Farmland says it won’t file for bankruptcy

Published 12:00 am Wednesday, April 24, 2002

Farmland Industries’ financial situation is at a crossroads.

The Kansas City-based Fortune 500 company suggested that it might seek protection under Chapter 11 in the company’s quarterly report to the Securities and Exchange Commission (SEC).

President and CEO Bob Honse emphasized it is a worst case scenario and said he has no plans to exercise that option.

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In the SEC filing Farmland said the company might not be in compliance with requirements of a $500 million loan from a bank syndicate. And if the banks refused to appropriate waivers and amendments of the loan agreement, the company would be in default.

The loan was made on Feb. 8 this year by banks including Bankers Trust Company, Rabobank and CoBank.

Of the total $500 million, $350 million is a revolving loan and $150 million is a short-term loan. Farmland used about $190 million to purchase a fertilizer facility in Coffeyville, Kan., using the loan to extinguish a $220-million off-balance sheet lease commitment.

The spring fertilizer season and a petroleum refinery that has recovered its full production recently have been improving the cash flow, which would enable the company to overcome the financial woes, according to Honse

“A late start to the spring fertilizer season, along with scheduled maintenance on our Coffeyville refinery, made our cash liquidity tight,” Honse said in a statement. “While our liquidity situation changes from day to day, we believe it is improving and we are encouraged by the positive signals we see in the marketplace for our core businesses.”

On April 10, Farmland reported a $32.3-million loss from continuing operations for the first six months of the fiscal year starting in September 2001. Added to a loss from discontinued international grain operations, the net loss was almost $47 million.

According to the report, the crop production segment consisting of fertilizer production accounted a $78-million loss, due to drought conditions in the wheat belt and lower market prices. In contrast, the refrigerated foods segment, which includes packaged meat products the Albert Lea plant once produced, yielded a $33.6-million profit.

The company has held the production of nitrogen fertilizer steady in Pollock, La., and Lawrence, Kan., while getting the Coffeyville refinery plant back to full operation.

Honse said, “Our refinery has been running well since April 12, bringing immediate cash relief. In addition, fertilizer has begun moving in corn country. We’ve moved 67 percent of the season’s total fertilizer in the last 23 days. We’ve also seen three price increases in fertilizer in the last 15 days.”