisdiction over the Chapter 11 Case.

1.9 "Bankruptcy Rules"

means, collectively, the Federal Rules of Bankruptcy Procedure and the Official Bankruptcy Forms, as amended, the Federal Rules of Civil Procedure, as amended, as applicable to the Chapter 11 Case or proceedings therein, and the Local Rules of the Bankruptcy Court, as applicable to the Chapter 11 Case or proceedings therein, as the case may be.

1.10 "Bar Date(s)"

means the date(s), if any, designated by the Bankruptcy Court as the last date(s) for filing proofs of Claim or Interest against the Debtors.

1.11 "Beef"

means Industries’ interests in Farmland National Beef Packing Company, L.P.

1.12 "Bondholders’ Committee"

means the official committee of bondholders appointed pursuant to section 1102(a) of the Bankruptcy Code in the Chapter 11 Case.

1.13 "Business Day"

means any day, excluding Saturdays, Sundays or "legal holidays" (as defined in Fed. R. Bankr. P. 9006(a)), on which commercial banks are open for business in New York, New York.

1.14 "Cash"

means legal tender of the United States or equivalents thereof.

1.15 "Chapter 11 Case"

means the jointly administered Chapter 11 cases of the Debtors.

1.16 "Chief Executive Officer"

means, at any time prior to the Effective Date, the Person holding the title of chief executive officer of Industries, and at any time after the Effective Date, the Person holding the title of chief executive officer of Reorganized Industries.

1.17 "Claim"

means a claim against the Debtors, or any of them, whether or not asserted, as defined in section 101(5) of the Bankruptcy Code.

1.18 "Class"

means a category of holders of Claims or Interests, as described in Article II of this Plan.

1.19 "Class 4 Available Cash"

means, after satisfaction in full of all Allowed Administrative Claims, all Allowed Priority Tax Claims, all DIP Loan Claims and all Allowed Claims in Classes 1, 2 and 7 and after establishment of appropriate reserves for all Disputed Administrative Claims, all Disputed Priority Tax Claims and all Disputed Claims in Classes 1, 2, 3, 4, 5, 7 and 8, the sum of all Cash of the Estate of Industries (other than the proceeds of Collateral securing any Allowed Secured Claim) multiplied by a percentage to be negotiated based upon the final Claims amounts.

1.20 "Class 4 Distribution Pool"

means: (i) in the event of a Section 363 Scenario, Class 4 Available Cash; or (ii) in the event of the Restructuring Transactions, (x) New Common Shares in an amount equal to: to be negotiated , (y) New Debt Securities in an amount equal to: to be calculated, and (z) Cash in an amount to be negotiated based upon the final Claims amounts

1.21 "Class 5 Available Cash"

1.22 "Class 5 Distribution Pool"

means: (i) in the event of a Section 363 Scenario, Class 5 Available Cash; or (ii) in the event of the Restructuring Transactions, (x) New Common Shares in an amount to be negotiated, (y) New Debt Securities in an amount to be calculated, and (z) Cash in an amount to be negotiated based upon the final Claims amounts.

1.23 "Class 8 Available Cash"

1.24 "Class 8 Distribution Pool"

means: (i) in the event of a Section 363 Scenario, Class 8 Available Cash; or (ii) in the event of the Restructuring Transactions, (x) New Common Shares in an amount equal to: to be negotiated, (y) New Debt Securities in an amount to be negotiated, and (z) Cash in an amount to be negotiated based upon the final Claims amounts.

1.25 "Collateral"

means any property or interest in the property of an Estate subject to a Lien to secure the payment or performance of a Claim, which Lien is not subject to avoidance under the Bankruptcy Code or otherwise invalid under the Bankruptcy Code or applicable state law.

1.26 "Confirmation"

means entry by the Bankruptcy Court of the Confirmation Order.

1.27 "Confirmation Date"

means the date of entry by the clerk of the Bankruptcy Court of the Confirmation Order. In no event shall the Confirmation Date be later than November 19, 2003.

1.28 "Confirmation Hearing"

means the hearing to consider confirmation of the Plan under section 1128 of the Bankruptcy Code.

1.29 "Confirmation Order"

means the order entered by the Bankruptcy Court confirming the Plan.

1.30 "Convenience Claim"

means any Claim that otherwise would be an Allowed Class 8 Claim in an amount equal to or less than $2,500. A holder of an Allowed Class 8 Claim in excess of $2,500 may, by an irrevocable written election made on a validly executed and timely delivered Ballot, reduce such holder’s Claim to $2,500, and thus have such reduced Claim classified in Class 7.

1.31 "Creditor"

means any Person who holds a Claim against any of the Debtors.

1.32 "Creditors’ Committee"

means the official committee of unsecured creditors appointed pursuant to section 1102(a) of the Bankruptcy Code in the Chapter 11 Case.

1.33 "Cure"

means the distribution of Cash, or such other property as maybe agreed upon by the parties or ordered by the Bankruptcy Court, with respect to the assumption of an executory contract or unexpired lease, pursuant to section 365(b) of the Bankruptcy Code, in an amount equal to all unpaid monetary obligations, without interest, or such other amount as may be agreed upon by the parties, under such executory contract or unexpired lease, to the extent such obligations are enforceable under the Bankruptcy Code and applicable bankruptcy law.

1.34 "Debtor"

means any of the Debtors.

1.35 "Debtors"

means Farmland Industries, Inc., Farmland Foods, Inc., Farmland Transportation, Inc., SFA Inc. and Farmland Pipe Line Company, including in their capacity as debtors-in-possession pursuant to sections 1107 and 1108 of the Bankruptcy Code.

1.36 "Demand Certificates"

means: (a) Demand Loan Certificates dated November 20, 1981 with an original authorized principal amount of $500,000,000.00; and (b) Demand Loan Certificates dated December 4, 1997 issuable in Series with an unlimited authorized aggregate principal amount.

1.37 "Demand Certificates Claim"

means a Claim arising out of or related to the Demand Certificates.

1.38 "Dilution"

means dilution subsequent to the Effective Date as a result of the issuance of common shares, implementation of the Management Plan or other management incentive programs or other action taken by the board of directors of Reorganized Industries.

1.39 "DIP Credit Agreement"

means the First Amended and Restated Debtor-In-Possession Credit Agreement and Adequate Protection Stipulation, dated as of June 5, 2002, by and among Industries and Foods, as borrowers, the financial institutions party thereto, as lenders, and Deutsche Bank Trust Company Americas, as administrative agent.

1.40 "DIP Loan Claims"

means the Allowed Claims held by those certain financial institutions participating under the DIP Credit Agreement, which Claims constitute superpriority Administrative Claims senior to all other Claims and are secured by Liens of substantially all of the assets of the Debtors.

1.41 "Disclosure Statement"

means the written disclosure statement that relates to the Plan, as amended, supplemented, or modified from time to time, and that is prepared and distributed in accordance with section 1125 of the Bankruptcy Code and Fed. R. Bankr. P. 3017.

1.42 "Disbursing Agent"

means (i) in the event of the Restructuring Transactions, Reorganized Industries or any party designated by Reorganized Industries, in its sole discretion, to serve as disbursing agent under the Plan, or (ii) in the event of a Section 363 Scenario, such entity as shall be designated prior to the Disclosure Statement hearing.

1.43 "Disputed Claim"

means a Claim or any portion thereof that is not an Allowed Claim, and includes, without limitation, Claims (other than Allowed Claims) that (a) have not been listed on the Schedules or have been listed on the Schedules at zero, or as contingent, unliquidated or disputed, or (b) are the subject to an objection filed in the Bankruptcy Court and which objection has not been withdrawn or overruled by a Final Order of the Bankruptcy Court.

1.44 "Disputed Claim Amount"

means (a) if a liquidated amount is set forth in a timely filed proof of Claim relating to a Disputed Claim, (i) the liquidated amount set forth in the proof of Claim relating to the Disputed Claim; (ii) an amount agreed to by the Debtors and the holder of such Disputed Claim; or (iii) if a request for estimation is filed by the Debtors, the amount at which such Claim is estimated by the Bankruptcy Court; (b) if no liquidated amount is set forth in the proof of Claim relating to a Disputed Claim, (i) an amount agreed to by the Debtors and the holder of such Disputed Claim or (ii) the amount estimated by the Bankruptcy Court with respect to such Disputed Claim; or (c) if the Claim was listed on the Schedules as unliquidated, contingent or disputed and no proof of Claim was filed, or deemed to have been filed, by the applicable Bar Date and the Claim has not been resolved by written agreement of the parties or an order of the Bankruptcy Court, zero.

1.45 "Disputed Interest"

means an Interest, or any portion thereof, that is not an Allowed Interest and includes, without limitation, Interests (other than Allowed Interests) that (a) are not listed in the Schedules or are listed in the Schedules as contingent, unliquidated or disputed, or (b) are the subject of an objection filed in the Bankruptcy Court and which objection has not been withdrawn or overruled by a Final Order of the Bankruptcy Court.

1.46 "Disputed Interest Amount"

means, with respect to a Disputed Interest, the number of shares set forth in a timely filed proof of Interest.

1.47 "Distribution Date"

means the date, occurring as soon as practicable after the Effective Date, upon which distributions are made by the Reorganized Debtors to holders of Allowed Claims and Allowed Interests entitled to receive distributions under this Plan.

1.48 "Distribution Record Date"

means the record date for purposes of making distributions under the Plan on account of Allowed Claims and Allowed Interests, which date shall be the Confirmation Date or such other date designated in the Confirmation Order.

1.49 "Effective Date"

means the Business Day on which all conditions to the consummation of the Plan as set forth in Section 9.1 of this Plan have been satisfied or waived as provided in Article IX of this Plan and is the effective date of the Plan. Except upon consent of the Bankruptcy Committees and the administrative agent under the Pre-Petition Credit Agreement, which consent shall not be unreasonably withheld, the Effective Date shall promptly occur as soon as practicable following the Confirmation Date, but in no event later than November 30, 2003.

1.50 "Estate(s)"

means, individually, the estate of each Debtor in the Chapter 11 Case, and, collectively, the estates of all Debtors in the Chapter 11 Case, created pursuant to section 541 of the Bankruptcy Code.

1.51 "Exit Financing"

means a $180 million revolving credit facility and term loan facility to Reorganized Industries and Reorganized Foods as proposed by Congress Financial Corporation (or such other substitute lender as the Debtors may select) in the principal amounts of $150 million and $30 million, respectively.

1.52 "Face Amount"

means (a) when used in reference to a Disputed Claim, the full stated amount claimed by the holder of such Claim in any proof of Claim timely filed with the Bankruptcy Court or otherwise deemed timely filed by any Final Order of the Bankruptcy Court or other applicable bankruptcy law, and (b) when used in reference to an Allowed Claim, the allowed amount of such Claim.

1.53 "Foods"

means Farmland Foods, Inc.

1.54 "Final Order"

means an order or judgment of the Bankruptcy Court, or other court of competent jurisdiction, as entered on the docket in the Chapter 11 Case, the operation or effect of which has not been stayed, reversed, or amended and (unless the Debtors, in their sole discretion, shall have waived the requirement therefor) as to which order or judgment (or any revision, modification, or amendment thereof) the time to appeal or seek review or rehearing has expired and as to which no appeal or petition for review or rehearing was filed or, if filed, remains pending.

1.55 "General Unsecured Claim"

means a Claim against any of the Debtors that is not an Administrative Claim, Priority Tax Claim, Other Priority Claim, Secured Lender Claim, Other Secured Claim, Convenience Claim, Intercompany Claim or Subordinated Claim.

1.56 "Impaired"

means, when used with reference to a Claim or Interest, a Claim or Interest that is "impaired" within the meaning of section 1124 of the Bankruptcy Code.

1.57 "Indemnification Obligation"

means any obligation of any of the Debtors to indemnify, reimburse or provide contribution to any present or former officer, director or employee, or any present or former professionals, advisors or representatives of the Debtors, pursuant to by-laws, articles of incorporation, contract or otherwise as may be in existence immediately prior to the Petition Date.

1.58 "Indenture Trustees"

means each of the trustees under the Trust Indentures.

1.59 "Industries"

means Farmland Industries, Inc.

1.60 "Intercompany Claim"

means, as the case may be, any Claim (a) by a Debtor against another Debtor or (b) by a Non-Debtor Subsidiary against a Debtor.

1.61 "Interest"

means (a) the legal, equitable, contractual and other rights of any Person (including any 401(k) plan or plan participant) with respect to Old Securities of the Debtors, and (b) the legal, equitable, contractual or other rights of any Person to acquire or receive any of the foregoing.

1.62 "Lender"

means a "Lender" as defined in the Pre-Petition Credit Agreement.

1.63 "Lien"

means a charge against or interest in property to secure payment of a debt or performance of an obligation.

1.64 "Litigation Claims"

means the claims, rights of action, suits, or proceedings, whether in law or in equity, whether known or unknown, that the Debtors or their Estates may hold against any Person, which are to be retained by the Reorganized Debtors pursuant to Section 5.9 of this Plan, including, without limitation, all claims, rights of action, suits and proceedings under Chapter 5 of the Bankruptcy Code.

1.65 "Loan Documents"

means the "Loan Documents" as defined in the Pre-Petition Credit Agreement.

1.66 "Management Plan"

means the plan to be adopted by Reorganized Industries as part of the Restructuring Transactions (subject to ratification by the board of directors of Reorganized Industries) pursuant to Section 5.6 of this Plan, in substantially the form of the Plan Exhibit C to be filed with the Bankruptcy Court prior to the Disclosure Statement hearing.

1.67 "Management Plan Participants"

means the employees of Reorganized Industries entitled to participate in the Management Plan.

1.68 "New Common Shares"

means the common shares of Reorganized Industries authorized pursuant to Section 5.5 of this Plan.

1.69 "New Debt Securities"

means the amount to be negotiated of Reorganized Industries authorized pursuant to Section 5.5 of this Plan.

1.70 "New Securities"

means, collectively, the New Common Shares and the New Debt Securities.^/

1.71 "Non-Core Assets"

means the assets of Industries, excluding its interests in Beef and Pork.

1.72 "Non-Debtor Subsidiaries"

means, collectively, the direct and indirect subsidiaries of Industries which have not commenced Chapter 11 cases and thus are not Debtors.

1.73 "Objection Deadline"

means the last day for filing objections to Disputed Claims or Disputed Interests, which day shall be one hundred eighty days after the Effective Date, unless such date is extended by the Bankruptcy Court upon request by the Debtors.

1.74 "Old Common Shares"

means the common shares of any of the Debtors issued and outstanding as of the Petition Date describe all categories of common stock.

1.75 "Old Preferred Shares"

means the preferred shares of any of the Debtors issued and outstanding as of the Petition Date.

1.76 "Old Securities"

means collectively, the Old Common Shares, the Old Preferred Shares and the Old Stock Options of any of the Debtors.

1.77 "Old Stock Options"

means the outstanding options to purchase Old Common Shares or Old Preferred Shares of any of the Debtors issued and outstanding as of the Petition Date.

1.78 "Old Warrants"

means the warrants issued to former SF Services patrons in conjunction with the Industries/SF Services merger that entitle the holder to convert the warrants to Old Common Shares or associate member stock of Industries or capital credits of Industries is certain product purchases are made by such patron from Industries during the seven year period following the merger.

1.79 "Other Priority Claim"

means a Claim entitled to priority pursuant to section 507(a) of the Bankruptcy Code other than a Priority Tax Claim or an Administrative Claim.

1.80 "Other Secured Claim"

means a Secured Claim against any of the Debtors, as the case may be, other than the Secured Lender Claims, including, without limitation, (a) County of Saline, Nebraska Solid Waste Disposal Revenue Bonds, Series 1997A, dated November 4, 1997 in the original principal amount of $1,500,000.00; (b) County of Saline, Nebraska Solid Waste Disposal Revenue Bonds, Series 1997B, dated November 19, 1997 in the original principal amount of $1,000,000.00; (c) County of Gage, Nebraska Industrial Development Revenue Bonds, Series 1997 dated December 4, 1997 in the original principal amount of $1,000,000.00; (d) County of Garfield, Nebraska Industrial Authority, Development Revenue Bonds, Series 1998 dated January 9, 1998 in the original principal amount of $1,000,000.00; (e) Parish of Grant, State of Louisiana Variable Rate Industrial Development Revenue Bonds, Series 1998, dated January 28, 1998 in the original principal amount of $1,000,000.00; (f) Kansas Development Finance Authority Variable Rate Industrial Development Revenue Bonds, Series 1998, dated December 30, 1998 in the original principal amount of $1,000,000.00; and (g) Taxable Industrial Revenue Bond, Series 1999 of Kansas City, Missouri dated August 1, 1999 in the original principal amount of $40,000,000.00.

1/ As noted, the Section 363 Scenario will be determined prior to the Disclosure Statement hearing in accordance with Section 5.14 of the Plan and the factors for declaring a Section 363 Scenario set forth in the Plan.

1.81 "Person"

means a "person" as defined in section 101(41) of the Bankruptcy Code.

1.82 "Petition Date"

means the date on which the Debtors filed their petitions for relief commencing the Chapter 11 Case.

1.83 "Plan"

means this Chapter 11 reorganization plan and all exhibits and schedules attached hereto or referenced herein, as the same may be amended, modified or supplemented from time to time.

1.84 "Plan Exhibit"

means any exhibit or schedule attached hereto.

1.85 "Pre-Petition Credit Agreement"

means the Credit Agreement, dated as of February 7, 2002, by and among Industries and Foods, as borrowers, the financial institutions party thereto, as lenders, CoBank ACB and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., as co-syndication agents, Harris Trust & Savings Bank and U.S. Bank National Association, as co-documentation agents, and Deutsche Bank Trust Company Americas, as administrative agent.

1.86 "Pipeline"

means Farmland Pipeline Company.

1.87 "Pork"

means Industries’ and Foods’ pork processing operations.

1.88 "Priority Tax Claim"

means a Claim that is entitled to priority pursuant to section 507(a)(8) of the Bankruptcy Code.

1.89 "Professional"

means any professional employed in the Chapter 11 Case pursuant to sections 327 or 1103 of the Bankruptcy Code or otherwise and any professionals seeking compensation or reimbursement of expenses in connection with the Chapter 11 Case pursuant to section 503(b)(4) of the Bankruptcy Code.

1.90 "Professional Fee Claim"

means a Claim of a Professional for compensation or reimbursement of costs and expenses relating to services incurred after the Petition Date and prior to and including the Effective Date.

1.91 "Pro Rata"

means, at any time, the proportion that the Face Amount of a Claim in a particular Class bears to the aggregate Face Amount of all Claims (including Disputed Claims) in such Class, unless the Plan provides otherwise.

1.92 "Quarterly Distribution Date"

means the last Business Day of the month following the end of each calendar quarter after the Effective Date; provided, however, that if the Effective Date is within 30 days of the end of a calendar quarter, the first Quarterly Distribution Date will be the last Business Day of the month following the end of the first calendar quarter after the calendar quarter in which the Effective Date falls.

1.93 "Reinstated" or "Reinstatement"

means (i) leaving unaltered the legal, equitable, and contractual rights to which a Claim or Interest entitles the holder of such Claim or Interest so as to leave such Claim or Interest unimpaired in accordance with section 1124 of the Bankruptcy Code or (ii) notwithstanding any contractual provision or applicable law that entitles the holder of such Claim or Interest to demand or receive accelerated payment of such Claim or Interest after the occurrence of a default (a) curing any such default that occurred before or after the Petition Date, other than a default of a kind specified in section 365(b)(2) of the Bankruptcy Code; (b) reinstating the maturity of such Claim or Interest as such maturity existed before such default; (c) compensating the holder of such Claim or Interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and (d) not otherwise altering the legal, equitable, or. contractual rights to which such Claim or Interest entitles the holder of such Claim or Interest; provided, however, that any contractual right that does not pertain to the payment when due of principal and interest on the obligation on which such Claim or Interest is based, including, but not limited to, financial covenant ratios, negative pledge covenants, covenants or restrictions on merger or consolidation, and affirmative covenants regarding corporate existence prohibiting certain transactions or actions contemplated by the Plan, or conditioning such transactions or actions on certain factors, shall not be required to be reinstated in order to accomplish Reinstatement.

1.94 "Reorganized Debtor(s)"

means, individually, any of the Debtors on or after the Effective Date and, collectively, the Debtors on or after the Effective Date.

1.95 "Reorganized . . . "

means, when used with reference to a particular Debtor, such Debtor on or after the Effective Date.

1.96 "Restructuring Transactions"

has the meaning ascribed thereto in Section 5.4 of this Plan.

1.97 "Schedules"

means the schedules of assets and liabilities and the statements of financial affairs, if any, filed in the Bankruptcy Court by the Debtors as such schedules or statements may be amended or supplemented from time to time in accordance with Fed. R. Bankr. P. 1009 or orders of the Bankruptcy Court.

1.98 "Section 363 Scenario"

means, at any time prior to the Effective Date, the liquidation of all or substantially all of the property of the Estates, following which the Debtors will not engage in business after consummation of the Plan. Commencement of the Section 363 Scenario will be determined prior to the Disclosure Statement hearing based upon (i) the results of Section 363 sales of the Non-Core Assets and the status of marketing and sales processes for other Estate assets, including Beef and Pork; and (ii) the assessments and analysis of the highest and best relative distributable values of the Restructuring Transactions as compared to the Section 363 Scenario. Confirmation of the Plan shall bind the Debtors to implement the final determination that has been made with respect to either a Section 363 Scenario or the Restructuring Transactions.

1.99 "Secured Claim"

means a Claim that is secured by a Lien on property in which an Estate has an interest or that is subject to setoff under section 553 of the Bankruptcy Code, to the extent of the value of the Claim holder’s interest in the Estate’s interest in such property or to the extent of the amount subject to setoff, as applicable, as determined pursuant to section 506(a) of the Bankruptcy Code.

1.100 "Secured Lender Claims"

means the Claims of the Lenders arising under or as a result of the Pre-Petition Credit Agreement and the Loan Documents.

1.101 "Securities Act"

means the Securities Act of 1933, 15 U.S.C. sections 77c-77aa, as now in effect or hereafter amended.

1.102 "SFA"

means SFA, Inc.

1.103 "Subordinated Claims"

means (i) any Claim subordinated pursuant to sections 510(b) or (c) of the Bankruptcy Code, which shall include any Claim arising from the rescission of a purchase or sale of any Old Security, any Claim for damages arising from the purchase or sale of an Old Security, or any Claim for reimbursement, contribution or indemnification on account of any such Claim; and (ii) any Claim arising out of or related to the rejection of Old Warrants.

1.104 "Subordinated Debt"

means: (a) 5 Year Subordinated Capital Investment Certificates issued under the Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, with an original authorized principal amount of $500,000,000.00; (b) 10 Year Subordinated Capital Investment Certificates issued under the Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, with an original authorized principal amount of $500,000,000.00; (c) 20 Year Subordinated Capital Investment Certificates issued under the Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, with an original authorized principal amount of $500,000,000.00; (d) 10 Year Subordinated Monthly Income Capital Investment Certificates issued under the Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, with an original authorized principal amount of $500,000,000.00; (e) 10 Year Subordinated Individual Retirement Account Certificates issued under the Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, with an original authorized principal amount of $500,000,000.00; (f) 5 Year Subordinated Monthly Income Capital Investment Certificates issued under the Indenture dated November 11, 1985, with an original authorized principal amount of $500,000,000.00; and (g) Series A through Series H Subordinated Debenture Bonds issued under a Subordinated Indenture dated December 4, 1997, with an unlimited authorized aggregate principal amount.

1.105 "Subordinated Debt Claim"

means a Claim arising out of or related to Subordinated Debt.

1.106 "Subsidiaries"

mean, collectively, the Subsidiary Debtors and the Non-Debtor Subsidiaries.

1.107 "Subsidiary Debtors"

means, collectively, Farmland Foods, Inc., Farmland Transportation, Inc., SFA, Inc. and Farmland Pipeline Company.

1.108 "Subsidiary Interests"

means, collectively, the issued and outstanding shares of common stock of the Subsidiary Debtors directly or indirectly owned by Industries, as of the Petition Date.

1.109 "Substantial Contribution Claim"

means a claim for compensation or reimbursement of expenses incurred in making a substantial contribution in the Chapter 11 Case pursuant to section 503(b)(3),(4), or (5) of the Bankruptcy Code.

1.110 "Transportation"

means Farmland Transportation, Inc.

1.111 "Trust Indentures"

means: (a) Indenture dated November 20, 1981, as amended January 4, 1982, providing for the issuance of demand loan certificates; (b) Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, providing for the issuance of 5 Year Subordinated Capital Investment Certificates; (c) Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, providing for the issuance of 10 Year Subordinated Capital Investment Certificates; (d) Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, providing for the issuance of 20 Year Subordinated Monthly Income Capital Investment Certificates; (e) Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, providing for the issuance of 10 Year Subordinated Monthly Income Capital Investment Certificates; (f) Indenture dated November 8, 1984, as amended by Amendment No. 1 dated January 3, 1985, as further amended by Amendment No. 2 dated December 3, 1991, providing for the issuance of 10 Year Subordinated Individual Retirement Account Certificates; (g) Indenture dated November 11, 1985, providing for the issuance of 5 Year Subordinated Monthly Income Capital Investment Certificates; (h) Indenture dated December 4, 1997, providing for the issuance of unsubordinated debt securities, including demand loan certificates; and (i) Subordinated Indenture dated December 4, 1997, providing for the issuance of subordinated debt securities in series.

1.112 "Unimpaired"

means, when used with reference to a Claim or Interest, a Claim or Interest that is not Impaired.

1.113 "Voting Record Date"

means the voting record date for voting to accept or reject this Plan, as determined by the Bankruptcy Court.

C. Rules of Interpretation

For purposes of the Plan (a) any reference in the Plan to a contract, instrument, release, indenture, or other agreement or documents being in a particular form or on particular terms and conditions means that such document shall be substantially in such form or substantially on such terms and conditions, (b) any reference in the Plan to an existing document or exhibit filed or to be filed means such document or exhibit as it may have been or may be amended, modified, or supplemented, (c) unless otherwise specified, all references in the Plan to sections, articles, schedules, and exhibits are references to sections, articles, schedules, and exhibits of or to the Plan, (d) the words "herein" and "hereto" refer to the Plan in its entirety rather than to a particular portion of the Plan, (e) captions and headings to articles and sections are inserted for convenience of reference only and are not intended to be a part of or to affect the interpretation of the Plan, and (f) the rules of construction set forth in section 102 of the Bankruptcy Code and in the Bankruptcy Rules shall apply.

D. Computation of Time

In computing any period of time prescribed or allowed by the Plan, the provisions of Fed. R. Bankr. P. 9006(a) shall apply.

E. Governing Law

Unless a rule of law or procedure is supplied by federal law (including the Bankruptcy Code and Bankruptcy Rules), the laws of (i) the State of Delaware shall govern the construction and implementation of the Plan and any agreements, documents, and instruments executed in connection with the Plan and (ii) the laws of the state of incorporation of each Debtor shall govern corporate governance matters with respect to such Debtor, in either case without giving effect to the principles of conflicts of law thereof.

ARTICLE II
CLASSIFICATION OF CLAIMS AND INTERESTS

In accordance with section 1123(a)(1) of the Bankruptcy Code, Administrative Claims and Priority Tax Claims have not been classified, and the respective treatment of such unclassified claims is set forth in Section 3.1 of the Plan.

A Claim or Interest is placed in a particular Class only to the extent that the Claim or Interest falls within the description of that Class. A Claim or Interest may be and is classified in other Classes to the extent that any portion of the Claim or Interest falls within the description of such other Classes. A Claim or Interest is also placed in a particular Class for the purpose of receiving distributions pursuant to the Plan only to the extent that such Claim or Interest is an Allowed Claim or Allowed Interest in that Class and such Claim or Interest has not been paid, released, or otherwise settled prior to the Effective Date.

2.1 Class 1 (Other Priority Claims)

Class 1 consists of all Other Priority Claims.

2.2 Class 2 (Secured Lender Claims)

Class 2 consists of all Secured Lender Claims.

2.3 Class 3 (Other Secured Claims)

Class 3 consists of all Other Secured Claims

2.4 Class 4 (Demand Certificate Claims)

Class 4 consists of all Demand Certificate Claims.

2.5 Class 5 (Subordinated Debt Claims)

Class 5 consists of all Subordinated Debt Claims.

2.6 Class 6 (Reserved)

2.7 Class 7 (Convenience Claims against Industries)

Class 7 consists of all Convenience Claims against Industries.

2.8 Class 8 (General Unsecured Claims against Industries)

Class 8 consists of all General Unsecured Claims against Industries.

2.9 Class 9 (Old Securities of Industries)

Class 9 consists of all Old Securities of Industries.

2.10 Class 10 (General Unsecured Claims against Foods)

Class 10 consists of all General Unsecured Claims against Foods.

2.11 Class 11 (Old Securities of Foods)

Class 11 consists of all Old Securities of Foods.

2.12 Class 12 (General Unsecured Claims against Transportation)

Class 12 consists of all General Unsecured Claims against Transportation.

2.13 Class 13 (Old Securities of Transportation)

Class 13 consists of all Old Securities of Transportation.

2.14 Class 14 (General Unsecured Claims against SFA)

Class 14 consists of all General Unsecured Claims against SFA.

2.15 Class 15 (Old Securities of SFA)

Class 15 consists of all Old Securities of SFA.

2.16 Class 16 (General Unsecured Claims against Pipeline)

Class 16 consists of all General Unsecured Claims against Pipeline.

2.17 Class 17 (Old Securities of Pipeline)

Class 17 consists of all Old Securities of Pipeline.

2.18 Class 18 (Intercompany Claims)

Class 18 consists of all Intercompany Claims.

2.19 Class 19 (Subordinated Claims)

Class 19 consists of all Subordinated Claims.

ARTICLE III
TREATMENT OF CLAIMS AND INTERESTS

3.1 Unclassified Claims

(a) Administrative Claims

Except as otherwise provided for herein, and subject to the requirements of Sections 11.1-11.3 of this Plan, on, or as soon as reasonably practicable after, the latest of (i) the Distribution Date, (ii) the date such Administrative Claim becomes an Allowed Administrative Claim, or (iii) the date such Administrative Claim becomes payable pursuant to any agreement between a Debtor or Reorganized Debtor and the holder of such Administrative Claim, each holder of an Allowed Administrative Claim shall receive in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Administrative Claim (x) Cash equal to the unpaid portion of such Allowed Administrative Claim or (y) such other treatment as to which the applicable Debtor or Reorganized Debtor, and such holder shall have agreed upon in writing; provided, however, that Allowed Administrative Claims with respect to liabilities incurred by a Debtor in the ordinary course of business during the Chapter 11 Case shall be paid in the ordinary course of business in accordance with the terms and conditions of any agreements relating thereto.

(b) Priority Tax Claims

Each holder of an Allowed Priority Tax Claim, at the sole option of the Debtors or Reorganized Debtors, shall be entitled to receive on account of such Allowed Priority Tax Claim, in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Priority Tax Claim, (i) equal Cash payments made on the last Business Day of every three (3) month period following the Effective Date, over a period not to exceed six (6) years after the assessment of the tax on which such Claim is based, totaling the principal amount of such Claim plus simple interest on any outstanding balance from the Effective Date calculated at the interest rate available on ninety (90) day United States Treasuries on the Effective Date or (ii) such other treatment agreed to by the Allowed Priority Tax Claim holder and the Debtors or the Reorganized Debtors. Notwithstanding the foregoing, in the event of a Section 363 Scenario, each holder of an Allowed Priority Tax Claim shall receive, in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Priority Tax Claim (x) Cash equal to the unpaid portion of such Allowed Priority Tax Claim or (y) such other treatment as to which a Debtor or Reorganized Debtor and such holder shall have agreed upon in writing, on, or as soon as reasonably practicable after, the latest of (i) the Distribution Date, (ii) the date a Claim becomes an Allowed Priority Tax Claim, or (iii) the date such Priority Tax Claim becomes payable pursuant to any agreement between a Debtor or Reorganized Debtor and the holder of such Priority Tax Claim.

(c) DIP Loan Claims

The DIP Loan Claims shall be paid in full on the Effective Date according to the terms of the DIP Credit Agreement. Notwithstanding anything in the Plan to the contrary, the DIP Loan Claims shall have the superpriority status set forth in the orders authorizing and evidencing the DIP Loan Claims.

3.2 Class 1 (Other Priority Claims)

On, or as soon as reasonably practicable after, the latest of (i) the Distribution Date, (ii) the date such Claim becomes an Allowed Class 1 Claim, or (iii) the date such Class 1 Claim becomes payable pursuant to any agreement between a Debtor or Reorganized Debtor and the holder of such Class 1 Claim, each holder of an Allowed Class 1 Claim shall receive, in full satisfaction, settlement release, and discharge of and in exchange for such Allowed Class 1 Claim (x) Cash equal to the unpaid portion of such Allowed Class 1 Claim or (y) such other treatment as to which a Debtor or Reorganized Debtor and such holder shall have agreed upon in writing. The legal, equitable and contractual rights of the holders of Allowed Class 1 Claims are Unimpaired by the Plan.

3.3 Class 2 (Secured Lender Claims)

On the Effective Date, the Allowed Secured Lender Claims shall be satisfied and paid in full in the amount of said Claims then outstanding. In accordance with Section 5.14, net cash proceeds from Section 363 asset sales, including Non-Core Assets sales and other sales, prior to the Confirmation Date shall be remitted for application against the Secured Lender Claims. The Secured Lender Claims, if any, outstanding on the Effective Date shall be paid in full in Cash from proceeds of the Exit Financing or net cash proceeds from asset sales that occur after the Confirmation Date and prior to the Effective Date. Nothing in the Plan shall alter or affect any intermediate payments made by the Debtors to the Secured Lenders prior to the Effective Date. Class 2 is Unimpaired by the Plan.

3.4 Class 3 (Other Secured Claims)

On the Effective Date, the legal, equitable and contractual rights of holders of Allowed Class 3 Claims shall be Reinstated, subject to the provisions of Article VIII of this Plan. The Debtors’ failure to object to any such Class 3 Claims in the Chapter 11 Cases shall be without prejudice to the Debtors’ or the Reorganized Debtors’ right to contest or otherwise defend against such Claim in the appropriate forum when and if such Claim is sought to be enforced by the holder of such Claim. Notwithstanding section 1141(c) or any other provision of the Bankruptcy Code, all pre-petition Liens on property of any Debtor held by or on behalf of Class 3 Claim holders with respect to such Claims shall survive the Effective Date and continue in accordance with the contractual terms of the underlying agreements with such Claim holders until, as to each such Claim holder, the Allowed Claims of such Class 3 Claim holder are paid in full, subject to the provisions of Article VIII of this Plan. Nothing in this Section 3.4 or elsewhere in this Plan shall preclude the Debtors or Reorganized Debtors from challenging the validity of any alleged Lien on any asset of a Debtor or the value of such Collateral. The legal, equitable and contractual rights of the holders of Allowed Class 3 Claims are Unimpaired by the Plan.

3.5 Class 4 (Demand Certificate Claims)

On or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Class 4 Claim, shall receive, in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Class 4 Claim, its Pro Rata share of the Class 4 Distribution Pool. Class 4 is Impaired by the Plan.

3.6 Class 5 (Subordinated Debt Claims)

Subject to resolution of Bankruptcy Code section 510(a) priority issues, on or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Class 5 Claim, shall receive, in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Class 5 Claim, its Pro Rata share of the Class 5 Distribution Pool. Class 5 is Impaired by the Plan.^/

3.7 Class 6 (Reserved)

3.8 Class 7 (Convenience Claims against Industries)

On or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Class 7 Claim shall receive, in full satisfaction, settlement, release, and discharge of and in exchange for such Allowed Class 7 Claim, Cash equal to the amount of such Allowed Claim. Class 7 is Unimpaired by the Plan.

3.9 Class 8 (General Unsecured Claims against Industries)

On or as soon as reasonably practicable after the Effective Date, each holder of an Allowed Class 8 Claim, shall receive, in full satisfaction, settlement, release and discharge of and in exchange for such Allowed Class 8 Claim, its Pro Rata share of the Class 8 Distribution Pool. Class 8 is Impaired by the Plan.

3.10 Class 9 (Old Securities of Industries)

The holders of Old Securities of Industries shall [receive or retain] property under the Plan on account of such Old Securities to the extent that will be negotiated.^/

3.11 Class 10 (General Unsecured Claims against Foods)

The legal, equitable and contractual rights of the holders of Allowed Class 10 Claims are Unimpaired by the Plan and all such Claims shall be paid in full on the Effective Date.

3.12 Class 11 (Old Securities of Foods)

The legal, equitable and contractual rights of the holders of Old Securities of Foods are Unimpaired by the Plan and all such Old Securities shall be Reinstated on the Effective Date.

2/ normal">Section 510(a) priority issues among the various Subordinated Debt issues will be determined by the Bankruptcy Court in conjunction with a declaratory judgment adversary proceeding with respect to those priority issues.

3/ normal">This treatment may be revised, prior to the Disclosure Statement hearing, based upon (i) possible financial and economic benefits for Reorganized Industries, and (ii) final reorganization value of Reorganized Industries.

3.13 Class 12 (General Unsecured Claims against Transportation)

The legal, equitable and contractual rights of the holders of Allowed Class 12 Claims are Unimpaired by the Plan and all such Claims shall be paid in full on the Effective Date.

3.14 Class 13 (Old Securities of Transportation)

The legal, equitable and contractual rights of the holders of Old Securities of Transportation are Unimpaired by the Plan and all such Old Securities shall be Reinstated on the Effective Date.

3.15 Class 14 (General Unsecured Claims against SFA)

The legal, equitable and contractual rights of the holders of Allowed Class 14 Claims are Unimpaired by the Plan and all such Claims shall be paid in full on the Effective Date.

3.16 Class 15 (Old Securities of SFA)

The legal, equitable and contractual rights of the holders of Old Securities of SFA are Unimpaired by the Plan and all such Old Securities shall be Reinstated on the Effective Date.

3.17 Class 16 (General Unsecured Claims against Pipeline)

The legal, equitable and contractual rights of the holders of Allowed Class 16 Claims are Unimpaired by the Plan and all such Claims shall be paid in full on the Effective Date.

3.18 Class 17 (Old Securities of Pipeline)

The legal, equitable and contractual rights of the holders of Old Securities of Pipeline are Unimpaired by the Plan and all such Old Securities shall be Reinstated on the Effective Date.

3.19 Class 18 (Intercompany Claims)

The Intercompany Claims shall be paid in full or Reinstated on the Effective Date.

3.20 Class 19 (Subordinated Claims)

The holders of Subordinated Claims shall not receive or retain any property under the Plan on account of such Subordinated Claims. Class 19 is Impaired by the Plan.

3.21 Reservation of Rights Regarding Claims

Except as otherwise explicitly provided in the Plan, nothing shall affect the Debtors’ or Reorganized Debtors’ rights and defenses, both legal and equitable, with respect to any Claims, including, but not limited to, all rights with respect to legal and equitable defenses to alleged rights of setoff or recoupment.

ARTICLE IV
ACCEPTANCE OR REJECTION OF THE PLAN

4.1 Impaired Classes of Claims and Interests Entitled to Vote.

Subject to Section 4.4 of the Plan, Claim and Interest holders in each Impaired Class of Claims or Interests are entitled to vote as a class to accept or reject the Plan.

4.2 Acceptance by an Impaired Class.

In accordance with section 1126(c) of the Bankruptcy Code and except as provided in section 1126(e) of the Bankruptcy Code, an Impaired Class of Claims shall have accepted the Plan if the Plan is accepted by the holders of at least two-thirds (2/3) in dollar amount and more than one-half (1/2) in number of the Allowed Claims of such Class that have timely and properly voted to accept or reject the Plan.

4.3 Presumed Acceptances by Unimpaired Classes.

Classes 1, 2, 3, 7, 10, 11, 12, 13, 14, 15, 16, 17 and [18] are Unimpaired by the Plan. Under section 1126(f) of the Bankruptcy Code, such Claim and Interest holders are conclusively presumed to accept the Plan, and the votes of such Claim and Interest holders will not be solicited.

4.4 Classes Deemed to Reject Plan.

Holders of Claims and Interests in Classes [18] and 19 are not entitled to receive or retain any property under the Plan. Under section 1126(g) of the Bankruptcy Code, holders of Claims and Interests in Classes [18] and 19 are deemed to reject the Plan, and the votes of such Claim and Interest holders will not be solicited.

4.5 Summary of Classes Voting on the Plan.

As a result of the provisions of Sections 4.1, 4.3 and 4.4 of the Plan, the votes of holders of Claims in Classes 4, 5, and 8 will be solicited with respect to the Plan.

4.6 Confirmation Pursuant to Section 1129(b) of the Bankruptcy Code.

To the extent that any Impaired Class rejects the Plan or is deemed to have rejected the Plan, the Debtors will request confirmation of the Plan, as it may be modified from time to time, under section 1129(b) of the Bankruptcy Code.

ARTICLE V
MEANS FOR IMPLEMENTATION OF THE PLAN

5.1 Continued Corporate Existence

Subject to the Restructuring Transactions detailed in Section 5.4 of the Plan, the Reorganized Debtors shall continue to exist after the Effective Date as separate corporate entities, in accordance with the applicable law in the respective jurisdictions in which they are incorporated and pursuant to their respective certificates or articles of incorporation and by-laws in effect prior to the Effective Date, except to the extent such certificates or articles of incorporation and by-laws are amended by this Plan.

5.2 Old Securities of Industries

On the Effective Date, except as otherwise provided for herein, (a) the Old Securities of Industries shall be treated in accordance with Section 3.10, and (b) the obligations of the Debtors under any agreements, indentures or certificates of designations governing the Old Securities of Industries shall be treated in accordance with Section 3.10.

5.3 Certificates of Incorporation and By-laws

The certificate or articles of incorporation and by-laws of each Debtor shall be amended as necessary to satisfy the provisions of the Plan and the Bankruptcy Code and shall include, among other things, (a) pursuant to section 1123(a)6) of the Bankruptcy Code, a provision prohibiting the issuance of non-voting equity securities, but only to the extent required by section 1123(a)(6) of the Bankruptcy Code, and (b) authorize the issuance of the New Securities in amounts not less than the amounts necessary to permit distributions thereof required or contemplated by the Plan. The amended Certificate of Incorporation and Bylaws of Reorganized Industries shall be in substantially the form of Plan Exhibits A and B to be filed with the Bankruptcy Court prior to the Disclosure Statement hearing.

5.4 Restructuring Transactions

(a) On the Effective Date, the Debtors shall take all actions necessary to effectuate the terms of each of the Restructuring Transactions (or the Section 363 Scenario, as the case may be), including those set forth in this Article V.

(b) On or after the Effective Date, the applicable Reorganized Debtors may enter into such transactions and may take such actions as may be necessary or appropriate to effect a corporate restructuring of their respective businesses, to otherwise simplify the overall corporate structure of the Reorganized Debtors and the Non-Debtor Subsidiaries, or to reincorporate certain of the Reorganized Debtors or Non-Debtor Subsidiaries under the laws of jurisdictions other than the laws of which the applicable Reorganized Debtors or Non-Debtor Subsidiaries are presently incorporated. Such restructuring may include one or more mergers, consolidations, restructures, dispositions, liquidations, or dissolutions, as may be determined by the Reorganized Debtors to be necessary or appropriate (collectively, the "Restructuring Transactions"). The actions to effect the Restructuring Transactions may include: (a) the execution and delivery of appropriate agreements or other documents of merger, consolidation, restructuring, disposition, liquidation, or dissolution containing terms that are consistent with the terms of the Plan and that satisfy the applicable requirements of applicable state law and such other terms to which the applicable entities may agree; (b) the execution and delivery of appropriate instruments of transfer, assignment, assumption, or delegation of any asset, property, right, liability, duty, or obligation on terms consistent with the terms of the Plan and having such other terms to which the applicable entities may agree; (c) the filing of appropriate certificates or articles of merger, consolidation, or dissolution pursuant to applicable state law; and (d) all other actions that the applicable entities determine to be necessary or appropriate, including making filings or recordings that may be required by applicable state law in connection with such transactions. The Restructuring Transactions may include one or more mergers, consolidations, restructures, dispositions, liquidations, or dissolutions, as may be determined by the Reorganized Debtors to be necessary or appropriate to result in substantially all of the respective assets, properties, rights, liabilities, duties, and obligations of certain of the Reorganized Debtors vesting in one or more surviving, resulting, or acquiring corporations. In each case in which the surviving, resulting, or acquiring corporation in any such transaction is a successor to a Reorganized Debtor, such surviving, resulting, or acquiring corporation will perform the obligations of the applicable Reorganized Debtor pursuant to the Plan to pay or otherwise satisfy the Allowed Claims against such Reorganized Debtor, except as provided in any contract, instrument, or other agreement or document effecting a disposition to such surviving, resulting, or acquiring corporation, which may provide that another Reorganized Debtor will perform such obligations..

5.5 Issuance of New Securities

On the Effective Date, Reorganized Industries shall issue for distribution in accordance with the terms of the Plan: (a) to be negotiated shares of New Common Shares to the holders of Allowed Claims in Classes 4, 5 and 8; and (b) in principal amount to be negotiated of New Debt Securities to holders of Allowed Claims in Classes 4, 5 and 8. The issuance of all of the New Securities, and the distribution thereof, shall be exempt from registration under applicable securities laws pursuant to section 1145 of the Bankruptcy Code.

5.6 Compensation And Benefit Programs

(a) Except and to the extent previously assumed or rejected by an order of the Bankruptcy Court on or before the Confirmation Date, all employee compensation and benefit programs of the Debtors, including programs subject to sections 1114 and 1129(a)(13) of the Bankruptcy Code, entered into before or after the Petition Date and not since terminated, shall be deemed to be, and shall be treated as though they are, executory contracts that are assumed under Section 6.1 of this Plan.

(b) On or about the Effective Date, management and the designated employees of Reorganized Industries and other Reorganized Debtors shall receive the contractual employment arrangements set forth in the Management Plan. The Management Plan shall be substantially in the form of the Plan Exhibit C to be filed with the Bankruptcy Court prior to the Disclosure Statement hearing.

5.7 Directors And Officers of Reorganized Debtors

(a) Appointment. Except as otherwise designated to the Bankruptcy Court pursuant to Section 1129(a)5 of the Bankruptcy Code prior to the Confirmation Hearing, the senior officers of Industries immediately prior to the Effective Date shall serve initially in the same capacities after the Effective Date for Reorganized Industries. The initial board of directors of Reorganized Industries shall consist of twelve directors. Each of the Bankruptcy Committees shall propose four directors and the Debtor Industries shall propose four directors. All of the selected directors shall be reasonably acceptable to the Bankruptcy Committees and the Debtor Industries.

(b) Terms. Reorganized Industries board members shall serve for an initial two year term commencing on the Effective Date as determined by the Debtors. If agreed upon by the Debtors and the Bankruptcy Committees, the terms for board members may be staggered.

(c) Vacancies. Until the first annual meeting of shareholders of Reorganized Industries after the Effective Date, any vacancy in the directorship shall be filled by a Person designated by such director (or the entity that originally designated such director) as a replacement to serve out the remainder of the applicable term.

5.8 Reverting Of Assets; Releases of Liens

The property of each Estate, together with any property of each Debtor that is not property of its Estate and that is not specifically disposed of pursuant to the Plan, shall revest in the applicable Reorganized Debtor on the Effective Date, subject to the Restructuring Transactions. Thereafter, each Reorganized Debtor may operate its business and may use, acquire, and dispose of property free of any restrictions of the Bankruptcy Code, the Bankruptcy Rules, and the Bankruptcy Court. As of the Effective Date, all property of each Reorganized Debtor shall be free and clear of all Claims, Interests and Liens, except as specifically provided in the Plan or the Confirmation Order. Without limiting the generality of the foregoing, each Reorganized Debtor may, without application to or approval by the Bankruptcy Court, pay fees that it incurs after the Effective Date for reasonable professional fees and expenses.

5.9 Preservation Of Rights Of Action.

Except as otherwise provided in this Plan or the Confirmation Order, or in any contract, instrument, release, indenture or other agreement entered into in connection with the Plan, in accordance with section 1123(b) of the Bankruptcy Code, the Reorganized Debtors shall retain and may enforce, sue on, settle, or compromise (or decline to do any of the foregoing) all Litigation Claims that the Debtors, the Reorganized Debtors or the Estates may hold against any Person or entity. Each Reorganized Debtor (or its successors) may pursue such retained Litigation Claims as appropriate, in accordance with the best interests of the Reorganized Debtor (or its successors) who hold such rights. Schedule 5.9 to the Plan contains a nonexclusive list of claims or causes of actions that the Debtors hold or may hold either in pending or potential litigation. The Debtors reserve their right, prior to the Confirmation Hearing, to modify Schedule 5.9 to add or delete parties or causes of action, but disclaim any obligation to do so.

5.10 Effectuating Documents; Further Transactions

The Chief Executive Officer, chief financial officer, or any other appropriate officer of Industries or any applicable Debtor, as the case may be, shall be authorized to execute, deliver, file, or record such contracts, instruments, releases, indentures, and other agreements or documents, and take such actions as may be necessary or appropriate to effectuate and further evidence the terms and conditions of the Plan. The secretary or assistant secretary of Industries or any applicable Debtor, as the case may be, shall be authorized to certify or attest to any of the foregoing actions.

5.11 Exemption From Certain Transfer Taxes

Pursuant to section 1146(c) of the Bankruptcy Code, any transfers from a Debtor to a Reorganized Debtor or any other Person or entity pursuant to the Plan in the United States shall not be subject to any document recording tax, stamp tax, conveyance fee, intangibles or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage recording tax or other similar tax or governmental assessment, and the Confirmation Order shall direct the appropriate state or local governmental officials or agents to forego the collection of any such tax or governmental assessment and to accept for filing and recordation any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment.

5.12 Releases and Related Matters

(a) Releases by Debtors

As of the Effective Date, for good and valuable consideration, the adequacy of which is hereby confirmed, the Debtors and Reorganized Debtors will be deemed to forever release, waive and discharge all claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action and liabilities whatsoever in connection with or related to the Debtors, the Reorganized Debtors, the Non-Debtor Subsidiaries, the Chapter 11 Case or the Plan (other than the rights of the Debtors or Reorganized Debtors to enforce the Plan and the contracts, instruments, releases, indentures, and other agreements or documents delivered thereunder) whether liquidated or unliquidated, fixed or contingent, matured or unmatured, known or unknown, foreseen or unforeseen, then existing or thereafter arising, in law, equity or otherwise that are based in whole or part on any act, omission, transaction, event or other occurrence taking place on or prior to the Effective Date in any way relating to the Debtors, the Reorganized Debtors, the Non-Debtor Subsidiaries, the Chapter 11 Case or the Plan, and that may be asserted by or on behalf of the Debtors or their Estates or the Reorganized Debtors against (i) the Debtors’ and the Non-Debtor Subsidiaries’ present and [former] directors, officers, employees, agents and [professionals] as of the Petition Date or thereafter, (ii) the Bankruptcy Committees and their members, agents and professionals, and (iii) the Lenders, the agents under the Pre-Petition Credit Agreement, and their respective agents and professionals.

(b) Injunction Related to Releases

As further provided in Article XI of this Plan, the Confirmation Order will enjoin the prosecution, whether directly, derivatively or otherwise, of any claim, obligation, suit, judgment, damage, demand, debt, right, cause of action, liability or interest released, discharged or terminated pursuant to the Plan.

5.13 Exit Financing

On the Effective Date, Reorganized Industries and certain of the Subsidiaries shall enter into all necessary and appropriate documentation to obtain the Exit Financing, on substantially the terms and conditions set forth in the Plan Exhibit D to be filed with the Bankruptcy Court prior to the Disclosure Statement hearing, in order to repay any then outstanding DIP Loan Claims and Secured Lender Claims, not otherwise paid previously through intermediate asset sales, and provide additional working capital to Reorganized Industries and certain of the Subsidiaries.

5.14 Section 363 Asset Sales Prior to Confirmation

Prior to the Confirmation Date, the Debtors shall have completed sales of the Non-Core Assets on such terms and conditions as shall be authorized and approved by the Bankruptcy Court. The net cash proceeds from those sales shall be remitted, pursuant to separate orders of the Bankruptcy Court, in accordance with the DIP Credit Agreement and the Pre-Petition Credit Agreement, respectively. In addition and prior to the Disclosure Statement hearing, the Debtors shall have actively commenced and completed a comprehensive marketing process for their remaining assets, and any net sales proceeds received from those sales shall be remitted, pursuant to separate orders of the Bankruptcy Court, in accordance with the DIP Credit Agreement and the Pre-Petition Credit Agreement, respectively.

5.15 Implementation of the Plan in the Event of a Section 363 Scenario

In the event of a Section 363 Scenario, Sections 5.1, 5.2, 5.3, 5.4, 5.5, 5.6, 5.7, 5.8, 5.9, 5.10, 5.11 and 5.13 of the Plan shall not apply.

ARTICLE VI
TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES

6.1 Assumed Executory Contracts And Unexpired Leases

On the Effective Date, the Reorganized Debtors shall be deemed to have assumed each executory contract and unexpired lease listed on Schedule 6.1 attached hereto, which Schedule 6.1 will be bifurcated into insider and non-insider executory contracts and unexpired leases, provided, however, that the Debtors reserve their right, at any time prior to the Confirmation Date, to amend Schedule 6.1 to delete an unexpired lease or executory contract therefrom or add any unexpired lease or executory contract thereto. Except as otherwise provided in the Plan, or in any contract, instrument, release, indenture or other agreement or document entered into in connection with the Plan, to the extent that an executory contract or unexpired lease is not listed on either Schedule 6.1 or Schedule 6.3 hereto or has previously been assumed or rejected during the administration of the Estates, such executory contract or unexpired lease shall be deemed rejected as if such executory contract or lease had been included on Schedule 6.3 hereto. The Confirmation Order shall constitute an order of the Bankruptcy Court under section 365 of the Bankruptcy Code approving the contract and lease assumptions described above, as of the Effective Date.

6.2 Payments Related To Assumption Of Executory Contracts and Unexpired Leases

Any monetary amounts by which each executory contract and unexpired lease to be assumed pursuant to the Plan is in default shall be satisfied, under section 365(b)(1) of the Bankruptcy Code, at the option of the Debtor party to the contract or lease or the assignee of such Debtor party assuming such contract or lease, by Cure. If there is a dispute regarding (a) the nature or amount of any Cure, (b) the ability of any Reorganized Debtor or any assignee to provide "adequate assurance of future performance" (within the meaning of section 365 of the Bankruptcy Code) under the contract or lease to be assumed, or (c) any other matter pertaining to assumption, Cure shall occur following the entry of a Final Order resolving the dispute and approving the assumption or assumption and assignment, as the case may be; provided that if there is a dispute as to the amount of Cure or any requirement for adequate assurance of future performance that cannot be resolved consensually among the parties, the Debtors shall have the right to reject the contract or lease for a period of five (5) days after entry of a Final Order establishing a Cure amount in excess of that provided by the Debtors or any requirement for adequate assurance of future performance that is not acceptable to the Debtors. The Confirmation Order shall contain provisions providing for notices of proposed assumptions and proposed cure amounts to be sent to applicable third parties and for procedures for objecting thereto (which shall provide not less than twenty (20) days notice of such procedures and any deadlines pursuant thereto) and resolution of disputes by the Bankruptcy Court.

6.3 Rejected Executory Contracts and Unexpired Leases

On the Effective Date, each executory contract and unexpired lease listed on Schedule 6.3 to this Plan shall be rejected pursuant to section 365 of the Bankruptcy Code. Each contract or lease listed on Schedule 6.3 hereto shall be rejected only to the extent that any such contract or lease constitutes an executory contract or unexpired lease; provided, however, that the Debtors reserve their right, at any time prior to the Confirmation Date, to amend Schedule 6.3 hereto to delete an unexpired lease or executory contract therefrom or add any unexpired lease or executory contract thereto. Except as otherwise provided in the Plan, or in any contract, instrument, release, indenture or other agreement or document entered into in connection with the Plan, to the extent that an executory contract or unexpired lease is not listed on either Schedule 6.1 or Schedule 6.3 hereto or has not previously been assumed or rejected during the administration of the Estates, such executory contract or unexpired lease shall be deemed rejected as if such executory contract or lease had been included on Schedule 6.3. Listing a contract or lease on Schedule 6.1 or 6.3 hereto shall not constitute an admission by any Debtor or Reorganized Debtor that such contract or lease is an executory contract or unexpired lease or that any Debtor or Reorganized Debtor has any liability thereunder. The Confirmation Order shall constitute an order of the Bankruptcy Court approving such rejections, pursuant to section 365 of the Bankruptcy Code, as applicable, as of the Effective Date.

6.4 Rejection Damages Bar Date

If the rejection by a Debtor or Reorganized Debtor, pursuant to the Plan or otherwise, of an executory contract or unexpired lease results in a Claim, then such Claim shall be forever barred and shall not be enforceable against any Debtor or Reorganized Debtor or the properties of any of them unless a proof of Claim is filed with the clerk of the Bankruptcy Court and served upon counsel to the Debtors, and counsel to the Bankruptcy Committees, within thirty days after service of the earlier of (a) notice of the Confirmation Order, or (b) other notice that the executory contract or unexpired lease has been rejected.

ARTICLE VII
PROVISIONS GOVERNING DISTRIBUTIONS

7.1 Distributions For Claims Or Interests Allowed As Of The Effective Date

Except as otherwise provided herein or as ordered by the Bankruptcy Court, and subject to the provisions of Section 8.3 and 8.4 of this Plan, all distributions to holders of Allowed Claims and Allowed Interests as of the Effective Date shall be made on the Distribution Date; provided, however, that no distribution shall be made on behalf of any Claim which may be subject to disallowance under section 502(d) of the Bankruptcy Code. Distributions on account of Claims and Interests that first become Allowed Claims or Allowed Interests after the Effective Date shall be made pursuant to Section 8.4 of this Plan. Notwithstanding the date on which any distribution of New Securities is actually made to a holder of a Claim that is an Allowed Claim on the Effective Date, as of the date of the distribution of such securities such holder shall be deemed to have the rights of a holder as of the Effective Date.

7.2 Interest On Claims

Unless otherwise specifically provided for in this Plan or the Confirmation Order, or required by applicable law, post-petition interest shall not accrue or be paid on Claims, and no holder of a Claim shall be entitled to interest accruing on or after the Petition Date on any Claim. Interest shall not accrue or be paid upon any Disputed Claim in respect of the period from the Petition Date to the date a final distribution is made thereon if and after such Disputed Claim becomes an Allowed Claim. This provision shall not apply to Allowed Secured Lender Claims and DIP Loan Claims.

7.3 Distributions by Disbursing Agent

(a) Except as set forth in Section 7.3(c) of this Plan, the Disbursing Agent shall make all distributions required under this Plan.

(b) If the Disbursing Agent is an independent third party designated by the Reorganized Debtors to serve in such capacity, such Disbursing Agent shall receive, without further Bankruptcy Court approval, reasonable compensation for distribution services rendered pursuant to the Plan and reimbursement of reasonable out-of-pocket expenses incurred in connection with such services from the Reorganized Debtors on terms acceptable to the Reorganized Debtors. No Disbursing Agent shall be required to give any bond or surety or other security for the performance of its duties unless otherwise ordered by the Bankruptcy Court.

(c) Distributions to holders of Allowed Claims in Classes 4 and 5 shall be made by the respective Indenture Trustees. In full satisfaction of the Claims of the Indenture Trustees for services under the Trust Indentures, including Claims secured by the Indenture Trustees’ charging liens under the Trust Indentures, the Indenture Trustees will receive Cash equal to the amount of the Indenture Trustees’ reasonable fees and expenses. Distributions to be made to holders of Claims shall not be reduced on account of the payment to the Indenture Trustee fees and expenses. On or as soon as practicable after the Effective Date and without further application to the Bankruptcy Court or amendment to its proof of Claim, Reorganized Industries will pay to each Indenture Trustee, in full satisfaction of such Indenture Trustee’s reasonable fees and expenses, Cash in an amount equal to the amount of such fees and expenses of the Indenture Trustee. Any disputes as to the reasonableness of such fees and expenses shall be resolved by the Bankruptcy Court. Upon full satisfaction of the Indenture Trustees’ fees and expenses, the Indenture Trustees’ charging liens shall be released.

7.4 (Reserved)

7.5 Means Of Cash Payment

Cash payments made pursuant to this Plan shall be in U.S. funds by check or wire transfer.

7.6 Calculation Of Distribution Amounts Of New Securities

No fractional shares of New Common Shares or fractional New Debt Securities shall be issued or distributed under the Plan or by Reorganized Industries or the Disbursing Agent. Each Person entitled to receive New Common Shares or New Debt Securities will receive the total number of whole shares of New Common Shares and New Debt Securities to which such Person is entitled. Whenever any distribution to a particular Person would otherwise call for distribution of a fraction of a share of New Common Shares or fractional New Debt Securities, the actual distribution of shares or debt securities shall be rounded to the next higher or lower whole number as follows: (a) fractions one-half or greater shall be rounded to the next higher whole number, and (b) fractions of less than one-half shall be rounded to the next lower whole number. No consideration shall be provided in lieu of fractional shares or debt securities that are rounded down.

7.7 Delivery Of Distributions

Distributions to holders of Allowed Claims and Allowed Interests shall be made by the Disbursing Agent or Indenture Trustees, as applicable, (a) at the addresses set forth on the proofs of Claim or Interest filed by such holders (or at the last known addresses of such holders if no proof of Claim or Interest is filed or if the Debtors have been notified of a change of address), (b) at the addresses set forth in any written notices of address changes delivered to the Disbursing Agent after the date of any related proof of Claim or Interest, (c) at the addresses reflected in the Schedules if no proof of Claim or Interest has been filed and the Disbursing Agent has not received a written notice of a change of address, or (d) in the case of the holder of an Allowed Claim in Classes 4 or 5, at the addresses contained in the official records of the applicable Indenture Trustee, or (e) at the addresses set forth in a properly completed letter of transmittal accompanying securities properly remitted to the Debtors. If any holder’s distribution is returned as undeliverable, no further distributions to such holder shall be made unless and until the Disbursing Agent is notified of such holder’s then current address, at which time all missed distributions shall be made to such holder without interest. Amounts in respect of undeliverable distributions made by the Disbursing Agent, shall be returned to the Reorganized Debtors until such distributions are claimed. All claims for undeliverable distributions made by the Disbursing Agent must be made on or before the first (1st) anniversary of the Effective Date, after which date all unclaimed property shall revert to the Reorganized Debtors free of any restrictions thereon and the claims of any holder or successor to such holder with respect to such property shall be discharged and forever barred, notwithstanding any federal or state escheat laws to the contrary. Nothing contained in the Plan shall require the Debtors, Reorganized Debtors, Disbursing Agent or the Indenture Trustee to attempt to locate any holder of an Allowed Claim.

7.8 Surrender of Securities and Instruments

(a) As a condition precedent to receiving any distribution pursuant to the Plan on account of an Allowed Claim or Allowed Interest, each holder of a Demand Certificate, Subordinated Debt or Old Security of Industries shall tender the applicable instruments, securities or other documentation evidencing such Claim or Interest to the Disbursing Agent or Indenture Trustee, as applicable, in accordance with written instructions to be provided to such holders by the Disbursing Agent or Indenture Trustee as promptly as practicable following the Effective Date. All surrendered instruments, securities and documentation relating to the Demand Certificates, the Subordinated Debt or the Old Securities of Industries shall be marked as cancelled. Any holder of a Demand Certificate, Subordinated Debt or Old Security of Industries that fails to surrender or is deemed to have failed to surrender the applicable instruments, securities and documentation required to be tendered hereunder within one year after the Effective Date shall have its Claim or Interest and its distribution pursuant to the Plan on account of such Claim or Interest discharged and shall be forever barred from asserting such Claim or Interest against the Reorganized Debtors or their property. Any New Securities to be distributed pursuant to the Plan on account of such Claim or Interest shall, pending such surrender, be treated as an undeliverable distribution pursuant to Section 7.7 of the Plan.

(b) In addition to any requirements under the applicable certificate or articles of incorporation or by-laws of the applicable Debtor, any holder of a Demand Certificate, Subordinated Debt or Old Security of Industries that has been lost, stolen, mutilated or destroyed shall, in lieu of surrendering such instrument, security or documentation deliver to the Disbursing Agent or Indenture Trustee, as applicable, (i) evidence satisfactory to the Disbursing Agent or Indenture Trustee of the loss, theft, mutilation or destruction; and (ii) such indemnity as may be required by the Disbursing Agent or Indenture Trustee to hold the Disbursing Agent or Indenture Trustee harmless from any damages, liabilities or costs incurred in treating such individual as a holder of a Demand Certificate, Subordinated Debt or Old Security of Industries that has been lost, stolen, mutilated or destroyed. Upon compliance with this Section 7.8(b) by a holder of a Claim or Interest evidenced by a Demand Certificate, Subordinated Debt or Old Security of Industries, such holder shall, for all purposes under the Plan, be deemed to have surrendered its Demand Certificate, Subordinated Debt or Old Security of Industries.

7.9 Withholding And Reporting Requirements

In connection with this Plan and all distributions hereunder, the Disbursing Agent shall, to the extent applicable, comply with all tax withholding and reporting requirements imposed by any federal, state, provincial, local, or foreign taxing authority, and all distributions hereunder shall be subject to any such withholding and reporting requirements. The Disbursing Agent shall be authorized to take any and all actions that may be necessary or appropriate to comply with such withholding and reporting requirements. Notwithstanding any other provision of the Plan: (a) each holder of an Allowed Claim that is to receive a distribution of New Securities pursuant to the Plan shall have sole and exclusive responsibility for the satisfaction and payment of any tax obligations imposed by any governmental unit, including income, withholding and other tax obligations, on account of such distribution, and (b) no distribution shall be made to or on behalf of such holder pursuant to the Plan unless and until such holder has made arrangements satisfactory to the Disbursing Agent for the payment and satisfaction of such tax obligations. Any New Securities to be distributed pursuant to the Plan shall, pending the implementation of such arrangements, be treated as an undeliverable distribution pursuant to Section 7.7 of this Plan.

7.10 Setoffs

The Reorganized Debtors may, but shall not be required to, set off against any Claim, and the payments or other distributions to be made pursuant to the Plan in respect of such Claim, claims of any nature whatsoever that the Debtors or Reorganized Debtors may have against the holder of such Claim; provided, however, that neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release by the Reorganized Debtors of any such claim that the Debtors or Reorganized Debtors may have against such holder.

ARTICLE VIII
PROCEDURES FOR RESOLVING DISPUTED, CONTINGENT, AND
UNLIQUIDATED CLAIMS AND DISTRIBUTIONS WITH RESPECT THERETO

8.1 Prosecution Of Objections to Claims

(a) Objections to Claims

All objections to Claims and Interests must be filed and served on the holders of such Claims and Interests by the Objection Deadline. If an objection has not been filed to a proof of Claim or Interest or a scheduled Claim or Interest by the Objection Deadline, the Claim or Interest to which the proof of Claim or Interest or scheduled Claim or Interest relates will be treated as an Allowed Claim or Allowed Interest if such Claim or Interest has not been allowed earlier.

(b) Authority to Prosecute Objections

After the Confirmation Date, only the Reorganized Debtors will have the authority to file objections, settle, compromise, withdraw or litigate to judgment objections to Claims or Interests, including Claims for reclamation under section 546(c) of the Bankruptcy Code. Except as provided below, from and after the Effective Date, the Reorganized Debtors may settle or compromise any Disputed Claim or Disputed Interest without approval of the Bankruptcy Court.

8.2 Treatment of Disputed Claims

Notwithstanding any other provisions of the Plan, no payments or distributions will be made on account of a Disputed Claim or Disputed Interest, or, if less than the entire Claim or Interest is a Disputed Claim or Disputed Interest, the portion of a Claim or Interest that is Disputed, until such Claim or Interest becomes an Allowed Claim or Allowed Interest.

8.3 Disputed Claims Reserves

Prior to making any distributions of the New Common Shares or the New Debt Securities to holders of Allowed Claims in Classes 4, 5, 6 or 8, the Disbursing Agent shall establish appropriate reserves for Disputed Claims and Disputed Interests in such Classes, respectively, to withhold from any such distributions 100% of distributions to which holders of Disputed Claims and Disputed Interests in such Classes would be entitled under the Plan as of such date if such Disputed Claims or Disputed Interests were Allowed Claims or Allowed Interests in their Disputed Claim Amount or Disputed Interest Amount. The Disbursing Agent shall also establish appropriate reserves for Disputed Claims in other Classes, as it determines necessary and appropriate.

8.4 Distributions on Account of Disputed Claims Once They Are Allowed and Additional Distributions on Account of Previously Allowed Claims

On each Quarterly Distribution Date, the Reorganized Debtors will make distributions from the Disputed Claims and Disputed Interests reserves (a) on account of any Disputed Claim or Disputed Interest that has become an Allowed Claim or Allowed Interest during the preceding calendar quarter and (b) on account of previously Allowed Claims or Allowed Interests, of property that would have been distributed to such Claim or Interest holders on the dates distributions previously were made to holders of Allowed Claims and Allowed Interests had the Disputed Claims and Disputed Interests that have become Allowed Claims and Allowed Interests been Allowed on such dates. Such distributions will be made pursuant to the provisions of the Plan governing the applicable Class. Holders of such Claims and Interests that are ultimately allowed will also be entitled to receive, on the basis of the amount ultimately allowed, the amount of any dividends or other distributions, if any, received on account of the shares of New Common Shares or New Debt Securities between the Effective Date and the date such shares or debt securities are distributed to such Claim or Interest holder.

ARTICLE IX
CONDITIONS PRECEDENT TO CONFIRMATION
AND CONSUMMATION OF THE PLAN

9.1 Conditions To Effective Date

The following are conditions precedent to the occurrence of the Effective Date, each of which must be satisfied or waived in accordance with this Section:

(a) The Confirmation Order shall have been entered and become a Final Order in form and substance reasonably satisfactory to the Debtors and the Bankruptcy Committees and shall:

(i) provide that the Debtors and Reorganized Debtors are authorized and directed to take all actions necessary or appropriate to enter into, implement and consummate the contracts, instruments, releases, leases, indentures and other agreements or documents created in connection with the Plan or the Restructuring Transactions;

(ii) authorize the issuance of the New Securities; and

(iii) provide that the New Securities issued under the Plan in exchange for Claims against the Debtors are exempt from registration under the Securities Act of 1933 pursuant to section 1145 of the Bankruptcy Code, except to the extent that holders of the New Securities are "issuers" or "underwriters," as those terms are defined in section 1145 of the Bankruptcy Code.

(b) The Debtors shall have contemporaneously entered into final documentation of the Exit Financing in form and substance reasonably satisfactory to the Debtors and the Bankruptcy Committees.

(c) All Plan Exhibits shall be in form and substance reasonably acceptable to the Debtors and the Bankruptcy Committees and shall have been executed and delivered.

(d) All actions, documents and agreements necessary to implement the Plan shall have been effected or executed.

(e) The Debtors shall have paid the then outstanding balances of the Secured Lender Claims and the DIP Loan Claims in full.

9.2 Waiver of Conditions

The requirement that the Confirmation Order must be a Final Order may be waived by the Debtors, with the consent of the Bankruptcy Committees, which consent shall not be unreasonably withheld.

9.3 Notice of Effective Date

The Reorganized Debtors shall file and serve an appropriate notice of the Effective Date within seven Business Days of the Effective Date.

ARTICLE X
RETENTION OF JURISDICTION

Under sections 105(a) and 1142 of the Bankruptcy Code, and notwithstanding entry of the Confirmation Order and occurrence of the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over all matters arising out of, and related to, the Chapter 11 Case and the Plan to the fullest extent permitted by law, including, among other things, jurisdiction to:

(a) Allow, disallow, determine, liquidate, classify, estimate or establish the priority or secured or unsecured status of any Claim or Interest not otherwise allowed under the Plan, including the resolution of any request for payment of any Administrative Claim and the resolution of any objections to the allowance or priority of Claims or Interests;

(b) Hear and determine all applications for compensation and reimbursement of expenses of Professionals under the Plan or under sections 330, 331, 503(b), 1103 and 1129(a)(4) of the Bankruptcy Code; provided, however, that from and after the Effective Date, the payment of the fees and expenses of the retained Professionals of the Reorganized Debtors shall be made in the ordinary course of business and shall not be subject to the approval of the Bankruptcy Court;

(c) Hear and determine all matters with respect to the assumption or rejection of any executory contract or unexpired lease to which a Debtor is a party or with respect to which a Debtor may be liable, including, if necessary, the nature or amount of any required Cure or the liquidation or allowance of any Claims arising therefrom;

(d) Effectuate performance of and payments under the provisions of the Plan;

(e) Hear and determine any and all adversary proceedings, motions, applications, and contested or litigated matters arising out of, under, or related to, the Chapter 11 Case;

(f) Enter such orders as may be necessary or appropriate to execute, implement, or consummate the provisions of the Plan and all contracts, instruments, releases, and other agreements or documents created in connection with the Plan, the Disclosure Statement or the Confirmation Order;

(g) Hear and determine disputes arising in connection with the interpretation, implementation, consummation, or enforcement of the Plan, including disputes arising under agreements, documents or instruments executed in connection with the Plan;

(h) Consider any modifications of the Plan, cure any defect or omission, or reconcile any inconsistency in any order of the Bankruptcy Court, including, without limitation, the Confirmation Order;

(i) Issue injunctions, enter and implement other orders, or take such other actions as may be necessary or appropriate to restrain interference by any entity with implementation, consummation, or enforcement of the Plan or the Confirmation Order;

(j) Enter and implement such orders as may be necessary or appropriate if the Confirmation Order is for any reason reversed, stayed, revoked, modified, or vacated;

(k) Hear and determine any matters arising in connection with or relating to the Plan, the Disclosure Statement, the Confirmation Order, or any contract, instrument, release, or other agreement or document created in connection with the Plan, the Disclosure Statement or the Confirmation Order;

(l) Enforce all orders, judgments, injunctions, releases, exculpations, indemnifications and rulings entered in connection with the Chapter 11 Case;

(m) Except as otherwise limited herein, recover all assets of the Debtors and property of the Estates, wherever located;

(n) Hear and determine matters concerning state, local, and federal taxes in accordance with sections 346, 505, and 1146 of the Bankruptcy Code;

(o) Hear and determine all disputes involving the existence, nature, or scope of the Debtors’ discharge;

(p) Hear and determine such other matters as may be provided in the Confirmation Order or as may be authorized under, or not inconsistent with, provisions of the Bankruptcy Code; and

(q) Enter a final decree closing the Chapter 11 Case.

ARTICLE XI
MISCELLANEOUS PROVISIONS

11.1 Professional Fee Claims

All final requests for compensation or reimbursement for Professionals pursuant to sections 327, 328, 330, 331, 503(b) or 1103 of the Bankruptcy Code for services rendered prior to the Effective Date and Substantial Contribution Claims under section 503(b)(4) of the Bankruptcy Code must be filed and served on the Reorganized Debtors and their counsel no later than forty-five (45) days after the Effective Date, unless otherwise ordered by the Bankruptcy Court. Objections to applications of such Professionals or other entities for compensation or reimbursement of expenses must be filed and served on the Reorganized Debtors and their counsel and the requesting Professional or other entity no later than thirty (30) days (or such longer period as may be allowed by order of the Bankruptcy Court) after the date on which the applicable application for compensation or reimbursement was served.

11.2 Administrative Claims Bar Date

All requests for payment of an Administrative Claim (other than as set forth in Sections 3.1 and 11.1 of this Plan) must be filed with the Bankruptcy Court and served on counsel for the Debtors and counsel for each Bankruptcy Committee no later than thirty (30) days after the Effective Date. Unless the Debtors or Reorganized Debtors object to an Administrative Claim within forty-five (45) Business Days after receipt, such Administrative Claim shall be deemed allowed in the amount requested. In the event that the Debtors or Reorganized Debtors object to an Administrative Claim, the Bankruptcy Court shall determine the allowed amount of such Administrative Claim. Notwithstanding the foregoing, no request for payment of an Administrative Claim need be filed with respect to an Administrative Claim which is paid or payable by a Debtor in the ordinary course of business.

11.3 Payment Of Statutory Fees

All fees payable pursuant to section 1930 of Title 28 of the United States Code, as determined by the Bankruptcy Court at the Confirmation shall be paid on or before the Effective Date.

11.4 Modifications and Amendments

(a) The Debtors reserve the right, in accordance with the Bankruptcy Code and the Bankruptcy Rules, to amend or modify this Plan at any time prior to the entry of the Confirmation Order. After the entry of the Confirmation Order, the Debtors (subject to consent of the Bankruptcy Committees and the administrative agent under the Pre-Petition Credit Agreement, which consent shall not be unreasonably withheld) may amend or modify this Plan, in accordance with Section 1127 of the Bankruptcy Code, or remedy any defect or omission or reconcile any inconsistency in this Plan in such manner as may be necessary to carry out the purpose and intent of this Plan. A holder of an Allowed Claim or Allowed Interest that is deemed to have accepted this Plan shall be deemed to have accepted this Plan as modified if the proposed modification does not materially and adversely change the treatment of the Claim or Interest of such holder. In addition, the Plan shall be deemed automatically amended and modified to the extent determined necessary by the Bankruptcy Court to comply with the DIP Credit Agreement, including Sections 8.6(f) and 8.13.

(b) In the event that any Impaired Class shall not accept the Plan, at the written election of the Debtors filed with the Bankruptcy Court with respect to any one or more of said nonaccepting Classes and any Classes junior to such nonaccepting Classes, the Plan shall be modified and amended automatically and without further notice to provide such treatment, as determined necessary by the Bankruptcy Court, sufficient to assure that the Plan does not discriminate unfairly, and is fair and equitable, with respect to the Classes rejecting the Plan, and, in particular, the treatment necessary to meet the requirements of Sections 1129(a) and (b) of the Bankruptcy Code with respect to (i) the rejecting Classes and (ii) any other Classes adversely affected by such modifications. In particular, the treatment of any nonaccepting Classes or adversely affected Classes shall be modified and amended from that set forth in Article III, even if less favorable, to the minimum treatment necessary to meet the requirements of Sections 1129(a) and (b) of the Bankruptcy Code.

11.5 Severability Of Plan Provisions

If, prior to Confirmation, any term or provision of the Plan is held by the Bankruptcy Court to be invalid, void or unenforceable, the Bankruptcy Court, at the request of any Debtor, shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable, and such term or provision shall then be applicable as altered or interpreted. Notwithstanding any such holding, alteration or interpretation, the remainder of the terms and provisions of the Plan shall remain in full force and effect and shall in no way be affected, impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision of the Plan, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable pursuant to its terms.

11.6 Successors And Assigns

The rights, benefits and obligations of any entity named or referred to in the Plan shall be binding on, and shall inure to the benefit of, any heir, executor, administrator, successor or assign of such entity.

11.7 Compromises and Settlements

Pursuant to Fed. R. Bankr. P. 9019(a), the Debtors may compromise and settle various Claims against them and/or claims that they may have against other Persons. The Debtors expressly reserve the right (with Bankruptcy Court approval, following appropriate notice and opportunity for a hearing) to compromise and settle Claims against them and claims that they may have against other Persons up to and including the Effective Date.

11.8 (Reserved)

11.9 Discharge Of The Debtors

(a) Except as otherwise provided herein or in the Confirmation Order, the rights afforded under the Plan and the treatment of Claims and Interests under the Plan shall be in exchange for and in complete satisfaction, settlement, discharge, and release of all Claims and termination of all Interests. Except as otherwise provided in the Confirmation Order or the Plan, Confirmation shall, as of the Effective Date, (i) discharge and release the Debtors under section 1141 of the Bankruptcy Code from any and all Claims, including, but not limited to, demands and liabilities that arose before the Confirmation Date, and all debts of the kind specified in sections 502(g), 502(h) or 502(i) of the Bankruptcy Code, whether or not (a) a proof of Claim based upon such debt is filed or deemed filed under section 501 of the Bankruptcy Code, (b) a Claim based upon such debt is Allowed under section 502 of the Bankruptcy Code, or (c) the holder of a Claim based upon such debt accepted the Plan, and (ii) terminate all Old Securities of Industries.

(b) As of the Effective Date, except as provided in the Plan or the Confirmation Order, all entities shall be precluded from asserting against the Debtors or the Reorganized Debtors, any other or further claims, debts, rights, causes of action, liabilities or equity interests relating to the Debtors based upon any act, omission, transaction or other activity of any nature that occurred prior to the Confirmation Date. In accordance with the foregoing, except as provided in the Plan or the Confirmation Order, the Confirmation Order shall be a judicial determination of discharge of all such Claims and other debts and liabilities against the Debtors and termination of all Old Securities of Industries, pursuant to sections 524 and 1141 of the Bankruptcy Code, and such discharge shall void any judgment obtained against the Debtors at any time, to the extent that such judgment relates to a discharged Claim or terminated Interest.

(c) In the event of a Section 363 Scenario, the Confirmation Order shall not discharge any Debtor from any debt or liability that arose before Confirmation and Section 11.9(a) and (b) of the Plan shall not apply.

11.10 Injunction

(a) Except as provided in the Plan or the Confirmation Order, as of the Confirmation Date, all entities that have held, currently hold or may hold a Claim or other debt or liability that is discharged or an Interest or other right of an equity security holder that is terminated pursuant to the terms of the Plan are permanently enjoined from taking any of the following actions against the Debtors, Reorganized Debtors or their property on account of any such discharged Claims, debts or liabilities or terminated Interests or rights: (i) commencing or continuing, in any manner or in any place, any action or other proceeding; (ii) enforcing, attaching, collecting or recovering in any manner any judgment, award, decree or order; (iii) creating, perfecting or enforcing any lien or encumbrance; (iv) asserting a setoff, right of subrogation or recoupment of any kind against any debt, liability or obligation due to the Debtors; and (v) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan.

(b) As of the Effective Date, all entities that have held, currently hold or may hold a Claim, demand, debt, right, cause of action or liability that is released pursuant to Section 5.12 or 11.11 of this Plan are permanently enjoined from taking any of the following actions on account of such released Claims, obligations, suits, judgments, damages, demands, debts, rights, causes of action or liabilities: (i) commencing or continuing in any manner any action or other proceeding; (ii) enforcing, attaching, collecting or recovering in any manner any judgment, award, decree or order; (iii) creating, perfecting or enforcing any lien or encumbrance: (iv) asserting a setoff, right of subrogation or recoupment of any kind against any debt, liability or obligation due to any released entity; and (v) commencing or continuing any action, in any manner, in any place that does not comply with or is inconsistent with the provisions of the Plan.

(c) In the event of a Section 363 Scenario, (i) Section 11.10(a) and (b) of the Plan shall not apply, and (ii) unless expressly modified or lifted by the Bankruptcy Court, all injunctions or stays provided for in the Chapter 11 Case pursuant to sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect until 30 days after the Final Distribution Date.

(d) Section 11.10 shall not alter or affect the rights and remedies set forth in the DIP Credit Agreement.

11.11 Exculpation And Limitation Of Liability

(a) Subject to limitations required by applicable ethical rules and standards of conduct, and except as limited in Section 11.11(b) below, none of the Debtors, the Reorganized Debtors, the Bankruptcy Committees, the Indenture Trustees, or the Lenders, nor any of their respective present or former members, officers, directors, employees, advisors, or attorneys shall have or incur any liability to any holder of a Claim or an Interest, or any other party in interest, or any of their respective agents, employees, representatives, financial advisors, attorneys, or affiliates, or any of their successors or assigns, for any act or omission from and after the Petition Date in connection with, relating to, or arising out of, the Chapter 11 Case, the commencement of the Chapter 11 Case, the administration of the Chapter 11 Case, the pursuit of and the approval of the sales of the Debtors’ assets (and the related asset purchase agreement), the formulation, negotiation or implementation of the Plan, the solicitation of acceptances of the Plan, the pursuit of confirmation of the Plan, the confirmation of the Plan, the consummation of the Plan, or the administration of the Plan or the property to be distributed under the Plan, except for their gross negligence or willful misconduct, and in all respects shall be entitled to reasonably rely upon the advice of counsel with respect to their duties and responsibilities under the Plan.

(b) The exculpatory provisions contained in Section 11.11(a) of this Plan (i) shall not limit the claims and rights, if any, of the United States, and (ii) shall apply to any person or entity who was not the beneficiary of a post-petition indemnification obligation of the Debtors only to the extent provided in Section 11.11(c).

(c) Any Claims that would otherwise be subject to the exculpatory provisions contained in Section 11.11(a) but for the provisions of Section 11.11(b)(ii) may only be asserted in the Bankruptcy Court and only if filed on or before sixty days after the Effective Date. In the event that any such Claims are not filed timely in the Bankruptcy Court, the exemption contained in Section 11.11(b)(ii) shall be terminated with respect to such claims, and such claims shall be deemed subject to the exculpatory provisions contained in Section 11.11(a).

(d) Any non-exculpated Claims against the parties set forth in Section 11.11(a) arising from or related to the matters set forth in Section 11.11(a) may only be asserted and filed in the Bankruptcy Court.

11.12 Binding Effect

The Plan shall be binding upon and inure to the benefit of the Debtors, all present and former holders of Claims against and Interests in the Debtors, their respective successors and assigns, including, but not limited to, the Reorganized Debtors, and all other parties-in-interest in this Chapter 11 Case.

11.13 Revocation, Withdrawal, Or Non-Consummation

The Debtors reserve the right to revoke or withdraw the Plan at any time prior to the Effective Date and to file subsequent plans of reorganization; provided, however, that any revocation or withdrawal of the Plan after the Confirmation Date shall be with the consent of the Bankruptcy Committees and the administrative agent under the Pre-Petition Credit Agreement, which consent shall not be unreasonably withheld. If the Debtors revoke or withdraw the Plan, or if Confirmation or consummation does not occur, then (a) the Plan shall be null and void in all respects, (b) any settlement or compromise embodied in the Plan (including the fixing or limiting to an amount certain any Claim or Class of Claims), assumption or rejection of executory contracts or leases effected by the Plan, and any document or agreement executed pursuant to the Plan shall be deemed null and void, and (c) nothing contained in the Plan, and no acts taken in preparation for consummation of the Plan, shall (x) constitute or be deemed to constitute a waiver or release of any Claims by or against, or any Interests in, any Debtor or any other Person, (y) prejudice in any manner the rights of any Debtor or any Person in any further proceedings involving a Debtor, or (z) constitute an admission of any sort by any Debtor or any other Person.

11.14 Plan Exhibits

Any and all Plan Exhibits, or other lists or schedules not filed with the Plan, shall be filed with the Clerk of the Bankruptcy Court at least five (5) Business Days prior to the date of the commencement of the Confirmation Hearing and shall be actually provided to all parties identified in Section 11.15 at the addresses provided in such Section at least five (5) Business Days prior to the date of the commencement of the Confirmation Hearing. Upon such filing, such documents may be inspected in the office of the Clerk of the Bankruptcy Court during normal court hours. Holders of Claims or Interests may obtain a copy of any such document upon written request to the Debtors in accordance with Section 11.15 of the Plan.

11.15 Notices

Any notice, request, or demand required or permitted to be made or provided to or upon a Debtor or Reorganized Debtor under the Plan shall be (a) in writing, (b) served by (i) certified mail, return receipt requested, (ii) hand delivery, (iii) overnight delivery service, (iv) first class mail, or (v) facsimile transmission, and (b) deemed to have been duly given or made when actually delivered or, in the case of notice by facsimile transmission, when received and telephonically confirmed, addressed as follows:

FARMLAND INDUSTRIES, INC., et al.

12200 North Ambassador Drive

Kansas City, Missouri 64163-1244

Attn: Chief Executive Officer

Telephone: (816) 713-7000

Facsimile: (816) 713-6397

with a copy to:

BRYAN CAVE LLP

1200 Main Street, Suite 3500

Kansas City, Missouri 64105

Attn: Laurence M. Frazen

Telephone: (816) 374-3200

Facsimile: (816) 374-3300

and

O'MELVENY & MYERS LLP
400 South Hope Street
Los Angeles, California 90071-2899
Attn: Evan M. Jones, Esq.

Telephone: (213) 430-6236

Facsimile: (213) 430-6407

and

AKIN, GUMP, STRAUSS, HAUER & FELD LLP

1900 Pennzoil Place – South Tower

711 Louisiana

Houston, Texas 77002

Attn: Henry Kaim, Esq.

Telephone: (713) 220-5800

Facsimile: (713) 220-8108

and

FOLEY & LARDNER

One IBM Plaza

330 N. Wabash Ave., Suite 3300

Chicago, Illinois 60611-3608

Attn: Michael Small, Esq.

Telephone: (312) 755-1900

Facsimile: (312) 755-1925

and

POLSINELLI SHALTON & WELTE

700 W. 47^th Street, Suite 1000

Kansas City, Missouri 64112-1808

Attn: Daniel J. Flanigan, Esq.

Telephone: (816) 753-1000

Facsimile: (816) 753-1536

11.16 Indemnification and Related Matters

Indemnification Obligations owed to any present or former officers, directors, professionals or advisors of the Debtors arising out of acts that occurred prior to the Petition Date, including, without limitation, accountants, auditors, financial consultants, underwriters, or attorneys, shall be deemed to be, and shall be treated as though they are, executory contracts that are assumed pursuant to section 365 of the Bankruptcy Code under this Plan. Reorganized Industries shall provide standard and customary indemnification for all officers and directors of the Debtors and the Reorganized Debtors (as of the Petition Date and thereafter) for all actions or events occurring after the Petition Date.

11.17 Prepayment

Except as otherwise provided in this Plan, any ancillary documents entered into in connection therewith, or the Confirmation Order, the Debtors shall have the right to prepay, without penalty, all or any portion of an Allowed Claim at any time; provided, however, that any such prepayment shall not be violative of, or otherwise prejudice, the relative priorities and parities among the classes of Claims.

11.18 Dissolution of the Bankruptcy Committees

On the Effective Date, the Bankruptcy Committees will dissolve and their respective members will be released and discharged from all duties and obligations arising from or related to the Chapter 11 Cases. The members of the Bankruptcy Committees and the Professionals retained by the Bankruptcy Committees will not be entitled to compensation or reimbursement of expenses for any services rendered after the Effective Date.

11.19 Term Of Injunctions Or Stays

Unless otherwise provided herein or in the Confirmation Order, all injunctions or stays provided for in the Chapter 11 Case under sections 105 or 362 of the Bankruptcy Code or otherwise, and extant on the Confirmation Date (excluding any injunctions or stays contained in this Plan or the Confirmation Order), shall remain in full force and effect until the Effective Date.

[Remainder of Page Blank]

Dated: November 27, 2002

FARMLAND INDUSTRIES, INC.

FARMLAND FOODS, INC.

SFA, INC.

FARMLAND TRANSPORTATION, INC.

FARMLAND PIPE LINE COMPANY

	By:	/s/ Robert B. Terry
		Name: Robert B. Terry
		Title: Authorized Signatory

Laurence M. Frazen

Cynthia Dillard Parres

Robert M. Thompson

BRYAN CAVE LLP

1200 Main Street, Suite 3500

Kansas City, Missouri 64105

Gregory D. Willard

David M. Unseth

BRYAN CAVE LLP

Suite 3600

211 North Broadway

St. Louis, Missouri 63102-2750

Attorneys for the Debtors and Debtors-in-Possession

EX-99 4 ex992.htm EXHIBIT 99.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER Exhibit 99

Exhibit 99.2

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION, 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2002 (the Report) by Farmland Industries, Inc. (the Company), the undersigned, as the Chief Executive Officer of the Company, hereby certified pursuant to 18 U.S.C., ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13 (a) or Section 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: January 14, 2003

/s/ ROBERT B. TERRY
Robert B. Terry,
Chief Executive Officer

EX-99 5 ex993.htm EXHIBIT 99.3 CERTIFICATION OF CHIEF EXECUTIVE OFFICER Exhibit 99

Exhibit 99.3

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION, 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the filing of the Quarterly Report on Form 10-Q for the fiscal quarter ended November 30, 2002 (the Report) by Farmland Industries, Inc. (the Company), the undersigned, as the Chief Financial Officer of the Company, hereby certified pursuant to 18 U.S.C., ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of 2002, that:

The Report fully complies with the requirements of Section 13 (a) or Section 15(d) of the Securities Exchange Act of 1934; and

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: January 14, 2003

/s/ STEVEN R. RHODES
Steven R. Rhodes,
Chief Financial Officer