Land O Lakes 10-Q Quarterly report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the period ended June 30, 2006

or

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 333-84486

Land O’Lakes, Inc.

(Exact name of Registrant as Specified in Its Charter)

Minnesota	41-0365145
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

4001 Lexington Avenue North
Arden Hills, Minnesota	55112
(Address of Principal Executive Offices)	(Zip Code)

(651) 481-2222

(Registrant’s Telephone Number, Including Area Code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yeso Noþ

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filero       Accelerated filero       Non-accelerated filerþ

     Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). YesoNoþ

     Land O’Lakes, Inc. is a cooperative. Our voting and non-voting common equity can only be held by our members. No public market for voting and non-voting common equity of Land O’Lakes, Inc. is established and it is unlikely, in the foreseeable future that a public market for our voting and non-voting common equity will develop. The number of shares of the registrant’s common stock outstanding as of July 31, 2006: 993 shares of Class A common stock, 4,053 shares of Class B common stock, 172 shares of Class C common stock, and 1,193 shares of Class D common stock.

     Documents incorporated by reference: None.

     We maintain a website on the Internet through which additional information about Land O’Lakes, Inc. is available. Our website address is www.landolakesinc.com. Our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, press releases and earnings releases are available, free of charge, on our website when they are released publicly or filed with the SEC.

INDEX

	Page
Part I. Financial Information		3
Item I. Financial Statements		3
Consolidated Balance Sheets as of June 30, 2006 and December 31, 2005 (unaudited)		3
Consolidated Statements of Operations for the three and six months ended June 30, 2006 and 2005 (unaudited)		4
Consolidated Statements of Cash Flows for the six months ended June 30, 2006 and 2005 (unaudited)		5
Notes to Consolidated Financial Statements (unaudited)		6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 3. Quantitative and Qualitative Disclosures about Market Risk		39
Item 4. Controls and Procedures		40
Part II Other Information		40
Item 1. Legal Proceedings		40
Item 1A. Risk Factors		41
Item 5. Other Information		41
Item 6. Exhibits		42
SIGNATURES		43
Asset Sale and Purchase Agreement
Certification Pursuant to Section 302
Certification Pursuant to Section 302
Certification Pursuant to Section 906
Certification Pursuant to Section 906

2

Part I. Financial Information

Item 1. Financial Statements

LAND O’LAKES, INC.

CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30,			December 31,
	2006			2005
	($ in thousands)
ASSETS
Current assets:
Cash and cash equivalents	$	42,673		$	179,704
Receivables, net		496,090			591,445
Inventories		446,988			453,135
Prepaid expenses		24,936			333,023
Other current assets		39,242			81,075
Total current assets		1,049,929			1,638,382
Investments		293,307			263,786
Property, plant and equipment, net		657,611			668,650
Goodwill, net		334,126			327,059
Other intangibles, net		94,954			96,767
Other assets		103,458			100,414
Total assets	$	2,533,385		$	3,095,058
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations	$	54,804		$	76,465
Current portion of long-term debt and obligations under capital lease		5,229			23,921
Accounts payable		517,737			976,959
Accrued expenses		190,447			265,924
Patronage refunds and other member equities payable		11,105			29,622
Total current liabilities		779,322			1,372,891
Long-term debt and obligations under capital lease		630,897			646,802
Employee benefits and other liabilities		174,759			165,796
Minority interests		8,609			6,012
Equities:
Capital stock		1,893			1,967
Member equities		906,617			893,518
Accumulated other comprehensive loss		(74,679	)		(75,163	)
Retained earnings		105,967			83,235
Total equities		939,798			903,557
Commitments and contingencies
Total liabilities and equities	$	2,533,385		$	3,095,058

See accompanying notes to consolidated financial statements.

3

LAND O’LAKES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
	2006			2005			2006			2005
				($ in thousands)
Net sales	$	1,684,521		$	1,806,659		$	3,759,437		$	3,837,893
Cost of sales		1,540,683			1,679,697			3,436,081			3,528,962
Gross profit		143,838			126,962			323,356			308,931
Selling, general and administrative		135,076			122,870			266,683			256,096
Restructuring and impairment charges		2,923			105			4,281			1,024
Earnings from operations		5,839			3,987			52,392			51,811
Interest expense, net		15,242			20,820			31,740			43,062
Other income, net		(8,033	)		(1,350	)		(15,870	)		(1,385	)
Equity in earnings of affiliated companies		(38,231	)		(44,591	)		(29,729	)		(43,779	)
Minority interest in earnings of subsidiaries		410			380			585			817
Earnings before income taxes and discontinued operations		36,451			28,728			65,666			53,096
Income tax expense		1,699			2,853			4,802			4,966
Net earnings from continuing operations		34,752			25,875			60,864			48,130
(Loss) earnings from discontinued operations, net of income taxes		—			(28	)		—			2,013
Net earnings	$	34,752		$	25,847		$	60,864		$	50,143
Applied to:
Member equities
Allocated patronage	$	12,629		$	22,325		$	37,018		$	43,864
Deferred equities		3,129			(635	)		(182	)		(2,295	)
		15,758			21,690			36,836			41,569
Retained earnings		18,994			4,157			24,028			8,574
	$	34,752		$	25,847		$	60,864		$	50,143

See accompanying notes to consolidated financial statements.

4

LAND O’LAKES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	For the Six Months Ended
	June 30,
	2006			2005
	($ in thousands)
Cash flows from operating activities:
Net earnings	$	60,864		$	50,143
Earnings from discontinued operations, net of income taxes		—			(2,013	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		47,542			49,953
Amortization of deferred financing costs		1,198			3,852
Bad debt expense		1,079			747
Proceeds from patronage revolvement received		4,960			2,057
Non-cash patronage income		(819	)		(739	)
Deferred income tax expense		12,306			1,026
Decrease in other assets		8,367			7,708
Increase in other liabilities		212			2,910
Restructuring and impairment charges		4,281			1,024
Gain on divestiture of business		(8,033	)		—
Gain on sale of investment		(7,837	)		(802	)
Equity in earnings of affiliated companies		(29,729	)		(43,779	)
Minority interests		585			817
Other		885			797
Changes in current assets and liabilities, net of divestitures:
Receivables		95,078			83,182
Inventories		5,931			(44,643	)
Other current assets		306,369			254,045
Accounts payable		(459,697	)		(278,947	)
Accrued expenses		(2,115	)		37,357
Net cash provided by operating activities		41,427			124,695
Cash flows from investing activities:
Additions to property, plant and equipment		(33,636	)		(26,017	)
Acquisitions		(84,187	)		(30,106	)
Payments for investments		(2,478	)		(2,921	)
Proceeds from sale of investments		7,837			1,000
Net proceeds from divestiture of businesses		28,655			2,635
Proceeds from sale of property, plant and equipment		873			2,825
Dividends from investments in affiliated companies		3,190			4,010
Other		(1,108	)		101
Net cash used by investing activities		(80,854	)		(48,473	)
Cash flows from financing activities:
Decrease in short-term debt		(22,037	)		(6,663	)
Proceeds from issuance of long-term debt		1,999			1,481
Principal payments on long-term debt and capital lease obligations		(33,810	)		(128,606	)
Payments for redemption of member equities		(42,897	)		(33,683	)
Other		(512	)		(467	)
Net cash used by financing activities		(97,257	)		(167,938	)
Net cash (used) provided by operating activities of discontinued operations (revised)		(347	)		3,676
Net cash provided by investing activities of discontinued operations (revised)		—			42,135
Net decrease in cash and cash equivalents		(137,031	)		(45,905	)
Cash and cash equivalents at beginning of the period		179,704			73,136
Cash and cash equivalents at end of the period	$	42,673		$	27,231
Supplementary Disclosure of Cash Flow Information
Cash paid during periods for:
Interest	$	30,114		$	38,733
Income taxes paid (recovered)		896			(501	)

See accompanying notes to consolidated financial statements.

5

LAND O’LAKES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

($ in thousands in tables)

(Unaudited)

1. Summary of Significant Accounting Policies

     The consolidated financial statements include the accounts of Land O’Lakes, Inc. (the “Company”) and wholly-owned and majority-owned subsidiaries, including its wholly-owned MoArk, LLC subsidiary presented in its Layers segment. The effects of intercompany transactions have been eliminated. The unaudited consolidated financial statements reflect, in the opinion of the management of the Company, all normal, recurring adjustments necessary for a fair statement of the financial position and results of operations and cash flows for the interim periods. The results of operations and cash flows for interim periods are not necessarily indicative of results for a full year because of, among other things, the seasonal nature of our businesses. The statements are condensed and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles for complete financial statements. Certain reclassifications have been made to the 2005 consolidated financial statements to conform to the 2006 presentation. These reclassifications had no effect on gross profit or net earnings. The reclassifications relate to the presentation of certain customer discounts as seed sales deductions in the consolidated statements of operations. In addition, the Company has separately disclosed the operating and investing portions of the cash flows attributable to its discontinued operations which in prior periods were reported on a combined basis as a single amount. For further information, refer to the audited consolidated financial statements and footnotes for the year ended December 31, 2005 included in our Annual Report on Form 10-K.

Recent Accounting Pronouncements

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute for how a company should recognize, measure, present and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 will require that the financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. FIN 48 is effective for annual periods beginning after December 15, 2006. The Company has not completed its evaluation of the impact of adopting FIN 48.

    In June 2006, the EITF reached a consensus on EITF Issue No. 06-03,How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)(“EITF 06-03”). EITF 06-03 provides that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. The provisions of EITF 06-03 become effective as of January 1, 2007. The Company is currently evaluating the impact of adopting EITF 06-03.

     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statements No. 140” (“SFAS 156”). SFAS 156 requires that servicing assets and servicing liabilities be recognized at fair value, if practicable, when the Company enters into a servicing agreement. This new standard will be effective January 1, 2007. The Company does not expect the adoption of SFAS 156 to have a material impact on its consolidated financial position, results of operations or cash flows.

     In December 2004, the FASB issued Statement No. 123(R), “Share-Based Payment.” This Statement eliminated the alternative of accounting for share-based compensation under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The revised standard requires the recognition of the fair value of share-based compensation in net earnings in the period the employee becomes eligible for the award. This Statement is effective January 1, 2006 and did not have a material impact on the Company’s consolidated financial statements. See note 11 for further discussion of this Statement.

     In November 2004, the FASB issued Statement No. 151, “Inventory Costs.” This Statement requires that abnormal idle facility expense, spoilage, freight and handling costs be recognized as current-period charges. In addition, Statement No. 151 requires that allocation of fixed production overhead costs to inventories be based on the normal capacity of the production facility. This Statement requires a prospective adoption after January 1, 2006 and is not material to the Company’s consolidated financial statements.

6

Accounting Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

2. Receivables

     A summary of receivables is as follows:

	June 30,		December 31,
	2006		2005
Trade accounts	$	87,011	$	95,040
Notes and contracts		79,579		90,119
Notes from sale of trade receivables (see Note 3)		241,556		369,429
Other		102,718		51,167
		510,864		605,755
Less allowance for doubtful accounts		14,774		14,310
Total receivables, net	$	496,090	$	591,445

     A substantial portion of Land O’Lakes receivables is concentrated in agriculture as well as in the wholesale and retail food industries. Collection of receivables may be dependent upon economic returns in these industries. The Company’s credit risks are continually reviewed and management believes that adequate provisions have been made for doubtful accounts.

     The Company operates a wholly owned subsidiary which provides operating loans and facility financing to farmers and livestock producers. These loans, which relate primarily to dairy, swine, cattle and other livestock production, are presented as notes and contracts for the current portion and as other assets for the noncurrent portion. At June 30, 2006, and December 31, 2005, notes and contracts were $61.9 million and $61.0 million, respectively.

3. Receivables Purchase Facility

     In December 2001, the Company established a $100 million (expanded to $200 million in 2004) receivables purchase facility with CoBank, ACB (“CoBank”) in an effort to reduce the Company’s overall financing costs. A wholly owned, unconsolidated special purpose entity (“SPE”) was established for the limited purpose of purchasing and obtaining financing for these receivables. The transfers of the receivables from the Company to the SPE are structured as sales; accordingly, the receivables transferred to the SPE are not reflected in the Company’s consolidated balance sheets. The Company sells the receivables to the SPE in exchange for a note equal to the present value of the receivables, adjusted for risk of loss. Amounts owing on the note are paid back to the Company upon collection of the receivables by the SPE or when the SPE enters into borrowings with CoBank. Accordingly, cash flows between the Company and the SPE represent collections on the notes receivable, which were $3,102.4 million and $3,186.4 million for the six months ended June 30, 2006 and June 30, 2005, respectively. The Company is subject to credit risk related to the repayment of the notes receivable with the SPE, which, in turn, is dependent upon the collection of the SPE’s receivables pool. The Company has retained reserves for estimated losses. The Company expects no significant gains or losses from the facility. At June 30, 2006, the SPE had $45 million of borrowings outstanding with CoBank under this facility, which is not reflected in the Company’s consolidated balance sheet, and no borrowings were outstanding at December 31, 2005.

4. Inventories

     A summary of inventories is as follows:

	June 30,		December 31,
	2006		2005
Raw materials	$	147,687	$	148,560
Work in process		2,053		2,297
Finished goods		297,248		302,278
Total inventories	$	446,988	$	453,135

7

5. Investments

     A summary of investments is as follows:

	June 30,		December 31,
	2006		2005
Agriliance LLC	$	145,288	$	112,932
Ag Processing Inc.		36,319		35,831
Advanced Food Products, LLC		32,189		31,904
Agronomy Company of Canada LTD		14,408		14,464
CoBank, ACB		6,047		10,688
Universal Cooperatives, Inc.		7,841		7,716
Melrose Dairy Proteins, LLC		5,305		7,495
Golden Oval Eggs, LLC		5,000		—
Prairie Farms Dairy, Inc.		4,346		4,315
Other — principally cooperatives and joint ventures		36,564		38,441
Total investments	$	293,307	$	263,786

     On June 30, 2006, Land O’ Lakes obtained a $5.0 million investment in Golden Oval Eggs, LLC. See note 15 for further discussion.

     As of June 30, 2006, the Company has a 50-percent voting interest in numerous joint ventures, including Agriliance LLC. Summarized financial information for Agriliance LLC as of June 30, 2006 and December 31, 2005 and for the three and six months ended June 30, 2006 and 2005 is as follows:

	For the three		For the three
	months ended		months ended
	June 30,		June 30,
	2006		2005
Net sales	$	1,781,839	$	1,787,488
Gross profit		165,423		190,766
Net earnings		75,478		92,541

	For the six		For the six
	months ended		months ended
	June 30,		June 30,
	2006		2005
Net sales	$	2,407,620	$	2,459,030
Gross profit		231,278		257,278
Net earnings		64,711		92,751

	June 30,		December 31,
	2006		2005
Current assets	$	1,455,202	$	1,712,290
Non-current assets		158,917		154,270
Current liabilities		1,196,451		1,520,780
Non-current liabilities		127,093		119,917
Total equity		290,575		225,863

6. Goodwill and Other Intangible Assets

Goodwill

     The carrying amount of goodwill by segment is as follows:

	June 30,		December 31,
	2006		2005
Feed	$	126,956	$	115,593
Layers		78,349		79,567
Dairy Foods		69,904		69,904
Agronomy		48,507		51,566
Seed		10,410		10,429
Total goodwill	$	334,126	$	327,059

8

     The increase in goodwill of $7.1 million mainly resulted from when Feed increased its ownership position in Penny-Newman Milling LLC, a California grain and feed company, from 50.1% to 100.0% in January 2006.

Other Intangible Assets

     A summary of other intangible assets is as follows:

	June 30,		December 31,
	2006		2005
Amortized other intangible assets:
Patents, less accumulated amortization of $5,486 and $4,909, respectively	$	11,225	$	11,802
Trademarks, less accumulated amortization of $2,298 and $2,078, respectively		1,672		1,892
Other intangible assets, less accumulated amortization of $9,559 and $8,543, respectively		5,432		6,448
Total amortized other intangible assets		18,329		20,142
Total non-amortized other intangible assets — trademarks and dealer network		76,625		76,625
Total other intangible assets	$	94,954	$	96,767

     Amortization expense for the three months ended June 30, 2006 and 2005 was $0.9 million and $1.6 million, respectively. Amortization expense for the six months ended June 30, 2006 and 2005 was $1.8 million and $2.5 million, respectively. The estimated amortization expense related to other intangible assets subject to amortization for the next five years will approximate $2.6 million annually. The weighted-average life of the intangible assets subject to amortization is approximately 9 years.

7. Debt Obligations

     The Company had notes and short-term obligations of $54.8 million at June 30, 2006 and $76.5 million at December 31, 2005. The Company also had a $200 million revolving credit facility due January 2007 (subject to a borrowing base limitation). At June 30, 2006, $149.4 million was available under this facility after giving effect to $50.6 million of outstanding letters of credit, which reduce availability. In May 2006, the Company’s MoArk subsidiary entered into a $40 million revolving credit facility to replace its prior facility which expired on May 31, 2006. The $40 million revolving credit facility is subject to a borrowing base limitation and terminates on June 1, 2009. No borrowings were outstanding at June 30, 2006. Borrowings of $19 million were outstanding at December 31, 2005, under MoArk’s previous revolving credit facility, and were recorded as notes and short-term obligations.

     The weighted average interest rate on short-term borrowings and notes outstanding at June 30, 2006 was 5.92% and at December 31, 2005 was 5.67%. Borrowings under the Company’s revolving credit facility bear interest at a variable rate (either LIBOR or an Alternative Base Rate) plus an applicable margin. The margin depends on the Company’s leverage ratio. Based on Land O’Lakes leverage ratio as of June 30, 2006, the LIBOR margin for the revolving credit facility is 200 basis points. Spreads for the Alternative Base Rate are 100 basis points lower than the applicable LIBOR spreads. LIBOR may be set for one, two, three or six month periods at the election of the Company.

     A summary of long-term debt is as follows:

	June 30,		December 31,
	2006		2005
Senior unsecured notes — due 2011 (8.75%)	$	196,452	$	196,452
Senior secured notes — due 2010 (9.00%)		175,000		175,000
MoArk LLC debt — due 2006 through 2023 (7.97% weighted average)		31,704		59,136
Industrial development revenue bonds and other secured notes payable — due 2006 through 2016 (3.21% to 6.00%)		14,881		14,893
Capital Securities of Trust Subsidiary — due 2028 (7.45%)		190,700		190,700
Capital lease obligations		8,846		9,310
Other debt		18,543		25,232
		636,126		670,723
Less current portion		5,229		23,921
Total long-term debt	$	630,897	$	646,802

     During the six months ended June 30, 2006, MoArk paid $27.4 million for outstanding amounts owed under various term notes and loans due, in part, from cash proceeds received from the disposal of assets related to its liquid egg operations.

     The Company and MoArk are each subject to certain restrictions and covenant ratio requirements relating to their respective credit agreements. As of June 30, 2006, Land O’Lakes’ and MoArk’s debt covenants were all satisfied.

9

8. Other Comprehensive Income

     Comprehensive income was as follows:

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Net earnings	$	34,752		$	25,847		$	60,864		$	50,143
Unrealized gain (loss) on available-for-sale-investment securities		(90	)		(91	)		(58	)		(102	)
Change in minimum pension liability, net of taxes		—			3,380			—			3,380
Foreign currency translation adjustment		448			(168	)		542			1,026
Total comprehensive income	$	35,110		$	28,968		$	61,348		$	54,447

9. Income Taxes

     For the three and six months ended June 30, 2006, the Company recorded $1.7 million and $4.8 million, respectively, in income tax expense. In June 2006, the Company and the IRS finalized a tax audit for the periods 1996 through 2003. As a result of the audit, $13.6 million was recorded as a reduction in income tax expense for the three and six months ended June 30, 2006. In addition, in June 2006 the Company recorded income tax expense of $9.9 million attributable to the gain on the divestiture of its liquid egg operations. Taxable income from other activities resulted in income tax expense of $5.4 million and $8.5 million for the three and six months ended June 30, 2006, respectively.

10. Pension and Other Postretirement Plans

     The following tables present the components of net periodic benefit cost for pension benefits and other postretirement benefits for the three months ended June 30:

							Other Postretirement
	Pension Benefits						Benefits
	2006			2005			2006		2005
Service cost	$	4,850		$	4,625		$	175	$	200
Interest cost		7,925			7,350			975		1,025
Expected return on assets		(8,650	)		(8,400	)		—		—
Amortization of actuarial loss		3,425			2,500			675		683
Amortization of prior service cost		(125	)		(50	)		75		75
Amortization of transition obligation		—			—			150		150
Net periodic benefit cost	$	7,425		$	6,025		$	2,050	$	2,133

     During the three months ended June 30, 2006, the Company contributed $10.7 million to its defined benefit pension plans and $1.3 million to its other postretirement benefits plans.

     The following tables present the components of net periodic benefit cost for pension benefits and other postretirement benefits for the six months ended June 30:

							Other Postretirement
	Pension Benefits						Benefits
	2006			2005			2006		2005
Service cost	$	9,700		$	9,250		$	350	$	400
Interest cost		15,850			14,700			1,950		2,050
Expected return on assets		(17,300	)		(16,800	)		—		—
Amortization of actuarial loss		6,850			5,000			1,350		1,366
Amortization of prior service cost		(250	)		(100	)		150		150
Amortization of transition obligation		—			—			300		300
Net periodic benefit cost	$	14,850		$	12,050		$	4,100	$	4,266

     During the six months ended June 30, 2006, the Company contributed $11.4 million to its defined benefit pension plans and $2.8 million to its other postretirement benefits plans.

     The Company expects to contribute approximately $17.8 million to its defined benefit pension plans and $5.9 million to its other postretirement benefits plans in 2006.

10

11. Share-Based Compensation

     The Company adopted Statement of Financial Accounting Standards No. 123(R), “Share-Based Payment” effective January 1, 2006. SFAS 123(R) requires the recognition of the fair value of share-based compensation in net earnings. Share-based compensation consists solely of Value Appreciation Right (VAR) “Units” granted to certain employees under a Company-sponsored incentive plan (the “VAR plan”). The Units are not traditional stock and do not provide the recipient any voting rights in the Company, or, any right to receive assets of Land O’Lakes. A maximum of 200,000 Units may be granted annually to certain employees at a price based on a formula that includes growth in earnings, debt reduction, and cash payments to members for the five-year period ending at the close of the preceding year. Generally, Units fully vest four years from the grant date per the VAR plan. Vested Units are settled upon the earlier of a predetermined date chosen by the employee at the date of grant, or upon retirement or termination. The Company recognizes compensation expense for the estimated fair value appreciation of Units over the vesting period using the graded vesting method. The Units are reflected as a liability in the consolidated balance sheet and upon settlement are paid in cash to participants.

     The Company elected to use the modified prospective application method for adopting SFAS 123R. Under this method, the Company recorded $0.1 million of incremental compensation expense for Units issued prior to January 1, 2006 which are expected to vest prior to the four-year vesting period due to employees achieving retirement-eligible status. Employees reach retirement-eligible status at the age of 55 with 10 years of service or upon reaching the normal retirement age, ranging from 65 to 67, with no required years of service.

     For the three months ended June 30, 2006 and 2005, compensation expense for the share-based payment plan was $1.4 million and $0.7 million, respectively. Cash payments for Units settled during the three months ended June 30, 2006 and 2005 were $0. The actual income tax benefit realized from this plan was $0 for the three months ended June 30, 2006 and 2005.

     For the six months ended June 30, 2006 and 2005, compensation expense for the share-based payment plan was $2.8 million and $1.4 million, respectively. Cash payments for Units settled during the six months ended June 30, 2006 and 2005 were $0.3 million and $0, respectively. The actual income tax benefit realized from this plan totaled $0.1 million and $0 for the six months ended June 30, 2006 and 2005, respectively.

     For the three and six months ended June 30, 2006, the number of Units granted, cancelled, and settled were approximately 70,000 and 6,000 and 56,000 respectively. The number of vested Units outstanding at June 30, 2006 was approximately 423,000 with a fair value of $3.5 million. The number of Units exercisable at June 30, 2006, was 0. The number of non-vested Units at June 30, 2006 was approximately 192,000 and the total remaining unrecognized compensation cost related to non-vested Units was approximately $1.1 million. The weighted average remaining service period for the non-vested Units was approximately 3 years.

12. Acquisitions of Minority Interests

     In January 2006, the Company acquired the remaining 42.5% of MoArk from Osborne Investments, LLC (Osborne) for $71.0 million in cash. The acquisition accelerated a 2007 transfer of ownership provision which was part of the original joint venture agreement between the Company and Osborne. The $71.0 million purchase price was allocated to goodwill and was recorded as accrued expense in the consolidated balance sheet as of December 31, 2005.

     In January 2006, the Company purchased the remaining 49.9% minority interest of Penny-Newman Milling LLC, a consolidated grain and feed subsidiary located in Fresno, California, for $13.2 million in cash plus assumed debt of $5.0 million. The fair value of the $13.2 million purchase price was primarily allocated to goodwill.

13. Restructuring and Impairment Charges

     A summary of restructuring and impairment charges is as follows:

	Three months ended				Six months ended
	June 30,				June 30,
	2006		2005		2006		2005
Restructuring charges	$	140	$	—	$	1,498	$	—
Impairment charges		2,783		105		2,783		1,024
Total restructuring and impairment charges	$	2,923	$	105	$	4,281	$	1,024

Restructuring Charges

     In February 2006, Dairy Foods closed a facility in Greenwood, Wisconsin. As a result, restructuring charges for the three and six months ended June 30, 2006 were $0.1 million and $1.5 million, respectively, primarily related to a long-term contractual obligation for waste-water treatment with the city of Greenwood. The remaining liability at June 30, 2006 for Dairy Foods’ severance, contract and other exit costs was $1.8 million.

11

Impairment charges

     During the three and six months ended June 30, 2006, Dairy Foods recorded a $2.8 million impairment charge related to a note receivable from the former sale of a cheese facility in Gustine, California. In 2003, this facility was sold to Valley Gold LLC for $2.5 million in cash and a $5 million note. Valley Gold ultimately defaulted on this note and in 2006 the Company reacquired the facility via a foreclosure sale. The Company plans to sell the facility and is actively engaged in identifying potential buyers.

     For the three months ended June 30, 2005, Feed recorded a $0.1 million charge for the write-down of fixed assets to their estimated fair value. For the six months ended June 30, 2005, Dairy Foods and Feed recorded charges for the write-down of fixed assets to their estimated fair value of $0.9 million and $0.1 million, respectively.

14. Discontinued Operations

     On February 25, 2005, the Company completed the sale of its swine production assets. The Company received approximately $42.0 million in net proceeds from this transaction, which resulted in a gain net of income taxes of approximately $0.1 million recorded in earnings from discontinued operations, net of income taxes.

15. Other Income, Net

	Three months ended						Six months ended
	June 30,						June 30,
	2006			2005			2006			2005
Gain on divestiture	$	(8,033	)	$	—		$	(8,033	)	$	—
Gain on sale of investments		—			(802	)		(7,837	)		(802	)
Gain on legal settlements		—			(548	)		—			(583	)
Total other income, net	$	(8,033	)	$	(1,350	)	$	(15,870	)	$	(1,385	)

     As part of the Company’s effort to reposition its Layers segment, on June 30, 2006, the Company divested the liquid egg operations of its MoArk subsidiary to Golden Oval Eggs, LLC and GOECA, LLP ( together “Golden Oval”) and recognized an $8.0 million gain on divestiture for the three and six months ended June 30, 2006. MoArk received $37 million in net proceeds, plus an additional $17 million from Golden Oval in the form of a three-year note, with the possibility of incremental earn-out amounts if Golden Oval surpasses certain measures. The Company also received $5 million of equity in Golden Oval. At December 31, 2005, assets of $48.7 million and liabilities of $0.4 million for the liquid egg operations were classified as other current assets and accrued expenses, respectively, in the Company’s consolidated balance sheet. MoArk continues to operate its shell egg business. In connection with the sale, Land O’Lakes granted Golden Oval a license to use the Land O’Lakes brand name for certain liquid egg products.

     During the six months ended June 30, 2006, the Company recognized a gain on sale of an investment held by Dairy Foods for $7.8 million. During the three and six months ended June 30, 2005, the Company recognized a gain on sale of an investment of $0.8 million held by Feed.

     During the three and six months ended June 30, 2005 the Company recognized a $0.6 million gain on a legal settlement in Feed consisting of cash received from product suppliers against whom the Company alleged certain price-fixing claims.

16. Segment Information

     The Company operates in five segments: Dairy Foods, Feed, Seed, Agronomy and Layers.

     Dairy Foods produces, markets and sells products such as butter, spreads, cheese, and other dairy related products. Products are sold under well-recognized national brand names including LAND O LAKES, the Indian Maiden logo and Alpine Lace, as well as under regional brand names such as New Yorker.

     Feed is largely comprised of the operations of Land O’Lakes Purina Feed LLC (“Land O’Lakes Purina Feed”), the Company’s wholly owned subsidiary. Land O’Lakes Purina Feed develops, produces, markets and distributes animal feeds such as ingredient feed, formula feed, milk replacers, vitamins and additives.

     Seed is a supplier and distributor of crop seed products in the United States. A variety of crop seed is sold, including alfalfa, soybeans, corn and forage and turf grasses.

12

     Agronomy consists primarily of the Company’s 50% ownership interest in Agriliance LLC (“Agriliance”), which is accounted for under the equity method. Agriliance markets and sells two primary product lines: crop protection (including herbicides and pesticides) and crop nutrients (including fertilizers and micronutrients).

     Layers consists of the Company’s MoArk subsidiary. MoArk produces and markets shell eggs that are sold to retail and wholesale customers for consumer and industrial use throughout the United States. MoArk also produced and marketed liquid egg products prior to the sale of this operation on June 30, 2006.

     The Company’s management uses earnings before income taxes and discontinued operations to evaluate a segment’s performance. The Company allocates corporate administrative expense to all of its business segments, both directly and indirectly. Corporate staff functions that are able to determine actual services provided to each segment allocate expense on a direct and predetermined basis. All other corporate staff functions allocate expense indirectly based on each segment’s percent of total invested capital. A majority of corporate administrative expense is allocated directly.

13

																Other/
	Dairy Foods			Feed			Seed			Agronomy			Layers			Eliminations			Consolidated
For the three months ended June 30, 2006:
Net sales	$	773,188		$	645,840		$	162,589		$	—		$	105,304		$	(2,400	)	$	1,684,521
Cost of sales(1)		717,755			580,777			140,706			2			101,966			(523	)		1,540,683
Selling, general and administrative		45,092			59,324			15,891			3,279			10,196			1,294			135,076
Restructuring and impairment charges		2,923			—			—			—			—			—			2,923
Interest expense (income), net		8,903			6,490			(861	)		(3,351	)		5,092			(1,031	)		15,242
Other income, net		—			—			—			—			(8,033	)		—			(8,033	)
Equity in (earnings) loss of affiliated companies		(1,658	)		(72	)		—			(38,313	)		1,821			(9	)		(38,231	)
Minority interest in earnings of subsidiaries		—			410			—			—			—			—			410
Earnings (loss) before income taxes and discontinued operations	$	173		$	(1,089	)	$	6,853		$	38,383		$	(5,738	)	$	(2,131	)	$	36,451
For the three months ended June 30, 2005:
Net sales	$	936,273		$	626,890		$	152,607		$	—		$	86,271		$	4,618		$	1,806,659
Cost of sales(1)		894,956			558,301			136,068			—			86,095			4,277			1,679,697
Selling, general and administrative		41,866			54,325			13,461			3,299			9,190			729			122,870
Restructuring and impairment charges		—			105			—			—			—			—			105
Interest expense (income), net		8,502			6,134			1,150			2,148			3,704			(818	)		20,820
Other income, net		(14	)		(1,336	)		—			—			—			—			(1,350	)
Equity in (earnings) loss of affiliated companies		(786	)		(235	)		—			(46,925	)		3,354			1			(44,591	)
Minority interest in earnings of subsidiaries		—			380			—			—			—			—			380
Earnings (loss) before income taxes and discontinued operations	$	(8,251	)	$	9,216		$	1,928		$	41,478		$	(16,072	)	$	429		$	28,728

															Other/
	Dairy Foods			Feed			Seed		Agronomy			Layers			Eliminations			Consolidated
For the six months ended June 30, 2006:
Net sales	$	1,660,363		$	1,338,916		$	551,898	$	—		$	213,046		$	(4,786	)	$	3,759,437
Cost of sales(1)		1,562,940			1,205,522			469,099		5			201,450			(2,935	)		3,436,081
Selling, general and administrative		86,353			118,451			34,667		6,750			19,472			990			266,683
Restructuring and impairment charges		4,281			—			—		—			—			—			4,281
Interest expense (income), net		17,003			12,593			1,017		(6,484	)		9,620			(2,009	)		31,740
Other income, net		(7,837	)		—			—		—			(8,033	)		—			(15,870	)
Equity in loss (earnings) of affiliated companies		368			(417	)		—		(32,262	)		2,587			(5	)		(29,729	)
Minority interest in earnings of subsidiaries		—			585			—		—			—			—			585
Earnings (loss) before income taxes and discontinued operations	$	(2,745	)	$	2,182		$	47,115	$	31,991		$	(12,050	)	$	(827	)	$	65,666
For the six months ended June 30, 2005:
Net sales	$	1,891,169		$	1,257,556		$	490,050	$	—		$	191,513		$	7,605		$	3,837,893
Cost of sales(1)		1,801,935			1,109,325			428,197		—			183,216			6,289			3,528,962
Selling, general and administrative		82,628			117,687			28,795		7,052			18,698			1,236			256,096
Restructuring and impairment charges		863			105			—		—			—			56			1,024
Interest expense (income), net		16,872			13,779			2,431		4,394			6,917			(1,331	)		43,062
Other income, net		(14	)		(1,371	)		—		—			—			—			(1,385	)
Equity in (earnings) loss of affiliated companies		(2,116	)		(769	)		—		(45,937	)		5,037			6			(43,779	)
Minority interest in earnings of subsidiaries		—			817			—		—			—			—			817
Earnings (loss) before income taxes and discontinued operations	$	(8,999	)	$	17,983		$	30,627	$	34,491		$	(22,355	)	$	1,349		$	53,096

(1) Cost of sales includes unrealized hedging losses (gains) of:

															Other/
	Dairy Foods			Feed			Seed			Agronomy		Layers			Eliminations		Consolidated
For the three months ended: June 30, 2006	$	(2,147	)	$	134		$	(454	)	$	—	$	—		$	229	$	(2,238	)
For the three months ended: June 30, 2005		603			(1,565	)		26			—		(93	)		—		(1,029	)
For the six months ended: June 30, 2006		(2,589	)		253			(193	)		—		(262	)		282		(2,509	)
For the six months ended: June 30, 2005		106			(5,153	)		401			—		(1,014	)		—		(5,660	)

     In 2005, there were additional unrealized hedging losses (gains) recognized in earnings (loss) from discontinued operations, net of income taxes.

14

17. Unusual Event

     In December 2005, a fire occurred in the Company’s Statesville, North Carolina feed plant. The feed plant was shut down and has not yet resumed production. The Company is using its other facilities to provide services to customers normally served by this location. The aggregate net book value of the building, equipment and inventory is approximately $6.7 million. The Company holds insurance coverage for property damage and business interruption. The Company intends to rebuild the facility and, along with its insurance providers, is assessing the extent of the damages. For further information, refer to “Part II, Item 1. Legal Proceedings” included on this Form 10-Q.

18. Consolidating Financial Information

     The Company has entered into financing arrangements which are guaranteed by the Company and certain of its wholly-owned and majority-owned subsidiaries (the “Guarantor Subsidiaries”). Such guarantees are full, unconditional and joint and several.

     On July 1, 2005, simultaneous with the prepayment of the remaining balance of a capital lease obligation, the Company elected to designate Cheese & Protein International (CPI) a restricted subsidiary under the Land O’Lakes senior bond indentures, and a loan party under the Company’s revolving credit facility. Consistent with such designations and as of July 1, 2005, CPI guarantees the Company’s obligations arising under these facilities. Accordingly, the CPI financial information has been combined with the consolidated guarantors in the following supplemental financial information as of December 31, 2005 and as of June 30, 2006 and for the three and six months ended June 30, 2006.

     In January of 2006, the Company completed the purchase of the remaining 49.9% ownership position in Penny-Newman Milling LLC (Penny-Newman) which gave Land O’Lakes 100% ownership of the entity. Accordingly, the Penny-Newman financial information has been combined with the consolidated guarantors in the following supplemental financial information as of June 30, 2006 and for the three and six months ended June 30, 2006.

     The following supplemental financial information sets forth, on an unconsolidated basis, balance sheet, statement of operations and cash flow information for Land O’Lakes, Guarantor Subsidiaries and Land O’Lakes other subsidiaries (the “Non-Guarantor Subsidiaries”). The supplemental financial information reflects the investments of the Company in the Guarantor and Non-Guarantor Subsidiaries using the equity method of accounting.

15

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
June 30, 2006

	Land
	O’Lakes, Inc.
	Parent			Consolidated		Non-Guarantor
	Company			Guarantors		Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	18,843		$	20,667	$	3,163	$	—		$	42,673
Receivables, net		239,117			181,457		111,589		(36,073	)		496,090
Intercompany receivable, net		72,429			—		—		(72,429	)		—
Inventories		241,209			167,345		38,434		—			446,988
Prepaid expenses		14,052			8,113		2,771		—			24,936
Other current assets		28,277			8,070		2,895		—			39,242
Total current assets		613,927			385,652		158,852		(108,502	)		1,049,929
Investments		1,078,090			42,546		6,313		(833,642	)		293,307
Property, plant and equipment, net		177,627			385,631		94,353		—			657,611
Goodwill, net		208,303			82,440		43,383		—			334,126
Other intangibles, net		3,560			89,256		2,138		—			94,954
Other assets		26,954			36,372		43,491		(3,359	)		103,458
Total assets	$	2,108,461		$	1,021,897	$	348,530	$	(945,503	)	$	2,533,385
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations	$	—		$	3,049	$	82,097	$	(30,342	)	$	54,804
Current portion of long-term debt and obligations under capital lease		450			396		4,383		—			5,229
Accounts payable		344,967			151,187		30,494		(8,911	)		517,737
Intercompany payable, net		—			72,221		208		(72,429	)		—
Accrued expenses		88,251			78,420		23,955		(179	)		190,447
Patronage refunds and other member equities payable		11,105			—		—		—			11,105
Total current liabilities		444,773			305,273		141,137		(111,861	)		779,322
Long-term debt and obligations under capital lease		583,533			10,731		36,633		—			630,897
Employee benefits and other liabilities		140,357			27,198		7,204		—			174,759
Minority interests		—			4,782		3,827		—			8,609
Equities:
Capital stock		1,893			100		37		(137	)		1,893
Additional paid-in capital		—			502,928		91,459		(594,387	)		—
Member equities		906,617			—		—		—			906,617
Accumulated other comprehensive loss		(74,679	)		—		—		—			(74,679	)
Retained earnings		105,967			170,885		68,233		(239,118	)		105,967
Total equities		939,798			673,913		159,729		(833,642	)		939,798
Commitments and contingencies
Total liabilities and equities	$	2,108,461		$	1,021,897	$	348,530	$	(945,503	)	$	2,533,385

16

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

For the Three months ended June 30, 2006

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Net sales	$	759,534		$	793,265		$	131,722		$	—		$	1,684,521
Cost of sales		690,502			722,607			127,574			—			1,540,683
Gross profit		69,032			70,658			4,148			—			143,838
Selling, general and administrative		61,499			63,832			9,745			—			135,076
Restructuring and impairment charges		2,923			—			—			—			2,923
Earnings (loss) from operations		4,610			6,826			(5,597	)		—			5,839
Interest expense, net		13,898			675			669			—			15,242
Other (income) expense, net		12,872			—			(20,905	)		—			(8,033	)
Equity in (earnings) loss of affiliated companies		(58,144	)		(70	)		1,821			18,162			(38,231	)
Minority interest in earnings of subsidiaries		—			—			410			—			410
Earnings (loss) before income taxes		35,984			6,221			12,408			(18,162	)		36,451
Income tax expense (benefit)		1,232			473			(6	)		—			1,699
Net earnings (loss)	$	34,752		$	5,748		$	12,414		$	(18,162	)	$	34,752

17

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

For the Six months ended June 30, 2006

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Net sales	$	1,849,412		$	1,652,078		$	257,947		$	—		$	3,759,437
Cost of sales		1,687,127			1,504,228			244,726			—			3,436,081
Gross profit		162,285			147,850			13,221			—			323,356
Selling, general and administrative		121,090			127,016			18,577			—			266,683
Restructuring and impairment charges		4,281			—			—			—			4,281
Earnings (loss) from operations		36,914			20,834			(5,356	)		—			52,392
Interest expense, net		26,619			3,665			1,456			—			31,740
Other (income) expense, net		5,035			—			(20,905	)		—			(15,870	)
Equity in (earnings) loss of affiliated companies		(59,993	)		(380	)		2,587			28,057			(29,729	)
Minority interest in earnings (loss) of subsidiaries		(61	)		—			646			—			585
Earnings (loss) before income taxes		65,314			17,549			10,860			(28,057	)		65,666
Income tax expense (benefit)		4,450			626			(274	)		—			4,802
Net earnings (loss)	$	60,864		$	16,923		$	11,134		$	(28,057	)	$	60,864

18

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS

For the Six months ended June 30, 2006

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	60,864		$	16,923		$	11,134		$	(28,057	)	$	60,864
Adjustments to reconcile net earnings (loss) to net
cash provided (used) by operating activities:
Depreciation and amortization		25,046			17,616			4,880			—			47,542
Amortization of deferred financing costs		1,158			40			—			—			1,198
Bad debt expense		578			238			263			—			1,079
Proceeds from patronage revolvement received		4,956			4			—			—			4,960
Non-cash patronage income		(761	)		(58	)		—			—			(819	)
Deferred income tax expense		12,306			—			—			—			12,306
Decrease (increase) in other assets		1,448			(3,543	)		5,577			4,885			8,367
Increase (decrease) in other liabilities		377			—			(165	)		—			212
Restructuring and impairment charges		4,281			—			—			—			4,281
Loss (gain) on divestiture of business		12,872			—			(20,905	)		—			(8,033	)
Gain on sale of investment		(7,837	)		—			—			—			(7,837	)
Equity in (earnings) loss of affiliated companies		(59,993	)		(380	)		2,587			28,057			(29,729	)
Minority interests		(61	)		—			646			—			585
Other		(720	)		(30	)		1,635			—			885
Changes in current assets and liabilities, net of acquisitions and divestitures:
Receivables		103,784			(2,730	)		(242	)		(5,734	)		95,078
Inventories		(1,037	)		6,504			464			—			5,931
Other current assets		301,931			4,058			380			—			306,369
Accounts payable		(449,672	)		(1,619	)		(13,848	)		5,442			(459,697	)
Accrued expenses		(8,091	)		(1,519	)		6,842			653			(2,115	)
Net cash provided (used) by operating activities		1,429			35,504			(752	)		5,246			41,427
Cash flows from investing activities:
Additions to property, plant and equipment		(11,944	)		(13,013	)		(8,679	)		—			(33,636	)
Acquisitions		(84,187	)		—			—			—			(84,187	)
Payments for investments		(22,778	)		—			(1,700	)		22,000			(2,478	)
Proceeds from sale of investments		7,837			—			—			—			7,837
Net proceeds from divestiture of business		—			—			28,655			—			28,655
Proceeds from sale of property, plant and equipment		141			237			495			—			873
Dividends from investments in affiliated companies		1,703			587			900			—			3,190
Other		2,059			(3,144	)		(23	)		—			(1,108	)
Net cash (used) provided by investing activities		(107,169	)		(15,333	)		19,648			22,000			(80,854	)
Cash flows from financing activities:
Increase (decrease) in short-term debt		9,816			780			(27,387	)		(5,246	)		(22,037	)
Proceeds from issuance of long-term debt		1,549			—			450			—			1,999
Principal payments on long-term debt and capital lease obligations		(471	)		(284	)		(33,055	)		—			(33,810	)
Payments for redemption of member equities		(42,897	)		—			—			—			(42,897	)
Other		(512	)		—			22,000			(22,000	)		(512	)
Net cash (used) provided by financing activities		(32,515	)		496			(37,992	)		(27,246	)		(97,257	)
Net cash used by operating activities of discontinued operations		(347	)		—			—			—			(347	)
Net (decrease) increase in cash and cash equivalents		(138,602	)		20,667			(19,096	)		—			(137,031	)
Cash and cash equivalents at beginning of period		157,445			—			22,259			—			179,704
Cash and cash equivalents at end of period	$	18,843		$	20,667		$	3,163		$	—		$	42,673

19

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING BALANCE SHEET

December 31, 2005

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries		Eliminations			Consolidated
ASSETS
Current assets:
Cash and cash equivalents	$	157,445		$	—		$	22,259	$	—		$	179,704
Receivables, net		325,878			185,356			110,550		(30,339	)		591,445
Intercompany receivables, net		90,373			—			—		(90,373	)		—
Inventories		240,388			173,849			38,898		—			453,135
Prepaid expenses		321,843			8,494			2,686		—			333,023
Other current assets		29,806			11,747			39,522		—			81,075
Total current assets		1,165,733			379,446			213,915		(120,712	)		1,638,382
Investments		1,019,021			43,743			8,077		(807,055	)		263,786
Property, plant and equipment, net		182,905			387,752			97,993		—			668,650
Goodwill, net		201,037			82,686			43,336		—			327,059
Other intangibles, net		4,192			90,269			2,306		—			96,767
Other assets		27,718			35,008			45,932		(8,244	)		100,414
Total assets	$	2,600,606		$	1,018,904		$	411,559	$	(936,011	)	$	3,095,058
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations	$	300		$	2,269		$	109,484	$	(35,588	)	$	76,465
Current portion of long-term debt and obligations under capital lease		6,659			390			16,872		—			23,921
Accounts payable		783,280			152,806			44,342		(3,469	)		976,959
Intercompany payable, net		—			89,591			782		(90,373	)		—
Accrued expenses		168,398			79,939			17,113		474			265,924
Patronage refunds and other member equities payable		29,622			—			—		—			29,622
Total current liabilities		988,259			324,995			188,593		(128,956	)		1,372,891
Long-term debt and obligations under capital lease		579,032			11,021			56,749		—			646,802
Employee benefits and other liabilities		128,042			27,198			10,556		—			165,796
Minority interests		1,716			711			3,585		—			6,012
Equities:
Capital stock		1,967			100			37		(137	)		1,967
Additional paid-in capital		—			499,369			89,213		(588,582	)		—
Member equities		893,518			—			—		—			893,518
Accumulated other comprehensive loss		(75,163	)		(460	)		—		460			(75,163	)
Retained earnings		83,235			155,970			62,826		(218,796	)		83,235
Total equities		903,557			654,979			152,076		(807,055	)		903,557
Commitments and contingencies
Total liabilities and equities	$	2,600,606		$	1,018,904		$	411,559	$	(936,011	)	$	3,095,058

20

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

For the Three months ended June 30, 2005

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Net sales	$	866,033		$	730,223		$	210,403		$	—		$	1,806,659
Cost of sales		814,251			657,993			207,453			—			1,679,697
Gross profit		51,782			72,230			2,950			—			126,962
Selling, general and administrative		55,188			56,939			10,743			—			122,870
Restructuring and impairment charges		—			105			—			—			105
(Loss) earnings from operations		(3,406	)		15,186			(7,793	)		—			3,987
Interest expense (income), net		19,840			(1,168	)		2,148			—			20,820
Other income, net		(549	)		(801	)		—			—			(1,350	)
Equity in (earnings) loss of affiliated companies		(52,296	)		(275	)		3,355			4,625			(44,591	)
Minority interest in (loss) earnings of subsidiaries		—			(295	)		675			—			380
Earnings (loss) before income taxes and discontinued operations		29,599			17,725			(13,971	)		(4,625	)		28,728
Income tax expense (benefit)		3,724			20			(891	)		—			2,853
Net earnings (loss) from continuing operations		25,875			17,705			(13,080	)		(4,625	)		25,875
Loss from discontinued operations, net of income taxes		(28	)		—			—			—			(28	)
Net earnings (loss)	$	25,847		$	17,705		$	(13,080	)	$	(4,625	)	$	25,847

21

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS

For the Six months ended June 30, 2005

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Net sales	$	1,947,428		$	1,460,625		$	429,840		$	—		$	3,837,893
Cost of sales		1,810,123			1,303,277			415,562			—			3,528,962
Gross profit		137,305			157,348			14,278			—			308,931
Selling, general and administrative		111,481			122,456			22,159			—			256,096
Restructuring and impairment charges		919			105			—			—			1,024
Earnings (loss) from operations		24,905			34,787			(7,881	)		—			51,811
Interest expense (income), net		39,794			(740	)		4,008			—			43,062
Other income, net		(577	)		(808	)		—			—			(1,385	)
Equity in (earnings) loss of affiliated companies		(68,614	)		(795	)		5,037			20,593			(43,779	)
Minority interest in earnings of subsidiaries		—			—			817			—			817
Earnings (loss) before income taxes and discontinued operations		54,302			37,130			(17,743	)		(20,593	)		53,096
Income tax expense (benefit)		6,172			184			(1,390	)		—			4,966
Net earnings (loss) from continuing operations		48,130			36,946			(16,353	)		(20,593	)		48,130
Earnings from discontinued operations, net of income taxes		2,013			—			—			—			2,013
Net earnings (loss)	$	50,143		$	36,946		$	(16,353	)	$	(20,593	)	$	50,143

22

LAND O’LAKES, INC.

SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
For the Six months ended June 30, 2005

	Land
	O’Lakes, Inc.						Non-
	Parent			Consolidated			Guarantor
	Company			Guarantors			Subsidiaries			Eliminations			Consolidated
Cash flows from operating activities:
Net earnings (loss)	$	50,143		$	36,946		$	(16,353	)	$	(20,593	)	$	50,143
Earnings from discontinued operations, net of income taxes		(2,013	)		—			—			—			(2,013	)
Adjustments to reconcile net earnings (loss) to net cash (used) provided by operating activities:
Depreciation and amortization		33,495			7,275			9,183			—			49,953
Amortization of deferred financing costs		3,231			—			621			—			3,852
Bad debt expense		747			—			—			—			747
Proceeds from patronage revolvement received		2,057			—			—			—			2,057
Non-cash patronage income		(274	)		(465	)		—			—			(739	)
Deferred income tax expense		1,026			—			—			—			1,026
Decrease (increase) in other assets		9,395			(368	)		(5,138	)		3,819			7,708
Increase (decrease) in other liabilities		6,856			(483	)		(3,463	)		—			2,910
Restructuring and impairment charges		919			105			—			—			1,024
Gain on sale of investments		—			—			—			—			(802	)
Equity in (earnings) loss of affiliated companies		(68,614	)		(795	)		5,037			20,593			(43,779	)
Minority interests		—			—			817			—			817
Other		(1,206	)		(72	)		2,075			—			797
Changes in current assets and liabilities, net of acquisitions and divestitures:
Receivables		(176,521	)		101,853			20,820			137,030			83,182
Inventories		(45,115	)		4,377			(3,905	)		—			(44,643	)
Other current assets		251,262			3,411			(628	)		—			254,045
Accounts payable		(332,290	)		61,780			(10,062	)		1,625			(278,947	)
Accrued expenses		22,076			11,634			3,647			—			37,357
Net cash (used) provided by operating activities		(245,628	)		225,198			2,651			142,474			124,695
Cash flows from investing activities:
Additions to property, plant and equipment		(19,906	)		(2,005	)		(4,106	)		—			(26,017	)
Acquisitions		(30,106	)		—			—			—			(30,106	)
Payments for investments		(7,571	)		—			(2,850	)		7,500			(2,921	)
Proceeds from the sale of investments		—			1,000			—			—			1,000
Proceeds from divestiture of businesses		—			—			2,635			—			2,635
Proceeds from sale of property, plant and equipment		1,151			1,670			4			—			2,825
Dividends from investments in affiliated companies		2,902			430			678			—			4,010
Other		101			—			—			—			101
Net cash (used) provided by investing activities		(53,429	)		1,095			(3,639	)		7,500			(48,473	)
Cash flows from financing activities:
Increase (decrease) in short-term debt		146,759			929			(11,877	)		(142,474	)		(6,663	)
Proceeds from issuance of long-term debt		1,481			—			—			—			1,481
Principal payments on long-term debt and capital lease obligations		(80,908	)		(38,296	)		(9,402	)		—			(128,606	)
Distribution to members		183,830			(183,830	)		—			—			—
Payments for redemption of member equities		(33,683	)		—			—			—			(33,683	)
Other		(1,468	)		—			8,501			(7,500	)		(467	)
Net cash provided (used) by financing activities		216,011			(221,197	)		(12,778	)		(149,974	)		(167,938	)
Net cash provided by operating activities of discontinued operations		3,676			—			—			—			3,676
Net cash provided by investing activities of discontinued operations		42,135			—			—			—			42,135
Net (decrease) increase in cash		(37,235	)		5,096			(13,766	)		—			(45,905	)
Cash and cash equivalents at beginning of period		65,129			(16,643	)		24,650			—			73,136
Cash and cash equivalents at end of period	$	27,894		$	(11,547	)	$	10,884		$	—		$	27,231

23

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     You should read the following discussions of financial condition and results of operations together with the financial statements and the notes to such statements included elsewhere in this Form 10-Q.

Overview

General

     We operate our business predominantly in the United States in five segments: Dairy Foods, Feed, Seed, Agronomy and Layers. For the three months ended June 30, 2006, we reported net sales of $1.7 billion and net earnings of $34.8 million compared to net sales of $1.8 billion and net earnings of $25.8 million for the three months ended June 30, 2005. For the six months ended June 30, 2006, we reported net sales of $3.8 billion and net earnings of $60.9 million compared to net sales of $3.8 billion and net earnings of $50.1 million for the six months ended June 30, 2005. The primary reasons for the increase in net earnings in the six months ended June 30, 2006 compared to the same period in the previous year were improved volume and margin performance in Seed, gains on the sales of assets and an income tax benefit recorded in 2006, partially offset by lower margins in Feed and equity in earnings from Agriliance.

     In April 2004, we announced our intention to reposition our Layers segment for strategic growth. On January 27, 2006, we purchased the remaining 42.5% minority interest in MoArk, LLC (“MoArk”) from Osborne Investments, LLC (“Osborne”) for $71 million in cash, which increased our ownership in MoArk to 100%. The purpose of the transaction was to consolidate control of MoArk, an entity engaged in the production and marketing of eggs and egg products, as we continue the process of repositioning this business.

     On June 30, 2006, MoArk sold its liquid egg operations to Golden Oval Eggs, LLC and GOECA, LP (together “Golden Oval”) and recognized an $8.0 million gain on divestiture. MoArk received net proceeds of $37 million plus an additional $17 million from Golden Oval in the form of a three-year note, with the possibility of incremental earn-out amounts if Golden Oval surpasses certain performance measures. Land O’Lakes also received $5 million of equity in Golden Oval. MoArk continues to operate its shell egg business. In connection with the sale, Land O’Lakes granted Golden Oval a license to use the Land O’Lakes brand name for certain liquid egg products.

Unconsolidated Businesses

     We have investments in certain entities that are not consolidated in our financial statements. Investments in which we hold a 20% to 50% ownership interest are accounted for under the equity method and provided earnings and cash flows for the three months and six months ended June 30 as follows:

	For the three months ended				For the six months ended
	June 30,				June 30,
	2006		2005		2006		2005
	(in millions)
Earnings from unconsolidated businesses	$	38.2	$	44.6	$	29.7	$	43.8
Cash flow from investments in unconsolidated businesses		0.5		1.8		3.2		4.0

     We also hold investments in other cooperatives which are stated at cost plus unredeemed patronage refunds received, or estimated to be received, in the form of capital stock and other equities. Investments held in less than 20%-owned companies are stated at cost.

     Our investment in unconsolidated businesses was $293.3 million as of June 30, 2006 and $263.8 million as of December 31, 2005.

     Agriliance LLC, which is reflected in our Agronomy segment, constitutes the most significant of our investments in unconsolidated businesses. Agriliance is a distributor of agricultural inputs and is owned equally by Land O’Lakes and CHS Inc. Our ownership in Agriliance is accounted for under the equity method. Agriliance’s pretax earnings pass directly to the joint venture owners. Our investment in Agriliance was $145.3 million as of June 30, 2006 and $112.9 million as of December 31, 2005. Our earnings and cash distributions from Agriliance were as follows for the three months and six months ended June 30:

24

	For the three months				For the six months
	ended June 30,				ended June 30,
	2006		2005		2006		2005
			(in millions)
Equity in earnings from Agriliance	$	37.7	$	46.3	$	32.4	$	46.4
Cash distributions from Agriliance		0.0		0.0		0.0		0.0

     For the three months ended June 30, 2006, Agriliance reported earnings of $75.5 million, $17.0 million less than earnings of $92.5 million for the three months ended June 30, 2005. Sales of crop protection products were flat compared to prior year sales and earnings decreased $5.8 million due to product mix and continued devaluation related to products losing patent protection. Volumes in crop nutrients decreased 9% from last year and crop nutrient earnings decreased $17.7 million due to lower margins primarily in nitrogen-based products. Retail business earnings were $7.0 million higher than last year primarily due to earnings from new joint ventures.

     For the six months ended June 30, 2006, Agriliance reported earnings of $64.7 million, $28.1 million less than earnings of $92.8 million for the six months ended June 30, 2005. Sales of crop protection products decreased 5% compared to prior year sales and earnings decreased $10.5 million due to product mix and continued devaluation related to products losing patent protection. Volumes in crop nutrients decreased 15.0% from last year and earnings decreased $17.7 million due to lower margins across most products. Retail business earnings were $1.4 million higher than last year largely due to earnings on new joint ventures.

     We received $28.9 million in dividends from Agriliance for the year ended December 31, 2005. Our expectation is that the dividend payment in 2006 will be somewhat lower than this due to reduced earnings for Agriliance through June 30, 2006.

     The Company has a minority ownership position in an aseptic food products joint venture called AFP Advanced Food Products LLC (“AFP”). Under the terms of AFP’s Operating Agreement, we hold an option (exercisable as of March 1, 2006) to sell our interest in AFP to our joint venture partner for a price based on a multiple of AFP’s average historical and projected EBITDA (earnings before interest, income taxes, depreciation and amortization), as more fully described in the Operating Agreement. Our partner also holds an option (also exercisable as of March 1, 2006) that would require us to sell our interest in AFP to our partner according to the same formula referenced above, with a slightly higher multiple. If either party exercises its option, the Operating Agreement provides that, unless the parties agree otherwise, the sale could not occur earlier than 120 days after one party provides notice of its intent to exercise its option, but not later than 180 days thereafter, subject to certain delay rights that either party may seek.

Seasonality

     Certain segments of our business are subject to seasonal fluctuations in demand. In our Dairy Foods segment, butter sales typically increase in the fall and winter months due to increased demand during holiday periods. Feed sales tend to be highest in the first and fourth quarter of each year because cattle are less able to graze during cooler months. Most Seed sales occur in the first and fourth quarter of each year. Agronomy product sales tend to be much higher in the first and second quarters of each year, as farmers buy crop nutrients and crop protection products to meet their seasonal planting needs.

Dairy and Agricultural Commodity Inputs and Outputs

     Many of our products, particularly in our Dairy Foods, Feed and Layers segments, use dairy or agricultural commodities as inputs or constitute dairy or agricultural commodity outputs. Consequently, our results are affected by the cost of commodity inputs and the market price of commodity outputs.

     Dairy Foods.Raw milk is the major commodity input for our Dairy Foods segment. Our Dairy Foods outputs, namely butter, cheese and nonfat dry milk, are also commodities. The minimum price of raw milk and cream is set monthly by Federal regulators based on regional prices of dairy foods products manufactured. These prices provide the basis for our raw milk and cream input costs. As a result, those dairy foods products for which the sales price is fixed shortly after production, such as most bulk cheese, are not usually subject to significant commodity price risk as the price received for the output usually varies with the cost of the significant inputs. For the six months ended June 30, 2006, bulk cheese, which is generally priced the date of make, represented approximately 14% of the Dairy Foods segment’s net sales.

     We maintain significant inventories of butter and cheese for sale to our retail and foodservice customers, which are subject to commodity price risk. Because production of raw milk and demand for butter varies seasonally, we inventory significant amounts of butter. Demand for butter typically is highest during the fall and winter, when milk supply is lowest. As a result, we produce and store excess quantities of butter during the spring when milk supply is highest. In addition, we maintain some inventories of cheese for aging.

25

For the six months ended June 30, 2006, branded, private label, deli and foodservice net sales of butter and cheese products represented approximately 34% of the Dairy Foods net sales.

     Market prices for commodities such as butter and cheese can have a significant impact on both the cost of products produced and the price for which products are sold. In the past three years, the lowest monthly average market price for butter was $1.09 in May 2003, and the highest monthly average market price was $2.21 in April 2004. In the past three years, the lowest monthly average market price for block cheese was $1.12 in April 2003 and the highest monthly average market price was $2.14 in April 2004. The per pound average market price for the three months and six months ended June 30 is as follows:

	For the three months ended				For the six months ended
	June 30,				June 30,
	2006		2005		2006		2005
Per pound market price average:
Butter	$	1.17	$	1.47	$	1.21	$	1.52
Block cheese		1.18		1.51		1.21		1.53

     We maintain a significant dairy manufacturing presence in strategic locations across the United States. As milk production continues to migrate to the West, our plants in the Upper Midwest and East are competing with other manufacturers for a declining amount of milk. The increased competition, coupled with higher energy costs, has pressured margins related to these facilities.

     Feed.The Feed segment follows industry standards for feed pricing. The feed industry generally prices products based on income over ingredient cost per ton of feed. This practice tends to lessen the impact of volatility in commodity ingredient markets on our animal feed profits. As ingredient costs fluctuate, the changes are generally passed on to customers through weekly or monthly changes in prices However, margins can still be impacted by competitive pressures and changes in manufacturing and distribution costs.

     We enter into forward sales contracts to supply feed to customers, which currently represent approximately 20% of our Feed net sales. When we enter into these contracts, we also generally enter into forward purchase contracts on the underlying commodities to lock in our gross margins.

     Changes in commodity grain prices have an impact on the mix of products we sell. When grain prices are relatively high, the demand for complete feed rises since many livestock producers are also grain growers and sell their grain in the market and purchase complete feed as needed. When grain prices are relatively low, these producers feed their grain to their livestock and purchase premixes and supplements to provide complete nutrition to their animals. These fluctuations in product mix generally have minimal effects on our operating results. Complete feed has a far lower margin per ton than supplements and premixes. Thus, during periods of relatively high grain prices, although our margins per ton are lower, we sell substantially more tonnage because the grain portion of complete feed makes up the majority of its weight.

     Complete feed is manufactured to meet the complete nutritional requirements of animals whereas a simple blend is a blend of processed commodities to which the producer then adds supplements and premixes. As dairy production has shifted to the western United States, we have seen a change in our feed product mix with lower sales of complete feed and increased sales of simple blends, supplements and premixes. This change in product mix is a result of differences in industry practices. Dairy producers in the western United States tend to purchase feed components and mix them at the farm location rather than purchasing a complete feed product delivered to the farm. Producers purchase grain blends and concentrated premixes from separate suppliers. This shift is reflected in increased sales of simple blends in our western feed region and increases in sales of premixes in our manufacturing subsidiaries in the West.

     We have seen continued erosion of commodity feed volumes, mainly related to producer integration in the swine and poultry sectors as well as conscious efforts made by management to exit some of this low-income business and place increased focus on value-added business. We expect continued pressure on volumes in dairy, poultry and swine feed to continue as further integration occurs in the swine, poultry and dairy industries.

26

     Layers.MoArk produces and markets shell eggs. MoArk also produced and marketed liquid egg products prior to the sale of this operation on June 30, 2006. MoArk’s sales and earnings fluctuate depending on egg market prices. For the six months ended June 30, 2006, egg prices averaged $0.77 per dozen, as measured by the Urner Barry (South Central) market, compared to egg prices of $0.67 per dozen for the six months ended June 30, 2005.

Derivative Commodity Instruments

     In the normal course of operations, we purchase commodities such as milk, butter and soybean oil in Dairy Foods, soybean meal and corn in Feed, and soybeans in Seed. Derivative commodity instruments, primarily futures and options contracts offered through regulated commodity exchanges, are used to reduce our exposure to changes in commodity prices. These contracts are not designated as hedges under Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” The futures and options contracts for open positions are marked-to-market each month and these unrealized gains or losses (“unrealized hedging gains and losses”) are recognized in earnings and are fully taxed and applied to retained earnings on our balance sheet. Amounts recognized in earnings before income taxes and discontinued operations (reflected in cost of sales and equity in earnings of affiliated companies) for the three months and six months ended June 30 are as follows:

	For the three months ended				For the six months ended
	June 30,				June 30,
	2006		2005		2006		2005
	(in millions)				(in millions)
Unrealized hedging gain	$	2.5	$	1.0	$	2.6	$	5.3

Results of Operations

Three months ended June 30, 2006 as compared to three months ended June 30, 2005

Overview of Results

	For the three months ended June 30,
					Increase
	2006		2005		(Decrease)
	(In millions)
Net earnings	$	34.8	$	25.8	$	9.0

     Increased net earnings were primarily driven by improved volumes and margins in Dairy Foods, improved margins in Seed and a gain on the sale of the liquid egg operations in the Layers segment. In addition, for the three months ended June 30, 2006, we recorded an income tax benefit of $13.6 million due to a favorable tax ruling. Partially offsetting these positive net earnings impacts were higher selling, general and admistrative expenses and lower equity in earnings from Agriliance.

Net sales $ 1,684.5 $ 1,806.7 $ (122.2 )

     Lower net sales for the three months ended June 30, 2006 compared to the same period in 2005 were due mainly to a 20% decline in commodity market prices for Dairy Foods. This was partially offset by higher sales in Feed, Seed and Layers. A discussion of net sales by business segment is found below under the caption “Net Sales and Gross Profit by Business Segment.”

Gross profit $ 143.8 $ 127.0 $ 16.8

     Gross profit increased in the three months ended June 30, 2006 primarily due to higher margins in Dairy Foods and Seed. A discussion of gross profit by business segment is found below under the caption “Net Sales and Gross Profit by Business Segment.”

Selling, general and administrative expense $ 135.1 $ 122.9 $ 12.2

     Higher selling, general and administrative expense in 2006 was partially driven by increased expenses related to long-term incentive plans, consulting expenses and higher selling related expenses.

27

	For the three months ended June 30,
					Increase
	2006		2005		(Decrease)
	(In millions)
Restructuring and impairment charges	$	2.9	$	0.1	$	2.8

     During the three months ended June 30, 2006, Dairy Foods recorded a $2.8 million impairment charge related to a note receivable from the former sale of a cheese facility in Gustine, CA. For the three months ended June 30, 2005, Feed recorded a $0.1 million charge for the write-down of certain fixed assets to their estimated fair value.

Interest expense, net $ 15.2 $ 20.8 $ (5.6 )

     The decrease in interest expense was due to debt reduction in 2005. Partially offsetting this impact was an increase in average interest rates. Interest rates on borrowings averaged 7.6% for the three months ended June 30, 2006 compared to 7.4% for the same period in 2005.

Equity in earnings of affiliated companies $ 38.2 $ 44.6 $ (6.4 )

     Results for the three months ended June 30, 2006 included equity in earnings from Agriliance of $37.7 million compared to equity in earnings of $46.3 million for the same period of 2005. A discussion of net earnings for Agriliance can be found under the caption “Overview — General — Unconsolidated Businesses.” In Dairy Foods, equity method investments had earnings of $1.7 million for the three months ended June 30, 2006, compared to equity earnings of $0.8 million for the same period of 2005. MoArk equity investments had equity losses of $1.8 million for the three months ended June 30, 2006 compared to equity losses of $3.4 million for the three months ended June 30, 2005.

     Net Sales and Gross Profit by Business Segment

     Our reportable segments consist of business units that offer similar products and services and/or similar customers. We operate five segments: Dairy Foods, Feed, Seed, Agronomy and Layers. Agronomy consists primarily of our 50% ownership in Agriliance, which is accounted for under the equity method. Accordingly, no sales or gross profit are recorded in the Agronomy segment.

Dairy Foods

	For the three months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	773.2		$	936.3			(17.4	)%
Gross profit		55.4			41.3			34.1	%
Gross profit % of net sales		7.2	%		4.4	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	(181.4	)
Volume impact		18.3
Total decrease	$	(163.1	)

     The net sales decrease in the three months ended June 30, 2006 was driven by the impact of lower market prices for butter and cheese. The negative pricing / product mix variance of $181.4 million was mainly due to a decline in average market prices of $0.30 per pound for butter and $0.33 per pound for cheese for the three months ended June 30, 2006 compared to the same period in the prior year. The negative pricing / mix variance in retail and private label butter was $18.5 million and the variance for foodservice, retail and deli cheese was $17.4 million. Additionally, lower market prices and a shift in the mix of products sold caused net sales for industrial operations to decrease by $143.5 million. The volume variance of $18.3 million was primarily driven by increased retail butter and industrial operation volumes.

28

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	9.9
Volume impact		1.4
Unrealized hedging		2.8
Total increase	$	14.1

     Gross profit increased in the three months ended June 30, 2006 due to improved margins and volumes for butter and cheese, partially offset by higher energy and transportation costs. The positive margin / product mix variance of $9.9 million was primarily driven by improvements in retail butter and foodservice cheese. Partially offsetting these impacts were higher energy costs in Industrial operations, which lowered gross profit by $2.7 million. In addition to higher energy costs, gross profit for industrial operations in the West was negatively impacted by the California milk pricing formula for commodity cheese and whey margins. The volume variance increase of $1.4 million was caused primarily by improved sales in the three months ended June 30, 2006 compared to the previous year for retail butter.

Feed

	For the three months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	645.8		$	626.9			3.0	%
Gross profit		65.1			68.6			(5.1	)%
Gross profit % of net sales		10.1	%		10.9	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	0.8
Volume impact		5.6
Acquisitions and divestitures		12.5
Total increase	$	18.9

     Increased net sales were primarily due to the impact of acquisitions and volume improvements for ingredients sales and lifestyle feed. The pricing / product mix impact of $0.8 million was due to improved formula feed sales, which included both lifestyle and livestock feeds, partly offset by lower ingredients sales. The volume variance of $5.6 million was partially due to the impact of a 7% increase in ingredient volumes, which caused net sales to increase $10.2 million, and a 4% increase in lifestyle feeds, which caused net sales to increase by $5.3 million. Partially offsetting these increases was a 6% decline in livestock sales which led to a $9.8 million decrease in net sales. The acquisition impact increased sales due to the consolidation of Penny-Newman Milling, LLC on September 30, 2005, partially offset by lower net sales due to the sale of Heritage Trading Company, LLC in 2005.

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	(2.3	)
Volume impact		1.3
Unrealized hedging		(1.7	)
Acquisitions and divestitures		(0.8	)
Total decrease	$	(3.5	)

29

     Gross profit decreased in 2006 primarily due to lower margins in formula feed, higher distribution costs and unrealized hedging. The negative margin / product mix impact of $2.3 million was primarily due to a $3.7 million decline in formula feed partially due to competitive pressure on margins and higher distribution costs. In addition, formula feed gross profit decreased by $1.1 million for incremental costs related to serving customers previously served by our Statesville, NC plant, which has been shut down since late December due to fire damage. These amounts were partially offset by a $2.4 million increase in ingredient margins. The volume variance of $1.3 million was mainly due to improvements in our lifestyle business of $1.5 million, driven by a 4% increase in volumes. Gross profit increased due to the consolidation of Penny-Newman Milling, LLC on September 30, 2005, which was more than offset by lower gross margin due to the sale of Heritage Trading Company, LLC in June 2005.

Seed

	For the three months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	162.6		$	152.6			6.6	%
Gross profit		21.9			16.5			32.7	%
Gross profit % of net sales		13.5	%		10.8	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	10.6
Volume impact		(1.6	)
Acquisitions and divestitures		1.0
Total increase	$	10.0

     Net sales increased in 2006 due primarily to higher alfalfa prices driven by low supplies in the market. The $10.6 million pricing / product mix variance was primarily related to the higher alfalfa prices. The volume decrease of $1.6 million was primarily driven by 10% lower corn sales. The acquisition category includes the impact of the acquisition of ABI Alfalfa in August of 2005.

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	5.4
Volume impact		(0.9	)
Unrealized hedging		0.5
Acquisitions and divestitures		0.4
Total increase	$	5.4

     The margin / product mix increase of $5.4 million was mainly caused by improvements in corn and alfalfa. The improvement in alfalfa was partially due to the strong demand related to the introduction of Round-up Ready^® alfalfa in August 2005. The volume decline of $0.9 million was primarily due to the 10% decline in corn volumes. The acquisition category includes the impact from the acquisition of ABI Alfalfa in August of 2005.

Layers

	For the three months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	105.3		$	86.3			22.0	%
Gross profit		3.3			0.2			1,550.0	%
Gross profit % of net sales		3.1	%		0.2	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	11.5
Volume impact		7.5
Total increase	$	19.0

     The increase in net sales was primarily driven by higher egg prices for the three months ended June 30, 2006 compared to the same period in 2005. The average quoted price based on the South Central Large market increased to $0.73 per dozen in 2006 compared to $0.61 per dozen in 2005.

30

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	3.2
Volume impact		0.0
Unrealized hedging		(0.1	)
Total increase	$	3.1

     The gross profit increase was primarily attributable to the increase in average market price of eggs in the three months ended June 30, 2006 compared to the three months ended June 30, 2005. Partially offsetting the impact of higher egg prices were lower unrealized hedging gains for the three months ended June 30, 2006 compared to the same period in 2005.

Six months ended June 30, 2006 as compared to six months ended June 30, 2005

Overview of Results

	For the six months ended June 30,
					Increase
	2006		2005		(Decrease)
	(In millions)
Net earnings	$	60.9	$	50.1	$	10.8

     Improved net earnings were primarily driven by higher margins and volumes in Seed, lower interest expense, a gain of $7.8 million on the sale of an investment, which was partially offset by income tax expense on the gain of $1.6 million, a gain on the sale of the liquid egg operations in the Layers segment and a favorable income tax ruling that benefited net earnings by $13.6 million. Net earnings were negatively impacted by lower margins in Feed, lower equity in earnings from Agriliance and lower unrealized hedging gains.

Net sales $ 3,759.4 $ 3,837.9 $ (78.5 )

     The decrease in net sales was primarily due to lower market prices for Dairy Foods, partially offset by higher prices and volumes in Feed, Seed and Layers. A discussion of net sales by business segment is found below under the caption “Net Sales and Gross Profit by Business Segment.”

Gross profit $ 323.4 $ 308.9 $ 14.5

     Gross profit increased in the six months ended June 30, 2006 primarily due to higher margins and volumes for Seed. A discussion of gross profit by business segment is found below under the caption “Net Sales and Gross Profit by Business Segment.”

Selling, general and administrative expense $ 266.7 $ 256.1 $ 10.6

     Higher expenses for long-term incentives and consulting increased selling, general and administrative expense in the six months ended June 30, 2006 compared to the same period in the prior year. In addition, Seed and Feed had higher selling expenses related to the higher sales levels in 2006.

Restructuring and impairment charges $ 4.3 $ 1.0 $ 3.3

     During the six months ended June 30, 2006, Dairy Foods closed a facility in Greenwood, Wisconsin and as a result recorded a restructuring charge of $1.5 million primarily related to a contractual obligation for waste-water treatment. Dairy Foods also recorded a $2.8 million impairment charge related to a note receivable from the former sale of a cheese facility in Gustine, CA. For the six months ended June 30, 2005, Dairy Foods and Feed recorded charges for the write-down of certain fixed assets to their estimated fair value of $0.9 million and $0.1 million, respectively.

Interest expense, net $ 31.7 $ 43.1 $ (11.4 )

     The decrease in interest expense was due to debt reduction efforts in 2005 and lower amortization of deferred financing charges in 2006. Partially offsetting these impacts was an increase in average interest rates. Interest rates on borrowings averaged 8.0% for the six months ended June 30, 2006 compared to 7.2% for the same period in 2005. Deferred financing amortization decreased by $2.7 million for the six months ended June 30, 2006 compared to the same period in 2005 primarily due to the acceleration of deferred financing charges for 2005 related to early payments on the Term B loan.

31

	For the six months ended June 30,
					Increase
	2006		2005		(Decrease)
	(In millions)
Equity in earnings of affiliated companies	$	29.7	$	43.8	$	(14.1	)

     Results for the six months ended June 30, 2006 included equity in earnings from Agriliance of $32.4 million compared to equity in earnings of $46.4 million for the same period of 2005. A discussion of net earnings for Agriliance can be found under the caption “Overview — General — Unconsolidated Businesses.” MoArk equity investments had equity losses of $2.6 million for the six months ended June 30, 2006 compared to equity losses of $5.0 million for the six months ended June 30, 2005.

     Net Sales and Gross Profit by Business Segment

     Our reportable segments consist of business units that offer similar products and services and/or similar customers. We operate five segments: Dairy Foods, Feed, Seed, Agronomy and Layers. Agronomy consists primarily of our 50% ownership in Agriliance, which is accounted for under the equity method. Accordingly, no sales or gross profit are recorded in the Agronomy segment.

Dairy Foods

	For the six months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	1,660.4		$	1,891.2			(12.2	)%
Gross profit		97.4			89.2			9.2	%
Gross profit % of net sales		5.9	%		4.7	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	(253.8	)
Volume impact		23.0
Total decrease	$	(230.8	)

     The net sales decrease in the six months ended June 30, 2006 was primarily driven by the impact of lower market prices for butter and cheese. The negative pricing / mix variance of $253.8 million was mainly due to a decline in average market prices of $0.31 per pound for butter and $0.32 per pound for cheese for the six months ended June 30, 2006 compared to the same period in the prior year. The negative pricing / product mix variances in retail and private label butter was $41.7 million and the variance for foodservice, retail and deli cheese was $28.4 million. Additionally, lower market prices and a shift in the mix of products sold caused net sales for industrial operations to decrease by $186.4 million. The volume variance of $23.0 million was primarily driven by increased volumes in foodservice and retail cheese, retail butter, and higher industrial volumes.

32

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	0.0
Volume impact		5.5
Unrealized hedging		2.7
Total increase	$	8.2

     Gross profit increased in 2006 primarily due to improved retail butter volumes. The margin / product mix variance was flat to 2005 which was caused by an increase in retail butter margins, offset by a $9.8 million increase in energy costs that impacted industrial operations. In addition to higher energy costs, gross profit for industrial operations in the West was negatively impacted by the California milk pricing formula for commodity cheese and whey margins. The volume variance improvement of $5.5 million was primarily caused by higher sales for retail butter and foodservice and retail cheese.

Feed

	For the six months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	1,338.9		$	1,257.6			6.5	%
Gross profit		133.4			148.2			(10.0	)%
Gross profit % of net sales		10.0	%		11.8	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	40.3
Volume impact		21.7
Acquisitions and divestitures		19.3
Total increase	$	81.3

     Increased net sales were primarily due to the impact of price increases and higher commodity prices, as well as higher volumes in ingredients and lifestyle feeds and the impact of acquisitions. The $40.3 million positive pricing / product mix variance was partially caused by a $3.5 million positive pricing impact to ingredient net sales. In addition, formula feed net sales, which includes both lifestyle and livestock feeds, increased by $27.4 million, mainly in the livestock category due to higher commodity prices for ingredients and price increases. The volume variance of $21.7 million was partially due to the impact of an 8% increase in ingredient volumes, which caused net sales to increase $21.9 million, and a 4% increase in lifestyle feeds, which caused net sales to increase by $11.0 million. Partially offsetting the volume improvement was a 4% decline in livestock volumes which led to a $12.8 million decline in net sales. Sales increased due to the consolidation of Penny-Newman Milling, LLC on September 30, 2005, partially offset by lower net sales due to the sale of Heritage Trading Company, LLC in 2005.

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	(10.7	)
Volume impact		2.7
Unrealized hedging		(5.4	)
Acquisitions and divestitures		(1.4	)
Total decrease	$	(14.8	)

     Gross profit decreased in 2006 primarily due to lower margins in formula feed, higher distribution costs and unrealized hedging. The negative margin / product mix impact of $10.7 million was primarily due to a $10.9 million decline in formula feed partially due to competitive pressure on margins and higher distribution costs. In addition, formula feed gross profit decreased by $2.2 million due to incremental costs related to serving customers previously served by our Statesville, NC plant, which has been shut down since late December due to fire damage. The volume variance of $2.7 million was mainly due to improvements in our lifestyle business of $2.8 million, driven by a 4% increase in volumes. Gross profit increased due to the consolidation of Penny-Newman Milling, LLC on September 30, 2005, which was more than offset by lower gross margin due to the sale of Heritage Trading Company, LLC in 2005.

33

Seed

	For the six months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	551.9		$	490.1			12.6	%
Gross profit		82.8			61.9			33.8	%
Gross profit % of net sales		15.0	%		12.6	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	11.7
Volume impact		46.4
Acquisitions and divestitures		3.7
Total increase	$	61.8

     Net sales increased in 2006 due primarily to strong volume growth in corn, alfalfa and soybeans. The $11.7 million pricing / product mix variance was primarily related to higher alfalfa prices. The volume variance of $46.4 million was primarily driven by a $6.9 million increase in soybeans, a $24.9 million increase in corn and a $8.0 million increase in alfalfa. The acquisition category includes the impact from the acquisition of ABI Alfalfa in August of 2005.

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	12.8
Volume impact		5.9
Unrealized hedging		0.6
Acquisitions and divestitures		1.6
Total increase	$	20.9

     The gross profit margin / product mix increase of $12.8 million was due to improved margins in corn, soybeans and alfalfa. The improvement in alfalfa was partially due to the strong demand related to the introduction of Round-up Ready^® alfalfa in August 2005. The volume improvement of $5.9 million was driven by 8% higher corn, 31% higher alfalfa, and 7% higher soybeans sales. The acquisition category includes the impact from the acquisition of ABI Alfalfa in August of 2005.

Layers

	For the six months ended June 30,
($ in millions)	2006			2005			% change
Net sales	$	213.0		$	191.5			11.2	%
Gross profit		11.6			8.3			39.8	%
Gross profit % of net sales		5.4	%		4.3	%

Net Sales Variance	Increase
	(decrease)
	(In millions)
Pricing / product mix impact	$	16.1
Volume impact		5.4
Total increase	$	21.5

     Net sales increased primarily due to 15% higher egg prices for the six months ended June 30, 2006 compared to the same period in 2005. The average quoted price based on the South Central Large market increased to $0.77 per dozen in 2006 compared to $0.67 per dozen in 2005. Shell egg volumes improved by 3%, which led to the $5.4 million volume variance increase.

34

Layers

Gross Profit Variance	Increase
	(decrease)
	(In millions)
Margin / product mix impact	$	4.4
Volume impact		(0.3	)
Unrealized hedging		(0.8	)
Total increase	$	3.3

     Gross profit increased due to the higher average market price of eggs. Partially offsetting the impact of higher egg prices were lower unrealized hedging gains for the six months ended June 30, 2006 compared to the same period in 2005.

Liquidity and Capital Resources

Overview

     We rely on cash from operations, borrowings under our bank facilities and other institutionally-placed debt as the main sources for financing working capital requirements, additions to property, plant and equipment as well as acquisitions and investments in joint ventures. Other sources of funding consist of leasing arrangements, a receivables purchase facility and the sale of non-strategic assets.

     On August 11, 2006, Land O’Lakes, Inc. announced that it has mandated JPMorgan Chase Bank to arrange an amended and restated $225 million, five-year secured revolving credit facility. This facility would replace the existing $200 million revolving credit facility arranged in 2001, which terminates in January 2007. In addition, the Company has mandated CoBank ACB to arrange an amended and restated $200 million, five-year receivables securitization facility. This facility would replace the existing $200 million securitization facility arranged in 2001, which terminates in January 2007. Both transactions are expected to close on or before August 31, 2006 subject to successful negotiation of definitive documentation.

     Total long-term debt and obligations under capital lease, including the current portion, was $636.1 million at June 30, 2006 compared to $670.7 million at December 31, 2005. The decrease was primarily due to debt repayments for borrowings of consolidated subsidiaries.

     Our primary sources of debt at June 30, 2006 included a $200 million undrawn revolving credit facility, $175 million in senior secured notes, $196.5 million in senior unsecured notes and $191 million of capital securities. For more information, please see the section below entitled “Principal Debt Facilities.”

     At June 30, 2006, $40.5 million of our long-term debt, including $8.8 million of capital lease obligations, was attributable to MoArk. Land O’Lakes does not provide any guarantees or support for MoArk’s debt. In addition, we had $38.0 million of other miscellaneous long-term debt at June 30, 2006.

     In 2001, we entered into a $100 million (expanded to $200 million in 2004) receivables purchase facility program with CoBank, ACB (“CoBank”) in an effort to reduce overall financing costs. At June 30, 2006, $45 million was outstanding under this facility compared to $30 million at June 30, 2005 and $0 at December 31, 2005. In accordance with generally accepted accounting principles, this facility is not reflected as debt in our consolidated balance sheet. A more complete description of this accounts receivable securitization program is found below under the caption, “Off-Balance Sheet Arrangements.”

     Our principal liquidity requirements are to service our debt and meet our working capital and capital expenditure needs. At June 30, 2006, $149.4 million was available under our $200 million revolving credit facility for working capital and general corporate purposes after giving effect to $50.6 million of outstanding letters of credit, which reduce availability. There was no outstanding balance on the facility at June 30, 2006.

     At June 30, 2006, we had available cash and cash equivalents on hand of $42.7 million. Total equities at June 30, 2006 were $939.8 million.

     Our total liquidity is as follows:

	As of June 30,		As of June 30,			As of December 31,
	2006		2005			2005
			($ in millions)
Cash and cash equivalents	$	42.7	$	27.8	(*)	$	179.7
Availability on revolving credit facility		149.4		144.1			147.6
Availability on receivable securitization program		155.0		170.0			200.0
Total liquidity	$	347.1	$	341.9		$	527.3

(*) Excludes restricted cash of $20 million.

35

     We expect that funds from operations and available borrowings under our revolving credit facility and receivables securitization facility will provide sufficient working capital to operate our business, to make expected capital expenditures and to meet liquidity requirements for at least the next twelve months.

Cash Flows

     The following tables summarize the key elements in our cash flows for the following periods:

Operating Activities

	For the Six Months Ended
	June 30,
	2006			2005
	(in millions)
Net earnings	$	60.9		$	50.1
Earnings from discontinued operations, net of income taxes		—			(2.0	)
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		47.5			49.9
Amortization of deferred financing costs		1.2			3.8
Bad debt expense		1.1			0.7
Proceeds from patronage revolvement received		4.9			2.1
Non-cash patronage income		(0.8	)		(0.7	)
Deferred income tax expense		12.3			1.0
Decrease in other assets		8.4			7.7
Increase in other liabilities		0.2			2.9
Restructuring and impairment charges		4.3			1.0
Gain on divestiture of business		(8.0	)		—
Gain on sale of investment		(7.8	)		(0.8	)
Equity in earnings of affiliated companies		(29.7	)		(43.8	)
Minority interests		0.6			0.8
Other		0.9			0.8
Changes in current assets and liabilities, net of divestitures		(54.6	)		51.2
Net cash provided by operating activities	$	41.4		$	124.7

     Net cash provided by operating activities decreased $83.3 million in the six months ended June 30, 2006 compared to 2005. The change was primarily due to working capital requirements.

Investing Activities

	For the Six Months Ended
	June 30,
	2006			2005
	(in millions)
Additions to property, plant and equipment	$	(33.6	)	$	(26.0	)
Acquisitions		(84.2	)		(30.1	)
Payments for investments		(2.5	)		(2.9	)
Net proceeds from divestiture of business		28.7			2.6
Proceeds from sale of investments		7.8			1.0
Proceeds from sale of property, plant and equipment		0.8			2.8
Dividends from investments in affiliated companies		3.2			4.0
Other		(1.1	)		0.1
Net cash used by investing activities	$	(80.9	)	$	(48.5	)

     Net cash used by investing activities increased $32.4 million in the six months ended June 30, 2006 compared to the same period in 2005. Acquisition payments in the six months ended June 30, 2006 totaled $84.2 million which consisted of a $71.0 million payment for the remaining 42.5% minority interest in MoArk and $13.2 million to acquire the remaining 49.9% minority interest of Penny-Newman Milling LLC, a Feed subsidiary. In the six months ended June 30, 2005, a $30.1 million final payment was made to the former owners of the Madison Dairy Produce Company business which was acquired by Dairy Foods in 2000. The acquisition payments in 2006 were offset by $28.7 million cash proceeds received during the six months ended June 30, 2006 for the sale of the liquid egg products operations.

     We expect total investment spending to be approximately $194 million in 2006. The capital expenditures component is expected to be approximately $105 million. Of the capital expenditures, we currently estimate that a minimum range of $35 million to $45 million of ongoing maintenance expenditures will be required.

36

Financing Activities

	For the Six Months Ended
	June 30,
	2006			2005
	(in millions)
Decrease in short-term debt	$	(22.0	)	$	(6.7	)
Proceeds from issuance of long-term debt		1.9			1.5
Principal payments on long-term debt and capital lease obligations		(33.8	)		(128.6	)
Payments for redemption of member equities		(42.9	)		(33.7	)
Other		(0.5	)		(0.4	)
Net cash used by financing activities	$	(97.3	)	$	(167.9	)

     Net cash used by financing activities decreased $70.6 million for the six months ended June 30, 2006 compared to the six months ended June 30, 2005. The decline in cash used for financing activities was mainly due to $118.4 million of prepayments on the Term B loan made during the six months ended June 30, 2005, which was fully paid in 2005.

     In 2006, we expect our total cash payments to members to be approximately $79 million for revolvement, cash patronage and estates and age retirements, compared to $69 million in 2005.

     In 2006, we anticipate our total cash payments for interest on our short-term and long-term debt obligations to be approximately $65 million compared to $78 million in 2005.

Principal Debt Facilities

     Under our revolving credit facility, lenders have committed to make advances and issue letters of credit until January 2007 in an aggregate amount not to exceed $200 million, subject to a borrowing base limitation. Borrowings under the revolving credit facility bear interest at a variable rate (either LIBOR or an Alternative Base Rate) plus an applicable margin. The margin is dependent upon the Company’s leverage ratio. Based on our leverage ratio at the end of 2005, the LIBOR margin for the revolving credit facility is 200 basis points. Spreads for the Alternative Base Rate are 100 basis points lower than the applicable LIBOR spreads. LIBOR may be set for one, two, three or six month periods at our election. As a result of the Company’s January 2006 purchase of the minority interest in MoArk, LLC, the revolving credit facility was amended to allow for the continued treatment of MoArk as an unrestricted subsidiary under this agreement. There was no outstanding balance on our revolving credit facility at June 30, 2006.

     In December 2003, we issued $175 million of senior secured notes that mature on December 15, 2010. Proceeds from the issuance were used to make prepayments on the Company’s term loans. These notes bear interest at a fixed rate of 9.00% per annum, payable on June 15 and December 15 each year. The notes are callable beginning in December 2007 at a redemption price of 104.5%. In December 2008, the redemption price is 102.25%. The notes are callable at par beginning in December 2009. The balance outstanding for these notes at June 30, 2006 was $175 million.

     In November 2001, we issued $350 million of senior unsecured notes that mature on November 15, 2011. Proceeds from the issuance were used to refinance the Company in connection with the acquisition of Purina Mills. These notes bear interest at a fixed rate of 8.75% per annum, payable on May 15 and November 15 each year. The notes are callable beginning in November 2006 at a redemption price of 104.375%. In November 2007 and 2008, the redemption price is 102.917% and 101.458%, respectively. The notes are callable at par beginning in November 2009. In September 2005, $3.8 million of these notes were tendered in accordance with the terms of the indentures of the notes which required a par offer in August 2005 as a result of receiving cash proceeds from the sale of our investment in CF Industries. In November 2005, we completed a “modified Dutch Auction” cash tender for these notes and purchased $149.7 million in aggregate principal amount of the notes at a purchase price of $1,070 per $1,000 principal amount. The balance outstanding for these notes at June 30, 2006 was $196.5 million.

     We use interest rate swap agreements, designated as fair value hedges, to help manage exposure to interest rate fluctuations. The objective of the swaps is to maintain an appropriate balance between fixed and floating interest rate exposures. These swaps mirror the terms of the 8.75% senior unsecured notes and effectively convert $102 million of such notes from a fixed 8.75% rate to an effective rate of LIBOR plus 385 basis points. At June 30, 2006, the aggregate notional amount of the swaps was $102 million. The swap fair value was a liability of $4.7 million at June 30, 2006, which is reflected in employee benefits and other liabilities in our consolidated balance sheet, and the fair value adjustment on the hedged debt was included in long-term debt in the consolidated balance sheet at June 30, 2006.

     In 1998, Capital Securities in an amount of $200 million were issued by our trust subsidiary, and the net proceeds were used to acquire a junior subordinated note of Land O’Lakes. The holders of the securities are entitled to receive dividends at an annual rate of 7.45% until the securities mature in 2028. The payment terms of the Capital Securities correspond to the payment terms of the junior subordinated

37

debentures, which are the sole asset of the trust subsidiary. Interest payments on the debentures can be deferred for up to five years, and the obligations under the debentures are junior to all of our debt. At June 30, 2006, the outstanding balance of Capital Securities was $190.7 million.

     In May of 2006 the Company’s MoArk subsidiary entered into a $40 million revolving credit facility to replace its prior facility which expired on May 31, 2006. The $40 million facility is subject to a borrowing base limitation and terminates June 1, 2009. During the six months ended June 30, 2006 MoArk repaid $46.4 million in debt obligations under its revolving credit facility and various term notes and loans due, in part, from proceeds received from the disposal of assets related to its liquid egg operations. No borrowings under the revolving credit facility were outstanding at June 30, 2006 and borrowings of $19.0 million were outstanding at December 31, 2005, under MoArk’s previous revolving credit facility. MoArk had outstanding notes and term loans of $31.7 million and $59.1 million as of June 30, 2006 and December 31, 2005, respectively. The revolving credit facility is subject to certain debt covenants which were all satisfied as of June 30, 2006.

     The credit agreements relating to the Company’s revolving credit facility and the indentures relating to the 8.75% senior unsecured notes and the 9.00% senior secured notes impose certain restrictions on us, including restrictions on our ability to incur indebtedness, make payments to members, make investments, grant liens, sell our assets and engage in certain other activities. In addition, the credit agreement relating to the revolving credit facility requires us to maintain an interest coverage ratio and a leverage ratio. Land O’Lakes debt covenants were all satisfied as of June 30, 2006.

     Indebtedness under the revolving credit facility is secured by substantially all of the material assets of Land O’Lakes and its wholly-owned domestic subsidiaries (other than MoArk, LLC, LOL Finance Co., LOLFC, LLC (a subsidiary of LOL Finance Co.) and LOL SPV, LLC,) including real and personal property, inventory, accounts receivable (other than those receivables which have been sold in connection with our receivables securitization), intellectual property and other intangibles. Indebtedness under the revolving credit facility is also guaranteed by our wholly-owned domestic subsidiaries (other than MoArk, LLC, LOL Finance Co., LOLFC, LLC, and LOL SPV, LLC). The 9.00% senior notes are secured by a second lien on essentially all of the assets which secure the revolving credit agreement, and are guaranteed by the same entities. The 8.75% senior notes are unsecured but are guaranteed by the same entities that guarantee the obligations under the revolving credit facility.

Off-Balance Sheet Arrangements

     In December 2001, we established a $100 million (expanded to $200 million in 2004) receivables purchase facility with CoBank, ACB (“CoBank”) in an effort to reduce our overall financing costs. A wholly-owned, unconsolidated special purpose entity (“SPE”) was established for the limited purpose of purchasing and obtaining financing for these receivables. Under this facility, Land O’Lakes, Land O’Lakes Purina Feed and Purina Mills sell Feed, Dairy Foods, Seed and certain other receivables to LOL SPV, LLC, a wholly owned subsidiary of Land O’Lakes Purina Feed. Transfers of receivables from the Company to the SPE are structured as sales; accordingly, the receivables transferred to the SPE are not reflected in our consolidated balance sheets. The Company sells the receivables to the SPE in exchange for a note equal to the present value of the receivables, adjusted for risk of loss. Amounts owing on the note are paid back to the Company upon collection of the receivables by the SPE or when the SPE enters into borrowings with CoBank. The Company is subject to credit risk related to the repayment of the notes receivable with the SPE, which, in turn, is dependent upon the collection of the SPE’s receivables pool. Accordingly, the Company has retained reserves for estimated losses. The Company expects no significant gains or losses from the facility. The facility with CoBank expires in January of 2007 and the effective cost of the facility is LIBOR plus 137.5 basis points. At June 30, 2006, the SPE had $45 million of borrowings outstanding with CoBank which is not reflected in the Company’s consolidated balance sheet, and $155 million was available under this facility. At June 30, 2005 the SPE had $30 million of borrowings outstanding with CoBank under this facility and no borrowings were outstanding at December 31, 2005.

Capital Leases

     MoArk, a consolidated subsidiary of Land O’Lakes, had capital leases at June 30, 2006 of $8.8 million for land, buildings, machinery and equipment at various locations. The interest rates on the capital leases range from 5.22% to 8.95% with the weighted average rate of 7.0%. The weighted average term until maturity is two-and-a-half years. Land O’Lakes does not provide any guarantees or support for MoArk’s capital leases.

Recent Accounting Pronouncements

     In July 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes — An Interpretation of FASB Statement No. 109.” FIN 48 prescribes a recognition threshold and measurement attribute for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the company has taken or expects to take on a tax return. FIN 48 will require that the financial statements reflect expected future tax consequences of such positions presuming the taxing authorities’ full knowledge of the position and all relevant facts, but without considering time values. FIN 48 is effective for annual periods beginning after December 15, 2006. The Company has not completed its evaluation of the impact of adopting FIN 48.

38

     In June 2006, the EITF reached a consensus on EITF Issue No. 06-03,How Taxes Collected from Customers and Remitted to Governmental Authorities Should Be Presented in the Income Statement (That Is, Gross versus Net Presentation)(“EITF 06-03”). EITF 06-03 provides that the presentation of taxes assessed by a governmental authority that is directly imposed on a revenue-producing transaction between a seller and a customer on either a gross basis (included in revenues and costs) or on a net basis (excluded from revenues) is an accounting policy decision that should be disclosed. The provisions of EITF 06-03 become effective as of January 1, 2007. The Company is currently evaluating the impact of adopting EITF 06-03 on the consolidated financial statements.

     In March 2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial Assets, an amendment of FASB Statements No. 140” (“SFAS 156”). SFAS 156 requires that servicing assets and servicing liabilities be recognized at fair value, if practicable, when the Company enters into a servicing agreement. This new standard will be effective January 1, 2007. The Company does not expect the adoption of SFAS 156 to have a material impact on its consolidated financial position, results of operations or cash flows.

     In December 2004, the FASB issued Statement No. 123(R), “Share-Based Payment.” This Statement eliminated the alternative of accounting for share-based compensation under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” The revised standard requires the recognition of the fair value of share-based compensation in net earnings in the period the employee becomes eligible for the award. This Statement is effective January 1, 2006 and did not have a material impact on the Company’s consolidated financial statements. See note 11 in Notes to Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further discussion of this Statement.

     In November 2004, the FASB issued Statement No. 151, “Inventory Costs.” This Statement requires that abnormal idle facility expense, spoilage, freight and handling costs be recognized as current-period charges. In addition, Statement No. 151 requires that allocation of fixed production overhead costs to inventories be based on the normal capacity of the production facility. This statement requires a prospective adoption after January 1, 2006 and is not material to the Company’s consolidated financial statements.

Critical Accounting Policies

     Our significant accounting policies are described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2005. The accounting policies used in preparing our interim 2006 consolidated financial statements are the same as those described in our Form 10-K except that in the six months ended June 30, 2006, we adopted SFAS No. 123(R), “Share-Based Payment”, and SFAS No. 151, “Inventory Costs.” Both of these Statements are effective January 1, 2006 and did not have a material impact on the Company’s consolidated financial statements.

Forward-Looking Statements

     The information presented in this Form 10-Q under the headings “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” contain forward-looking statements. The forward-looking statements are based on the beliefs of our management as well as on assumptions made by and information currently available to us at the time the statements were made. When used in the Form 10-Q, the words “anticipate”, “believe”, “estimate”, “expect”, “may”, “will”, “could”, “should”, “seeks”, “pro forma” and “intend” and similar expressions, as they relate to us are intended to identify the forward-looking statements. All forward-looking statements attributable to persons acting on our behalf or us are expressly qualified in their entirety by the cautionary statements set forth here and in “Part II. Other Information Item 1A. Risk Factors” on page 41. We undertake no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or for any other reason. Although we believe that these statements are reasonable, you should be aware that actual results could differ materially from those projected by the forward-looking statements. For a discussion of factors that could cause actual results to differ materially from the anticipated results or other expectations expressed in our forward-looking statements, see the discussion of risk factors set forth in “Part II. Other Information Item 1A — Risk Factors” on pages 41. Because actual results may differ, readers are cautioned not to place undue reliance on forward-looking statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     For the six months ended June 30, 2006 the Company did not experience significant changes in market risk exposures that materially affect the quantitative and qualitative disclosures presented in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

39

     We are exposed to market risk from fluctuations in interest rates. We manage our exposure to interest rate fluctuations through the use of interest rate swaps. The objective of the swaps is to maintain an appropriate balance between fixed and floating rate exposures. As of June 30, 2006, we had three interest rate swaps relating to our 8.75% senior unsecured notes. These swaps mirror the terms of the 8.75% notes and effectively convert $102 million of such notes from a fixed 8.75% rate to an effective rate of LIBOR plus 385 basis points. The interest rate swaps are designated as fair value hedges of our fixed rate debt. As critical terms of the swaps and the debt are the same, the swap is assumed to be 100 percent effective and the fair value gains or losses on the swaps are completely offset by the fair value adjustment to the underlying debt. At June 30, 2006, the notional amount of the swaps was $102 million in aggregate. The fair value of the interest rate swaps was a liability for $4.7 million at June 30, 2006, which is reflected in employee benefits and other liabilities in our consolidated balance sheet, and the fair value adjustment on the hedged debt was included in long-term debt in our consolidated balance sheet at June 30, 2006.

Item 4. Controls and Procedures

          (a) Evaluation of disclosure controls and procedures

     As of the end of the period covered by this report, the Company conducted an evaluation, under the supervision and with the participation of the principal executive officer and principal financial officer, of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.

          (b) Changes in internal control

     There were no changes in our internal control over financial reporting during the most recently completed fiscal quarter that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

Part II. Other Information

Item 1. Legal Proceedings

     We are currently and from time to time involved in litigation and environmental claims incidental to the conduct of business. The damages claimed in some of these cases are substantial. Although the amount of liability that may result from these matters cannot be ascertained, we do not currently believe that, in the aggregate, they will result in liabilities material to the Company’s consolidated financial condition, future results of operations or cash flows.

     On July 7, 2006, the Company received a Preliminary Adverse Determination from the Internal Revenue Service (IRS) related to the tax-exempt status of certain bonds issued by the California Pollution Control Financing Authority, the proceeds of which were used by Cheese & Protein International LLC to install solid waste disposal equipment. These bonds, referred to as the Tax-Exempt Variable Rate Demand Solid Waste Disposal Revenue Bonds (Cheese & Protein International LLC Project, Series 2001) were issued April 1, 2001 in the aggregate principal amount of $10 million. The Company believes that the bond proceeds were used to finance qualifying equipment and that the interest related thereto should qualify for tax-exempt treatment. The Company intends to challenge the position taken by the IRS, but does not believe that an unfavorable final ruling would have a material effect on the Company’s operations.

     On December 30, 2005, an explosion and fire occurred at our Statesville, North Carolina feed manufacturing facility. The explosion and fire remain under investigation. We have been cooperating with the North Carolina Department of Labor, Division of Occupational Safety and Health (NCOSHA) and will continue to do so until a resolution has been reached.

40

     On February 24, 2004, Cache La Poudre Feeds, LLC (“Cache”) filed a lawsuit in the United States District Court for the District of Colorado against the Company, Land O’Lakes Farmland Feed LLC and certain named individuals claiming trademark infringement with respect to certain animal feed sales under the Profile trade name. Cache seeks damages of at least $132.8 million, which, it claims, is the amount the named entities generated in gains, profits and advantages from using the Profile trade name. In response to Cache’s complaint, the Company denied any wrongdoing and pursued certain counterclaims against Cache relating to trademark infringement, and other claims against Cache for, among other things, defamation and libel. In addition, the Company believes that Cache’s calculation of the Company’s gains, profits and advantages allegedly generated from the use of the Profile trade name are grossly overstated. The Company believes that sales revenue generated from the sale of products carrying the Profile trade name was immaterial. Although the amount of any loss that may result from this matter cannot be ascertained with certainty, management does not believe that it will result in a loss material to the Company’s consolidated financial condition, future results of operations or cash flow. The trial is scheduled for June 2007.

     In 2003, several lawsuits were filed against the Company by Ohio alpaca producers in which it was alleged that the Company manufactured and sold animal feed that caused the death of, or damage to, certain of the producers’ alpacas. The two remaining lawsuits are scheduled to go to trial in 2006.

     In a letter dated January 18, 2001, the Company was identified by the United States Environmental Protection Agency (“EPA”) as a potentially responsible party for cleanup costs in connection with hazardous substances and wastes at the Hudson Refinery Superfund Site in Cushing, Oklahoma. The letter invited the Company to enter into negotiations with the EPA for the performance of a remedial investigation and feasibility study at the site and also demanded that the Company reimburse the EPA approximately $8.9 million for remediation expenses already incurred at the site. In March 2001, the Company responded to the EPA denying any responsibility. No further communication has been received from the EPA.

Item 1A. Risk Factors

     In evaluating all forward-looking statements, you should specifically consider various factors that may cause actual results to vary from those contained in the forward-looking statements. Please refer to our Annual Report on Form 10-K for the year ended December 31, 2005, as filed with the U.S. Securities and Exchange Commission and available at www.sec.gov, for additional information regarding risk factors.

Item 5. Other Information

     On August 11, 2006, Land O’Lakes, Inc. announced that it has mandated JPMorgan Chase Bank to arrange an amended and restated $225 million, five-year secured revolving credit facility. This facility would replace the existing $200 million revolving credit facility arranged in 2001, which terminates in January 2007. In addition, the Company has mandated CoBank ACB to arrange an amended and restated $200 million, five-year receivables securitization facility. This facility would replace the existing $200 million securitization facility arranged in 2001, which terminates in January 2007. Both transactions are expected to close on or before August 31, 2006 subject to successful negotiation of definitive documentation.

41

Item 6. Exhibits

          (a) Exhibits

EXHIBIT	DESCRIPTION
3.1	Restated Articles of Incorporation of Land O’Lakes, Inc., as amended, August 1998. (1)
3.2	By-Laws of Land O’Lakes Inc., as amended, February 2003. (1)
10.1	Asset Sale and Purchase Agreement dated May 23, 2006 between Moark, LLC, Cutler at Abbeville, L.L.C., Hi Point Industries, LLC, L & W Egg Products, Inc., Norco Ranch, Inc., and Moark Egg Corporation (together, the Seller) and Golden Oval Eggs, LLC and GOECA, LP (together, the Buyer)*
31.1	Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
31.2	Certification Pursuant to 15 U.S.C. Section 7241, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
32.1	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
32.2	Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*

(1)	Incorporated by reference to an exhibit to the registrant’s Registration Statement on Form S-4 filed April 28, 2004.
*	Filed electronically herewith

42

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on the 14th day of August, 2006.

LAND O’LAKES, INC.
By	/s/ Daniel Knutson
	Daniel E. Knutson Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer)

43