Farmland Industries, Inc. - Page 7




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             the 1930's and 1940's required petitioner to incur                       
             substantial debt.                                                        
                  In 1952, petitioner considered constructing a nitrogen              
             plant to produce fertilizer.  However, the company did not               
             have sufficient cash to finance the construction.  The                   
             Wichita Bank for Cooperatives (Wichita Bank), petitioner’s               
             primary source of capital, would not lend the required                   
             money to petitioner without the approval of the Farm Credit              
             Administration (FCA).  The FCA was reluctant to approve a                
             loan because petitioner lacked sufficient equity and                     
             permanent capital, had too much outstanding debt, and had                
             a poor assets-to-liabilities ratio.  The FCA also felt that              
             the capital investment required to construct the plant was               
             too large given the anticipated return.  For that reason,                
             the FCA suggested that petitioner sell assets and eliminate              
             unprofitable product lines to reduce its debt.                           
                  Despite its financial difficulties, petitioner began                
             constructing the nitrogen plant without obtaining complete               
             financing for the project.  It undertook this project                    
             through a new wholly owned subsidiary called Cooperative                 
             Farm Chemicals Association.  The construction took place at              
             a time when petitioner was experiencing poor financial                   
             returns.  Nevertheless, in 1953 the Wichita Bank agreed to               
             lend petitioner the funds required to complete the plant on              






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Last modified: May 25, 2011