Farmland Industries, Inc. - Page 9




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             of the economy during the 1970's.  Petitioner’s management               
             attributed these increases to changes in Federal Government              
             policies which had the effect of encouraging agricultural                
             cultivation, to a general increase in demand for fertilizer              
             and petroleum products, and to petitioner’s increased                    
             investment in plant and equipment, most notably fertilizer               
             plants and facilities for the exploration for and                        
             production of crude oil.                                                 
                  During this period, petitioner raised the capital                   
             needed for expansion through debt financing, primarily in                
             the form of loans from the Wichita Bank and sales of                     
             subordinated securities.  Petitioner also financed its                   
             expansion through leveraged leasing and occasionally                     
             through loans from commercial banks.  During this period,                
             petitioner was highly vulnerable to fluctuations in the                  
             prices of agricultural products.                                         

             Oil Production and Refining Activities                                   
                  A significant portion of petitioner’s business during               
             the years in issue involved the supply of petroleum                      
             products to its members.  Since 1973, petroleum products                 
             have accounted for the largest volume of petitioner’s total              
             sales.  Crude oil was an essential raw material for all of               
             the petroleum products sold by petitioner during the years               
             in issue.  Over the years, petitioner has sought to improve              





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