030124 Farmland Earnings Up in Q1January 16, 2003Kansas City, MO - Farmland Industries announced that operating earnings before reorganization expenses for the first quarter of fiscal 2003 (ended Nov. 30) increased from $3.2 million in the prior year to $16.5 million. Sales decreased slightly to $1.7 billion from $1.8 billion in the year-ago period. Company highlights for the first quarter include the following: * Cash flow significantly exceeded the requirements of the company's lending facility. * Selling, general and administrative expenses were reduced 25% from the prior year. * Increased margins in fresh pork, higher volumes in processed pork and CaseReady(R) meats, along with strong ham sales for the holiday season strengthened earnings in Farmland's pork business, Farmland Foods. * Employee turnover at Farmland Foods' plants remains at a 10-year low. * Farmland Foods signed new long-term supply agreements with several national accounts in the retail, foodservice and international sales channels. * Results in the Crop Production segment, before reorganization expenses, exceeded company projections and prior-year results. * Crop Production saw excellent movement of fertilizer during the fall season. * Since its reorganization filing, Farmland has reduced its borrowings by $70 million. Farmland's pork business, Farmland Foods, reported pre-tax earnings of $11.5 million, reflecting a 15% increase over the same period a year ago, despite a more challenging industry environment. This marked the fifth straight quarter in which the pork business recorded year-to-year improvements in pre-tax earnings. Farmland Foods President George Richter said, "We are pleased that our pork business has been consistently profitable and continues to show strong growth in earnings. We have implemented a number of capital and operational improvements over the last two years and those efforts are now paying off." Farmland's Board of Directors has focused on the pork business as the basis to reorganize Farmland. Farmland also had strong earnings in its Beef Marketing segment, despite challenging industry conditions. Farmland's Beef Marketing income rose 5% over the same period last year. The Beef Marketing segment reflects Farmland's ownership in Farmland National Beef, which is not in Chapter 11. Farmland's Crop Production business also improved over the same quarter a year ago, but reported an operating loss of $10.7 million. The nitrogen business has improved in part due to higher margins and reduced interest expense. Farmland reported a $20 million reduction in selling, general and administrative expenses from the first quarter a year ago, a 25% decline. Operating cash flows continue to exceed the projections provided to lenders and have remained substantially above the requirements of Farmland's lending agreement. Stable operations and cash flow, along with asset sales and cost reductions, allowed Farmland to reduce borrowings by $70 million since May 31, 2002. As outlined in the company's 10-K filed Nov. 27, 2002, the estimated market values of certain fertilizer and petroleum assets were significantly less than the book value of those assets as reflected in Farmland's financial statements. Developments in the first quarter of fiscal 2003, including the filing of a Plan of Reorganization and the adoption of a new accounting standard that became effective in Farmland's first quarter, require that such estimated impairments be recognized currently. Thus, Farmland recorded a non- cash charge of $424 million to reflect the total estimated impairment in its fertilizer and petroleum segments. Those assets are currently proceeding through the sale process. Other reorganization charges of $9.3 million were recorded, for a total loss of $417 million. Farmland President and CEO Bob Terry said, "The non-cash charges, based on estimated asset impairments, do not impact our operations, cash availability or ability to successfully reorganize the company. They simply reflect the reality that the value of our inputs businesses has declined dramatically over the last several years. Because we intend to sell these assets, the new accounting rules require that we recognize this impairment at this time." Terry concluded, "We are extremely pleased with our operating results and cash flow in the first quarter." Farmland Industries, Inc., Kansas City, Mo., is a diversified agricultural cooperative with interests in food, fertilizer, petroleum, grain and animal feed businesses.
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