-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SYbBOrbe0QbjeVeVtqDBWlzRs1EkdZJW+CaFK4rq2qh0LEkxYB6T2gM/BptTYac9 XUqdu2QnJq4k9CUhdW8+Vg== 0000034616-99-000013.txt : 19990715 0000034616-99-000013.hdr.sgml : 19990715 ACCESSION NUMBER: 0000034616-99-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19990531 FILED AS OF DATE: 19990714 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FARMLAND INDUSTRIES INC CENTRAL INDEX KEY: 0000034616 STANDARD INDUSTRIAL CLASSIFICATION: MEAT PACKING PLANTS [2011] IRS NUMBER: 440209330 STATE OF INCORPORATION: KS FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-11629 FILM NUMBER: 99664053 BUSINESS ADDRESS: STREET 1: 3315 N FARMLAND TRAFFICWAY STREET 2: DEPT 140 CITY: KANSAS CITY STATE: MO ZIP: 64116-0005 BUSINESS PHONE: 8164596882 FORMER COMPANY: FORMER CONFORMED NAME: CONSUMERS COOPERATIVE ASSOCIATION DATE OF NAME CHANGE: 19681201 10-Q 1 10-Q FOR 9 MONTH PERIOD ENDING 05/31/1999 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 May 31, 1999 or 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: 2-67985 FARMLAND INDUSTRIES, INC. (Exact name of registrant as specified in its charter) Kansas 44-0209330 (State of incorporation) (I.R.S. Employer Identification No.) 3315 North Oak Trafficway Kansas City, Missouri 64116-0005 (Address of principal executive offices)(Zip Code) Registrant's telephone number, including area code: 816-459-6000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) ASSETS
August 31 May 31 1998 1999 (Amounts in Thousands) Current Assets: Cash and cash equivalents................................. $ 7,334 $ -0- Accounts receivable - trade............................... 596,415 612,376 Inventories (Note 2)...................................... 725,967 823,166 Other current assets...................................... 145,151 192,307 Total Current Assets................................. $ 1,474,867 $ 1,627,849 Investments and Long-Term Receivables (Note 4).............. $ 298,402 $ 302,335 Property, Plant and Equipment: Property, plant and equipment, at cost.................... $ 1,680,373 $ 1,747,495 Less accumulated depreciation and amortization........................................... 853,224 905,885 Net Property, Plant and Equipment......................... $ 827,149 $ 841,610 Other Assets................................................ $ 212,356 $ 217,375 Total Assets................................................ $ 2,812,774 $ 2,989,169 See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) LIABILITIES AND EQUITIES
August 31 May 31 1998 1999 (Amounts in Thousands) Current Liabilities: Checks and drafts outstanding................................... $ -0- $ 58,327 Demand loan certificates........................................ 28,407 26,932 Short-term notes payable ....................................... 380,232 501,446 Current maturities of long-term debt ........................... 38,946 44,944 Accounts payable - trade........................................ 330,043 317,340 Other current liabilities....................................... 323,601 269,370 Total Current Liabilities................................... $ 1,101,229 $ 1,218,359 Long-Term Liabilities: Long-term borrowings (excluding current maturities)............. $ 728,103 $ 792,258 Other long-term liabilities..................................... 31,942 31,301 Total Long-Term Liabilities................................. $ 760,045 $ 823,559 Deferred Income Taxes............................................... $ 3,333 $ 9,806 Minority Owners' Equity in Subsidiaries............................. $ 35,471 $ 38,195 Net Loss (Note 1)................................................... $ -0- $ (11,658) 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 Other Preferred Shares, $25 Par Value ........................... 71 69 Common shares, $25 par value--Authorized 50,000,000 shares.............................................. 451,804 506,111 Earned surplus and other equities............................... 360,821 304,728 Total Capital Shares and Equities........................... $ 912,696 $ 910,908 Contingent Liabilities and Commitments (Note 3) Total Liabilities and Equities...................................... $ 2,812,774 $ 2,989,169 See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Nine Months Ended May 31 May 31 1998 1999 (Amounts in Thousands) Sales......................................................... $ 6,650,223 $ 7,823,790 Cost of sales................................................. 6,292,566 7,487,634 Gross income.................................................. $ 357,657 $ 336,156 Selling, general and administrative expenses.................. $ 310,390 $ 359,002 Other income (deductions): Interest expense........................................... $ (53,506) $ (60,238) Other, net................................................. 29,770 21,906 Total other income (deductions)............................... $ (23,736) $ (38,332) Income (loss) before equity in net income of investees, minority owners' interest in net income of subsidiaries and income taxes.......................................... $ 23,531 $ (61,178) Equity in net income of investees (note 4) ................... 40,323 41,413 Minority owners' interest in net income of subsidiaries............................................ (1,312) (8,121) Income (loss) before income taxes.............................. $ 62,542 $ (27,886) Income tax (expense) benefit.................................. (7,239) 16,228 Net income (loss)............................................. $ 55,303 $ (11,658) See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
Three Months Ended May 31 May 31 1998 1999 (Amounts in Thousands) Sales......................................................... $ 2,236,882 $ 2,749,892 Cost of sales................................................. 2,096,023 2,635,599 Gross income.................................................. $ 140,859 $ 114,293 Selling, general and administrative expenses.................. $ 109,435 $ 123,178 Other income (deductions): Interest expense........................................... $ (18,177) $ (20,566) Other, net................................................. 10,497 5,004 Total other income (deductions)............................... $ (7,680) $ (15,562) Income (loss) before equity in net income of investees, minority owners' interest in net income of subsidiaries and income taxes.......................................... $ 23,744 $ (24,447) Equity in net income of investees (note 4) ................... 17,518 16,934 Minority owners' interest in net income of subsidiaries............................................ (1,863) (3,975) Income (loss) before income taxes............................. $ 39,399 $ (11,488) Income tax (expense) benefit.................................. (4,524) 4,124 Net income (loss)............................................. $ 34,875 $ (7,364) See accompanying Notes to Consolidated Financial Statements.
FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Nine Months Ended May 31 May 31 1998 1999 (Amounts in Thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)........................................................... $ 55,303 $ (11,658) Adjustments to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization.......................................... 76,735 82,859 Equity in net (income) of investees.................................... (40,323) (41,413) Other.................................................................. 11,139 7,590 Changes in assets and liabilities: Accounts receivable.................................................. (25,394) (19,594) Inventories.......................................................... 77,196 (88,581) Other assets......................................................... (88,953) (33,175) Accounts payable..................................................... 9,030 (12,703) Other liabilities.................................................... (49,265) (20,302) Net cash provided by (used in) operating activities......................... $ 25,468 $ (136,977) CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures........................................................ $ (79,107) $ (82,036) Distributions from joint ventures........................................... 34,473 40,557 Additions to investments and notes receivable............................... (31,107) (40,052) Acquisition of other long-term assets....................................... (20,955) (23,138) Proceeds from disposal of investments and notes receivable.................. 43,746 22,707 Proceeds from sale of fixed assets.......................................... 2,904 2,419 Other....................................................................... (123) 66 Net cash used in investing activities....................................... $ (50,169) $ (79,477) CASH FLOWS FROM FINANCING ACTIVITIES: Payments of patronage refunds............................................... $ (40,337) $ (23,714) Payments for redemption of equities......................................... (81,623) (9,439) Payments of dividends....................................................... (2,937) (6,004) Proceeds from bank loans and notes payable.................................. 467,251 1,023,077 Payments on bank loans and notes payable.................................... (431,876) (899,927) Proceeds from issuance of subordinated debt certificates.................... 84,941 81,348 Payments for redemption of subordinated debt certificates................... (58,770) (13,240) Increase of checks and drafts outstanding................................... 5,521 58,327 Net decrease in demand loan certificates.................................... (17,620) (1,475) Proceeds from issuance of preferred shares.................................. 100,000 -0- Other ...................................................................... 151 167 Net cash provided by financing activities................................... $ 24,701 $ 209,120 Net decrease in cash and cash equivalents................................... $ -0- $ (7,334) Cash and cash equivalents at beginning of period............................ -0- 7,334 Cash and cash equivalents at end of period.................................. $ -0- $ -0-
[FN] See accompanying Notes to Consolidated Financial Statements. FARMLAND INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (1) INTERIM FINANCIAL STATEMENTS Unless the context requires otherwise, (i) "Farmland", "we", "us" and "our" refer to Farmland Industries, Inc. and its consolidated subsidiaries, (ii) all references to "year" or "years" are to fiscal years ended August 31 and (iii) all references to "members" are to persons eligible to receive patronage refunds from Farmland including voting members, associate members and other patrons with which Farmland has a currently effective patronage refund agreement. 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 information included in these unaudited Condensed Consolidated Financial Statements of Farmland reflects all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are necessary for a fair statement of the results for the interim periods presented. Our revenues, margins and net income 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, production efficiencies and U.S. 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 which affect supply, demand and price of crude oil, refined fuels, natural gas, livestock, grain and other commodities may impact Farmland's operations. Historically, changes in the costs of raw materials used in the manufacture of our finished products have not necessarily resulted in corresponding changes in the prices at which we have sold such products. We cannot determine the extent to which these factors may impact our future operations. Our cash flow and net income may be volatile as conditions affecting agriculture and markets for our products change. In accordance with the bylaws of Farmland and its cooperative subsidiaries, we determine annually the members' portion of income or loss before income taxes. From this amount, patronage refunds are distributed or losses are allocated to our members. We make the determination of members' income (and members' loss) only after the end of the fiscal year. Our Board of Directors, in their sole discretion, then determine the amount of patronage refunds to be paid or losses to be allocated from such member income or loss. Since we determine the amount of members' income and the amount of members' loss only after the end of the fiscal year, and since only after that determination can our Board of Directors determine the handling of members' loss, the resulting amount of patronage refunds to be paid, the portion of such refund to be paid either in cash or Farmland equity (common stock, associate member common stock and capital credits) and the resulting appropriation of income to earned surplus, Farmland makes no provision for patronage refunds in its interim financial statements. Therefore, the amount of net income (loss) has been reflected as a separate item in the accompanying Condensed Consolidated Balance Sheet as of May 31, 1999. (2) INVENTORIES Major components of inventories are as follows:
August 31 May 31 1998 1999 (Amounts in Thousands) Finished and in-process products.............. $ 605,876 $ 679,288 Materials..................................... 62,578 86,020 Supplies...................................... 57,513 57,858 $ 725,967 $ 823,166
Income before income taxes for the three months and the nine months ended May 31, 1999 has been increased by approximately $8.6 million to recognize a partial recovery of last year's adjustment of crude oil and refined petroleum inventories to the lower of LIFO cost or market value. The carrying value of crude oil and refined petroleum inventories stated under the lower of LIFO cost or market at May 31, 1999 was $129.1 million. (3) CONTINGENCIES (A) TAX LITIGATION In July 1983, Farmland sold the stock of Terra Resources, Inc. ("Terra"), a wholly owned subsidiary engaged in oil and gas exploration and production operations, and exited its oil and gas exploration and production activities. The gain from the sale of Terra amounted to $237.2 million for tax reporting purposes. On March 24, 1993, the Internal Revenue Service ("IRS") issued a statutory notice to Farmland asserting deficiencies in federal income taxes (exclusive of statutory interest thereon) in the aggregate amount of $70.8 million. The asserted deficiencies relate primarily to Farmland's tax treatment of the $237.2 million gain resulting from its sale of the stock of Terra and the IRS's contention that Farmland incorrectly treated the Terra sale gain as patronage- sourced income against which certain patronage-sourced operating losses could be offset. The statutory notice further asserts that, among other things, Farmland incorrectly characterized for tax purposes gains aggregating approximately $14.6 million, and a loss of approximately $2.3 million from dispositions of certain other assets. On June 11, 1993, Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. The case was tried on June 13-15, 1995. The parties submitted post-trial briefs to the court in September 1995 and reply briefs were submitted to the court in November 1995. If the United States Tax Court decides in favor of the IRS on all unresolved issues raised in the statutory notice, Farmland would have additional federal and state income tax liabilities aggregating approximately $85.8 million plus accumulating statutory interest thereon (approximately $306.6 million through May 31, 1999), or $392.4 million (before tax benefits of the interest deduction) in the aggregate at May 31, 1999. In addition, such a decision would affect the computation of Farmland's taxable income for its 1989 tax year and could increase Farmland's federal and state income taxes for that year by approximately $15.3 million (including accumulated statutory interest). The asserted federal and state income tax liabilities and accumulated interest would become immediately due and payable unless Farmland appealed the decision and posted the requisite bond to stay assessment and collection. In March 1998, Farmland received notice from the IRS assessing the $15.3 million tax and accumulated statutory interest related to Farmland's 1989 tax year (as described above). In order to establish the trial court in which initial litigation, if any, of the dispute would occur and to stop the accumulation of interest, we deposited funds with the IRS in the amount of the assessment. After making the deposit, we filed for a refund of the entire amount deposited. The liability resulting from an adverse decision by the United States Tax Court would be charged to operations in the period during which such decision is received and would have a material adverse effect on Farmland. In the event of such an adverse determination of the Terra tax issue, certain financial covenants of our Syndicated Credit Facility (the "Credit Facility"), dated May 15, 1996, become less restrictive. Had the United States Tax Court decided in favor of the IRS on all unresolved issues, and had all related additional federal and state income taxes and accumulated interest been due and payable on May 31, 1999, our borrowing capacity under the Credit Facility was adequate at that time to finance the liability. However, Farmland's ability to finance such an adverse decision depends substantially on the financial effects of future operating events on its borrowing capacity under the Credit Facility. No provision has been made in the Consolidated Financial Statements for federal or state income taxes (or interest thereon) in respect of the IRS claims described above. Farmland believes that it has meritorious positions with respect to all of these claims. In the opinion of Bryan Cave LLP, Farmland's special tax counsel, it is more likely than not that the courts will ultimately conclude that our treatment of the Terra sale gain was substantially, if not entirely, correct. Such counsel has further advised, however, that none of the issues involved in this dispute is free from doubt, and there can be no assurance that the courts will ultimately rule in Farmland's favor on any of these issues. (B) ENVIRONMENTAL MATTERS We are aware of probable obligations under state and federal environmental laws at 40 properties. At May 31, 1999, we have an environmental accrual in our Condensed Consolidated Balance Sheet for probable and reasonably estimated costs for remediation of contaminated properties of $20.5 million. We periodically review and, as appropriate, revise our environmental accruals. Based on current information and regulatory requirements, Farmland believes that the accruals established for environmental expenditures are adequate. Farmland's actual final costs of addressing certain environmental matters are not quantifiable, and therefore have not been accrued, because such matters are in preliminary stages and the timing, extent and costs of various actions which governmental authorities may require are currently unknown. Management is aware of other environmental matters for which there is a reasonable possibility that Farmland will incur costs to resolve. It is possible that the costs of resolution of the matters described in this paragraph may exceed the liabilities which, in the opinion of management, are probable and reasonably estimable at May 31, 1999. In the opinion of management, it is reasonably possible for such additional costs to be approximately $10.3 million. The environmental accrual discussed above covers certain matters in connection with which the Environmental Protection Agency has designated us as a potentially responsible party ("PRP") or a responsible party ("RP") under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), at various National Priority List ("NPL") sites. Under the Resource Conservation Recovery Act of 1976 (''RCRA''), Farmland has three closure and four post-closure plans in place for multiple locations. Closure and post-closure plans also are in place for three landfills and two injection wells as required by state regulations. These closure and post-closure costs are estimated to be $4.9 million at May 31, 1999 (and are in addition to the $20.5 million accrual and the $10.3 million discussed in the prior paragraphs). We accrue these liabilities when plans for termination of plant operations have been made. Operations are ongoing at these locations and we do not plan to terminate such operations in the foreseeable future. Therefore, Farmland has not accrued these environmental exit costs. (4) SUMMARIZED FINANCIAL INFORMATION OF INVESTEES ACCOUNTED FOR BY THE EQUITY METHOD Summarized financial information of investees accounted for by the equity method for the nine months ended May 31, 1998 and May 31, 1999 is as follows:
May 31, May 31, 1998 1999 (Amounts in Thousands) Net sales..................................... $ 1,137,986 $ 2,050,391 Net income.................................... $ 81,118 $ 73,559 Farmland's equity in net income............... $ 40,323 $ 41,413
Our investments accounted for by the equity method consist principally of 50% equity interests in three manufacturers of crop production products, Farmland Hydro, L.P., SF Phosphates Limited Company and Farmland MissChem, Limited; a 50% equity interest in a distributor of crop protection products, WILFARM, LLC; and, during the nine months ended May 31, 1999, a 50% equity interest in a grain marketing entity, Concourse Grain, LLC., and a 50% equity interest in a grain procurement, marketing and services entity, Farmland-Atwood, LLC, both of which were organized in July 1998. On May 24, 1999, the owners of Concourse Grain LLC, voted to liquidate the venture. We anticipate that the liquidation will occur during the fourth quarter of fiscal 1999. This liquidation will not have a significant impact on our grain business or on our consolidated financial statements. On May 28, 1999, we acquired the remaining 50% interest in Farmland-Atwood, LLC for approximately $7.8 million. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The information contained herein and the Condensed Consolidated Financial Statements and Accompanying Notes presented in this Form 10-Q should be read in conjunction with information set forth in Part II, Items 7 and 8, in the Company's Annual Report on Form 10-K for the year ended August 31, 1998. FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES Farmland has historically maintained two primary sources for debt capital: a substantially continuous public offering of its subordinated debt and demand loan securities (the ''continuous debt program'') and bank lines of credit. Debt securities issued under the continuous public debt offering are offered on a best-efforts basis through our wholly owned broker-dealer subsidiary, Farmland Securities Company. The types of securities included in the continuous debt offering include certificates payable on demand and subordinated debt securities. The total amount of such debt outstanding and the flow of funds to or from Farmland as a result of the continuous debt offering are influenced by the rate of interest which we establish for each type or series of debt security offered and by our option to call for redemption certain of the outstanding debt securities. During the nine months ended May 31, 1999, the outstanding balance of demand certificates decreased by $1.5 million and the outstanding balance of subordinated debt securities increased by $68.1 million. In May 1996, Farmland entered into the Credit Facility with various participating banks. The Credit Facility provides a $1.1 billion credit (subject to compliance with certain financial covenants) consisting of an annually renewable short-term credit of up to $650.0 million and revolving long-term credit of up to $450.0 million. Farmland pays commitment fees under the Credit Facility equal to 1/5 of 1% annually on the unused portion of the short-term credit and 1/4 of 1% annually on the unused portion of the long-term credit. In addition, Farmland must comply with financial covenants regarding working capital, the ratio of certain debts to average cash flow, and the ratio of equity to total capitalization, all as defined in the Credit Facility. The short-term credit provided under the Credit Facility is reviewed and/or renewed annually. The next scheduled review date is in May 2000. The revolving long-term credit provided under the Credit Facility expires in May 2001. At May 31, 1999, we had incurred $368.6 million of short-term borrowings under the Credit Facility and $180 million of revolving term borrowings. Additionally, $41.6 million of the Credit Facility was utilized to support letters of credit. At May 31, 1999, we had capacity to borrow $242.2 million under the short-term credit. Requirements under the Credit Facility limit current availability under the long-term credit to $148.6 million. Farmland maintains other borrowing arrangements with banks and financial institutions. Under such agreements at May 31, 1999, $47.0 million was borrowed. Farmland National Beef Packing Company, L.P. ("FNBPC") has a five year $130.0 million credit facility which expires March 31, 2003. This facility is provided by various participating banks and all borrowings thereunder are nonrecourse to Farmland or Farmland's other affiliates. At May 31, 1999, FNBPC had borrowings under this facility of $84.0 million, and $3.3 million of the facility was being utilized to support letters of credit. FNBPC has pledged certain assets to support its borrowings under the facility. Our international grain trading subsidiaries (collectively referred to as "Tradigrain") have borrowing agreements with various international banks which provide financing and letters of credit to support current international grain trading transactions. Obligations of Tradigrain under these loan agreements are nonrecourse to Farmland or Farmland's other affiliates. At May 31, 1999, these borrowings totaled $77.3 million. Leveraged leasing has been utilized to finance railcars and a significant portion of our fertilizer production equipment. In December 1997, Farmland entered into a series of agreements which provide for the construction and operation under a long-term lease of facilities adjacent to our petroleum refinery at Coffeyville, Kansas. These facilities are designed to convert petroleum coke by-products into fertilizers. When the facilities are completed in the fall of 1999, Farmland will be obligated to make future minimum lease payments with an approximate present value of $223 million. Alternatively, we have an option to purchase the facilities for a purchase price equal to the facilities' construction costs less any portion of the original construction cost previously paid. In the event Farmland should default on the obligations described above, future lease obligations may be accelerated. If accelerated, obligations due and payable would total approximately $263 million, all of which would be senior to the subordinated debt securities. Upon payment of such amount, we would receive title to the assets. In the opinion of management, these arrangements for capital are adequate for the Company's present operating and capital plans. Additionally, growth and investment opportunities and alternative financing arrangements are continuously evaluated. Net cash from operating activities for the nine months ended May 31, 1999 decreased $162.4 million from the same period of the prior year reflecting primarily the net loss for the nine months ended May 31, 1999 discussed below and an increase in grain and fertilizer inventories. Major uses of cash during the nine months ended May 31, 1999 include: $137.0 million used in operations, $23.7 million for patronage refunds distributed from income of the 1998 fiscal year, $17.3 million for net additions to investments and notes receivable (excluding joint ventures) $23.1 million for acquisition of other long term assets and $82.0 million for capital expenditures. Major sources of cash include: $123.2 million from a net increase of bank loans and other notes payable, $68.1 million from the net increase of subordinated debt certificates outstanding, $40.6 million of distributions from joint ventures, $58.3 million from an increase in the balance of checks and drafts outstanding and $7.3 million from a decrease in cash and cash equivalents. In 1993, the IRS issued a statutory notice to Farmland asserting significant deficiencies in federal income taxes and statutory interest thereon. Farmland filed a petition in the United States Tax Court contesting the asserted deficiencies in their entirety. See Note 3 of the Notes to the Condensed Consolidated Financial Statements. RESULTS OF OPERATIONS GENERAL 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. Historically, the majority of farm supply products are sold in the spring. Sales in the beef and grain marketing businesses historically have been concentrated in the summer. Summer is the lowest sales period for pork products. Farmland's revenues, margins and net income depend, to a large extent, on conditions affecting agriculture and may be volatile due to factors beyond our control, such as weather, crop failures, federal agricultural programs, production efficiencies and U.S. imports and exports. In addition, various federal and state regulations to protect the environment encourage farmers to reduce the use of fertilizers and other chemicals. Global variables which affect supply, demand and price of crude oil, refined fuels, natural gas, livestock, grain and other commodities may impact our operations. Historically, changes in the costs of raw materials used in the manufacture of our finished products have not necessarily resulted in corresponding changes in the prices at which we have sold such products. We cannot determine the extent to which these factors may impact our future operations. Our cash flow and net income may be volatile as conditions affecting agriculture and markets for our products change. RESULTS OF OPERATIONS FOR NINE MONTHS ENDED MAY 31, 1999 COMPARED TO NINE MONTHS ENDED MAY 31, 1998. For the nine months ended May 31, 1999, our sales were $7.8 billion compared with sales of $6.7 billion for the same period last year. For the nine months ended May 31, 1999, we had a net loss of $11.7 million compared with net income of $55.3 million for the same period last year. SALES On the input side of our business, compared with the same period last year, sales of the petroleum segment decreased $176.8 million and sales of the crop production segment decreased $101.1 million in the nine months ended May 31, 1999, while sales of the feed segment increased $13.6 million. Lower global demand for petroleum products combined with an industry wide building of inventory and strong supply streams of petroleum products created an environment in which unit sales decreased 10% and the average unit price of refined fuels (gasoline, diesel and distillates) and propane decreased 17%. Nitrogen unit sales for the nine months ended May 31, 1999 were comparable to unit sales for the same period last year while the average unit selling prices of nitrogen fertilizers decreased 11%. The nitrogen fertilizer industry has experienced market price declines due to increased worldwide supplies of nitrogen and the decreased demand for fertilizer in response to decreased unit prices that producers realize for their grain. These adverse conditions were exacerbated by the heavy spring rains throughout Farmland's market area, which also lessened demand. As a result of the above market conditions, subsequent to quarter-end, Farmland ceased production of urea ammonia nitrate ("UAN") at one of our facilities and we anticipate we will cease production at a second nitrogen fertilizer facility (see "Recent Developments" on page 15). Sales of the feed business increased primarily due to geographic expansion. On the output side of our business, sales in the food processing and marketing business (the "meats group") increased $23.2 million, or 1% in the nine months ended May 31, 1999, as compared to the same period last year. This increase is primarily attributable to higher unit sales of both beef and pork products of approximately 9% and 5%, respectively, and 4% higher unit prices for beef, partially offset by lower unit prices for pork. Sales of the grain business increased by $1.3 billion. The primary cause of this increase in sales is the change in Tradigrain's business from grain brokerage operations to buy/sell operations. Due to this change, Tradigrain records the full value of each sale as revenue and the cost of acquisition as cost of goods sold rather than recognizing as revenue only the net margins on transactions. This resulted in additional sales of $1.3 billion for the nine months ended May 31, 1999 compared with the nine months ended May 31, 1998. NET INCOME (LOSS) The net loss for the nine months ended May 31, 1999 was $11.7 million compared with net income of $55.3 million for the same period in the prior year. This decrease was principally the result of an $82.1 million decrease in the operating income in Farmland's agricultural input businesses and higher general and administrative expenses not identified to any business segment of $23.0 million, partly offset by a $31.9 million increase in the operating income of the food processing and marketing business. In addition, an income tax benefit of $16.2 million was recognized on Farmland's nonmember loss (the taxable portion of our cooperative business) incurred during the nine months ended May 31, 1999. Crop Production's income, including our share of venture income, for the nine months ended May 31, 1999 was $19.5 million compared with income, including our share of venture income, of $79.7 million for the same period last year. This change was primarily attributable to lower nitrogen fertilizer margins. Nitrogen margins decreased primarily due to lower average selling prices which declined as a result of additional global fertilizer production capacity combined with reduced domestic demand and lower demand in the East Asian market, particularly China. The petroleum business had a $4.2 million operating loss (after the $8.6 million partial recovery of last year's adjustment of crude oil and refined petroleum inventories to the lower of LIFO cost or market value) for the nine months ended May 31, 1999 compared with operating income of $18.5 million the same period last year. Strong industry-wide production of gasoline and distillates combined with lower demand for these products reduced the spread between crude oil costs and refined products selling prices and prohibited full recovery of selling and administrative costs in this business. Operating income in the meats group for the nine months ended May 31, 1999 increased $31.9 million compared to the prior period. This increase is primarily attributable to increased pork and beef unit margins due to lower live hog and cattle prices. These improved margins were partially offset by losses in livestock production that were also the result of low live hog prices. Operating income in the grain business segment for the nine months ended May 31, 1999 decreased $0.5 million compared to the same period last year. This decrease is primarily attributable to a decrease in gross margins, partly offset by higher storage revenues. Selling, general and administrative ("SG&A") expenses increased $48.6 million, or 16%, from the same period last year. SG&A expenses directly attributable to business segments increased approximately $25.6 million and these expenses have been included in the determination of operating income of such segments. SG&A expenses not identified to business segments increased $23.0 million, primarily as a result of the acquisition of SF Services, Inc. ("SFS") in July of last year, the related expansion of our operations in the states previously serviced by SFS and from increased costs of information services, partly offset by a decrease in variable compensation expense. Other income decreased $7.9 million for the nine months ended May 31, 1999 as compared to the same period last year. This decrease is primarily attributable to the inclusion in other income for the nine months ended May 31, 1998 of a gain of $7.2 million on the sale of approximately 3.8% of Farmland's ownership interest in FNBPC. Income from transactions with members distributed by Farmland as qualified patronage refunds is taxable income of our members and not taxable income of Farmland. Farmland's taxable income or loss is from non-member business. The effective tax rate on non-member income (loss) is approximately 38.5%. During the nine months ended May 31, 1999, transactions with nonmembers generated a loss while transactions with members generated income. When the effective rate (38.5%) is applied to the estimated nonmember loss, the resulting income tax benefit is approximately 58% of the loss before income taxes (estimated member income net of estimated nonmember loss). Operating income in the crop production, petroleum and food processing and marketing businesses, to a significant degree, is attributable to the spread between selling prices and raw material costs (the natural gas in nitrogen-based plant nutrients, the crude oil in petroleum products and live hogs and cattle in the food processing and marketing business). We cannot determine the direction or magnitude to which these factors will affect our cash flow and net income. RESULTS OF OPERATIONS FOR THREE MONTHS ENDED MAY 31, 1999 COMPARED TO THREE MONTHS ENDED MAY 31, 1998. For the three months ended May 31, 1999, Farmland had sales of $2.7 billion compared with sales of $2.2 billion for the same period last year. The net loss for the three months ended May 31, 1999 was $7.4 million compared with net income of $34.9 million for the same period last year. The changes in sales and operating income are attributable principally to the factors discussed above under the caption "Results of Operations for Nine Months Ended May 31, 1999 Compared to Nine Months Ended May 31, 1998." YEAR 2000 As the end of this century nears, there are concerns about potential problems which may arise at the turn of the millennium because many current computer systems and software products are coded to accept only two digit entries in date code fields. Before the year 2000, these systems and software products will need an upgrade in order to recognize differences between dates in the 21st century and dates in the 20th century. If not adequately addressed, these technology problems have a potential to cause widespread business interruptions, litigation and liability. Significant uncertainty exists, as to whether adequate resources are available to minimize these potentially serious problems by the year 2000. Since the mid-1980's, we have striven to maintain Year 2000 compliance for all applications developed in-house. The challenge is that a substantial percentage of the applications used for normal business processing have been purchased from outside vendors. Historically, vendors were not required to commit to Year 2000 compliance. However, all new software contracts include Year 2000 compliance warranties. In April 1997, Farmland and Ernst & Young, LLP formed One System Group, LLC ("OSG"), a joint venture. OSG has approximately 400 employees and is the sole supplier of information technology ("IT") services to Farmland. The initial focus of OSG involves the implementation of Systems, Applications, Products in Data Processing ("SAP") software as an enterprise wide solution for processing Farmland's business transactions and for management reporting. One of the many important benefits of the implementation of SAP is that it is Year 2000 compliant. Its installation will eliminate a large amount of the Year 2000 risk inherent in our systems and software. Therefore, mission critical (critical to the basic operation of Farmland's businesses) IT projects have not been deferred because of Year 2000 readiness efforts. Farmland formalized its Year 2000 program with OSG in the fall of 1997. Through this program, Year 2000 readiness was defined by criteria which, if satisfied, would demonstrate that systems and applications programs function correctly after the turn of the century without abnormal results. In addition, systems and applications were categorized as "high risk" or "low risk" according to the respective level of impact on the continuation of business by Farmland at the turn of the century. Further, the program established minimum acceptance testing procedures for evaluating whether systems and applications met Year 2000 compliant criteria. A comprehensive IT software inventory and assessment was then completed by OSG. As a result of this readiness assessment, Farmland believes that it has identified all noncompliant systems. To address the state of readiness condition, Farmland established an Oversight Committee consisting of the Chief Information Officer of OSG, the Chief Financial Officer and the General Counsel of Farmland and created a Year 2000 Program Office. The Oversight Committee has responsibility for both IT and non-IT systems (embedded technologies such as microcontrollers built into machinery) and has a direct reporting relationship to the Farmland Board of Directors. The Oversight Committee has delegated Year 2000 compliance responsibility for non-IT systems to management of the respective plants or facilities. The Year 2000 issues of all process control systems and other non-IT systems have been identified. Certain of the non-IT Year 2000 issues have been fixed. The other non-IT systems or application programs are scheduled to be replaced and tested. Farmland has not separately tracked the replacement cost and time related to non-IT systems. However, we believe these costs have not had a material adverse effect on our operating results. Farmland has contracted with an outside vendor (Electronic Data Care ("EDC")) to inspect and remediate all processor related Year 2000 issues in its meat plants. This inspection and remediation is currently underway. To date, EDC has uncovered few defects. Defects that have been identified are being remediated or the equipment is being replaced. The Program Office organizes and administers Year 2000 projects related to IT systems. The Program Office maintains a detailed project plan to complete and test projects within specific time frames. The Program Office continuously monitors the status of the SAP implementation and re-assesses the risk areas depending on movement of that system's implementation schedule. The Program Office provides a monthly update of Year 2000 progress to the Oversight Committee. The Program Office has revised the estimated hours required for Year 2000 projects related to IT systems to approximately 44,000 hours and the overall cost to approximately $6.2 million. Through May 1999, approximately 29,000 hours of such work had been performed. The targeted completion of the remaining test and remediation work is September 1, 1999. During September 1999, OSG and Farmland will complete the development of a standard contingency plan that includes a policy and procedure that will be used in the event that any process fails to work as a result of a year 2000 problem. Farmland believes that the quantity and quality of resources it has committed to address its Year 2000 project are adequate to obtain a Year 2000 state of readiness and it believes all significant modifications required to reach a state of readiness for Year 2000 will be completed by the year 2000. However, despite all of our reasonable efforts to resolve our Year 2000 issues, as described above, no assurances can be given that the level of Year 2000 readiness actually attained will eliminate all potential material effects that Year 2000 problems might have on Farmland's business, results of operations, or financial condition. It is not, and will not, be possible for us to represent that we have achieved complete Year 2000 compliance. Farmland does not know all of the consequences of its most reasonably likely worst case Year 2000 scenario. We cannot address the virtually unlimited number of differing circumstances relating to what might be its most reasonably likely worst case. Farmland is and intends to continue to address this uncertainty through activities of its Oversight Committee and Program Office, as described above. Farmland has distributed a survey to its significant customers and vendors to determine their state of Year 2000 readiness. However, responses to the survey questionnaire have not provided a basis to conclude whether such customers and vendors are Year 2000 compliant. Further, Farmland has not conducted and does not plan to conduct tests designed to confirm compatibility of its information systems as modified for Year 2000 issues with those of its significant customers and vendors. We will rely on the integrity of its vendors and customers to resolve their Year 2000 issues. RECENT DEVELOPMENTS Farmland and Cenex Harvest States Cooperatives announced on May 6, 1999 that they are considering a complete unification. Negotiations are ongoing with a tentative goal of completing the unification by June 1, 2000. Farmland and National Cooperative Refinery Association ("NCRA") are exploring the potential economic benefits that might be realized from forming an operating alliance. The alliance would involve the Farmland refinery located in Coffeyville, Kansas and the NCRA refinery located in McPherson, Kansas, as well as other petroleum assets. We anticipate that this alliance will be consummated early in fiscal year 2000. In response to the continued reduced nitrogen fertilizer demand, subsequent to May 31, 1999, Farmland stopped production of UAN at our Enid, Oklahoma facility. We are unable at this time to determine when the Enid facility will resume production. We also anticipate a cessation of ammonia and UAN production at our Lawrence, Kansas facility by fiscal year-end. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" was issued in June 1998 by the FASB and is effective for fiscal periods beginning after June 15, 1999. An exposure has been issued which proposes the effective date be delayed for one year. We are currently evaluating the impact, if any, that adoption of the provisions of SFAS No. 133 will have on its financial statements. 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, 1998. 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, 1998. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 We are 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 include important factors (but not necessarily all important factors) that could cause actual results to differ materially from those expressed in any forward-looking statement made by, or on behalf of, Farmland. Where any such forward-looking statement includes a statement of the assumptions or basis underlying such forward-looking statement, we caution that, while we believe such assumptions or basis to be reasonable and makes them in good faith, the assumed facts or basis 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 our business, the anticipated expenditures for environmental remediation, Farmland's assessment of its Year 2000 readiness, the total cost and the estimated completion date to remediate Year 2000 issues, the continuation of current operating trends through the end of this fiscal year, the ultimate consummation of proposed ventures or alliances, the consummation of our proposed unification with Cenex Harvest States, the impact of seasonal demand on the profitability of the crop production business, the consequences of an adverse judgment in certain litigations (including the Terra litigation), and our ability to fully and timely complete modifications and expansions with respect to certain manufacturing facilities. Discussion containing such forward-looking statements is found in the material set forth herein 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 or crop failure. 2.Federal or state regulations regarding agricultural programs and production efficiencies. 3.Federal or state regulations regarding the amounts of fertilizer and other chemical applications used by farmers. 4.actors affecting the export of U.S. agricultural produce (including foreign trade and monetary policies, laws and regulations, political and governmental changes, inflation and exchange rates, taxes, operating conditions and world production and demand). 5.Factors affecting supply, demand and price of crude oil, refined fuels, natural gas, livestock, grain and other commodities. 6.Regulatory delays and other unforeseeable obstacles beyond our control that may affect growth strategies through unification, acquisitions, investments in joint ventures and operational alliances. 7.Competitors in various segments may be larger, may offer more varied products or may possess greater financial and other resources than Farmland. 8.Unusual or unexpected events such as, among other things, litigation settlements, adverse rulings or judgments, and environmental remediation costs in excess of amounts accrued. 9.The factors identified in "Business and Properties - Business - Business Risk Factors" included in our Annual Report on Form 10-K for the year ended August 31, 1998. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (A) EXHIBITS The exhibits listed below are filed as part of Form 10-Q for quarter ended May 31, 1999. Exhibit No. Description of Exhibits 10.(iii)A Employment Agreement between Farmland and Mr. H. D. Cleberg, dated May 1, 1999 10.(iii)B Employment Agreement between Farmland and Mr. Robert Honse, dated June 7, 1999 10.(iii)C Summary of severance and retention bonus plan for certain management employees of Farmland, dated June 7, 1999. 27 Financial Data Schedule (B) FARMLAND FILED A REPORT ON FORM 8-K, ITEM 5. "OTHER EVENTS" ON MAY 6, 1999 AND AN AMENDMENT TO THAT REPORT MAY 7, 1999. THE REPORT ON FORM 8-K DESCRIBED FARMLAND'S POSSIBLE COMBINATION WITH CENEX HARVEST STATES COOPERATIVES. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FARMLAND INDUSTRIES, INC. (Registrant) By: /s/ TERRY M. CAMPBELL Terry M. Campbell Executive Vice President and Chief Financial Officer Date: July 14, 1999 EX-99 2 EXHIBIT 99 EXHIBIT INDEX The exhibits listed below are filed as part of Form 10-Q for quarter ended May 31, 1999. Exhibit No. Description of Exhibits 10.(iii)A Employment Agreement between Farmland and Mr. H. D. Cleberg, dated May 1, 1999 10.(iii)B Employment Agreement between Farmland and Mr. Robert Honse, dated June 7, 1999 10.(iii)C Summary of severance and retention bonus plan for certain management employees of Farmland, dated June 7, 1999. 27 Financial Data Schedule EX-10.(III)A 3 EMPLOYMENT AGREEMENT This Employment Agreement is made effective as of May 1, 1999 between Farmland Industries, Inc., a Kansas cooperative corporation (the "Company") and H. D. Cleberg, who is presently the President and Chief Executive Officer of the Company, ("Executive"). WHEREAS; A.Executive is the principal officer of the Company and an integral part of its management. B.The Company is contemplating the possible full consolidation of its business with the business of Cenex Harvest States Cooperatives ("CHS") through a merger or other similar transaction (the "Consolidation") and desires to assure both itself and Executive of continuity in the event of the Consolidation. C.This Employment Agreement is intended to provide to Executive, either a severance benefit in the event that his employment terminates under certain circumstances, as described herein, prior to December 31, 2000 or a transaction incentive payment if the Company successfully completes the Consolidation on or before December 31, 2000. NOW THEREFORE, it is hereby agreed by and between the parties as follows: 1.Employment. The Company hereby employs Executive and Executive hereby accepts employment with the Company, subject to the terms and conditions hereinafter provided. 2.Term. The employment of Executive hereunder will be for the period commencing on the effective date of this Agreement and ending on December 31, 2000, provided, however, that either party may terminate the employment relationship prior to the expiration date as hereinafter provided. In the event of the Consolidation, Executive hereby agrees to tender his written resignation effective December 31, 2000. 3.Position, Duties, Responsibilities. Executive shall be employed as the Chief Executive Officer or, in the event of the Consolidation, may be employed as a co-Chief Executive Officer of the Consolidated Company. Executive shall exercise such authority and perform such duties and services, consistent with such position, as may be assigned to him from time to time by the Board of Directors (the "Board"). 4.Devotion of Time and Best Efforts. Except for vacations and absences due to temporary illness, Executive shall devote his full time, best efforts and undivided attention and energies during his employment to the performance of his duties and to advance the Company's interests, as determined by the Board. During his employment, Executive shall not, without the prior approval of the Board be engaged in any other business activity which conflicts with the duties of Executive hereunder, whether or not such business activity is pursued for gain, profit or other pecuniary advantage. Executive may continue his current civic and charitable activities and his current service on various boards. 5.Early Termination. a.Death. Executive's employment shall terminate upon Executive's death. b.Termination by the Company. (1)Without Cause. The Company, by action of the Board, may terminate Executive's employment, at any time and for any reason whatsoever, without cause, effective upon delivery of written notice of termination to Executive. (2)For Cause. The Company, by action of the Board, may terminate the Executive's employment at any time for Cause, effective upon delivery of written notice of termination to Executive. If such termination by the Company is asserted to be for Cause, such termination notice shall state the grounds that the Board claims constitute Cause. As used herein, "Cause" shall mean (a) willful misconduct by Executive which is damaging or detrimental to the business and affairs of the Company, monetarily or otherwise, as determined by the Board in the exercise of its good faith business judgment; (b) a material breach of this Agreement by Executive, (c) chronic alcoholism or any other form of substance addiction on the part of Executive, (d) the commission by Executive of any act involving fraud or dishonesty or moral turpitude, (e) the indictment for, being bound over for trial following a preliminary hearing, or the conviction of Executive of any felony in either a state or federal court proceeding, or (f) willful refusal to implement policies promulgated by the Board. (3)Disability. The Company, by action of the Board, may terminate the Executive's employment if Executive sustains a disability which is serious enough that Executive is not able to perform the essential functions of Executive's job, with or without reasonable accommodations, as defined and if required by applicable state and federal disability laws. Executive shall be presumed to have such a disability for purpose of this Agreement if Executive qualifies, because of illness or incapacity, to begin receiving disability income insurance payments under the long-term disability income insurance policy that Company maintains for the benefit of Executive. If there is no such policy in effect at the date of Executive's potential disability, or if Executive does not qualify for such payments, Executive shall nevertheless be presumed to have such a disability if Executive is substantially incapable of performing Executive's duties for a period of more than twelve (12) weeks. c.Termination by Executive. (1)Voluntary Resignation. Executive may terminate the Employment Period and Executive's employment at any time and for any reason whatsoever, effective upon delivery of written notice of termination to the Company. (2)Good Reason Resignation. Executive may terminate the Employment Period and Executive's employment at any time for Good Reason, effective upon delivery of written notice of termination to the Company. If such termination by Executive is asserted to be for "Good Reason", such termination notice shall state the grounds that Executive claims constitute Good Reason. As used herein, "Good Reason" shall mean a material breach of this Agreement by the Company. A demotion such that Executive does not serve as the Chief Executive Officer, or Co-Chief Executive Officer of the Company shall constitute "Good Reason". 6.Compensation. a.Base Salary. During his employment, the Company shall pay Executive an initial "Base Salary" at the rate of Six Hundred, Thirty-Five Thousand, Six Hundred Dollars ($635,600) per year, commencing on the effective date of this Agreement, payable in accordance with the Company's regular payroll practices and policies which are in effect from time to time. The Board shall annually review the amount of Base Salary. Such review and any increase shall occur on the current customary schedule. Any such upward adjustment shall not require a written amendment to this Agreement and shall not affect any other provisions of this Agreement, which shall remain in effect unless changed by a written amendment to this Agreement or terminated by either party as provided herein. b.Annual Variable and Long-Term Incentive Compensation. During his employment, Executive shall be entitled to receive compensation under the annual Variable Compensation Plan and the Management Long-Term Incentive Plan payable within the current customary time frame on terms that are no less favorable to Executive than the terms currently in existence. In the event that either of these plans is discontinued or amended effective during his employment, and the amount of variable compensation due Executive under the replacement or amended plans is less than Executive would have received under the current plans, the Executive shall be entitled to receive the amount of variable compensation that would have been payable under the current plans. 7.Benefit Plans. a.General. During the Employment Period, Executive shall be eligible to participate in all executive compensation and employee benefit plans or programs generally applicable to senior management employees of the Company pursuant to the terms and conditions of such plans and programs. Nothing contained in this Agreement shall preclude the Company from terminating or amending any such plan or program. b.Qualified Plans. Executive shall be entitled to Company contributions and benefits with respect to Base Salary under the Company's qualified pension plans determined in the same manner as for other participants in those plans, subject to any contribution or benefit limitations. However, if such plans as in effect on the date of execution of this Agreement are modified in a manner, which will reduce future benefits under those plans for Executive, then, as a means to make up for those reductions, the Company shall establish a new nonqualified plan or amend an existing nonqualified plan which shall provide for any lost benefits under the Company's pension plan. c.Nonqualified Plans. (1)Deferred Compensation Plan. Executive shall continue to be eligible to participate in the Deferred Compensation Plan. If this plan should be amended or terminated prior to the end of the Employment Period, the terms of the plan will be maintained with respect to Executive, unless Executive agrees to accept the modified provisions of a revised plan or a new plan intended to replace the plan. (2)Supplemental Executive Retirement Plan. Executive will be entitled to benefits under this plan on terms no less favorable than those set forth in the restatement of the plan effective January 1, 1997; however, if this plan should be amended or terminated prior to the completion of payments under it to Executive, the terms of the plan will be maintained with respect to Executive, unless Executive agrees to accept the modified provisions of a revised plan or a new plan intended to replace that restatement. 8.Post-Termination Payments by the Company. a.Terminations Without Cause or Resignation for Good Reason. In the event that Executive's employment is terminated prior to December 31, 2000 by the Company without Cause or by Executive for Good Reason, and the Executive signs (and does not rescind, as allowed by law) a Release of Claims in a form satisfactory to the Company which assures, among other things, that Executive will not commence any type of litigation or other claims as a result of the termination, and honors all of Executive's other obligations as required by this Agreement, the Company will continue to pay Executive all of the compensation provided for in Paragraph 6 of this Agreement as if he had remained employed through December 31, 2000. In addition, Executive will be entitled to a Severance Payment ("Severance Pay") in an amount equal to 2.99 x Executive's average annual income from the Company included in Executive's gross income for the five calendar years ending December 31, 1999. The Severance Pay shall be paid on or before January 31, 2001. Severance Pay shall not be considered as income or compensation in determining Executive's benefits under any non-qualified benefit plan, including the Supplemental Executive Retirement Plan. In no event will Executive be entitled to both Severance Pay and a Transaction Incentive. b.Termination For Cause, or Voluntary Resignation. If Executive's employment is terminated prior to December 31, 2000 by the Company for Cause or by Executive as a Voluntary Resignation, Executive shall be entitled only to his rights (a) to receive the unpaid portion of his Base Salary, prorated to the date of termination, (b) to receive reimbursement for any ordinary and reasonable business expenses for which he had not yet been reimbursed, (c) to receive payment for accrued and unused vacation days, (d) to receive his incentive compensation for each full or partial (on a pro rata basis) year during which he was employed, to the extent earned and accrued, pursuant to the terms and conditions of the applicable incentive compensation plan(s), (e) to receive payments under the Company's pension, profit sharing, deferred compensation or other benefit plans in which the Executive has participated, all to the extent and in accordance with the terms of such plans, and (f) to continue certain health insurance at his expense pursuant to COBRA. c.Transaction Incentive. If the Company and CHS complete the Consolidation prior to December 31, 2000 and Executive remains actively employed through December 31, 2000, Executive shall become entitled to an incentive payment of 2.99 x his average annual income from the Company includable in Executive's gross income for the five calendar years ending December 31, 1999 (the "Transaction Incentive"). In the event that Executive's employment is terminated by death or disability after the Consolidation, Executive or Executive's estate shall be paid the full Transaction Incentive. In the event that Executive's employment is terminated by death or disability prior to the Consolidation, Executive, Executive's estate or any beneficiary designated by Executive shall be entitled to a partial Transaction Incentive, prorated for the period of his employment between May 1, 1999 and the closing of the Consolidation. (For example, if Executive is terminated for one of these reasons on November 30, 1999 and the Consolidation occurs on June 1, 2000, Executive or Executive's estate would be entitled to 7/13 of the Transaction Incentive.) The Transaction Incentive shall be paid on or before January 31, 2001. The Transaction Incentive shall not be considered as income or compensation in determining Executive's benefits under any non-qualified benefit plan, including the Supplemental Executive Retirement Plan. d.Severance Pay or Transaction Incentive Limitation. The amount of Severance Pay or Transaction Incentive provided for herein shall be reduced to the extent necessary to avoid any portion thereof becoming non-deductible under Section 280 G of the Internal Revenue Code of 1986, as amended from time to time, or giving rise to excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended from time to time. 9.Other Executive Obligations. Executive agrees that the following provisions will apply throughout Executive's period of active or inactive employment, and will continue to apply even if Executive's employment and the Employment Period are terminated under Paragraph 5, regardless of the reason for termination: a.Nondisclosure of Confidential Information. Except to the extent required in furtherance of the Company's business in connection with matters as to which Executive is involved as an employee, Executive will not, during the term of his employment and for an unlimited period thereafter, directly or indirectly: (1) disclose or furnish to, or discuss with, any other person or entity any confidential information concerning the Company or its business or employees, acquired during the period of his employment by the Company; (2) individually or in conjunction with any other person or entity, employ or cause to be employed, any such confidential information in any way whatsoever or (3) without the written consent of the Company, publish or deliver any copies, abstracts or summaries of any papers, documents, lists, plans, specifications or drawings containing any such confidential information. b.Non-Interference. Executive will not, during the term of his employment and for an unlimited period thereafter, directly or indirectly attempt to encourage, induce or otherwise solicit any employee or other person or entity to breach any agreement with the Company or otherwise interfere with the advantageous business relationship of the Company with any person or entity. Executive specifically agrees not to solicit, on Executive's own behalf or on behalf of another, any of the Company's employees to resign from their employment with the Company in order to go to work elsewhere. Executive further specifically agrees not to make any disparaging remarks of any sort or otherwise communicate any disparaging remarks about the Company or any of its members, equity holders, directors, officers or employees, directly or indirectly, to any of the Company's employees, members, equity holders, directors, customers, vendors, competitors, or other people or entities with whom the Company has a business or employment relationship. c.Non-Competition. Executive agrees that during the term of his employment and thereafter for a period of two (2) years, Executive will not directly or indirectly engage in or carry on a business that is in direct competition with any significant business unit of the Company as conclusively determined by the Board of Directors. Further, Executive agrees that during this same period of time he will not act as an agent, representative, consultant, officer, director, independent contractor or employee of any entity or enterprise that is in direct competition with any significant business unit of the Company as conclusively determined by the Board of Directors. d.Cooperation in Claims. During the term of his employment and for an unlimited period thereafter, at the request of the Company, Executive will cooperate with the Company with respect to any claims or lawsuits by or against the Company where Executive has knowledge of the facts involved in such claims or lawsuits. Executive shall be entitled to reasonable compensation for Executive's time and expense in rendering such cooperation. Further, Executive will decline to voluntarily aid, assist or cooperate with any party who has claims or lawsuits against the Company, or with their attorneys or agents. The Company and Executive both acknowledge, however, that nothing in this paragraph shall prevent Executive from honestly testifying at an administrative hearing, arbitration, deposition or in court, in response to a lawful and properly served subpoena in a proceeding involving the Company. e.Remedies. The parties recognize and agree that, because any would result in damages difficult to ascertain, the Company shall be entitled to injunctive and other equitable relief to prevent a breach or threatened breach of the provisions of this Paragraph 9. Accordingly, the parties specifically agree that the Company shall be entitled to temporary and permanent injunctive relief to enforce the provisions of this Paragraph 9, that such relief may be granted without the necessity of proving actual damages. The parties further agree that the right to such relief shall be in lieu of any right to recover money damages for any such breach. f.Enforceability. Executive agrees that considering Executive's relationship with the Company, and given the terms of this Agreement, the restrictions and remedies set forth in Paragraph 9 are reasonable. Notwithstanding the foregoing, if any of the covenants set forth above shall be held to be invalid or unenforceable, the remaining parts thereof shall nevertheless continue to be valid and enforceable as though the invalid or unenforceable parts have not been included therein. In the event the provisions relating to time periods and/or areas of restriction shall be declared by a court of competent jurisdiction to exceed the maximum time periods or areas of restriction permitted by law, then such time periods and areas of restriction shall be amended to become and shall thereafter be the maximum periods and/or areas of restriction which said court deems reasonable and enforceable. Executive also agrees that the Company's action in not enforcing a particular breach of any part of Paragraph 9 will not prevent the Company from enforcing any other breaches that the Company discovers, and shall not operate as a waiver by the Company against any future enforcement of a breach. 10.Notices. Notices hereunder shall be in writing and shall be prepaid, addressed as follows: If to Executive: H. D. Cleberg c/o Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 If to the Company: Chairman of the Board c/o Corporate Secretary Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 with a copy to: Vice President and General Counsel Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 11.Assignment. This Agreement is personal in its nature and the parties hereto shall not, without the consent of the other, assign or transfer this Agreement or any rights or obligations hereunder; provided, however, that the provisions hereof shall inure to the benefit of, and be binding upon each successor in a change of control of the Company, whether by merger, consolidation, transfer of all or substantially all assets, sale or otherwise (and such successor shall thereafter be deemed the "Company" for purposes of this Agreement). 12.Binding Agreement. The provisions of this Agreement shall be binding upon, and shall inure to the benefit of, the respective heirs, legal representatives and successors of the parties hereto. 13.Missouri Law. This Agreement shall be governed by and construed in pre-empted by federal law. 14.Captions and Section Headings. Captions and paragraph headings Agreement and shall not be used in construing it. 15.Invalid Provisions. If any provision of this Agreement shall be unlawful, void, or for any reason unenforceable, it shall be deemed severable from, and shall in no way affect the validity or enforceability of, the remaining provisions of this Agreement. 16.Waiver of Breach. The failure to enforce at any time any of the provisions of this Agreement, or to require at any time performance by the other party of any of the provisions hereof, shall in no way be construed to be a waiver of such provisions or to affect either the validity of this Agreement or any part hereof or the right of either party thereafter to enforce each and every provision in accordance with the terms of this Agreement. 17.Entire Agreement. This Agreement contains the entire agreement between the parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, representations and understandings of the parties with respect thereto. No modification or amendment of any of the provisions of this Agreement shall be effective unless in writing specifically referring hereto and signed by Executive and a member of the Board upon authorization of the Board to do so. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date set forth above. EXECUTIVE FARMLAND INDUSTRIES, INC. /s/ H. D. CLEBERG By: /s/ ALBERT SHIVLEY _____________________ _______________________________ H. D. Cleberg Albert Shivley, Chairman of the Board of Directors By: /s/ JODY BEZNER _______________________________ Jody Bezner, Vice-Chairman of the Board of Directors EX-10.(III)B 4 EMPLOYMENT AGREEMENT THIS AGREEMENT is made effective as of June 7, 1999 by and between Robert Honse (hereafter "Honse") and Farmland Industries, Inc., a Kansas cooperative corporation (together with all affiliates, the "Company"). WHEREAS, Honse is an integral part of the Company's management; and WHEREAS, the Company is contemplating the possible full consolidation of its business with the business of Cenex Harvest States Cooperatives through a merger or other similar transaction (the "Consolidation") and desires to assure both itself and Honse of continuity in the event of the Consolidation; NOW, THEREFORE, it is hereby agreed to by and between the parties as follows: 1. Employment The Company hereby agrees to, and does hereby, employ Honse as Executive Vice President and Chief Operating Officer, and Honse hereby agrees to accept employment with the Company in such position upon the other terms and conditions set forth in this Agreement. It is understood that the Company or its successor may appoint Honse to a different position, and that Honse may accept such a position, subject to the other terms and conditions set forth in this Agreement. 2. Period of Employment; Termination of Agreement The period of employment shall commence on the date of this Agreement and continue through December 31, 2000. In the event of the Consolidation, the period of employment shall continue for a rolling three (3) year period, provided that Honse's employment may be earlier terminated by either party subject to the rights and obligations of the parties set forth herein. 3. Performance Throughout the period of employment, Honse agrees to devote his full time and attention during normal business hours to the business of the Company, except for earned vacations and except for illness or incapacity. 4. Compensation (a) For all services to be rendered by Honse in any capacity during the period of employment, Honse shall be paid as annual compensation a base salary of at least $481,224.00. The Company will annually review Honse's annual compensation and determine what is appropriate for a cost of living increase, merit increase, and/or increase related to a change in Honse's responsibilities or duties. (b) During the term of his employment hereunder, Honse shall be eligible to participate in all of the Company's variable pay programs. Honse shall further be entitled to any additional employee benefits separately made available to him from time to time by the Company in its discretion. (c) The Company shall bear such ordinary and necessary business expenses incurred by Honse in performing his duties hereunder as the Company determines from time to time, provided that Honse accounts promptly for such expenses to the Company in the manner prescribed from time to time by the Company. 5. Termination with Severance Allowance (a) Termination by the Company Not for Cause. In the event of termination of the employment of Honse by the Company, prior to the applicable expiration date, for any reason other than for cause, as defined in paragraph 6(a), death or disability, the Company shall: (i) pay Honse a severance allowance in the amount of 2.99 times the "Annual Amount" as defined herein; (ii) continue his family health insurance for one (1) year; and (iii) continue his family health insurance thereafter up to age 65 (or any revised age for Medicare eligibility), upon Honse's payment of the retiree premium rate; provided that such coverage shall terminate if and when Honse becomes eligible for coverage, without any exclusions for preexisting conditions, through another group plan. Said severance allowance shall be in lieu of all other severance payable to Honse under Company severance policies. (b) Termination by Honse if the Consolidation is closed on or before December 31, 2000. If the Consolidation is closed on or before December 31, 2000; and if (i) Honse is not offered the position of Chief Executive Officer of the Company or its successor on or before June 1, 2001, or (ii) the Company or its successor names someone other than Honse as its new Chief Executive Officer; and if Honse thereafter resigns his employment on or before June 1, 2002, the Company shall: (i) pay Honse a severance allowance in the amount of 1.99 times the "Annual Amount" as defined herein; (ii) continue his family health insurance for one (1) year; and (iii) continue his family health insurance thereafter up to age 65 (or any revised age for Medicare eligibility), upon Honse's payment of the retiree premium rate; provided that such coverage shall terminate if and when Honse becomes eligible for coverage, without any exclusions for preexisting conditions, through another group plan. Said severance allowance shall be in lieu of all other severance payable to Honse under Company severance policies. (c) Additional Payments. In the event that Honse becomes entitled to payments under paragraphs 5(a), 5(b), or 7 of this Agreement, the Company shall cause its independent auditors promptly to review, at the Company's sole expense, the applicability of Section 4999 of the Code to such payments. If such auditors shall determine that any payment or distribution of any type by the Company to Honse or for his benefit, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Total Payments"), would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are collectively referred to as the "Excise Tax"), then Honse shall be entitled to receive an additional cash payment (a "Gross-Up Payment") within 30 days of such determination equal to an amount such that after payment by Honse of all taxes (including any interest or penalties imposed with respect to such taxes), including any Excise Tax, imposed upon the Gross-Up Payment, Honse would retain an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Total Payments. For purposes of the foregoing determination, Honse's tax rate shall be deemed to be the highest statutory marginal state and Federal tax rate (on a combined basis) (including Honse's share of F.I.C.A. and Medicare taxes) then in effect. If no determination by the Company's auditors is made prior to the time a tax return reflecting the Total Payments is required to be filed by Honse, he will be entitled to receive a Gross-Up Payment calculated on the basis of the Total Payments reported by Honse in such tax return, within 30 days of the filing of such tax return. In all events, if any tax authority determines that a greater Excise Tax should be imposed upon the Total Payments than is determined by the Company's independent auditors or reflected in Honse's tax return pursuant to this Section 6, Honse shall be entitled to receive the full Gross-Up Payment calculated on the basis of the amount of Excise Tax determined to be payable by such tax authority from the Company within 30 days of such determination. (d) Request and Release. In order to obtain any severance allowance provided for in this Agreement, Honse must submit a request for severance and must sign a complete release of all claims. The Company shall have no obligation to pay any severance allowance unless and until Honse shall have submitted the request for severance and signed a full and complete release of all claims, to be drafted by Legal Counsel for the Company. 6. Termination without Severance Allowance (a) Termination by the Company for Cause. The Company may terminate Honse's employment for cause without incurring further obligation. For the purpose of this Agreement, termination of Honse's employment shall be deemed to have been for cause only: (i) if termination of Honse's employment shall have been the result of an act or acts of fraud, theft or embezzlement on the part of Honse which, upon conviction, would constitute a felony and which results or which is intended to result directly or indirectly in gain or personal enrichment of Honse at the expense of the Company; or (ii) if termination of Honse's employment results from Honse's willful and material misconduct, including willful and material failure to perform his duties, and Honse has been given written notice by the Company with respect to such and Honse does not cure within a reasonable time; or (iii) if there has been a breach by Honse during the period of employment of the provisions of Paragraph 3 above, relating to the time to be devoted to the affairs of the Company, and with respect to any alleged breach of Paragraph 3 hereof, Honse shall have substantially failed to remedy such alleged breach within thirty days from Honse's receipt of notice from the Company. (b) Nonrenewal of Agreement. In the event of the Consolidation, except as otherwise provided in paragraph 5(b) above, the Company may elect not to renew this Agreement, and thereby to terminate Honse's employment hereunder without any severance obligations, upon at least three (3) year's prior written notice to Honse. (c) Termination by Honse. Honse shall have the right to terminate his employment in his sole discretion, with or without cause, by providing thirty (30) days notice of his intent to resign. Except as otherwise provided in paragraph 5(b) above, Honse shall in that event receive no further compensation or severance allowance. (d) Death. In the event of Honse's death during the period of employment, the legal representative of Honse shall be entitled to the base or fixed salary provided for in Paragraph 4(a) above for the month in which death shall have occurred, at the rate being paid at the time of death, and the period of employment shall be deemed to have ended as of the close of business on the last day of the month in which death shall have occurred but without prejudice to any benefits, such as life insurance, otherwise due in respect of Honse's death. (e) Disability (i) In the event of Honse's disability during the period of employment, Honse shall be entitled to an amount equal to the base or fixed salary provided for in Paragraph 4(a) above, at the rate being paid at the time of the commencement of disability, for the period of such disability but not in excess of twelve (12) months from the beginning of the period that establishes such disability, as described in Paragraph 6(e)(iii) below. (ii) The amount of any payments due under Paragraph 6(e)(i) shall be reduced by any payments to which Honse may be entitled for the same period because of disability under any disability or pension plan of the Company or of any division, subsidiary, or affiliate thereof, or as the result of workers' compensation or nonoccupational disability payments received from any government entity. (iii) The term "Disability" as used in this Agreement, shall mean an illness or accident occurring during the period of employment which prevents Honse from performing the essential functions of his job under this Agreement, with reasonable accommodations (as defined by federal and Missouri disability laws), for a period of six consecutive months. The period of employment shall be deemed to have ended as of the close of business on the last day of such six- month period but without prejudice to any payments due Honse from any disability policy or disability insurance. 7. Transaction Incentive If the Company and Cenex Harvest States Cooperatives complete the Consolidation prior to December 31, 2000, and Honse has not by December 31, 2000 resigned or been terminated for cause, Honse shall become entitled to a Transaction Incentive payment in the amount of 1.0 x the Annual Amount as defined herein. In the event that Honse's employment is terminated by death or disability after the Consolidation, Honse, his estate, or his designated beneficiary shall be paid the full Transaction Incentive. In the event that Honse's employment is terminated by death or disability prior to the Consolidation, Honse, his estate or any beneficiary designated by Honse shall be entitled to a partial Transaction Incentive, prorated for the period of his employment between May 1, 1999 and the closing of the Consolidation. (For example, if Honse is terminated for one of these reasons on November 30, 1999 and the Consolidation occurs on June 1, 2000, Honse or his estate would be entitled to 7/13 of Transaction Incentive.) The Transaction Incentive shall be paid on or before January 31, 2001. The Transaction Incentive, including any payments under paragraph 5(c) herein, shall not be considered as income or compensation in determining Honse's benefits under any non-qualified benefit plan, including the Supplemental Executive Retirement Plan except that Honse may elect to defer all or part of the Transaction Incentive under the Executive Deferred Compensation Plan or comparable plan. 8.Annual Amount As used herein, the Annual Amount shall be determined as follows: (a) For calculating the severance allowance in the event that the Consolidation has not occurred at the time of the termination of employment, the Annual Amount shall equal Honse's average annual "W-2 income" for the last five complete calendar years. (b) For calculating the severance allowance in the event the Consolidation has occurred at the time of the termination of employment, or for calculating the Transaction Incentive, the Annual Amount shall equal the greater of: (i) Honse's average annual "W-2 income" for the last five complete calendar years; (ii) An amount equal to John D. Johnson's then current base salary plus short-term and long-term target bonus (the "Target Bonus"); or (iii) An amount equal to John D. Johnson's base salary plus Target Bonus for calendar year 1999. 9.Noncompetition Executive agrees that during the term of his employment and thereafter for a period of two (2) years, Executive will not directly or indirectly engage in or carry on a business that is in direct competition with any significant business unit of the Company as conclusively determined by the Company. Further, Executive agrees that during this same period of time he will not act as an agent, representative, consultant, officer, director, independent contractor or employee of any entity or enterprise that is in direct competition with any significant business unit of the Company as conclusively determined by the Board of Directors. If Honse's employment terminates pursuant to paragraph 5(b), the foregoing restrictions shall extend only for a period of one (1) year thereafter. 10. Successor in Interest This Agreement and the rights and obligations hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective legal representatives, and shall also bind and inure to the benefit of any successor of the Company by merger or consolidation or any purchaser or assignee of all or substantially all of its assets, but, except to any such successor, purchaser, or assignee of the Company, neither this Agreement nor any rights or benefits hereunder may be assigned by either party hereto. 11. Construction Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement. 12. Governing Laws This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Missouri. 13. Notices Any notice required or permitted to be given under this Agreement shall be sufficient if in writing, sent by Certified Mail, Return Receipt Requested: If to Honse: Robert Honse 2015 Hogan Drive Lawrence, KS 66047 If to the Company: Chief Executive Officer Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 With a copy to: Vice President and General Counsel Farmland Industries, Inc. 3315 North Oak Trafficway Kansas City, MO 64116 14. Entire Agreement This Agreement shall constitute the entire agreement between the parties, superseding all prior agreements, and may not be modified or amended and no waiver shall be effective unless by written document signed by the Chief Executive Officer, or the Chairman of the Board and Honse. IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the date set forth above. ROBERT HONSE FARMLAND INDUSTRIES, INC. /s/ ROBERT HONSE /s/ H.D. CLEBERG ___________________ ____________________________________________ By: H.D. Cleberg Its: President and Chief Executive Officer EX-10.(III)C 5 EXHIBIT 10.(III) C SEVERANCE AND RETENTION BONUS PLAN - Certain management employees are eligible to participate in a plan providing an opportunity to receive a bonus based on their average annual compensation if the unification of Cenex Harvest States and Farmland takes place prior to 12/31/00. The plan requires continued employment through the date of unification. The plan also provides a severance arrangement based on their average annual compensation if employment is terminated under certain circumstances, within two years after the unification. EX-27 6
5 This schedule contains summary financial information extrated from the May 31, 1999 Form 10-Q and is qualified in its entirety by reference to such financial statements. 1,000 9-MOS AUG-31-1999 SEP-01-1998 MAY-31-1999 0 0 612,376 0 823,166 1,627,849 1,747,495 905,885 2,989,169 1,218,359 792,258 0 100,069 506,111 293,070 2,989,169 6,431,157 7,823,790 6,149,833 7,487,634 0 0 60,238 (61,178) 16,228 (11,658) 0 0 0 (11,658) 0 0
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