LAND O'LAKES, INC.
NEWS RELEASE
FOR MORE INFORMATION, CONTACT:
Lydia Botham 651-481-2123
David Karpinski 651-481-2360
LAND O'LAKES REPORTS FIRST QUARTER RESULTS
April 24, 2003 (Arden Hills, Minn.) ... Land O'Lakes officials today outlined
the company's first quarter financial results, while also commenting on progress
against several strategic initiatives. The company reported sales of $1.45
billion and a net loss of $400,000 for the quarter, as compared to sales of
$1.52 billion and a net loss of $1.0 million for the first quarter of 2002.
EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and other
items) for the quarter was $40.7 million versus $43.9 million for the first
quarter of 2002.
STRATEGIC INITIATIVES
Officials of the national dairy and agricultural cooperative indicated the
quarter saw the company make progress in the areas of portfolio management,
paying down debt and growing its branded businesses.
In portfolio management, Land O'Lakes reported progress in reducing its exposure
to market risk in swine operations, the ongoing restructuring of its Upper
Midwest dairy infrastructure and movement toward completion of Cheese and
Protein International (CPI), its West Coast cheese and whey manufacturing
facility, the first stage of which came on line last May.
In relation to paying down debt, Land O'Lakes reported $61 million in first
quarter payments on term debt and an improvement in its long-term debt to
capital ratio to 50.8 percent, as compared to 55.4 percent at the end of the
first quarter of 2002. An additional $11 million of term debt was paid down in
April.
The company's liquidity was also strong, despite seasonal increases in working
capital needs. Land O'Lakes reported $34 million in cash balances and more than
$200 million of unused borrowing capacity at the end of the quarter. In
addition, the company is in compliance with all its financing covenants.
Highlights in the area of branded business growth included the upcoming launch
of two new LAND O LAKES-branded butter products, as well as positive
performance and growth in CROPLAN GENETICS-branded seed, the AgriSolutions
brand of crop protection products, LAND O LAKES-branded animal milk replacers;
and Purina brand horse feed.
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Land O'Lakes First Quarter - Page 2 of 4
SALES/EARNINGS
The company attributed the decline in sales and the net loss for the quarter to
the shift in traditional Easter holiday Dairy Foods volume and margins from the
first quarter to the second; slumping commodity markets; the impact of current
economic conditions on consumer and agricultural-producer purchasing trends
(leading to reduced volumes); the ongoing dairy processing capacity/milk supply
imbalance in the Upper Midwest; and costs related to the start-up and completion
of CPI.
DAIRY FOODS
Land O'Lakes reported a pretax loss of $19.6 million in Dairy Foods for the
quarter, as compared to a $3.8 million loss in the first quarter of 2002. Those
results included $320,000 in pretax earnings in its Value Added operations and a
$19.9 million pretax loss in its Dairy Foods Industrial operations.
Outlining Value Added results, company officials noted that the timing of the
Easter holiday affected first quarter volumes and earnings. First quarter
volumes for branded butter and spreads were down 13 percent from the first
quarter of 2002, but Land O'Lakes expects to make up that shortfall in April.
Other Value Added highlights included a 2.3 percent increase in cheese volume,
driven by positive performance in the Foodservice and Deli areas, partly offset
by declines in retail cheese sales.
Commenting on the company's Dairy Foods Industrial (manufacturing) business,
Land O'Lakes officials noted that commodity prices were down across the board
versus the first quarter of 2002. (Statistically, butter was down 16 percent,
cheese down 11 percent, nonfat dry milk down 11 percent and whey down 30
percent).
In addition, the company faced costs related to the restructuring of its Upper
Midwest dairy manufacturing assets and the start-up of CPI. Company officials
reported continued progress in Industrial restructuring, including the closing
of its Perham, Minnesota, whey operations; the shut down of its Gustine,
California, cheese manufacturing facility; and the planned closure, later this
year, of its Volga, South Dakota, cheese plant. The company also reported
progress in the CPI start-up, with 87 percent customer product approval, and
affirmed its intention to move forward with the next stage of the project - a
planned capacity expansion which will reduce per unit costs and improve
profitability.
FEED
Land O'Lakes reported $15.1 million in pretax earnings in Feed for the quarter,
up from $3.5 million for the first quarter of 2002. The earnings increase was
attributed to a combination of $8.9 million in litigation settlement proceeds,
the continued capturing of synergies from the late 2001 acquisition of Purina
Mills, additional internal cost-reduction efforts, and strength in branded
lifestyle feeds and milk replacers.
Livestock/commodity feed volumes were down 12 percent versus the first quarter
of 2002 due, in part, to depressed dairy and swine markets, which resulted in
herd liquidations and reductions.
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Land O'Lakes First Quarter - Page 3 of 4
A highlight of Feed's performance was the success of the company's innovative
Cow's Match(TM) Calf Growth Formula, which has now been rolled out nationally
and accounts for 17 percent of LAND O LAKES milk replacer sales.
SWINE
Swine markets remained depressed, with prices down 8.5 percent from the first
quarter of 2002. Land O'Lakes reported a pretax loss of $4.1 million for the
quarter in Swine, as compared to a loss of $521,000 for the first quarter of
2002.
The company reported progress in its efforts to reduce capital usage and
decrease its exposure to market risk in swine, through efforts to reposition
underperforming assets and phase out higher-risk swine programs.
During the quarter, the company sold its interest in a Pennsylvania swine joint
venture (Harmony Farms), as well as specific swine assets in Oklahoma. In
addition, volumes in higher-risk swine programs were down 12.5 percent versus
first quarter 2002, while volume in the company's profitable Aligned Swine
program was up 6.8 percent. The company expects to continue efforts to
reposition its swine operations, as additional swine contracts expire over the
course of 2003.
LAYERS/EGGS
The company participates in the layers/eggs industry through its MoArk joint
venture. The quarter saw a moderate rebound in egg markets, and Land O'Lakes
reported $906,000 in pretax earnings for the quarter versus a $1.5 million loss
in layers/eggs in the first quarter of 2002.
One of the highlights in this business was the continued growth of LAND O
LAKES-branded eggs. Sales for the quarter averaged more than 3,000 dozen weekly,
nearly double the first quarter of 2002. Overall, MoArk volume was up 3.6
percent over the first quarter of 2002 - to 202 million dozen eggs for the
quarter.
SEED
Seed earnings continued strong for the quarter at $10.6 million, as compared to
$11.1 million for the first quarter of 2002. These results were driven, in part,
by the positive performance of CROPLAN GENETICS-branded seed.
During the quarter, the company also launched sales of a corn-rootworm
(resistant) hybrid, following Environmental Protection Agency approval.
AGRONOMY
The company reported an $8.8 million pretax loss in Agronomy for the quarter, an
improvement over the $15.4 million loss for the first quarter of 2002. The
company participates in Agronomy through its 50 percent ownership in the
Agriliance joint venture. First quarter losses are common in this segment, as
the primary selling season does not start until spring. Land O'Lakes anticipates
a cash dividend from Agriliance in 2003.
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Land O'Lakes First Quarter - Page 4 of 4
The national food and agricultural cooperative will discuss its first quarter
results in a conference call scheduled for 1:00 p.m., Eastern Time, April 24,
2003. The dial-in numbers are USA - 1-888-566-5774; International -
1-415-228-4835. The passcode is "Land O'Lakes." A replay of the conference call
will be available through May 1, 2003, at USA - 1-800-677-8851; International -
1-402-998-1646. The replay access ID is #3824. Additional materials will be
available on the company's website (www.landolakesinc.com) for an extended
period of time.
Land O'Lakes is a national, farmer-owned food and agricultural cooperative, with
annual sales of approximately $6 billion. Land O'Lakes does business in all 50
states and more than 50 countries. It is a leading marketer of a full line of
dairy-based consumer, foodservice and food ingredient products across the United
States; serves its international customers with a variety of food and animal
feed ingredients; and provides farmers and local cooperatives with an extensive
line of agricultural supplies (feed, seed, crop nutrients and crop protection
products) and services.
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Note: Attachments follow.
CAUTIONARY STATEMENT
This press release contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 that are based on management's
current expectations and assumptions. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the potential results discussed in the forward-looking
statements. In particular, management's predictions about realizing delayed
Easter sales in the second quarter may be affected by, among other things,
changes in consumer preference and the competitive environment. In addition, the
company's ability to reduce capital usage and market risk in its Swine segment
could be affected by, among other things, commodity price fluctuations, the
competitive environment in the industry and contractual obligations. Further,
management's expectations that the company will receive a dividend from
Agriliance in 2003 may be affected by, among other things, the competitive
environment in which Agriliance competes, Agriliance's dependence on its
suppliers and the discretion of Agriliance's board members to declare a
dividend. Management's expectations regarding improved profitability at Cheese
and Protein International may be affected by, among other things, actual
construction costs incurred and construction time required, and the timing and
levels of customer acceptance. The company undertakes no obligations to publicly
revise any forward-looking statements to reflect future events or circumstances.
For a discussion of additional factors that may materially affect management's
estimates and predictions, please view Land O'Lakes Annual Report filed on Form
10-K for the year ended December 31, 2002, which can be found on the Securities
and Exchange Commission web site (www.sec.gov) and the company's website
(www.landolakesinc.com).
LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
MARCH 31, DECEMBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------
(Unaudited)
ASSETS
Current assets:
Cash and short-term investments $ 34,212 $ 64,327
Receivables, net 504,340 567,584
Receivable from legal settlement - 96,707
Inventories 495,953 446,386
Prepaid expenses 97,215 189,246
Other current assets 13,689 13,878
- ------------------------------------------------------------------------------------------------------------
Total current assets 1,145,409 1,378,128
Investments 549,381 545,592
Property, plant and equipment, net 576,705 579,860
Property under capital lease 103,511 105,736
Goodwill, net 317,905 323,413
Other intangibles 102,472 101,770
Other assets 210,980 211,823
- ------------------------------------------------------------------------------------------------------------
Total assets $ 3,006,363 $ 3,246,322
============================================================================================================
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations $ 45,825 $ 37,829
Current portion of long-term debt 81,965 104,563
Current portion of obligation under capital lease 8,867 108,279
Accounts payable 509,781 701,786
Accrued expenses 202,092 204,629
Patronage refunds and other member equities payable 7,128 12,388
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 855,658 1,169,474
Long-term debt 988,872 1,007,308
Obligation under capital lease 97,005 -
Employee benefits and other liabilities 106,532 104,340
Minority interests 57,662 53,687
Equities:
Capital stock 2,169 2,190
Member equities 863,546 873,659
Retained earnings 34,919 35,664
- ------------------------------------------------------------------------------------------------------------
Total equities 900,634 911,513
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------------
Total liabilities and equities $ 3,006,363 $ 3,246,322
============================================================================================================
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2003 2002
- ----------------------------------------------------- -------------- --------------
Net sales $ 1,454,452 $ 1,524,196
Cost of sales 1,328,903 1,376,221
- ----------------------------------------------------- -------------- --------------
Gross profit 125,549 147,975
Selling, general and administration 119,969 127,521
Restructuring and impairment charges 1,092 3,435
- ----------------------------------------------------- -------------- --------------
Earnings from operations 4,488 17,019
Interest expense, net 17,385 17,547
Gain on legal settlements (8,889) -
Gain on sale of intangible - (4,184)
Gain on sale of investment (500) -
Equity in loss of affiliated companies 983 9,861
Minority interest in earnings of subsidiaries 1,489 934
- ----------------------------------------------------- -------------- --------------
Loss before income taxes (5,980) (7,139)
Income tax benefit (5,609) (6,163)
- ----------------------------------------------------- -------------- --------------
Net loss $ (371) $ (976)
===================================================== ============== ==============
EBITDA (1) $ 40,656 $ 43,929
Consolidated Coverage Ratio (LTM) (2) 4.5 3.3
(1) EBITDA as defined in the bond indenture.
(2) Consolidated coverage ratio is calculated using EBITDA and interest expense
for the last twelve months adjusted for acquisitions and divestitures as defined
in the bond indenture and is required to be greater than 2.5.
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
----------------------------------
2003 2002
-------------- ----------------
Cash flows from operating activities:
Net loss $ (371) $ (976)
Adjustments to reconcile net loss to net cash
provided (used) by operating activities:
Depreciation and amortization 26,642 27,379
Amortization of deferred financing charges 913 125
Bad debt expense 691 253
Proceeds from patronage revolvement received 10 127
Non-cash patronage income (209) (923)
Receivable from legal settlement 96,707 -
Decrease (increase) in other assets 1,709 (824)
Increase (decrease) in other liabilities 2,096 (1,208)
Restructuring and impairment charges 1,092 3,435
Equity in loss of affiliated companies 983 9,862
Minority interests 1,489 934
Other (1,229) (4,944)
Changes in current assets and liabilities, net of acquisitions and divestitures:
Receivables 62,553 22,255
Inventories (47,777) (42,880)
Other current assets 92,304 77,987
Accounts payable (192,201) (172,389)
Accrued expenses (6,537) (22,197)
--------- ---------
Net cash provided (used) by operating activities 38,865 (103,984)
Cash flows from investing activities:
Additions to property, plant and equipment (16,120) (17,674)
Payments for investments (8,800) (3,595)
Proceeds from sale of investments 3,000 21,009
Proceeds from sale of property, plant and equipment 1,562 6,622
Dividends from investments in affiliated companies 1,737 3,084
Other 2,581 37
--------- ---------
Net cash (used) provided by investing activities (16,040) 9,483
Cash flows from financing activities:
Increase in short-term debt 24,768 37,877
Proceeds from issuance of long-term debt 425 1,688
Payments on principal of long-term debt (61,934) (41,734)
Payments on principal of capital lease obligation (2,217) -
Payments for redemption of member equities (15,331) (20,060)
Other 1,349 362
--------- ---------
Net cash used by financing activities (52,940) (21,867)
--------- ---------
Net decrease in cash (30,115) (116,368)
Cash and short-term investments at beginning of period 64,327 130,169
--------- ---------
Cash and short-term investments at end of period $ 34,212 $ 13,801
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LAND O'LAKES, INC.
EBITDA
($ IN THOUSANDS)
(UNAUDITED)
TWELVE
THREE MONTHS ENDED MONTHS ENDED
MARCH 31, MARCH 31,
----------------------------- ------------
2003 2002 2003
- ------------------------------------------------------------------------------ ----------- ----------- -----------
EBITDA:
EARNINGS (LOSS) FROM OPERATIONS $ 4,488 $ 17,019 $ (28,908)
Non-cash patronage income (357) (796) 141
Joint venture cash distributions 1,808 3,084 26,282
Depreciation and amortization 26,642 27,504 102,837
Non-cash impairment charges 92 729 17,602
Gain on legal settlements 8,889 - 164,433
Severance costs incurred - PMI acquisition - 212 8,491
Unrealized hedging (gain) loss (2,771) (5,063) 1,153
Unrestricted entities - EBITDA 1,865 1,240 19,176
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BOND EBITDA $ 40,656 $ 43,929 $ 311,207
RECONCILIATION TO CASH FLOWS FROM OPERATING ACTIVITIES: (1)
Income tax benefit 5,609 6,163 1,648
Bad debt expense 691 253 5,532
Deferred income tax benefit - - (5,050)
Decrease (increase) in other assets 1,709 (824) (83,310)
Increase (decrease) in other liabilities 2,096 (1,208) 1,003
Other (571) (5,155) 4,510
Changes in working capital 5,049 (137,224) 37,434
Interest expense (excluding amortization interest) (16,472) (17,547) (64,708)
Gain on sale of intangibles - 4,184 -
Joint venture cash distributions (1,808) (3,084) (26,282)
Restructuring charges 1,000 2,706 2,764
Unrealized hedging gain (loss) 2,771 5,063 (1,153)
Unrestricted entities - EBITDA (1,865) (1,240) (19,176)
- ------------------------------------------------------------------------------ ----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES $ 38,865 $ (103,984) $ 164,419
============================================================================== =========== =========== ===========
RECONCILIATION OF BOND EBITDA TO BANK EBITDA
BOND EBITDA $ 40,656 $ 43,929 $ 311,207
Finance Co. Restricted for Bank (287) (677) (903)
Net legal settlements received (accrual) 95,867 - (3,841)
Restructuring charges less cash spent (195) (817) 3,036
Gain on divestiture of businesses - - 4,992
Purina related - onetime charges - 6,572 8,301
Non-cash one-time items / reserves (10) - 3,353
Gain on sale of assets 500 - 6,107
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BANK EBITDA $ 136,531 $ 49,007 $ 332,252
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BANK COVENANTS
Interest expense coverage ratio - required > 2.5 4.78 x
-
Leverage ratio - required < 4.25 2.74 x
-
Consolidated cash interest expense (2)
INTEREST EXPENSE, NET $ 68,684
Interest earned 5,871
Interest on capital lease obligation 847
Change in accrued interest 1,181
Unrestricted subs interest expense (1,857)
Non-cash amortization financing costs (5,278)
-----------
Total bank consolidated cash interest expense $ 69,448
===========
Consolidated Indebtedness (3)
TOTAL INDEBTEDNESS (INCLUDING CAPITAL LEASE AND CAPITAL SECURITIES) $ 1,222,534
Less capital securities (190,700)
Less CPI capital lease (105,872)
Less CPI bonds (15,365)
Less other unrestricted subs debt (1,369)
-----------
Total bank consolidated indedtedness $ 909,228
===========
(1) As required by the SEC's recently issued Regulation G, a reconciliation of
EBITDA, a non GAAP liquidiy measure, with the most directly comparable GAAP
liquidity measure, cash flow from operating activities follows.
(2) Dividends on capital securities are included in interest expense.
(3) Capital securities and external debt of unrestricted subsidiaries are
excluded from the bank indebtedness calculation as per the Credit Agreement.