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
Significantly Improved Sales and Earnings
April 26, 2004 (Arden Hills, Minn.) ... Land O'Lakes officials today reported
significantly improved sales and earnings for the first quarter of 2004 (as
compared to the same period one year ago). Company officials also commented on
progress against several strategic initiatives.
Land O'Lakes reported net sales of $2.01 billion and net earnings of $46.5
million for the quarter, as compared to sales of $1.45 billion and a net loss of
$0.4 million for the first quarter of 2003. Company officials noted that $175
million of the sales increase results from the consolidation of MoArk sales
(layers/eggs) into Land O'Lakes financials. Factoring out MoArk, sales were up
$381 million or about 26 percent.
EBITDA (Earnings Before Interest, Taxes, Depreciation, Amortization and other
items), as calculated pursuant to the company's bond indenture, was $65.3
million for the quarter versus $43.2 million for the first quarter of 2003.
Company officials attributed improved first quarter performance to a combination
of:
o improved market prices in core product areas;
o improved volumes (particularly in branded/proprietary businesses and
product lines); and
o an internal focus on driving performance and earnings.
STRATEGIC INITIATIVES
Officials of the national dairy and agricultural cooperative indicated the
company made progress in paying down debt, portfolio management and the
strengthening of its brands and branded businesses.
In relation to paying down debt, Land O'Lakes reported $126.5 million in term
debt prepayments during the first quarter. These prepayments included $100
million related to incremental proceeds from an off-balance-sheet receivables
securitization facility. This facility provides alternative low-cost financing
for the company. The company's long-term debt to capital ratio improved to 48.7
percent at the end of the quarter, as compared to 52.6 percent at the end of the
previous quarter and 50.8 percent one year ago.
The company's liquidity also was strong, with $238 million in available
cash-on-hand and unused borrowing capacity at the end of the quarter. In
addition, the company reported that it was in compliance with all its financing
covenants.
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Land O'Lakes -- Page 2 of 4
In portfolio management, Land O'Lakes reported progress in the ongoing
restructuring of its dairy manufacturing infrastructure; the continued reduction
in capital use and exposure to market risk in its Swine operations; and movement
toward the scheduled June completion of the expansion of Cheese and Protein
International (CPI), its West Coast cheese and whey manufacturing facility.
Highlights in the area of branded business growth included the performance of
several new products under the LAND O LAKES brand in both the grocery and
foodservice channels; the growing strength of the CROPLAN GENETICS brand in
Seed; increased sales for the AgriSolutions(TM) product line in Agronomy; and
new branded and proprietary Feed products like RALLY(TM) dairy feed, PUSH(TM)
sow feed and Cow's Match(TM) Jersey Blend calf milk replacer.
DAIRY FOODS
Land O'Lakes reported pretax earnings of $12.5 million in Dairy Foods for the
quarter, as compared to a $19.6 million loss in the first quarter of 2003, an
increase attributed to strong market prices, volume improvements in core
value-added product lines and improved manufacturing performance. Sales for the
quarter totaled $899 million, up from $637 million one year ago.
Highlights for the quarter, versus the first quarter of 2003, included: a 17
percent increase in total butter volume; a 28 percent increase in total cheese
volume; and a 38 percent increase in overall Foodservice volume. In addition,
commodity cheese sales rose 3 percent.
On the Dairy Foods manufacturing side, progress was made in the restructuring of
the company's manufacturing infrastructure. Operating margins improved as a
result of prior-year plant closures and company efforts to lower expenses.
Company officials also said the organization is on track for the installation of
the expansion of its Cheese and Protein International (CPI) facility. This
expansion will double CPI's capacity and is intended to lower per-unit costs and
contribute to long-term profitability. The expansion is expected to be completed
on schedule and on budget.
FEED
Land O'Lakes reported $9.9 million in pretax earnings in Feed for the quarter,
down from $15.1 million for the first quarter of 2003. Feed sales for the
quarter were $677 million, up from $602 million for the first quarter of 2003.
Pretax earnings for the quarter include a $4.4 million gain on litigation
settlements, as compared to an $8.9 million gain on litigation settlements in
the first quarter of 2003.
The company continued to face challenging livestock feed markets, and volume in
this segment was down 1 percent versus the first quarter of 2003. Company
officials reported improved performance as the quarter drew to a close, with
March livestock feed volumes up 6 percent over the previous March. Building this
base business remains a significant priority.
Lifestyle Feed volumes were up 12 percent quarter over quarter, driven in part
by the strength of the LAND O LAKES and Purina brands. Key contributors were
horse feed, up 9 percent, and companion animal feed, up 24 percent.
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Land O'Lakes -- Page 3 of 4
SWINE
The company reported a modest improvement in Swine results, with improved market
prices somewhat offset by increased input (corn and soybean meal) costs. For the
quarter, Land O'Lakes reported a $3.3 million loss in Swine, as compared to a
$4.1 million loss one year ago. First quarter sales in Swine were $22 million,
as compared to $21 million for the first quarter of 2003.
The company reported progress in its efforts to reduce capital use and decrease
its exposure to market risk in Swine, through efforts to reposition
underperforming assets and phase out higher-risk swine programs.
LAYERS/EGGS
The company participates in the layers/eggs industry through its MoArk joint
venture. The quarter saw very strong egg markets, and Land O'Lakes reported
$29.4 million in pretax earnings, as compared to $0.9 million for the first
quarter of 2003. Sales for the quarter were $175 million, up from $116 million
one year ago.
The improved performance was attributed to stronger markets (prices up 36 cents
per dozen versus the first quarter of 2003) and increased overall volume (up 3.3
percent).
SEED
Seed earnings for the quarter totaled $13.9 million, as compared to $10.6
million for the first quarter of 2003. Sales were also up, at $243 million for
the quarter, versus $192 million one year ago. These results come on the heels
of record full-year sales and earnings in 2003.
AGRONOMY
The company reported $84,000 in pretax earnings in Agronomy for the quarter, an
improvement over the $8.8 million loss for the first quarter of 2003. 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 2004 cash dividend from Agriliance, which has achieved improved earnings for
three consecutive years.
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 26,
2004. The dial-in numbers are USA -- 1-877-917-1550; International --
1-630-395-0018. The passcode is "Land O'Lakes." A replay of the conference call
will be available through May 10, 2004, at USA -- 1-888-568-0810; International
- -- 1-402-998-0237. The replay access ID is #8403. Additional materials will be
available on the company's website (www.landolakesinc.com) for an extended
period of time.
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Land O'Lakes -- Page 4 of 4
Land O'Lakes is a national, farmer-owned food and agricultural cooperative, with
annual sales over $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.
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 expectations that the company will
receive a dividend from Agriliance in 2004 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, 2003, which can be found on
the Securities and Exchange Commission web site (www.sec.gov) and the company's
website (www.landolakesinc.com).
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LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
MARCH 31, DECEMBER 31,
2004 2003
- ------------------------------------------------------------------------------------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments $ 21,530 $ 110,274
Restricted cash 20,167 20,118
Receivables, net 603,729 640,146
Inventories 530,140 496,776
Prepaid expenses 46,005 246,373
Other current assets 38,102 42,006
- ------------------------------------------------------------------------------------------------------------
Total current assets 1,259,673 1,555,693
Investments 514,084 506,641
Property, plant and equipment, net 619,986 624,631
Property under capital lease, net 107,464 109,145
Goodwill 370,863 373,083
Other intangibles 102,030 102,938
Other assets 124,647 126,025
- ------------------------------------------------------------------------------------------------------------
Total assets $ 3,098,747 $ 3,398,156
- ------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations $ 55,529 $ 80,703
Current portion of long-term debt 9,378 7,841
Current portion of obligations under capital lease 10,066 10,399
Accounts payable 568,286 761,663
Accrued expenses 222,241 216,586
Patronage refunds and other member equities payable 15,480 19,449
- ------------------------------------------------------------------------------------------------------------
Total current liabilities 880,980 1,096,641
Long-term debt 942,907 1,065,382
Obligations under capital lease 98,266 99,650
Employee benefits and other liabilities 181,568 177,088
Minority interests 64,095 62,739
Equities:
Capital stock 2,114 2,125
Member equities 890,891 882,547
Accumulated other comprehensive loss (65,617) (65,617)
Retained earnings 103,543 77,601
- ------------------------------------------------------------------------------------------------------------
Total equities 930,931 896,656
- ------------------------------------------------------------------------------------------------------------
Commitments and contingencies
- ------------------------------------------------------------------------------------------------------------
Total liabilities and equities $ 3,098,747 $ 3,398,156
============================================================================================================
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
--------------------------------------
2004 2003
- ----------------------------------------------------- ----------------- ------------------
Net sales $ 2,011,287 $ 1,454,452
Cost of sales 1,810,830 1,328,903
- ----------------------------------------------------- ----------------- ------------------
Gross profit 200,457 125,549
Selling, general and administrative 134,900 117,441
Restructuring and impairment charges 900 1,092
- ----------------------------------------------------- ----------------- ------------------
Earnings from operations 64,657 7,016
Interest expense, net 23,701 19,913
Gain on legal settlements (4,524) (8,889)
Other (income) expense, net (1,587) (500)
Equity in (earnings) loss of affiliated companies (17,414) 983
Minority interest in earnings of subsidiaries 1,400 1,489
- ----------------------------------------------------- ----------------- ------------------
Earnings (loss) before income taxes 63,081 (5,980)
Income tax expense (benefit) 16,552 (5,609)
- ----------------------------------------------------- ----------------- ------------------
Net earnings (loss) $ 46,529 $ (371)
===================================================== ================= ==================
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
-----------------------------------
2004 2003
-------------- ------------
Cash flows from operating activities:
Net earnings (loss) $ 46,529 $ (371)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 27,560 26,642
Amortization of deferred financing charges 2,561 913
Bad debt expense 379 691
Proceeds from patronage revolvement received 1,334 10
Non-cash patronage income (412) (209)
Receivable from legal settlement - 96,707
Deferred income tax benefit (865) -
Decrease in other assets 2,269 1,709
(Decrease) increase in other liabilities (370) 2,096
Restructuring and impairment charges 900 1,092
Gain on divestiture of business (1,664) -
Equity in (earnings) loss of affiliated companies (17,414) 983
Minority interests 1,400 1,489
Other (282) (1,229)
Changes in current assets and liabilities, net of acquisitions
and divestitures:
Receivables 33,854 62,553
Inventories (33,186) (47,777)
Other current assets 198,963 92,304
Accounts payable (193,545) (192,201)
Accrued expenses 10,448 (6,537)
-------------- ------------
Net cash provided by operating activities 78,459 38,865
Cash flows from investing activities:
Additions to property, plant and equipment (20,574) (16,120)
Payments for investments (148) (8,800)
Proceeds from divestiture of businesses 7,500 -
Proceeds from sale of investments 1,983 3,000
Proceeds from sale of property, plant and equipment 2,703 1,562
Dividends from investments in affiliated companies 8,671 1,737
Increase in restricted cash (49) -
Other 525 2,581
-------------- ------------
Net cash provided (used) by investing activities 611 (16,040)
Cash flows from financing activities:
(Decrease) increase in short-term debt (25,126) 24,768
Proceeds from issuance of long-term debt 17,605 425
Principal payments on long-term debt (137,646) (61,934)
Principal payments on obligations under capital lease (2,524) (2,217)
Payments for redemption of member equities (16,308) (15,331)
Payments for debt issuance costs (3,953) -
Other 138 1,349
-------------- ------------
Net cash used by financing activities (167,814) (52,940)
-------------- ------------
Net decrease in cash and short-term investments (88,744) (30,115)
Cash and short-term investments at beginning of period 110,274 64,327
-------------- ------------
Cash and short-term investments at end of period $ 21,530 $ 34,212
============== ============
LAND O'LAKES, INC.
EBITDA
($ IN THOUSANDS)
(UNAUDITED)
TWELVE MONTHS
THREE MONTHS ENDED ENDED
MARCH 31, MARCH 31,
------------------------------ ----------------
2004 2003 2004
- -------------------------------------------------- -------------- -------------- ----------------
NET EARNINGS (LOSS) $ 46,529 $ (371) $ 130,438
Income taxes expense (benefit) 16,552 (5,609) 40,264
Minority interest in earnings of subsidiaries 1,400 1,489 6,277
Equity in (earnings) loss of affiliated companies (17,414) 983 (75,542)
Interest expense, net 23,701 19,913 86,736
Cash (non-cash) patronage income 779 (357) 3,136
Joint venture cash distributions 9,509 1,808 47,610
Depreciation and amortization 27,560 26,642 113,950
Non-cash impairment charges 500 92 4,362
One-time items not included in bond EBITDA (2,102) (500) (16,283)
Unrealized hedging gain (13,152) (2,771) (29,843)
Unrestricted entities - EBITDA (28,542) 1,865 (64,655)
- -------------------------------------------------- -------------- -------------- ----------------
BOND EBITDA $ 65,320 $ 43,184 $ 246,450
================================================== ============== ============== ================
ADJUSTMENTS TO BANK EBITDA:
LOL Finance Co. restricted for Bank (698)
Restructuring charges less cash paid (1,155)
One-time items 9,265
- -------------------------------------------------- ----------------
BANK EBITDA $ 253,862
================================================== ================
BANK COVENANTS LTM 3/31/04
- -------------- -----------
Interest expense coverage ratio - required > 2.5 3.70 x
-
Leverage ratio - required < 4.75 2.85 x
-
Band EBITDA 253,862
Consolidated cash interest expense (1)
- --------------------------------------
INTEREST EXPENSE $ 86,736
Unrestricted subs interest expense (10,082)
Interest related to securitization (1,949)
Interest earned 5,713
Change in accrued interest (2,346)
Non-cash amortized financing costs (9,383)
----------------
TOTAL BANK CONSOLIDATED CASH INTEREST EXPENSE $ 68,689
================
Consolidated Indebtedness (2)
- -----------------------------
TOTAL INDEBTEDNESS (INCLUDES CAPITAL LEASES AND CAPITAL SECURITIES) $ 1,116,146
Less capital securities (190,700)
Less CPI capital lease (97,020)
Less MoArk capital lease (11,300)
Less MoArk debt (83,955)
Less CPI bonds (10,000)
Less other unrestricted subs debt (166)
----------------
TOTAL BANK CONSOLIDATED INDEDTEDNESS $ 723,005
================
Bond Coverage Ratio LTM 3/31/04
- ------------------- -----------
Interest expense coverage ratio - required > 2.5 3.21 x
-
Bond EBITDA 246,450
Bond consolidated interest expense
- ----------------------------------
INTEREST EXPENSE $ 86,736
Unrestricted subs interest expense (includes interest related to securitization) (9,945)
Interest on sales lease back transaction 28
----------------
TOTAL BOND CONSOLIDATED INTEREST EXPENSE $ 76,819
================
(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.