LAND O'LAKES
NEWS RELEASE
FOR MORE INFORMATION CONTACT:
Lydia Botham 651-481-2123
David Karpinski 651-481-2360
LAND O'LAKES REPORTS $84 MILLION IN 2003 NET EARNINGS
COMPANY OFFICIALS ALSO OUTLINE PROGRESS AGAINST STRATEGIC INITIATIVES
February 2, 2004 (Arden Hills, MN) ... Land O'Lakes, Inc., today reported 2003
net earnings of $83.5 million, as compared to $98.9 million for 2002. Company
officials indicated that 2002 earnings had been bolstered by significant gains
from vitamin litigation settlements and that, when those and other one-time
gains and losses were factored out, earnings from operations were substantially
improved. Company officials credited improved markets, effective cost-reduction
efforts and strong volumes, particularly in branded and proprietary value-added
product lines and businesses, for the improved performance.
For the fourth quarter, Land O'Lakes reported net earnings of $40.6 million, as
compared to $63.6 million for the fourth quarter of 2002. Again, 2002 earnings
figures were enhanced by vitamin litigation settlements.
Year-end sales totaled $6.3 billion, an 8-percent increase over 2002 sales of
$5.8 billion. The sales increase was due in part to the consolidation of MoArk
(Land O'Lakes egg industry joint venture) into the company balance sheet.
Without that accounting change, sales were up 3 percent for the year. Similarly,
fourth quarter sales of $1.9 billion represented a 24-percent increase over
2002's $1.5 billion. However, if you factor out MoArk, sales were up 13 percent
over the fourth quarter of 2002.
-more-
Land O'Lakes Fourth Quarter -- Page 2 of 6
Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) were
$101.8 million for the quarter and $224.3 million for the year, as compared to
EBITDA of $184.1 million and $324.3 million, respectively, in 2002. EBITDA for
2002, however, reflects $155.5 million in vitamin litigation settlements, versus
$22.5 million in 2003.
The company also reported continued progress against its key strategic
initiatives of paying down debt and building balance sheet strength; portfolio
management; and building its branded businesses.
STRATEGIC INITIATIVES
Paying down debt/building balance sheet strength
Land O'Lakes recently completed a debt restructuring initiative that included
the sale of $175 million in bonds to pay down senior bank debt and a three-year
extension of its revolving line of credit.
Land O'Lakes also made approximately $14 million in scheduled payments on term
debt during the fourth quarter, bringing 2003 principal payments on long-term
debt to $131 million (excluding the debt restructuring initiative). The company
finished the year with strong liquidity, with $383 million in cash-on-hand and
unused borrowing authority, and remained in compliance with all its financing
covenants.
The new bond sale did not increase debt levels, but rather enabled the company
to improve its capital structure by taking advantage of declining long-term
interest rates, securing its sources of traditional seasonal and short-term
borrowing, spreading term debt payments over a longer period and maintaining
strong liquidity.
Proactive portfolio management
The company continued to rationalize its asset portfolio. During the fourth
quarter, Land O'Lakes completed the sale of its powdered cocoa business and,
during the first quarter of 2004, sold its ownership position in QC, Inc. (a
testing company).
-more-
Land O'Lakes Fourth Quarter -- Page 3 of 6
Over the course of the year, the company also reported progress in rationalizing
its Upper Midwest dairy manufacturing infrastructure and reducing capital use
and exposure to market risk in Swine.
Building branded businesses
During the quarter, the company continued its successful roll-out of two new
branded, market-focused dairy products - LAND O LAKES(R) Spreadable Butter with
Canola Oil and LAND O LAKES(R) Soft Baking Butter with Canola Oil. Sales
continue to run ahead of forecasts.
Strong performance was also realized in such areas as LAND O LAKES-branded Deli
and Foodservice products; CROPLAN GENETICS Seed; and AgriSolutions crop
protection products. LAND O LAKES- and Purina Mills-branded products also
continued to provide the foundation for Feed.
DAIRY FOODS
Dairy Foods reported $24.6 million in pretax earnings for the fourth quarter and
$5.6 million for the year, as compared to a 2002 fourth quarter pretax loss of
$16.7 million and a loss of $32.1 million for the year. Dairy Foods reported
sales of $884 million for the quarter and $3.0 billion for the year, as compared
to $748 million and $2.9 billion in 2002.
The earnings improvement was driven by positive performance in the Value Added
side of the business and improved Industrial operations. Particular areas of
strength in the Value Added business were Butter and Superspreads, Foodservice
and Deli Cheese.
-more-
Land O'Lakes Fourth Quarter -- Page 4 of 6
While the company continued to face significant challenges in its Industrial
(manufacturing) operations, progress was made in rationalizing the Industrial
infrastructure, reducing costs and adjusting product mix. In addition, the
company positioned its West Coast cheese and whey facility (Cheese and Protein
International) for its 2004 Phase II expansion, which will reduce per-unit
costs.
FEED
Feed reported fourth quarter pretax earnings of $21.4 million and year-end
earnings of $46.4 million, as compared to $117.7 million and $156.5 million,
respectively, in 2002. However, company officials pointed out, 2002 earnings
were bolstered by more than $150 million in vitamin litigation settlements.
Factoring out litigation settlements and other one-time gains and losses, Feed
earnings were down modestly versus 2002.
Feed sales were $682.2 million for the quarter and $2.5 billion for the year, up
from $634.1 million for the quarter and $2.4 billion for the full year in 2002.
Feed faced notable challenges, and reduced volumes, in the livestock/commodity
area, driven in part by market volatility and restructuring in the swine
industry and restructuring and early-year market stress in the dairy industry.
Key strengths were companion animals, horse feed, beef feed and animal milk
replacers.
SEED
Seed continued strong performance in 2003, with year-end pretax earnings of
$11.6 million, versus $8.3 million for 2002. For the fourth quarter, Seed
reported a seasonal loss of $2.3 million, as compared to a $1.7 million loss in
fourth quarter 2002. Seed sales continued to grow, reaching $129.8 million for
the fourth quarter and $479.3 million for the full year, up from 2002's $121.9
million and $406.9 million, respectively.
-more-
Land O'Lakes Fourth Quarter -- Page 5 of 6
Volume improvements, particularly in corn and soybeans; the growth of the
CROPLAN GENETICS brand; and the strength of the local cooperative distribution
system all contributed to the improved performance.
LAYERS/EGGS
Significant market improvement, volume growth and the success of branded eggs
contributed to the company's performance in the Layers/Eggs industry (conducted
through its MoArk joint venture), where year-end earnings totaled $33.4 million,
compared to a loss of $9.5 million in 2002. For the fourth quarter, pretax
earnings were $24.3 million, as compared to $3.3 million in the same quarter one
year ago.
Consolidated sales for the year were $317.8 million, with fourth quarter sales
of $175.7 million. As noted earlier, this is the first year MoArk sales were
included in Land O'Lakes balance sheet. Because consolidation began in July,
only half-a-year of MoArk's sales are included in Land O'Lakes financials.
Full-year sales for MoArk were $552 million, and 100 percent of MoArk's earnings
are included in Land O'Lakes income.
SWINE
While the company reported a pretax loss of $9.8 million for the year and a $3.1
million loss for the quarter in Swine, performance was improved over 2002, when
losses totaled $23.2 million at year-end and $11.9 million for the quarter.
Contributing to this improvement were better average hog prices, production
efficiencies and progress in reducing capital use and exposure to market risk.
Swine sales for the year were $91.2 million, compared to $83.2 million in 2002.
For the fourth quarter, sales were $24.7 million, as compared to $16.7 million
for the fourth quarter of 2002.
-More-
Land O'Lakes Fourth Quarter -- Page 6 of 6
AGRONOMY
Land O'Lakes conducts its Agronomy business through the Agriliance joint
venture, in which Land O'Lakes holds 50-percent interest. The company reported
$13.2 million in Agronomy pretax earnings for the year, as compared to a loss of
$1.8 million in 2002.
For the quarter, the company reported a $14.6 million loss in Agronomy, as
opposed to an $18.2 million loss for the fourth quarter of 2002.
CONFERENCE CALL
The national food and agricultural cooperative will discuss these results in a
conference call scheduled for 1:00 p.m., Eastern Standard Time, February 2,
2004. The dial-in numbers are: USA -- 1-877-546-1565; International --
1-773-756-4602. The passcode is "Land O'Lakes." A replay of the conference call
will be available through February 16, 2004 at: USA -- 1-888-568-0896;
International 1-402-998-1574. The replay access ID is 3824.
Land O'Lakes is a national, farmer-owned food and agricultural cooperative, with
annual sales of approximately $6 billion. Land O'Lakes does business in all 50
states and more than 50 countries. It is a leading marketer of a full line of
dairy-based consumer, foodservice and food ingredient products across the United
States; serves its international customers with a variety of food and animal
feed ingredients; and provides farmers and local cooperatives with an extensive
line of agricultural supplies (feed, seed, crop nutrients and crop protection
products) and services.
-30-
CAUTIONARY STATEMENT
This document contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995 that are based on management's
current expectations and assumptions. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the potential results discussed in the forward-looking
statements. For a further discussion of important risk factors that may
materially affect management's estimates and Land O'Lakes results, please see
the risk factors contained in Land O'Lakes Annual Report filed on Form 10-K for
the year ended December 31, 2002 which can be found, free of charge, on the
Securities and Exchange Commission web site (www.sec.gov) and the company's
website (www.landolakesinc.com).
LAND O'LAKES, INC.
Consolidated Balance Sheets
($ IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2003 2002
- ------------------------------------------------------------------------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 110,274 $ 64,327
Restricted cash 20,118 -
Receivables, net 640,146 567,584
Receivable from legal settlement - 96,707
Inventories 496,776 446,386
Prepaid expenses 246,373 189,246
Other current assets 42,006 13,878
- ------------------------------------------------------------------------------------------------------------
Total current assets 1,555,693 1,378,128
Investments 506,641 545,592
Property, plant and equipment, net 624,631 579,860
Property under capital lease 109,145 105,736
Goodwill, net 373,083 323,413
Other intangibles 102,938 101,770
Other assets 126,025 211,823
- ------------------------------------------------------------------------------------------------------------
Total assets $ 3,398,156 $ 3,246,322
============================================================================================================
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations $ 80,703 $ 37,829
Current portion of long-term debt 7,841 104,563
Current portion of obligations under capital lease 10,399 108,279
Accounts payable 761,663 701,786
Accrued expenses 216,586 204,629
Patronage refunds and other member equities payable 19,449 12,388
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 1,096,641 1,169,474
Long-term debt 1,065,382 1,007,308
Obligations under capital lease 99,650 -
Employee benefits and other liabilities 175,363 104,340
Deferred tax liabilities 1,725 -
Minority interests 62,739 53,687
Equities:
Capital stock 2,125 2,190
Member equities 882,547 873,659
Accumulated other comprehensive loss (65,617) -
Retained earnings 77,601 35,664
- ------------------------------------------------------------------------------------------------------------
Total equities 896,656 911,513
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------------
Total liabilities and equities $ 3,398,156 $ 3,246,322
============================================================================================================
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
(UNAUDITED) (AUDITED)
---------------------------------- ---------------------------------
2003 2002 2003 2002
- ----------------------------------------------------- ---------------- ---------------- --------------- ---------------
Net sales $ 1,889,673 $ 1,523,127 6,320,456 5,846,864
Cost of sales 1,688,905 1,411,296 5,735,247 5,350,423
- ----------------------------------------------------- ---------------- ---------------- --------------- ---------------
Gross profit 200,768 111,831 585,209 496,441
Selling, general and administrative 122,428 101,591 468,341 470,648
Restructuring and impairment charges 4,317 23,194 7,486 31,412
- ----------------------------------------------------- ---------------- ---------------- --------------- ---------------
Earnings (loss) from operations 74,023 (12,954) 109,382 (5,619)
Interest expense, net 22,996 19,419 82,948 78,671
Gain on legal settlements (310) (118,709) (22,842) (155,544)
Other (income) expense, net (916) 876 (1,586) (8,243)
Equity in (earnings) loss of affiliated companies (1,127) 7,147 (57,145) (22,675)
Minority interest in earnings of subsidiaries 2,727 6,942 6,366 5,487
- ----------------------------------------------------- ---------------- ---------------- --------------- ---------------
Earnings before income taxes 50,653 71,371 101,641 96,685
Income tax expense (benefit) 10,062 7,816 18,103 (2,202)
- ----------------------------------------------------- ---------------- ---------------- --------------- ---------------
Net earnings $ 40,591 $ 63,555 $ 83,538 $ 98,887
===================================================== ================ ================ =============== ===============
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
TWELVE MONTHS ENDED
DECEMBER 31,
-----------------------------------
2003 2002
-------------- -----------------
Cash flows from operating activities:
Net earnings $ 83,538 $ 98,887
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 113,032 103,699
Amortization of deferred financing charges 7,736 3,063
Bad debt expense 5,222 5,094
Proceeds from patronage revolvement received 5,000 2,061
Non-cash patronage income (3,578) (1,921)
Receivable from legal settlement 96,707 (96,707)
Deferred income tax expense (benefit) 12,511 (5,050)
Decrease (increase) in other assets 5,865 (85,843)
Decrease in other liabilities (2,216) (2,301)
Restructuring and impairment charges 7,486 31,412
Gain on divestiture of businesses (684) (4,992)
Equity in earnings of affiliated companies (57,145) (22,675)
Minority interests 6,366 5,487
Other (7,836) (74)
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Receivables (45,433) (26,087)
Inventories (13,941) (4,167)
Other current assets (59,031) (22,216)
Accounts payable 41,549 62,654
Accrued expenses 32,355 (18,316)
-------------- -----------------
Net cash provided by operating activities 227,503 22,008
Cash flows from investing activities:
Additions to property, plant and equipment (74,052) (87,437)
Payments for investments (10,297) (16,226)
Proceeds from divestiture of businesses 1,815 16,070
Proceeds from sale of investments 3,000 27,371
Proceeds from sale of property, plant and equipment 22,969 24,313
Dividends from investments in affiliated companies 37,356 26,558
Increase in restricted cash (20,118) -
Other 4,105 5,116
-------------- -----------------
Net cash used by investing activities (35,222) (4,235)
Cash flows from financing activities:
Increase in short-term debt 12,736 10,118
Proceeds from issuance of long-term debt 185,037 6,057
Payments on principal of long-term debt (305,963) (62,040)
Payments on principal of capital lease obligations (9,590) -
Payments for debt issuance costs (3,486) -
Payments for redemption of member equities (24,380) (37,878)
Other (688) 128
-------------- -----------------
Net cash used by financing activities (146,334) (83,615)
-------------- -----------------
Net increase (decrease) in cash and short-term investments 45,947 (65,842)
Cash and short-term investments at beginning of period 64,327 130,169
-------------- -----------------
Cash and short-term investments at end of period $ 110,274 $ 64,327
-------------- -----------------
LAND O'LAKES, INC.
EBITDA
($ IN THOUSANDS)
(UNAUDITED)
TWELVE MONTHS
THREE MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31,
------------------------------ ----------------
2003 2002 2003
- -------------------------------------------------- -------------- -------------- ----------------
NET EARNINGS $ 40,591 $ 63,555 $ 83,538
Income taxes expense 10,062 7,816 18,103
Minority interest in earnings of subsidiaries 2,727 6,942 6,366
Equity in (earnings) loss of affiliated companies (1,127) 7,147 (57,145)
Interest expense, net 22,996 19,419 82,948
Cash (non-cash) patronage income 79 (181) 2,000
Joint venture cash distributions 32,166 18,926 39,909
Depreciation and amortization 29,572 26,419 113,032
Non-cash impairment charges 3,612 14,608 3,954
One-time items not included in bond EBITDA (916) (57) (14,681)
Severance costs incurred - PMI acquisition - 7,821 -
Unrealized hedging (gain) loss (12,565) 6,252 (19,462)
Unrestricted entities - EBITDA (25,360) 5,465 (34,248)
- -------------------------------------------------- -------------- -------------- ----------------
BOND EBITDA $ 101,837 $ 184,132 $ 224,314
================================================== ============== ============== ================
ADJUSTMENTS TO BANK EBITDA:
Finance Co. and Conroe ACS restricted for Bank (702)
Net legal accruals 95,867
Restructuring charges less cash paid (1,333)
Non-cash one-time items / reserves (7,578)
Gain on sale of assets 15,206
- -------------------------------------------------- ----------------
BANK EBITDA $ 325,774
================================================== ================
BANK COVENANTS
Interest expense coverage ratio - required > 2.5 4.55 x
-
Leverage ratio - required < 3.75 2.62 x
-
Consolidated cash interest expense (1)
INTEREST EXPENSE $ 82,948
Unrestricted subs interest expense (8,373)
Interest related to securitization (2,210)
Interest earned 5,422
Change in accrued interest 1,543
Non-cash amortized financing costs (7,735)
----------------
TOTAL BANK CONSOLIDATED CASH INTEREST EXPENSE $ 71,595
================
Consolidated Indebtedness (2)
TOTAL INDEBTEDNESS (INCLUDES CAPITAL LEASES AND CAPITAL SECURITIES) $ 1,263,975
Less capital securities (190,700)
Less CPI capital lease (99,239)
Less MoArk capital lease (10,797)
Less MoArk debt (100,862)
Less CPI bonds (10,000)
Less other unrestricted subs debt (205)
----------------
TOTAL BANK CONSOLIDATED INDEDTEDNESS $ 852,172
================
Bond Coverage Ratio
Interest expense coverage ratio - required > 2.5 3.01 x
-
Bond consolidated interest expense
INTEREST EXPENSE $ 82,948
Unrestricted subs interest expense (includes interest related to securitization) (8,591)
Capitalized interest 8
Interest on sales lease back transaction 52
----------------
TOTAL BOND CONSOLIDATED INTEREST EXPENSE $ 74,417
================
(1) Dividends on capital securities are included in interest expense.
(2) Capital securities and external debt of unrestricted subsidiaries are
excluded from the bank indebtedness calculation as per the Credit Agreement.