Future Beef closes its doors
After months of uncertainty, the high profile Future Beef Operations (FBO) facility in Arkansas City, Kansas, has closed its doors and is now widely expected to be liquidated.
The final sad chapter in the brief history of the plant, which started operations just one year ago, was opened on August 1 when its trustees filed with the US Bankruptcy Court in Denver to start liquidation proceedings. The company had previously filed for Chapter 11 bankruptcy protection, as a number of contractors pursued it for unpaid debts. (See also leatherbiz.com news search facility, ref: Future Beef).
Court records indicate that FBO lost $53.5 million in 2001 and another $11.3 million in the three months between March and June this year. It now has until Aug. 15 to consent to or oppose the liquidation motion. The final nail in the coffin came last month when the plant’s main customer of Safeway Inc. refused to pay seven cents more per pound for the company’s products.
Speaking to the local press, vice president of Future Beef’s cattle operations, Ronnie Green, said it was ‘ironic’ that the facility now faced closure, given recent health scares surrounding beef sold through Safeway, and which was not sourced from Future Beef.
In March, Safeway had already registered its dissatisfaction with the operation, saying that it "failed to meet performance expectations." As a 15% shareholder in the FBO, the grocery chain was forced to take a charge of $30.5 million after taxes on its 2001 financial statements related to the bankruptcy.
The extent of the plant’s problems was underlined in a report filed with the court by a firm of New York City turnaround consultants. Following a four week study, this found there was little prospect of the plant breaking even in the short term. At the same time, it concluded that without the level of further investment the plant needed to become viable, there was little point in carrying on.
From an early stage it was recognised that the cost of buying and raising the special cattle required to fulfil the plant’s role as a specialist processing centre -producing carcasses to exact weights and specifications - was far in excess of what had been envisaged. Safeway had agreed to help finance the additional expense, but with several strings attached – the main one being that the company should not sell to any of its competitors.
Serious problems were also reported with a new dehairing process, designed to eliminate E. coli contamination on the hides. Aside from reliability problems, this increased the cost of production by $3 per head, but in any case the process was under-utilised because the operation failed to sell sufficient hides.
Green estimated the company spent $115 million to upgrade the Kansas processing plant, a plant he said is now worth around $25 million to $40 million.
