UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2003*
or
[ ] 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
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4001 Lexington Avenue North
Arden Hills, Minnesota 55112
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(Address of Principal Executive Offices) (Zip Code)
(651) 481-2222
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(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. Yes [ ] No [X]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in rule 12-b-2 of the Act). Yes [ ] No [X]
The number of shares of the registrant's common stock outstanding as of
July 31, 2003: 1,104 shares of Class A common stock, 4,950 shares of Class B
common stock, 192 shares of Class C common stock, and 1,140 shares of Class D
common stock.
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.
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.
*Although Land O'Lakes, Inc. is not currently required to file this
Quarterly Report on Form 10-Q pursuant to Section 13 or 15(d), we are filing
voluntarily.
INDEX
<Table>
<Caption>
PAGE
----
PART I. FINANCIAL INFORMATION ....................................................................... 4
Item I. Financial Statements ......................................................................... 4
LAND O'LAKES, INC
Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002 .................... 4
Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002
(unaudited) .......................................................................................... 5
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited) .... 6
Notes to Consolidated Financial Statements (unaudited) ............................................... 7
LAND O'LAKES FARMLAND FEED LLC
Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002 ................... 22
Consolidated Statements of Operations for the three and six months ended June 30, 2003 and 2002
(unaudited)........................................................................................... 23
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited) .... 24
Notes to Consolidated Financial Statements (unaudited) ............................................... 25
PURINA MILLS, LLC
Consolidated Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002 .................... 37
Consolidated Statements of Operations for the three months and six months ended June 30, 2003 and 2002
(unaudited) ........................................................................................ 38
Consolidated Statements of Cash Flows for the six months ended June 30, 2003 and 2002 (unaudited) .... 39
Notes to Consolidated Financial Statements (unaudited) ............................................... 40
PART II. OTHER INFORMATION .......................................................................... 44
Item 6. Exhibits and Reports on Form 8-K ............................................................ 44
SIGNATURES ........................................................................................... 45
</Table>
2
LAND O'LAKES, INC.
EXPLANATORY NOTE
The purpose of this Amendment No. 1 on Form 10-Q/A to the Quarterly Report on
Form 10-Q of Land O'Lakes, Inc. (the "Company") for the quarter ended June 30,
2003 is to file (1) the supplemental consolidating schedules of Land O'Lakes
Farmland LLC ("Farmland Feed") which separately present the financial data of
Purina Mills, LLC, a wholly owned subsidiary of Farmland Feed ("Purina Mills"),
and (2) the financials statements of Purina Mills.
The Company's Chief Executive Officer and Chief Financial Officer have also
reissued their certifications required by Section 302 and Section 906 of the
Sarbanes-Oxley Act of 2002 in connection with this amendment and the Company has
included an amended exhibit list to list the certifications filed with this
amendment. Except as provided herein, all other information contained in the
original Form 10-Q remains unchanged.
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ................................ $ 85,480 $ 64,327
Restricted cash ................................................ 20,000 --
Receivables, net ............................................... 392,856 567,584
Receivable from legal settlement ............................... -- 96,707
Inventories .................................................... 485,098 446,386
Prepaid expenses ............................................... 42,868 189,246
Other current assets ........................................... 43,745 13,878
------------ ------------
Total current assets ................................... 1,070,047 1,378,128
Investments ...................................................... 598,461 545,592
Property, plant and equipment, net ............................... 563,085 579,860
Property under capital lease ..................................... 101,388 105,736
Goodwill, net .................................................... 315,545 323,413
Other intangibles ................................................ 103,020 101,770
Other assets ..................................................... 204,057 211,823
------------ ------------
Total assets ........................................... $ 2,955,603 $ 3,246,322
============ ============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations ............................... $ 52,138 $ 37,829
Current portion of long-term debt .............................. 65,814 104,563
Current portion of obligation under capital lease .............. 8,867 108,279
Accounts payable ............................................... 402,731 701,786
Accrued expenses ............................................... 221,422 204,629
Patronage refunds payable and other member equities payable .... 10,770 12,388
------------ ------------
Total current liabilities .............................. 761,742 1,169,474
Long-term debt ................................................... 972,980 1,007,308
Obligation under capital lease ................................... 94,808 --
Employee benefits and other liabilities .......................... 104,210 104,340
Deferred tax liabilities ......................................... 27,907 --
Minority interests ............................................... 60,060 53,687
Equities:
Capital stock .................................................. 2,147 2,190
Member equities ................................................ 872,972 873,659
Retained earnings .............................................. 58,777 35,664
------------ ------------
Total equities ......................................... 933,896 911,513
------------ ------------
Commitments and contingencies
Total liabilities and equities ......................... $ 2,955,603 $ 3,246,322
============ ============
</Table>
See accompanying notes to consolidated financial statements.
4
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ...................................... $ 1,396,043 $ 1,419,769 $ 2,850,495 $ 2,952,002
Cost of sales .................................. 1,271,120 1,295,866 2,600,023 2,680,124
------------ ------------ ------------ ------------
Gross profit ................................... 124,923 123,903 250,472 271,878
Selling, general and administration ............ 110,260 124,193 230,229 251,714
Restructuring and impairment charges ........... 1,775 3,841 2,867 7,276
------------ ------------ ------------ ------------
Earnings (loss) from operations ................ 12,888 (4,131) 17,376 12,888
Interest expense, net .......................... 16,891 17,401 34,276 34,948
Gain on legal settlements ...................... (10,288) (32,699) (19,177) (32,699)
Gain on sale of intangibles .................... (550) -- (550) (4,184)
Loss (gain) on divestiture of businesses ....... 700 (1,205) 700 (1,205)
Gain on sale of investment ..................... (346) -- (846) --
Equity in earnings of affiliated companies ..... (51,414) (44,227) (50,431) (34,366)
Minority interest in earnings (loss) of
subsidiaries ................................. 1,427 (1,024) 2,916 (90)
------------ ------------ ------------ ------------
Earnings before income taxes ................... 56,468 57,623 50,488 50,484
Income tax expense ............................. 11,787 9,327 6,178 3,164
------------ ------------ ------------ ------------
Net earnings ................................... $ 44,681 $ 48,296 $ 44,310 $ 47,320
============ ============ ============ ============
Applied to:
Member equities
Allocated patronage refunds ............... $ 26,070 $ 42,222 $ 35,864 $ 53,796
Deferred equities ......................... (638) 1,493 (14,531) (10,593)
------------ ------------ ------------ ------------
25,432 43,715 21,333 43,203
Retained earnings ............................ 19,249 4,581 22,977 4,117
------------ ------------ ------------ ------------
$ 44,681 $ 48,296 $ 44,310 $ 47,320
============ ============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
5
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE SIX MONTHS ENDED
JUNE 30,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ............................................. $ 44,310 $ 47,320
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ......................... 54,004 52,447
Amortization of deferred financing charges ............ 1,846 1,587
Bad debt expense ...................................... 1,760 2,636
Proceeds from patronage revolvement received .......... 1,316 261
Non-cash patronage income ............................. (1,222) (203)
Receivable from legal settlement ...................... 96,707 --
Decrease (increase) in other assets ................... 8,302 (23,336)
(Decrease) increase in other liabilities .............. (130) 25,863
Restructuring and impairment charges .................. 2,867 7,276
Loss (gain) on divestiture of businesses .............. 700 (1,205)
Equity in earnings of affiliated companies ............ (50,431) (34,366)
Minority interests .................................... 2,916 (90)
Other ................................................. (4,191) (2,141)
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Receivables ........................................... 168,241 107,416
Inventories ........................................... (37,581) (57,268)
Other current assets .................................. 150,298 90,719
Accounts payable ...................................... (300,513) (196,464)
Accrued expenses ...................................... 14,155 9,700
------------ ------------
Net cash provided by operating activities ................ 153,354 30,152
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ............... (34,954) (34,841)
Payments for investments ................................. (9,675) (4,669)
Proceeds from divestiture of businesses .................. 465 1,710
Proceeds from sale of investments ........................ 3,000 21,059
Proceeds from sale of property, plant and equipment ...... 8,015 9,828
Dividends from investments in affiliated companies ....... 2,798 4,929
Increase in restricted cash .............................. (20,000) --
Other .................................................... 2,980 2,778
------------ ------------
Net cash (used) provided by investing activities ......... (47,371) 794
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in short-term debt .............................. 14,309 10,320
Proceeds from issuance of long-term debt ................. 1,202 2,622
Payments on principal of long-term debt .................. (73,052) (60,147)
Payments on principal of capital lease obligation ........ (4,435) --
Payments for redemption of member equities ............... (23,662) (36,472)
Other .................................................... 808 2,008
------------ ------------
Net cash used by financing activities .................... (84,830) (81,669)
------------ ------------
Net increase (decrease) in cash and short-term
investments ............................................ 21,153 (50,723)
Cash and short-term investments at beginning of period ..... 64,327 130,169
------------ ------------
Cash and short-term investments at end of period ........... $ 85,480 $ 79,446
============ ============
SUPPLEMENTARY DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during periods for:
Interest, net of interest capitalized .................... $ 35,585 $ 35,784
Income taxes recovered ................................... $ (3,743) $ (27,616)
</Table>
See accompanying notes to consolidated financial statements.
6
LAND O'LAKES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABLES)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements reflect, in the opinion
of the management of Land O'Lakes, Inc. (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 statements are
condensed and therefore do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. For further information, refer to the
audited consolidated financial statements and footnotes for the year ended
December 31, 2002 included in our Annual Report on Form 10-K. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full year.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, the Company adopted Statement of Financial
Accounting Standards 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The standard requires that a liability for a cost associated with
an exit or disposal activity be recognized and measured initially at fair value
when the liability is incurred. Under prior accounting literature, certain costs
for exit activities were recognized at the date a company committed to an exit
plan. The provisions of the standard are effective for exit or disposal
activities initiated after December 31, 2002.
On January 17, 2003, the FASB issued Interpretation No. 46,
"Consolidation of Variable Interest Entities, an Interpretation of ARB 51," (FIN
46). The primary objectives of FIN 46 are to provide guidance on the
identification and consolidation of variable interest entities, or VIEs, which
are entities for which control is achieved through means other than through
voting rights. FIN 46 is effective immediately for all new variable interest
entities created or acquired after January 31, 2003 and no later than July 1,
2003 for variable interest entities created or acquired prior to February 1,
2003. Accordingly, the Company adopted FIN 46 on July 1, 2003 and expects to
begin consolidating its joint venture in MoArk, LLC, an egg production and
marketing company, in the third quarter of 2003. The adoption of FIN 46 did not
have a material impact on the Company's results of operations and financial
condition.
In May, 2003, The FASB issued Statement of Financial Accounting
Standards 150, "Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity" The standard establishes
standards for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and equity. It requires
that an issuer classify a financial instrument that is within its scope as a
liability (or an asset in some circumstances). The standard is effective for the
Company January 1, 2004, and the Company does not currently expect this standard
to have a material impact on its results of operations or financial position.
The Company already classifies its Capital Securities as long-term debt and the
related financing costs as interest expense.
2. RESTRICTED CASH
On March 28, 2003, Cheese & Protein International ("CPI"), a consolidated
joint venture, amended its lease for property and equipment relating to its
cheese manufacturing and whey processing plant in Tulare, California. The
amendment postponed the measurement of the fixed charge coverage ratio
requirement until March 2005. The amendment requires Land O'Lakes to maintain a
$20 million cash account (which may be replaced by a letter of credit at the
Company's option) to support the lease. The cash account or letter of credit
would only be drawn upon in the event of a CPI default, and would reduce amounts
otherwise due under the lease. The requirement would be lifted pending the
achievement of certain financial targets by CPI.
7
3. RECEIVABLES
A summary of receivables is as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
Trade accounts ............................................. $ 234,745 $ 237,106
Notes and contracts ........................................ 58,737 44,565
Notes from sale of trade receivables (see Note 4) .......... 75,111 225,144
Other ...................................................... 44,380 79,024
------------ ------------
412,973 585,839
Less allowance for doubtful accounts ....................... 20,117 18,255
------------ ------------
Total receivables, net ..................................... $ 392,856 $ 567,584
============ ============
</Table>
A substantial portion of Land O'Lakes receivables is concentrated in the
agricultural industry. Collections of these receivables may be dependent upon
economic returns from farm crop and livestock production. The Company's credit
risks are continually reviewed, and management believes that adequate provisions
have been made for doubtful accounts.
4. RECEIVABLES PURCHASE FACILITY
In December 2001, the Company established a $100.0 million receivables
purchase facility with CoBank, ACB ("CoBank"). A wholly-owned, unconsolidated
qualifying special purpose entity ("QSPE") was established to purchase certain
receivables from the Company. CoBank has been granted an interest in the pool of
receivables owned by the QSPE. The transfers of the receivables from the Company
to the QSPE are structured as sales and, accordingly, the receivables
transferred to the QSPE are not reflected in the consolidated balance sheet.
However, the Company retains credit risk related to the repayment of the notes
receivable with the QSPE, which, in turn, is dependent upon the credit risk of
the QSPE's receivables pool. Accordingly, the Company has retained reserves for
estimated losses. The Company expects no significant gains or losses from the
facility. At June 30, 2003, $80.0 million was outstanding under this facility.
The total accounts receivable sold during the three months ended June 30, 2003
and 2002 were $571.9 million and $610.7 million, respectively. The total
accounts receivable sold during the six months ended June 30, 2003 and 2002 were
$1,244.7 million and $1,264.8 million, respectively.
5. INVENTORIES
A summary of inventories is as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
Raw materials .............................................. $ 142,086 $ 141,849
Work in process ............................................ 34,288 33,707
Finished goods ............................................. 308,724 270,830
------------ ------------
Total inventories .......................................... $ 485,098 $ 446,386
============ ============
</Table>
6. INVESTMENTS
A summary of investments is as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
CF Industries, Inc. ........................................ $ 249,502 $ 249,502
Agriliance LLC ............................................. 135,611 91,629
MoArk LLC .................................................. 56,731 44,678
Ag Processing Inc. ......................................... 38,304 37,854
Advanced Food Products LLC ................................. 27,943 27,418
CoBank, ACB ................................................ 20,921 22,061
Universal Cooperatives ..................................... 6,473 6,473
Melrose Dairy Proteins, LLC ................................ 5,628 6,579
Prairie Farms Dairy, Inc. .................................. 5,440 5,092
Other -- principally cooperatives and joint ventures ....... 51,908 54,306
------------ ------------
Total investments .......................................... $ 598,461 $ 545,592
============ ============
</Table>
8
7. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The carrying amount of goodwill is as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
Dairy Foods ................................................ $ 66,260 $ 66,718
Feed ....................................................... 156,463 156,839
Seed ....................................................... 13,423 16,948
Swine ...................................................... 620 647
Agronomy ................................................... 66,778 69,823
Other ...................................................... 12,001 12,438
------------ ------------
Total goodwill ............................................. $ 315,545 $ 323,413
============ ============
</Table>
Goodwill decreases in Dairy Foods, Feed, Swine, Agronomy and Other were due
to amortization on joint ventures and cooperatives. The goodwill decrease of
$3.5 million in the Seed segment was related to amortization and
reclassifications.
OTHER INTANGIBLE ASSETS
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
Amortized other intangible assets:
Trademarks, less accumulated amortization
of $1,498 and $1,615, respectively .................... $ 2,471 $ 2,725
Patents, less accumulated amortization of
$1,997 and $1,394, respectively ....................... 14,376 14,979
Agreements not to compete, less accumulated
amortization of $2,630 and $2,324, respectively ....... 1,570 1,976
Other intangible assets, less accumulated
amortization of $7,004 and $7,343, respectively ....... 7,640 5,127
------------ ------------
Total amortized other intangible assets .................... 26,057 24,807
Total non-amortized other intangible assets - trademarks ... 76,963 76,963
------------ ------------
Total other intangible assets .............................. $ 103,020 $ 101,770
============ ============
</Table>
Amortization expense for the three months ended June 30, 2003 and 2002 was
$1.2 million and $1.2 million, respectively. Amortization expense for the six
months ended June 30, 2003 and 2002 was $2.3 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 $3.0
million annually. The weighted-average life of the intangible assets subject to
amortization is approximately 12 years.
8. RESTRUCTURING AND IMPAIRMENT CHARGES
RESTRUCTURING CHARGES
For the three months ended June 30, 2003, the Company recorded restructuring
charges of $1.5 million. Of this amount, Dairy Foods recorded a restructuring
charge of $0.6 million which represented severance costs as a result of the
planned closing of a facility in the Upper Midwest. Feed recorded a
restructuring charge of $0.6 million which represented severance costs related
to closing feed plants, and Seed recorded a restructuring charge of $0.3 million
for severance costs related to closing a facility.
For the six months ended June 30, 2003, the Company recorded restructuring
charges of $2.5 million. Of this amount, Dairy Foods recorded a restructuring
charge of $1.0 million which represented severance costs for 44 employees as a
result of closing a facility in the Upper Midwest and recorded $0.6 million for
the planned closure of another facility. Feed recorded a restructuring charge of
$0.6 million which represented severance costs related to closing feed plants,
and Seed recorded a restructuring charge of $0.3 million for severance costs
related to closing a facility.
For the three months ended June 30, 2002, the Company recorded restructuring
charges of $1.7 million. Of this amount, Dairy Foods recorded a restructuring
charge of $1.6 million which represented severance and outplacement
9
costs for 82 employees for the Faribault, MN plant closure. Feed recorded a
restructuring charge of $0.1 million which represented severance costs related
to closing feed plants.
For the six months ended June 30, 2002, the Company recorded restructuring
charges of $4.4 million. Of this amount, Feed recorded a restructuring charge of
$2.8 million which represented severance and outplacement costs for 136
employees at the Ft. Dodge, IA office facility and other feed plant facilities
and Dairy Foods recorded a restructuring charge of $1.6 million which
represented severance and outplacement costs for 82 employees for the Faribault,
MN plant closure.
A summary of restructuring activities and resulting reserve for the six
months ended June 30, 2003 is as follows:
<Table>
<Caption>
BALANCE BALANCE
DECEMBER 31, CHARGE TO UTILIZED JUNE 30,
2002 EXPENSE IN 2003 2003
------------ ------------ ------------ ------------
Termination benefits ......... $ 8,871 $ 2,525 $ (8,071) $ 3,325
Other ........................ 1,604 -- (492) 1,112
------------ ------------ ------------ ------------
Total ........................ $ 10,475 $ 2,525 $ (8,563) $ 4,437
============ ============ ============ ============
</Table>
IMPAIRMENT CHARGES
For the three months ended June 30, 2003 the Company recorded impairment
charges of $0.3 million in the Seed segment for the impairment of certain
assets. For the six months ended June 30, 2003 the Company recorded impairment
charges of $0.3 million in the Seed segment and $0.1 million in the Feed segment
for write downs of certain plant assets to their estimated fair value.
For the three months ended June 30, 2002 the Company recorded an impairment
charge of $2.2 million which was made up of a $1.3 million write-down of the
Faribault, MN plant and $0.9 million represented a write-down of certain feed
plant assets to their estimated fair value. For the six months ended June 30,
2002 the Company recorded an impairment charge of $2.9 million which was made up
of a $1.3 million write-down of the Faribault, MN plant and $1.6 million
represented a write-down of certain feed plant assets to their estimated fair
value.
9. GAIN ON LEGAL SETTLEMENTS
During the six months ended June 30, 2003 and 2002, the Company recognized
gains on legal settlements of $19.2 million and $32.7 million, respectively, of
which $10.3 million was recognized in the three months ended June 30, 2003, and
$32.7 million was recognized in the three months ended June 30, 2002. The gains
represent cash received from product suppliers against whom the Company alleged
certain price-fixing claims.
10. GAIN ON SALE OF INTANGIBLES
In the six months ended June 30, 2003, the Company recorded a $0.6 million
gain on the sale of a customer list relating to the divestiture of a joint
venture in Taiwan. In the six months ended June 30, 2002, the Company recorded a
$4.2 million gain on the sale of a customer list pertaining to the feed
phosphate distribution business.
11. LOSS (GAIN) ON DIVESTITURE OF BUSINESSES
For the six months ended June 30, 2003, the Company recorded a loss of $0.7
million on the divestiture of a Feed business in Taiwan. For the six months
ended June 30, 2002, the Company recorded a gain of $1.2 million primarily on
the divestiture of a Dairy Foods Poland business.
12. GAIN ON SALE OF INVESTMENT
For the three and six months ended June 30, 2003, the Company recorded gains
of $0.3 million and $0.8 million, respectively, on the sale of a Feed investment
in a swine joint venture.
10
13. DEBT OBLIGATIONS
In the six months ended June 30, 2003, the Company made payments on Term A
loan of $45.1 million and Term B loan of $26.5 million, of which $50.0 million
was a voluntary prepayment. The weighted average interest rates on short-term
borrowings and notes outstanding at June 30, 2003 and December 31, 2002 were
3.44% and 3.51%, respectively.
14. SEGMENT INFORMATION
The Company operates in five segments: Dairy Foods, Animal Feed, Crop Seed,
Swine and Agronomy.
The Dairy Foods segment 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.
The Animal Feed segment is made up of a 92% ownership position in Land
O'Lakes Farmland Feed LLC ("Land O'Lakes Farmland Feed"). Land O'Lakes Farmland
Feed develops, produces, markets and distributes animal feeds such as ingredient
feed, formula feed, milk replacers, vitamins and additives.
The Crop Seed segment is a supplier and distributor of crop seed products in
the United States. A variety of crop seed is sold, including alfalfa, soybeans,
corn, forage and turf grasses.
The Swine segment has three programs: farrow-to-finish, swine aligned and
cost-plus. The farrow-to-finish program produces and sells market hogs. The
swine aligned program raises feeder pigs which are sold to local member
cooperatives. The cost-plus program provides minimum hog price guarantees to
producers in exchange for swine feed sales and profit participation.
The Agronomy segment consists primarily of the Company's 50% ownership 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).
The Company allocates corporate administration 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 administration expense is allocated directly.
11
<Table>
<Caption>
DAIRY FOODS FEED SEED SWINE AGRONOMY OTHER CONSOLIDATED
----------- ----------- ----------- ----------- ----------- ----------- ------------
FOR THE THREE MONTHS ENDED
JUNE 30, 2003
Net sales ...................... $ 665,294 $ 593,687 $ 111,097 $ 22,501 $ -- $ 3,464 $ 1,396,043
Cost of sales .................. 626,143 526,641 95,441 21,045 -- 1,850 1,271,120
Selling, general and
administration ............... 33,121 59,931 9,746 1,327 3,357 2,778 110,260
Restructuring and impairment
charges ...................... 600 615 560 -- -- -- 1,775
Interest expense, net .......... 7,727 4,176 331 1,351 2,410 896 16,891
Gain on legal settlements ...... (38) (10,250) -- -- -- -- (10,288)
Gain on sale of intangible ..... -- (550) -- -- -- -- (550)
Loss on divestiture of business -- 700 -- -- -- -- 700
Gain on sale of investment ..... -- (346) -- -- -- -- (346)
Equity in earnings of affiliated
companies .................... (1,760) (176) -- (75) (47,784) (1,619) (51,414)
Minority interest in earnings
of subsidiaries .............. -- 1,427 -- -- -- -- 1,427
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) earnings before income
taxes ........................ $ (499) $ 11,519 $ 5,019 $ (1,147) $ 42,017 $ (441) $ 56,468
=========== =========== =========== =========== =========== =========== ===========
FOR THE THREE MONTHS ENDED
JUNE 30, 2002
Net sales ...................... $ 710,302 $ 587,160 $ 97,189 $ 21,814 $ -- $ 3,304 $ 1,419,769
Cost of sales .................. 671,966 516,918 83,087 22,111 -- 1,784 1,295,866
Selling, general and
administration ............... 40,135 63,733 10,180 1,568 5,941 2,636 124,193
Restructuring and impairment
charges ...................... 2,800 1,041 -- -- -- -- 3,841
Interest expense, net .......... 5,437 7,071 743 1,252 2,211 687 17,401
Gain on legal settlements ...... (828) (31,871) -- -- -- -- (32,699)
(Gain) loss on divestiture of
businesses ................... (1,281) -- -- -- -- 76 (1,205)
Equity in (earnings) loss of
affiliated companies ......... (467) (110) (201) 365 (49,172) 5,358 (44,227)
Minority interest in (loss)
earnings of subsidiaries ..... (2,032) 971 -- -- -- 37 (1,024)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) earnings before income
taxes ........................ $ (5,428) $ 29,407 $ 3,380 $ (3,482) $ 41,020 $ (7,274) $ 57,623
=========== =========== =========== =========== =========== =========== ===========
</Table>
<Table>
<Caption>
DAIRY FOODS FEED SEED SWINE AGRONOMY OTHER CONSOLIDATED
----------- ----------- ----------- ----------- ----------- ----------- ------------
FOR THE SIX MONTHS ENDED
JUNE 30, 2003
Net sales ...................... $ 1,301,238 $ 1,196,153 $ 302,992 $ 43,666 $ -- $ 6,446 $ 2,850,495
Cost of sales .................. 1,234,249 1,056,570 262,275 43,281 -- 3,648 2,600,023
Selling, general and
administration ............... 72,583 119,900 23,139 2,689 6,683 5,235 230,229
Restructuring and impairment
charges ...................... 1,600 707 560 -- -- -- 2,867
Interest expense, net .......... 14,049 9,965 1,377 2,624 4,742 1,519 34,276
Gain on legal settlements ...... (38) (19,139) -- -- -- -- (19,177)
Gain on sale of intangible ..... -- (550) -- -- -- -- (550)
Loss on divestiture of business -- 700 -- -- -- -- 700
Gain on sale of investment ..... -- (846) -- -- -- -- (846)
Equity in (earnings) loss of
affiliated companies ......... (1,130) (732) -- 290 (44,637) (4,222) (50,431)
Minority interest in earnings
of subsidiaries .............. -- 2,916 -- -- -- -- 2,916
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) earnings before income
taxes ........................ $ (20,075) $ 26,662 $ 15,641 $ (5,218) $ 33,212 $ 266 $ 50,488
=========== =========== =========== =========== =========== =========== ===========
FOR THE SIX MONTHS ENDED
JUNE 30, 2002
Net sales ...................... $ 1,441,430 $ 1,205,723 $ 252,892 $ 45,694 $ -- $ 6,263 $ 2,952,002
Cost of sales .................. 1,358,029 1,061,414 213,655 43,628 -- 3,398 2,680,124
Selling, general and
administration ............... 84,676 126,050 23,157 3,229 9,488 5,114 251,714
Restructuring and impairment
charges ...................... 2,800 4,476 -- -- -- -- 7,276
Interest expense, net .......... 9,795 15,100 1,716 2,637 4,298 1,402 34,948
Gain on legal settlements ...... (828) (31,871) -- -- -- -- (32,699)
Gain on sale of intangible ..... -- (4,184) -- -- -- -- (4,184)
(Gain) loss on divestiture of
businesses ................... (1,281) -- -- -- -- 76 (1,205)
Equity in loss (earnings) of
affiliated companies ......... 63 (568) (105) 204 (39,366) 5,406 (34,366)
Minority interest in (loss)
earnings of subsidiaries ..... (2,569) 2,370 -- -- -- 109 (90)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(Loss) earnings before income
taxes ........................ $ (9,255) $ 32,936 $ 14,469 $ (4,004) $ 25,580 $ (9,242) $ 50,484
=========== =========== =========== =========== =========== =========== ===========
</Table>
12
15. 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 and
limited liability companies (the "Guarantor Subsidiaries"). Such guarantees are
full, unconditional and joint and several.
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's 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.
13
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
JUNE 30, 2003
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------- ------------ ------------- ------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments . $ 79,315 $ 2,824 $ (620) $ 3,961 $ -- $ 85,480
Restricted cash ................. 20,000 -- -- -- -- 20,000
Receivables, net ................ 370,024 17,484 144,153 48,959 (187,764) 392,856
Inventories ..................... 307,592 55,345 111,941 10,220 -- 485,098
Prepaid expenses ................ 30,543 3,262 8,263 800 -- 42,868
Other current assets ............ 41,881 1,191 -- 673 -- 43,745
----------- ----------- ----------- ----------- ----------- -----------
Total current assets ....... 849,355 80,106 263,737 64,613 (187,764) 1,070,047
Investments ....................... 1,256,891 223 19,236 2,063 (679,952) 598,461
Property, plant and equipment,
net ............................. 255,009 21,059 236,319 50,698 -- 563,085
Property under capital lease ...... -- -- -- 101,388 -- 101,388
Goodwill, net ..................... 190,067 3,224 122,038 216 -- 315,545
Other intangibles ................. 4,979 670 96,277 1,094 -- 103,020
Other assets ...................... 147,498 1,225 26,967 47,467 (19,100) 204,057
----------- ----------- ----------- ----------- ----------- -----------
Total assets ............... $ 2,703,799 $ 106,507 $ 764,574 $ 267,539 $ (886,816) $ 2,955,603
=========== =========== =========== =========== =========== ===========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations .................. $ 721 $ 2,872 $ 725 $ 77,709 $ (29,889) $ 52,138
Current portion of long-term
debt ......................... 65,797 61,335 -- -- (61,318) 65,814
Current portion of obligation
under capital lease .......... -- -- -- 8,867 -- 8,867
Accounts payable ................ 389,095 16,620 80,246 13,515 (96,745) 402,731
Accrued expenses ................ 191,722 2,580 33,341 3,071 (9,292) 221,422
Patronage refunds and other
member equities payable ....... 10,770 -- -- -- -- 10,770
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities .. 658,105 83,407 114,312 103,162 (197,244) 761,742
Long-term debt .................... 957,075 10,160 -- 15,365 (9,620) 972,980
Obligation under capital lease .... -- -- -- 94,808 -- 94,808
Employee benefits and other
liabilities ..................... 76,503 59 26,586 1,062 -- 104,210
Deferred tax liability ............ 26,641 1,263 -- 3 -- 27,907
Minority interests ................ 51,579 -- 2,938 5,543 -- 60,060
Equities:
Capital stock ................... 2,147 966 508,035 73,847 (582,848) 2,147
Member equities ................. 872,972 -- -- -- -- 872,972
Retained earnings ............... 58,777 10,652 112,703 (26,251) (97,104) 58,777
----------- ----------- ----------- ----------- ----------- -----------
Total equities ............. 933,896 11,618 620,738 47,596 (679,952) 933,896
----------- ----------- ----------- ----------- ----------- -----------
Commitments and contingencies
Total liabilities and
equities ........................ $ 2,703,799 $ 106,507 $ 764,574 $ 267,539 $ (886,816) $ 2,955,603
=========== =========== =========== =========== =========== ===========
</Table>
14
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
Net sales .............................. $ 736,672 $ 43,764 $ 579,566 $ 36,041 $ -- $ 1,396,043
Cost of sales .......................... 671,221 42,484 515,107 42,308 -- 1,271,120
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ........................... 65,451 1,280 64,459 (6,267) -- 124,923
Selling, general and administration .... 50,807 3,288 57,805 (1,640) -- 110,260
Restructuring and impairment charges ... 600 560 615 -- -- 1,775
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations ........ 14,044 (2,568) 6,039 (4,627) -- 12,888
Interest expense (income), net ......... 17,399 674 (2,153) 971 -- 16,891
Gain on legal settlements .............. (8,154) -- (2,134) -- -- (10,288)
Gain on sale of intangible ............. -- -- -- (550) -- (550)
Loss on divestiture of business ........ 700 -- -- -- -- 700
Gain on sale of investment ............. -- -- (346) -- -- (346)
Equity in (earnings) loss of
affiliated companies ................. (55,702) -- (9) -- 4,297 (51,414)
Minority interest in earnings of
of subsidiaries ...................... 868 -- 375 184 -- 1,427
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes .... 58,933 (3,242) 10,306 (5,232) (4,297) 56,468
Income tax expense (benefit) .......... 14,252 (203) (162) (2,100) -- 11,787
----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) .................... $ 44,681 $ (3,039) $ 10,468 $ (3,132) $ (4,297) $ 44,681
=========== =========== =========== =========== =========== ===========
</Table>
15
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
Net sales .............................. $ 1,514,072 $ 98,702 $ 1,169,051 $ 68,670 $ -- $ 2,850,495
Cost of sales .......................... 1,396,792 93,326 1,033,781 76,124 -- 2,600,023
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ........................... 117,280 5,376 135,270 (7,454) -- 250,472
Selling, general and administration .... 105,254 6,449 115,550 2,976 -- 230,229
Restructuring and impairment charges ... 1,600 560 707 -- -- 2,867
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations ........ 10,426 (1,633) 19,013 (10,430) -- 17,376
Interest expense (income), net ......... 35,570 1,341 (3,280) 645 -- 34,276
Gain on legal settlements .............. (16,175) -- (3,002) -- -- (19,177)
Gain on sale of intangible ............. -- -- -- (550) -- (550)
Loss on divestiture of business ........ 700 -- -- -- -- 700
Gain on sale of investment ............. -- -- (846) -- -- (846)
Equity in (earnings) loss of
affiliated companies ................. (66,650) -- (556) -- 16,775 (50,431)
Minority interest in earnings of
subsidiaries ......................... 2,177 -- 371 368 -- 2,916
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes .... 54,804 (2,974) 26,326 (10,893) (16,775) 50,488
Income tax expense (benefit) ........... 10,494 79 -- (4,395) -- 6,178
----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) .................... $ 44,310 $ (3,053) $ 26,326 $ (6,498) $ (16,775) $ 44,310
=========== =========== =========== =========== =========== ===========
</Table>
16
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net earnings (loss) ........................ $ 44,310 $ (3,053) $ 26,326 $ (6,498) $ (16,775) $ 44,310
Adjustments to reconcile net earnings
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization .......... 28,749 1,502 19,881 3,872 -- 54,004
Amortization of deferred financing
charges .............................. 1,846 -- -- -- -- 1,846
Bad debt expense ....................... 621 -- 1,139 -- -- 1,760
Proceeds from patronage revolvement
received ............................. 1,316 -- -- -- -- 1,316
Non-cash patronage income .............. (1,222) -- -- -- -- (1,222)
Receivable from legal settlement ....... 90,707 -- 6,000 -- -- 96,707
Decrease (increase) in other assets .... 33,665 11,514 (520) (2,566) (33,791) 8,302
Increase (decrease) in other
liabilities .......................... 1,974 (11) (1,810) (283) -- (130)
Restructuring and impairment
charges .............................. 1,600 560 707 -- -- 2,867
Loss on divestiture of business ........ 700 -- -- -- -- 700
Equity in (earnings) loss of
affiliated companies ................. (66,650) -- (556) -- 16,775 (50,431)
Minority interest ...................... 2,177 -- 371 368 -- 2,916
Other .................................. (4,789) 879 (1,606) 1,325 -- (4,191)
Changes in current assets and
liabilities, net of acquisitions
and divestitures:
Receivables ............................ 35,177 12,573 66,772 (3,583) 57,302 168,241
Inventories ............................ (53,734) 19,052 (1,658) (1,241) -- (37,581)
Other current assets ................... 148,871 724 1,263 (560) -- 150,298
Accounts payable ....................... (114,289) (51,709) (39,242) (5,038) (90,235) (300,513)
Accrued expenses ....................... 34,774 936 (16,033) (1,455) (4,067) 14,155
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided (used) by operating
activities ............................... 185,803 (7,033) 61,034 (15,659) (70,791) 153,354
CASH FLOWS FROM INVESTING
ACTIVITIES:
Additions to property, plant and
equipment ................................ (23,517) (499) (9,257) (1,681) -- (34,954)
Payments for investments ................... (9,675) -- -- -- -- (9,675)
Proceeds from divestiture of business ...... 465 -- -- -- -- 465
Proceeds from sale of investments .......... -- -- 3,000 -- -- 3,000
Proceeds from sale of property, plant
and equipment ............................ 3,081 1,069 2,157 1,708 -- 8,015
Dividends from investments in
affiliated companies ..................... 2,798 -- -- -- -- 2,798
Increase in restricted cash ................ (20,000) -- -- -- -- (20,000)
Other ...................................... 440 -- 2,540 -- -- 2,980
----------- ----------- ----------- ----------- ----------- -----------
Net cash (used) provided by investing
activities ............................... (46,408) 570 (1,560) 27 -- (47,371)
CASH FLOWS FROM FINANCING
ACTIVITIES:
(Decrease) increase in short-term
debt ..................................... (26,417) (3,574) 963 11,488 31,849 14,309
Proceeds from issuance of long-term
debt ..................................... 1,202 -- -- -- -- 1,202
Payments on principal of long-term
debt ..................................... (70,345) (37) (59,588) (2,658) 59,576 (73,052)
Payments on principal of capital
lease obligation ......................... -- -- -- (4,435) -- (4,435)
Payments for redemption of member
equities ................................. (23,662) -- -- -- -- (23,662)
Other ...................................... 808 10,314 (8) 10,328 (20,634) 808
----------- ----------- ----------- ----------- ----------- -----------
Net cash (used) provided by financing
activities ............................... (118,414) 6,703 (58,633) 14,723 70,791 (84,830)
----------- ----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and
short-term investment .................... 20,981 240 841 (909) -- 21,153
Cash and short-term investments at
beginning of period ...................... 58,334 2,584 (1,461) 4,870 -- 64,327
----------- ----------- ----------- ----------- ----------- -----------
Cash and short-term investments at end
of period ................................ $ 79,315 $ 2,824 $ (620) $ 3,961 $ -- $ 85,480
=========== =========== =========== =========== =========== ===========
</Table>
17
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ...... $ 58,334 $ 2,584 $ (1,461) $ 4,870 $ -- $ 64,327
Receivables, net ..................... 472,165 30,057 150,447 45,377 (130,462) 567,584
Receivable from legal settlement ..... 90,707 -- 6,000 -- -- 96,707
Inventories .......................... 254,517 74,397 108,493 8,979 -- 446,386
Prepaid expenses ..................... 176,541 4,840 7,625 240 -- 189,246
Other current assets ................. 12,868 337 -- 673 -- 13,878
----------- ----------- ----------- ----------- ----------- -----------
Total current assets ............ 1,065,132 112,215 271,104 60,139 (130,462) 1,378,128
Investments ............................ 1,163,031 1,102 20,777 2,496 (641,814) 545,592
Property, plant and equipment, net ..... 260,078 23,131 246,402 50,249 -- 579,860
Property under capital lease ........... -- -- -- 105,736 -- 105,736
Goodwill, net .......................... 187,755 13,172 121,673 813 -- 323,413
Other intangibles ...................... 4,243 723 96,455 349 -- 101,770
Other assets ........................... 150,909 2,738 27,064 45,049 (13,937) 211,823
----------- ----------- ----------- ----------- ----------- -----------
Total assets .................... $ 2,831,148 $ 153,081 $ 783,475 $ 264,831 $ (786,213) $ 3,246,322
=========== =========== =========== =========== =========== ===========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations ..... $ 27,040 $ 2,818 $ 59 $ 66,174 $ (58,262) $ 37,829
Current portion of long-term debt .... 104,347 64,963 -- 47 (64,794) 104,563
Obligation under capital lease ....... -- -- -- 108,279 -- 108,279
Accounts payable ..................... 503,851 68,329 117,563 18,553 (6,510) 701,786
Accrued expenses ..................... 158,323 1,644 45,361 4,526 (5,225) 204,629
Patronage refunds and other
member equities payable ............ 12,388 -- -- -- -- 12,388
----------- ----------- ----------- ----------- ----------- -----------
Total current liabilities ....... 805,949 137,754 162,983 197,579 (134,791) 1,169,474
Long-term debt ......................... 988,696 10,197 -- 18,023 (9,608) 1,007,308
Employee benefits and other
liabilities .......................... 75,588 1,333 26,071 1,348 -- 104,340
Minority interests ..................... 49,402 -- -- 4,285 -- 53,687
Equities:
Capital stock ........................ 2,190 1,084 507,956 61,123 (570,163) 2,190
Member equities ...................... 873,659 -- -- -- -- 873,659
Retained earnings .................... 35,664 2,713 86,465 (17,527) (71,651) 35,664
----------- ----------- ----------- ----------- ----------- -----------
Total equities .................. 911,513 3,797 594,421 43,596 (641,814) 911,513
----------- ----------- ----------- ----------- ----------- -----------
Commitments and contingencies
Total liabilities and equities ......... $ 2,831,148 $ 153,081 $ 783,475 $ 264,831 $ (786,213) $ 3,246,322
=========== =========== =========== =========== =========== ===========
</Table>
18
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
Net sales .............................. $ 780,706 $ 53,935 $ 562,755 $ 22,373 $ -- $ 1,419,769
Cost of sales .......................... 738,367 36,210 494,064 27,225 -- 1,295,866
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ........................... 42,339 17,725 68,691 (4,852) -- 123,903
Selling, general and administration .... 48,102 16,661 60,055 (625) -- 124,193
Restructuring and impairment charges ... 2,800 -- 1,041 -- -- 3,841
----------- ----------- ----------- ----------- ----------- -----------
(Loss) earnings from operations ........ (8,563) 1,064 7,595 (4,227) -- (4,131)
Interest expense (income), net ......... 17,162 1,039 (646) (154) -- 17,401
Gain on legal settlements .............. (32,699) -- -- -- -- (32,699)
Loss (gain) on divestiture of
businesses............................ 364 -- -- (1,569) -- (1,205)
Equity in (earnings) loss of
affiliated companies ................. (48,890) -- (33) -- 4,696 (44,227)
Minority interest in (loss)
earnings of subsidiaries ............. (1,886) -- 122 740 -- (1,024)
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes .... 57,386 25 8,152 (3,244) (4,696) 57,623
Income tax expense (benefit) ........... 9,090 181 (94) 150 -- 9,327
----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) .................... $ 48,296 $ (156) $ 8,246 $ (3,394) $ (4,696) $ 48,296
=========== =========== =========== =========== =========== ===========
</Table>
19
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
Net sales .............................. $ 1,645,505 $ 103,901 $ 1,152,708 $ 49,888 $ -- $ 2,952,002
Cost of sales .......................... 1,535,444 80,053 1,012,202 52,425 -- 2,680,124
----------- ----------- ----------- ----------- ----------- -----------
Gross profit ........................... 110,061 23,848 140,506 (2,537) -- 271,878
Selling, general and administration .... 106,434 22,783 118,887 3,610 -- 251,714
Restructuring and impairment
charges .............................. 2,800 -- 4,476 -- -- 7,276
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) from operations ........ 827 1,065 17,143 (6,147) -- 12,888
Interest expense (income), net ......... 34,573 2,032 (1,439) (218) -- 34,948
Gain on legal settlements .............. (32,699) -- -- -- -- (32,699)
Gain on sale of intangible ............. -- -- (4,184) -- -- (4,184)
Loss (gain) on divestiture of
businesses ........................... 364 -- -- (1,569) -- (1,205)
Equity in (earnings) loss of
affiliated companies ................. (50,652) -- (236) -- 16,522 (34,366)
Minority interest in (loss)
earnings of subsidiaries ............. (716) -- 308 318 -- (90)
----------- ----------- ----------- ----------- ----------- -----------
Earnings (loss) before income taxes .... 49,957 (967) 22,694 (4,678) (16,522) 50,484
Income tax expense (benefit) ........... 2,637 413 (496) 610 -- 3,164
----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) .................... $ 47,320 $ (1,380) $ 23,190 $ (5,288) $ (16,522) $ 47,320
=========== =========== =========== =========== =========== ===========
</Table>
20
LAND O'LAKES, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
<Table>
<Caption>
LAND
O'LAKES, WHOLLY- MAJORITY-
INC. OWNED OWNED
PARENT CONSOLIDATED CONSOLIDATED NON-GUARANTOR
COMPANY GUARANTORS GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------ ------------- ------------ ------------
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) .................... $ 47,320 $ (1,380) $ 23,190 $ (5,288) $ (16,522) $ 47,320
Adjustments to reconcile net earnings
(loss) to net cash provided (used)
by operating activities:
Depreciation and amortization ...... 25,231 1,920 23,728 1,568 -- 52,447
Amortization of deferred financing
charges .......................... 1,587 -- -- -- -- 1,587
Bad debt expense ................... 786 -- 1,850 -- -- 2,636
Proceeds from patronage revolvement
received ......................... 261 -- -- -- -- 261
Non-cash patronage income .......... (203) -- -- -- -- (203)
(Increase) decrease in other assets (20,620) 1,251 (5,115) 6,952 (5,804) (23,336)
Increase (decrease) in other
liabilities ...................... 28,465 (153) (2,448) (1) -- 25,863
Restructuring and impairment
charges .......................... 2,800 -- 4,476 -- -- 7,276
Loss (gain) on divestiture of
businesses ....................... 364 -- -- (1,569) -- (1,205)
Equity in (earnings) loss of
affiliated companies ............. (50,652) -- (236) -- 16,522 (34,366)
Minority interest .................. (716) -- 308 318 -- (90)
Other .............................. (842) -- 66 (1,365) -- (2,141)
Changes in current assets and
liabilities, net of acquisitions
and divestitures:
Receivables ........................ 110,673 (1,733) 21,783 (7,422) (15,885) 107,416
Inventories ........................ (52,411) (7,454) 1,198 1,399 -- (57,268)
Other current assets ............... 84,003 5,799 969 (52) -- 90,719
Accounts payable ................... (166,303) 2,621 (23,323) 1,463 (10,922) (196,464)
Accrued expenses ................... 20,794 (4,891) (6,199) (4) -- 9,700
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided (used) by
operating activities ................. 30,537 (4,020) 40,247 (4,001) (32,611) 30,152
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ............................ (22,756) (995) (8,464) (2,626) -- (34,841)
Payments for investments ............... (4,665) (4) -- -- -- (4,669)
Proceeds from divestiture of
businesses ........................... 1,710 -- -- -- -- 1,710
Proceeds from sale of investment ....... 20,003 -- 1,056 -- -- 21,059
Proceeds from sale of property, plant
and equipment ........................ 4,243 -- 4,397 1,188 -- 9,828
Dividends from investments in
affiliated companies ................. 4,929 -- -- -- -- 4,929
Other .................................. 2,778 -- -- -- -- 2,778
----------- ----------- ----------- ----------- ----------- -----------
Net cash provided (used) by investing
activities ........................... 6,242 (999) (3,011) (1,438) -- 794
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term
debt ................................. (19,572) 2,919 (2,923) 2,783 27,113 10,320
Proceeds from issuance of long-term
debt ................................. 2,622 -- -- -- -- 2,622
Payments on principal of long-term
debt ................................. (23,344) -- (34,993) (1,810) -- (60,147)
Payments for redemption of member
equities ............................. (36,472) -- -- -- -- (36,472)
Other .................................. (9,332) 4,220 301 1,321 5,498 2,008
----------- ----------- ----------- ----------- ----------- -----------
Net cash (used) provided by financing
activities ........................... (86,098) 7,139 (37,615) 2,294 32,611 (81,669)
----------- ----------- ----------- ----------- ----------- -----------
Net (decrease) increase in cash and
short-term investments ............... (49,319) 2,120 (379) (3,145) -- (50,723)
Cash and short-term investments at
beginning of period .................... 111,054 9,090 (1,027) 11,052 -- 130,169
----------- ----------- ----------- ----------- ----------- -----------
Cash and short-term investments at end
of period .............................. $ 61,735 $ 11,210 $ (1,406) $ 7,907 $ -- $ 79,446
=========== =========== =========== =========== =========== ===========
</Table>
21
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED BALANCE SHEETS
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments ................ $ -- $ 356
Receivables, net ............................... 59,570 127,382
Receivable from legal settlement ............... -- 6,000
Inventories .................................... 116,278 113,078
Prepaid expenses and other current assets ...... 8,502 7,835
Note receivable - Land O'Lakes, Inc. ........... 91,109 29,493
------------ ------------
Total current assets ................... 275,459 284,144
Investments ...................................... 20,539 22,973
Property, plant and equipment, net ............... 241,721 251,739
Goodwill, net .................................... 122,254 122,486
Other intangibles ................................ 96,606 96,804
Other assets ..................................... 28,573 28,762
------------ ------------
Total assets ........................... $ 785,152 $ 806,908
============ ============
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations ............... $ 725 $ 2,400
Accounts payable ............................... 86,072 121,219
Accrued expenses ............................... 34,932 48,134
------------ ------------
Total current liabilities .............. 121,729 171,753
Employee benefits and other liabilities .......... 27,648 29,447
Minority interests ............................... 6,131 2,960
Equities:
Contributed capital ............................ 515,376 515,376
Retained earnings .............................. 114,268 87,372
------------ ------------
Total equities ......................... 629,644 602,748
------------ ------------
Commitments and contingencies
Total liabilities and equities ................... $ 785,152 $ 806,908
============ ============
</Table>
See accompanying notes to consolidated financial statements.
22
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
<Table>
<Caption>
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
------------ ------------ ------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ........................................ $ 592,655 $ 584,292 $ 1,193,755 $ 1,195,752
Cost of sales .................................... 526,464 513,956 1,055,310 1,052,588
------------ ------------ ------------ ------------
Gross profit ..................................... 66,191 70,336 138,445 143,164
Selling, general and administration .............. 58,794 61,155 117,438 120,830
Restructuring and impairment charges ............. 615 1,041 707 4,476
------------ ------------ ------------ ------------
Earnings from operations ......................... 6,782 8,140 20,300 17,858
Interest income, net ............................. (2,142) (618) (3,249) (1,344)
Gain on legal settlements ........................ (2,134) -- (3,002) --
Gain on sale of intangible ....................... -- -- -- (4,184)
Gain on sale of investment ....................... (346) -- (846) --
Equity in earnings of affiliated companies ....... (9) (60) (556) (263)
Minority interest in earnings of subsidiaries .... 559 276 739 486
------------ ------------ ------------ ------------
Earnings before income taxes ..................... 10,854 8,542 27,214 23,163
Income tax expense ............................... 156 177 318 306
------------ ------------ ------------ ------------
Net earnings ..................................... $ 10,698 $ 8,365 $ 26,896 $ 22,857
============ ============ ============ ============
</Table>
See accompanying notes to consolidated financial statements.
23
LAND O'LAKES FARMLAND FEED LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<Table>
<Caption>
FOR THE SIX MONTHS ENDED
JUNE 30,
2003 2002
------------ ------------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings ............................................. $ 26,896 $ 22,857
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization ...................... 20,151 24,077
Bad debt expense ................................... 1,139 1,850
Receivable from legal settlement ................... 6,000 --
Decrease (increase) in other assets ................ 189 (5,747)
Decrease in other liabilities ...................... (2,096) (2,445)
Restructuring and impairment charges ............... 707 4,476
Equity in earnings of affiliated companies ......... (556) (263)
Minority interest .................................. 739 486
Gain on sale of investments ........................ (846) --
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Receivables ........................................ 66,684 19,444
Inventories ........................................ (1,421) 3,667
Other current assets ............................... 2,163 994
Accounts payable ................................... (37,072) (26,224)
Accrued expenses ................................... (17,215) (6,156)
------------ ------------
Net cash provided by operating activities ................ 65,462 37,016
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment ............... (9,691) (8,522)
Proceeds from sale of investments ........................ 3,000 1,056
Proceeds from sale of property, plant and equipment ...... 1,327 5,585
Other .................................................... 2,540 --
------------ ------------
Net cash used by investing activities .................... (2,824) (1,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt .............................. (1,378) (1,500)
Proceeds from note receivable from Land O'Lakes, Inc. .... 239,934 228,196
Payments on note payable to Land O'Lakes, Inc. ........... (301,550) (264,850)
------------ ------------
Net cash used by financing activities .................... (62,994) (38,154)
------------ ------------
Net decrease in cash and short-term investments .......... (356) (3,019)
Cash and short-term investments at beginning of period ..... 356 3,019
------------ ------------
Cash and short-term investments at end of period ........... $ -- $ --
============ ============
</Table>
See accompanying notes to consolidated financial statements.
24
LAND O'LAKES FARMLAND FEED LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABLES)
(UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements reflect, in the opinion of
the management of Land O'Lakes Farmland Feed LLC (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 statements
are condensed, therefore do not include all of the information and footnotes
required by accounting principles generally accepted in the United States of
America for complete financial statements. For further information, refer to the
audited consolidated financial statements and footnotes for the year ended
December 31, 2002 included in our Annual Report on Form 10-K. The results of
operations and cash flows for interim periods are not necessarily indicative of
results for a full year.
RECENT ACCOUNTING PRONOUNCEMENTS
On January 1, 2003, the Company adopted Statement of Financial Accounting
Standards 146, "Accounting for Costs Associated with Exit or Disposal
Activities." The standard requires that a liability for a cost associated with
an exit or disposal activity be recognized and measured initially at fair value
when the liability is incurred. Under prior accounting literature, certain costs
for exit activities were recognized at the date a company committed to an exit
plan. The provisions of the standard are effective for exit or disposal
activities initiated after December 31, 2002.
2. RECEIVABLES
A summary of receivables is as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Trade accounts ..................................... $ 24,091 $ 22,458
Notes and contracts ................................ 3,548 23,494
Notes from sale of trade receivables (see Note 3)... 29,173 83,158
Other .............................................. 14,662 8,871
-------- --------
71,474 137,981
Less allowance for doubtful accounts ............... 11,904 10,599
-------- --------
Total receivables, net ............................. $ 59,570 $127,382
======== ========
</Table>
3. RECEIVABLES PURCHASE FACILITY
In December 2001, the Company along with Land O'Lakes, Inc. ("Land O'Lakes")
established a $100.0 million receivables purchase facility with CoBank, ACB
("CoBank"). A wholly-owned unconsolidated qualifying special purpose entity,
Land O'Lakes Farmland Feed SPV, LLC, ("QSPE"), was established to purchase
certain receivables from the Company along with Land O'Lakes. CoBank has been
granted an interest in the receivables owned by the QSPE. The transfers of the
receivables from the Company to the QSPE are structured as sales and,
accordingly, the receivables transferred to the QSPE are not reflected in the
Company's consolidated balance sheet. However, the Company retains the credit
risk related to the repayment of the notes receivable with the QSPE, which in
turn is dependent upon the credit risk of the QSPE's receivables. Accordingly,
the Company has retained reserves for estimated losses. The Company expects no
significant gains or losses from the sale of the receivables. At June 30, 2003,
$80.0 million was outstanding under this facility. The total accounts receivable
sold during the three months ended June 30, 2003 and 2002 were $519.0 million
and $545.5 million, respectively. The total accounts receivable sold during the
six months ended June 30, 2003 and 2002 were $1,071.1 million and $1,125.2
million, respectively.
25
4. INVENTORIES
A summary of inventories is as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Raw materials ...................................... $ 84,010 $ 83,187
Finished goods ..................................... 32,268 29,891
-------- --------
Total inventories .................................. $116,278 $113,078
======== ========
</Table>
5. INVESTMENTS
The Company's investments are as follows:
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------- ------------
New Feeds, LLC ....................................... $ 3,177 $ 3,033
Agland Farmland Feed, LLC ............................ 2,462 2,585
Pro-Pet, LLC ......................................... 2,561 2,326
Northern Country Feeds, LLC .......................... 1,736 1,704
LOLFF SPV, LLC ....................................... 1,000 1,000
CalvaAlto Liquid, LLC ................................ 1,302 1,302
Strauss Feeds, LLC ................................... 1,242 1,041
Nutrikowi, LLC ....................................... 876 876
Dakotaland Feeds, LLC ................................ 842 744
Harmony Farms, LLC ................................... -- 2,435
Other ................................................ 5,341 5,927
------- -------
Total investments .................................... $20,539 $22,973
======= =======
</Table>
6. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL
The change in the carrying amount of goodwill for the six months ended June 30,
2003, is as follows.
<Table>
Balance as of January 1, 2003 .................................. $ 122,486
Amortization expense ......................................... (232)
---------
Balance as of June 30, 2003 .................................... $ 122,254
=========
</Table>
OTHER INTANGIBLE ASSETS
<Table>
<Caption>
JUNE 30, DECEMBER 31,
2003 2002
------- ------------
Amortized other intangible assets
Trademarks, less accumulated amortization of $306 and $262, respectively ....... $ 576 $ 621
Patents, less accumulated amortization of $1,998 and $1,395, respectively ...... 14,375 14,978
Agreements not to compete, less accumulated amortization of $727 and $626,
respectively ................................................................. 674 775
Other intangible assets, less accumulated amortization of $5,912 and $6,463,
respectively ................................................................. 4,018 3,467
------- -------
Total amortized other intangible assets .......................................... 19,643 19,841
Total non-amortized other intangible assets-trademarks ........................... 76,963 76,963
------- -------
Total other intangible assets .................................................... $96,606 $96,804
======= =======
</Table>
Amortization expense for the three months ended June 30, 2003 and 2002 was
$0.7 million and $1.2 million, respectively. Amortization expense for the six
months ended June 30, 2003 and 2002 was $1.3 million and $1.8 million,
respectively. The estimated amortization expense related to other intangible
assets subject to amortization for the next five years will approximate $2.2
million annually. The weighted-average life of the intangible assets subject to
amortization is approximately 13 years.
26
7. RESTRUCTURING AND IMPAIRMENT CHARGES
RESTRUCTURING CHARGES
For the three and six months ended June 30, 2003, the Company recorded a
restructuring charge of $0.6 million which represented severance costs related
to closing feed plants.
For the six months ended June 30, 2002, the Company recorded restructuring
charges of $2.8 million representing severance and outplacement costs for 136
employees at the Ft. Dodge office and other plant facilities.
A summary of the restructuring reserve for the six months ended June 30,
2003 is as follows:
<Table>
<Caption>
BALANCE BALANCE
DECEMBER 31, CHARGE TO UTILIZED JUNE 30,
2002 EXPENSE IN 2003 2003
------------ --------- -------- --------
Termination benefits ... $ 6,396 $ 615 $(4,768) $ 2,243
======= ======= ======= =======
</Table>
IMPAIRMENT CHARGES
For the six months ended June 30, 2003, the Company recorded impairment
charges of $0.1 million for write downs of certain plant assets to their
estimated fair value. For the three and six months ended June 30, 2002, the
Company recorded impairment charges of $1.0 million and $1.7 million,
respectively, for write downs of certain plant assets to their estimated fair
value.
8. GAIN ON LEGAL SETTLEMENTS
During the six months ended June 30, 2003, the Company recognized a gain on
legal settlements of $3.0 million, of which $2.1 was recognized in the three
months ended June 30, 2003. The gain represents cash received from product
suppliers against whom the Company alleged certain price-fixing claims.
9. GAIN ON SALE OF INTANGIBLE
In the six months ended June 30, 2002, the Company recorded a $4.2 million
gain on the sale of a customer list pertaining to the feed phosphate
distribution business.
10. GAIN ON SALE OF INVESTMENT
For the three and six months ended June 30, 2003, the Company recorded gains
of $0.3 million and $0.8 million, respectively, on the sale of a Feed investment
in a swine joint venture.
11. COMMITMENTS AND CONTINGENCIES
GUARANTEES OF PARENT DEBT
In November 2001, Land O'Lakes, which owns 92% of the Company, issued $350
million of senior notes, due 2011. These notes are guaranteed by certain
domestic, wholly-owned subsidiaries of Land O'Lakes, including the Company, and
by each domestic wholly-owned subsidiary of the Company.
This guarantee is a general unsecured obligation, ranks equally in right of
payment with all existing and future senior indebtedness of Land O'Lakes, is
senior in right of payment to all existing and future subordinated obligations
of Land O'Lakes, and is effectively subordinated to any secured indebtedness of
Land O'Lakes and its subsidiaries, including the Company, to the extent of the
value of the assets securing such indebtedness. The maximum potential amount of
future payments that the Company would be required to make is $350 million as of
June 30, 2003. Currently, the Company does not record a liability regarding the
guarantee. The Company has no recourse provision that would enable it to recover
amounts paid under the guarantee from Land O'Lakes or any other parties.
27
The notes are not guaranteed by certain majority-owned subsidiaries of the
Company (the "Non-Guarantors"). Summarized financial information of the
Non-Guarantors, which is consolidated in the financial statements of the
Company, as of and for the periods indicated, are as follows:
<Table>
<Caption>
SIX
MONTHS
ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Total assets (end of period) ... $20,578 $23,433
Net sales ...................... 24,704 53,669
Net earnings ................... 570 626
</Table>
In November 2001, Land O'Lakes entered into new term facilities consisting
of a $325 million five-year Term Loan A facility and a $250 million seven-year
Term Loan B facility. These facilities are unconditionally guaranteed by certain
domestic, wholly-owned subsidiaries of Land O'Lakes, including the Company, and
by each domestic wholly-owned subsidiary of the Company. The maximum potential
payment related to this guarantee is $448 million as of June 30, 2003. The
Company does not currently record a liability related to the guarantee of the
Term Loans, and the Company has no recourse provisions that would enable it to
recover from Land O'Lakes or any other parties.
GUARANTEES OF PRODUCER LOANS
The Company guarantees certain loans to large producers financed by LOL
Finance Co. The loans totaled $13.2 million and $15.2 million at June 30, 2003
and December 31, 2002, respectively. Reserves for these guarantees of $0.7
million at both June 30, 2003 and December 31, 2002, are included in the
allowance for doubtful accounts. The maximum amount guaranteed by the Company is
$7.0 million with the remaining balance guaranteed by Land O'Lakes. There were
no write-offs related to producer loans for the six months ended June 30, 2003.
The Company would have recourse against the producer to partially off-set the
liability.
The Company also guarantees certain loans to producers and dealers financed
by third party lenders. The loans totaled $2.3 million and $2.4 million at June
30, 2003 and December 31, 2002, respectively. Reserves for these guarantees of
$0.5 million and $0.5 million at June 30, 2003 and December 31, 2002,
respectively, are included in the consolidated balance sheet. There were no
write-offs related to these loans in the six months ended June 30, 2003. The
maximum potential payment related to these guarantees is $1.0 million. The
Company has no recourse against the producer or dealer to partially off-set the
potential liability.
12. CONSOLIDATING FINANCIAL INFORMATION
Land O'Lakes has issued $350 million in senior notes which are guaranteed by
certain domestic wholly-owned and majority-owned subsidiaries of Land O'Lakes,
including the Company and the Company's domestic wholly-owned subsidiaries (the
"Guarantor Subsidiaries"). Such guarantees are full, unconditional and joint and
several. The Company's majority-owned subsidiaries are excluded from the
guarantee ("Non-Guarantor Subsidiaries").
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company, Guarantor Subsidiaries and the Company's
Non-Guarantor Subsidiaries. The supplemental financial information reflects the
investments of the Company in the Guarantor and Non-Guarantor Subsidiaries using
the equity method of accounting.
28
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING FINANCIAL STATEMENTS
JUNE 30, 2003
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
ASSETS
Current assets:
Cash and short-term investments . $ -- $ -- $ -- $ -- $ -- $ -- $ --
Receivables, net ................ 41,374 38,162 -- 702 6,515 (27,183) 59,570
Inventories ..................... 95,493 15,419 -- 1,018 4,348 -- 116,278
Prepaid expenses and other
current assets ................ 4,782 316 3,154 11 239 -- 8,502
Note receivable - Land
O'Lakes, Inc. ................. 91,109 -- -- -- -- -- 91,109
--------- --------- --------- --------- --------- --------- ---------
Total current assets .... 232,758 53,897 3,154 1,731 11,102 (27,183) 275,459
Investments ....................... 203,237 756 -- 2,039 1,303 (186,796) 20,539
Property, plant and equipment,
net ............................ 96,015 7,156 132,077 1,071 5,402 -- 241,721
Goodwill .......................... 118,383 3,655 -- -- 216 -- 122,254
Other intangibles ................. 95,335 942 -- -- 329 -- 96,606
Other assets ...................... 27,240 1,427 -- -- 1,606 (1,700) 28,573
--------- --------- --------- --------- --------- --------- ---------
Total assets ............ $ 772,968 $ 67,833 $ 135,231 $ 4,841 $ 19,958 $(215,679) $ 785,152
========= ========= ========= ========= ========= ========= =========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations. $ 725 $ -- $ -- $ -- $ -- $ -- $ 725
Accounts payable ................ 79,252 28,797 -- -- 5,206 (27,183) 86,072
Accrued expenses ................ 31,938 1,155 -- 248 1,591 -- 34,932
--------- --------- --------- --------- --------- --------- ---------
Total current liabilities 111,915 29,952 -- 248 6,797 (27,183) 121,729
Employee benefits and other
liabilities ..................... 28,471 (392) -- 207 1,062 (1,700) 27,648
Minority interests ................ 2,938 -- -- -- 3,193 -- 6,131
Equities:
Contributed capital ............. 515,376 17,096 87,057 9,645 7,341 (121,139) 515,376
Retained earnings ............... 114,268 21,177 48,174 (5,259) 1,565 (65,657) 114,268
--------- --------- --------- --------- --------- --------- ---------
Total equities .......... 629,644 38,273 135,231 4,386 8,906 (189,796) 629,644
--------- --------- --------- --------- --------- --------- ---------
Commitments and contingencies
Total liabilities and equities .... $ 772,968 $ 67,833 $ 135,231 $ 4,841 $ 19,958 $(215,679) $ 785,152
========= ========= ========= ========= ========= ========= =========
29
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2003
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
Net sales ......................... $ 509,056 $ 56,430 $ -- $ 14,080 $ 13,089 $ -- $ 592,655
Cost of sales ..................... 448,816 47,795 6,050 12,446 11,357 -- 526,464
--------- --------- --------- --------- --------- --------- ---------
Gross profit ...................... 60,240 8,635 (6,050) 1,634 1,732 -- 66,191
Selling, general and
administrative .................... 50,508 5,736 1,425 136 989 -- 58,794
Restructuring and impairment
charges ......................... 615 -- -- -- -- -- 615
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from
operations ...................... 9,117 2,899 (7,475) 1,498 743 -- 6,782
Interest (income) expense, net .... (2,017) (136) -- -- 11 -- (2,142)
Gain on legal settlements ......... -- -- (2,134) -- -- -- (2,134)
Gain on sale of investment ........ -- -- -- (346) -- -- (346)
Equity in loss (earnings)
of affiliated companies ......... 62 -- -- 199 -- (270) (9)
Minority interest in earnings
of subsidiaries ................. 374 -- -- -- 185 -- 559
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income
taxes ........................... 10,698 3,035 (5,341) 1,645 547 270 10,854
Income tax expense ................ -- -- -- -- 156 -- 156
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) ............... $ 10,698 $ 3,035 $ (5,341) $ 1,645 $ 391 $ 270 $ 10,698
========= ========= ========= ========= ========= ========= =========
30
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
Net sales ......................... $ 1,052,239 $ 90,617 $ -- $ 26,195 $ 24,704 $ -- $ 1,193,755
Cost of sales ..................... 919,975 79,122 12,115 22,569 21,529 -- 1,055,310
----------- -------- --------- --------- -------- -------- -----------
Gross profit ...................... 132,264 11,495 (12,115) 3,626 3,175 -- 138,445
Selling, general and
administrative .................... 106,422 7,376 1,576 176 1,888 -- 117,438
Restructuring and impairment
charges ......................... 707 -- -- -- -- -- 707
----------- -------- --------- --------- -------- -------- -----------
Earnings (loss) from
operations ........................ 25,135 4,119 (13,691) 3,450 1,287 -- 20,300
Interest (income) expense, net .... (3,280) -- -- -- 31 -- (3,249)
Gain on legal settlements ......... -- -- (3,002) -- -- -- (3,002)
Gain on sale of investment ........ -- -- -- (846) -- -- (846)
Equity in loss (earnings)
of affiliated companies ......... 1,148 -- -- 269 -- (1,973) (556)
Minority interest in earnings
of subsidiaries ................. 371 -- -- -- 368 -- 739
----------- -------- --------- --------- -------- -------- -----------
Earnings (loss) before income
taxes ........................... 26,896 4,119 (10,689) 4,027 888 1,973 27,214
Income tax expense ................ -- -- -- -- 318 -- 318
----------- -------- --------- --------- -------- -------- -----------
Net earnings (loss) ............... $ 26,896 $ 4,119 $ (10,689) $ 4,027 $ 570 $ 1,973 $ 26,896
=========== ======== ========= ========= ======== ======== ===========
31
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2003
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ................ $ 26,896 $ 4,119 $ (10,689) $ 4,027 $ 570 $ 1,973 $ 26,896
Adjustments to reconcile net
earnings (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization .... 6,970 778 12,115 18 270 -- 20,151
Bad debt expense ................. 1,139 -- -- -- -- -- 1,139
Receivable from legal settlement . 6,000 -- -- -- -- -- 6,000
Decrease (increase) in other
assets .......................... 474 6 -- -- 709 (1,000) 189
(Decrease) increase in other
liabilities ..................... (6,836) (185) -- -- 474 4,451 (2,096)
Restructuring and impairment
charges ......................... 707 -- -- -- -- -- 707
Equity in loss (earnings) of
affiliated companies ............ 1,148 -- -- 269 -- (1,973) (556)
Minority interest ................ 371 -- -- -- 368 -- 739
Gain on sale of investment ....... -- -- -- (846) -- -- (846)
Changes in current assets and
liabilities, net of acquisitions
and divestitures:
Receivables ...................... 208,947 (15,778) -- 665 (80) (127,070) 66,684
Inventories ...................... (2,912) 338 -- 916 237 -- (1,421)
Other current assets ............. 2,197 6 -- (11) (29) -- 2,163
Accounts payable ................. (149,866) 5,352 -- (633) 1,550 106,525 (37,072)
Accrued expenses ................. (13,785) (1,800) -- (448) (1,182) -- (17,215)
--------- --------- --------- ------- ------- --------- ---------
Net cash provided (used) by
operating activities ............. 81,450 (7,164) 1,426 3,957 2,887 (17,094) 65,462
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ......................... (9,143) (114) -- -- (434) -- (9,691)
Proceeds from sale of investments .. 3,000 -- -- -- -- -- 3,000
Proceeds from sale of property,
plant and equipment .............. 87 -- 1,141 -- 99 -- 1,327
Other .............................. 965 -- 1,575 -- -- -- 2,540
--------- --------- --------- ------- ------- --------- ---------
Net cash (used) provided by
investing activities ............. (5,091) (114) 2,716 -- (335) -- (2,824)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in
short-term debt .................. (1,378) -- -- -- (2,341) 2,341 (1,378)
Proceeds from note receivable from
Land O'Lakes, Inc. ............... 239,934 -- -- -- -- -- 239,934
Payments on note payable to Land
O'Lakes, Inc. .................... (299,522) -- -- -- (2,028) -- (301,550)
Distributions from Purina
Mills, LLC ....................... -- -- (10,726) (4,027) -- 14,753 --
--------- --------- --------- ------- ------- --------- ---------
Net cash (used) provided by
financing activities ............. (60,966) -- -- -- (4,369) 17,094 (62,994)
--------- --------- --------- ------- ------- --------- ---------
Net increase (decrease) in cash and
short-term investments ........... 15,393 (7,278) (6,584) (70) (1,817) -- (356)
Cash and short-term investments at
beginning of period .............. (15,393) 7,278 6,584 70 1,817 -- 356
--------- --------- --------- ------- ------- --------- ---------
Cash and short-term investments at
end of period .................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
========= ========= ========= ======= ======= ========= =========
32
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING BALANCE SHEET
DECEMBER 31, 2002
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
ASSETS
Current assets:
Cash and short-term
investments .................... $ (15,393) $ 7,278 $ 6,550 $ 70 $ 1,817 $ -- $ 356
Receivables, net ................ 173,416 20,156 22,509 1,367 6,428 (96,494) 127,382
Receivable from legal
settlement ..................... -- -- 6,000 -- -- -- 6,000
Inventories ..................... 45,693 15,757 45,109 1,934 4,585 -- 113,078
Prepaid expenses and other
current assets ................. 3,224 322 4,079 -- 210 -- 7,835
Note receivable -- Land
O'Lakes, Inc. .................. 29,493 -- 57,759 -- -- (57,759) 29,493
--------- --------- --------- --------- --------- --------- ---------
Total current assets .......... 236,467 43,513 142,006 3,371 13,040 (154,253) 284,144
Investments ....................... 473,350 258 -- 5,491 2,196 (458,322) 22,973
Property, plant and
equipment, net ................... 83,735 7,530 154,023 1,114 5,337 -- 251,739
Goodwill .......................... 12,815 3,656 105,202 -- 813 -- 122,486
Other intangibles ................. 84 2,639 93,984 -- 97 -- 96,804
Other assets ...................... 7,959 -- 21,553 -- 1,950 (2,700) 28,762
--------- --------- --------- --------- --------- --------- ---------
Total assets .................. $ 814,410 $ 57,596 $ 516,768 $ 9,976 $ 23,433 $(615,275) $ 806,908
========= ========= ========= ========= ========= ========= =========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term
obligations .................... $ 2,000 $ -- $ -- $ -- $ 2,341 $ (2,341) $ 2,000
Accounts payable ................ 190,263 22,803 47,656 5,302 3,656 (148,461) 121,219
Accrued expenses ................ 17,888 2,955 23,822 696 2,773 -- 48,134
--------- --------- --------- --------- --------- --------- ---------
Total current liabilities ..... 210,151 25,758 71,478 5,998 8,770 (150,802) 171,353
Notes payable-- Land
O'Lakes, Inc.-- noncurrent ....... -- 2,700 -- -- -- (2,700) --
Employee benefits and other
liabilities ...................... 1,482 -- 28,411 -- 3,405 (3,451) 29,847
Minority interests ................ -- -- 29 -- 2,931 -- 2,960
Equities:
Contributed capital ............. 515,376 16,272 358,017 8,882 7,420 (390,980) 515,376
Retained earnings
(accumulated deficit) .......... 87,372 12,866 58,862 (4,904) 907 (67,731) 87,372
--------- --------- --------- --------- --------- --------- ---------
Total equities ................ 602,748 29,138 416,879 3,978 8,327 (458,322) 602,748
--------- --------- --------- --------- --------- --------- ---------
Commitments and contingencies
Total liabilities and equities .... $ 814,410 $ 57,596 $ 516,768 $ 9,976 $ 23,433 $(615,275) $ 806,908
========= ========= ========= ========= ========= ========= =========
33
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 2002
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
Net sales ......................... $ 321,348 $ 49,583 $ 192,723 $ 6,813 $ 13,825 $ -- $ 584,292
Cost of sales ..................... 293,063 44,855 158,819 5,039 12,180 -- 513,956
--------- --------- --------- --------- --------- --------- ---------
Gross profit ...................... 28,285 4,728 33,904 1,774 1,645 -- 70,336
Selling, general and
administrative ................... 27,470 3,084 26,341 3,168 1,092 -- 61,155
Restructuring and impairment
charges .......................... 1,041 -- -- -- -- -- 1,041
--------- --------- --------- --------- --------- --------- ---------
(Loss) earnings from operations ... (226) 1,644 7,563 (1,394) 553 -- 8,140
Interest (income) expense, net .... (496) 129 (274) (5) 28 -- (618)
Equity in (earnings) loss of
affiliated companies ............. (7,962) (106) 22 394 -- 7,592 (60)
Minority interest in (loss)
earnings of subsidiaries ......... (133) 206 49 -- 154 -- 276
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income
taxes ............................ 8,365 1,415 7,766 (1,783) 371 (7,592) 8,542
Income tax expense ................ -- -- -- -- 177 -- 177
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) ............... $ 8,365 $ 1,415 $ 7,766 $ (1,783) $ 194 $ (7,592) $ 8,365
========= ========= ========= ========= ========= ========= =========
34
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
Net sales ......................... $ 666,356 $ 88,328 $ 399,831 $ 13,942 $ 27,295 $ -- $1,195,752
Cost of sales ..................... 606,899 79,732 330,952 10,368 24,637 -- 1,052,588
--------- --------- --------- --------- --------- --------- ---------
Gross profit ...................... 59,457 8,596 68,879 3,574 2,658 -- 143,164
Selling, general and
administrative ................... 55,846 5,504 52,060 5,083 2,337 -- 120,830
Restructuring and impairment
charges .......................... 4,476 -- -- -- -- -- 4,476
--------- --------- --------- --------- --------- --------- ---------
(Loss) earnings from operations ... (865) 3,092 16,819 (1,509) 321 -- 17,858
Interest (income) expense, net .... (1,100) 241 (575) (5) 95 -- (1,344)
Gain on sale of intangible ........ (4,184) -- -- -- -- -- (4,184)
Equity in (earnings) loss
of affiliated companies .......... (18,438) -- (57) 634 -- 17,598 (263)
Minority interest in earnings
of subsidiaries .................. -- 206 102 -- 178 -- 486
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income
taxes ............................ 22,857 2,645 17,349 (2,138) 48 (17,598) 23,163
Income tax expense ................ -- -- -- -- 306 -- 306
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss) ............... $ 22,857 $ 2,645 $ 17,349 $ (2,138) $ (258) $ (17,598) $ 22,857
========= ========= ========= ========= ========= ========= =========
35
LAND O'LAKES FARMLAND FEED LLC
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2002
LAND WHOLLY WHOLLY OWNED
O'LAKES OWNED SUBSIDIARIES
FARMLAND SUBSIDIARIES WHOLLY OWNED OF PURINA NON-
FEED LLC OF PURINA MILLS, MILLS, GUARANTOR
PARENT LOLFF LLC LLC PARENT LLC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------ ------------ ------------ ------------ ------------
($ IN THOUSANDS)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) ............. $ 22,857 $ 2,645 $ 17,349 $ (2,138) $ (258) $ (17,598) $ 22,857
Adjustments to reconcile net
earnings (loss) to net cash
provided (used) by operating
activities:
Depreciation and amortization . 7,331 430 15,756 174 386 -- 24,077
Bad debt expense .............. 1,850 -- -- -- -- -- 1,850
Decrease (increase) in other
assets ....................... 25,218 2,787 (3,849) 583 437 (30,923) (5,747)
(Decrease) increase in other
liabilities .................. (213) (3,344) 970 -- 142 -- (2,445)
Restructuring and impairment
charges ...................... 4,476 -- -- -- -- -- 4,476
Equity in (earnings) loss of
affiliated companies ......... (18,438) -- (57) 634 -- 17,598 (263)
Minority interests ............ -- 206 102 -- 178 -- 486
Changes in current assets and
liabilities, net of acquisitions
and divestitures:
Receivables ................... (8,535) (6,032) 7,587 202 (2,308) 28,530 19,444
Inventories ................... (2,315) 1,867 1,980 328 1,807 -- 3,667
Other current assets .......... (2) (183) 1,167 (4) 16 -- 994
Accounts payable .............. 22,773 (2,077) (8,046) (83) (2,708) (36,083) (26,224)
Accrued expenses .............. (4,772) 199 (1,911) 230 98 -- (6,156)
--------- --------- --------- --------- --------- --------- ---------
Net cash provided (used) by
operating activities ........... 50,230 (3,502) 31,048 (74) (2,210) (38,476) 37,016
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and
equipment ...................... (3,369) (331) (4,592) (143) (87) -- (8,522)
Proceeds from sale of investments 681 -- 375 -- -- -- 1,056
Proceeds from sale of property,
plant and equipment ............ 5,585 -- -- -- -- -- 5,585
--------- --------- --------- --------- --------- --------- ---------
Net cash provided (used) by
investing activities ........... 2,897 (331) (4,217) (143) (87) -- (1,881)
CASH FLOWS FROM FINANCING ACTIVITIES:
(Decrease) increase in short-term
debt .......................... (8,962) 6,031 -- -- 1,431 -- (1,500)
Proceeds from note receivable from
Land O'Lakes, Inc. ............. 189,270 -- -- -- -- 38,476 228,196
Payments on note payable to Land
O'Lakes, Inc. .................. (226,374) (1,610) (35,111) -- (1,755) -- (264,850)
--------- --------- --------- --------- --------- --------- ---------
Net cash (used) provided by
financing activities ........... (45,616) 4,421 (35,111) -- (324) 38,476 (38,154)
--------- --------- --------- --------- --------- --------- ---------
Net increase (decrease) in cash . 7,511 588 (8,280) (217) (2,621) -- (3,019)
Cash and short-term investments at
beginning of period .............. (19,774) 4,377 14,156 214 4,046 -- 3,019
--------- --------- --------- --------- --------- --------- ---------
Cash and short-term investments at
end of period .................... $ (12,263) $ 4,965 $ 5,876 $ (3) $ 1,425 $ -- $ --
========= ========= ========= ========= ========= ========= =========
36
PURINA MILLS, LLC
CONSOLIDATED BALANCE SHEETS
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
($ IN THOUSANDS)
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments .......................... $ 205 $ 6,654
Receivables, net ......................................... 828 23,990
Receivable from legal settlement ......................... -- 6,000
Inventories .............................................. 1,418 47,620
Prepaid expenses and other current assets ................ 3,188 4,079
Note receivable from Land O'Lakes Farmland Feed LLC ...... -- 57,759
-------- --------
Total current assets ............................. 5,639 146,102
Investments ................................................ 2,040 5,491
Property, plant and equipment, net ......................... 134,398 156,291
Goodwill ................................................... 60 105,202
Other intangibles .......................................... -- 94,044
Other assets ............................................... -- 21,547
-------- --------
Total assets ..................................... $142,137 $528,677
======== ========
LIABILITIES AND EQUITIES
Current liabilities:
Accounts payable ......................................... 17 53,308
Accrued expenses ......................................... 942 24,995
-------- --------
Total current liabilities ........................ 959 78,303
Employee benefits and other liabilities .................... 1,187 29,493
Minority interests ......................................... 21 29
Equities:
Contributed capital ...................................... 93,045 367,288
Retained earnings ........................................ 46,925 53,564
-------- --------
Total equities ................................... 139,970 420,852
-------- --------
Commitments and contingencies
Total liabilities and equities ............................. $142,137 $528,677
======== ========
See accompanying notes to consolidated financial statements.
37
PURINA MILLS, LLC
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
2003 2002 2003 2002
-------- --------- -------- ---------
($ IN THOUSANDS)
(UNAUDITED)
Net sales ................................... $ 15,685 $ 199,919 $ 28,313 $ 414,782
Cost of sales ............................... 19,965 164,079 36,615 342,073
-------- --------- -------- ---------
Gross profit (loss) ......................... (4,280) 35,840 (8,302) 72,709
Selling, general and administrative ......... 1,692 29,741 1,908 57,554
-------- --------- -------- ---------
(Loss) earnings from operations ............. (5,972) 6,099 (10,210) 15,155
Interest (income) expense, net .............. -- (276) 3 (564)
Gain on legal settlements ................... (2,134) -- (3,002) --
Gain on sale of investment .................. (346) -- (846) --
Equity in loss of affiliated companies ...... 279 416 282 577
Minority interest in earnings (loss) of
subsidiaries .............................. -- 2 (8) 69
-------- --------- -------- ---------
Net (loss) earnings ......................... $ (3,771) $ 5,957 $ (6,639) $ 15,073
======== ========= ======== =========
See accompanying notes to consolidated financial statements.
38
PURINA MILLS, LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED
JUNE 30,
2003 2002
-------- --------
($ IN THOUSANDS)
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings ........................................... $ (6,639) $ 15,073
Adjustments to reconcile net (loss) earnings to net cash
provided by operating activities:
Depreciation and amortization .............................. 12,133 15,930
Increase in other assets ................................... -- (3,266)
(Decrease) increase in other liabilities ................... (463) 970
Equity in loss of affiliated companies ..................... 282 577
Minority interest .......................................... (8) 69
Gain on sale of investment ................................. (846) --
Loss on sale of property, plant and equipment .............. 1,391 --
Other ...................................................... 334 --
Changes in current assets and liabilities, net of
acquisitions and divestitures:
Receivables ................................................ 521 7,904
Inventories ................................................ 1,086 2,308
Other current assets ....................................... 929 1,163
Accounts payable ........................................... (618) (8,129)
Accrued expenses ........................................... (930) (1,681)
-------- --------
Net cash provided by operating activities ..................... 7,172 30,918
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment .................... -- (4,735)
Payments for investments ...................................... -- (22)
Dividends from affiliated companies ........................... 375 --
Proceeds from sale of investments ............................. 3,000 397
Proceeds from sale of property, plant and equipment ........... 1,141 --
-------- --------
Net cash provided (used) by investing activities ............ 4,516 (4,360)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on note payable to Land O'Lakes
Farmland Feed LLC .......................................... -- (35,111)
Cash distribution to parent ................................... (18,137) --
Other ......................................................... -- 56
-------- --------
Net cash used by financing activities ......................... (18,137) (35,055)
-------- --------
Net decrease in cash and short-term investments ............... (6,449) (8,497)
Cash and short-term investments at beginning of period .......... 6,654 14,370
-------- --------
Cash and short-term investments at end of period ................ $ 205 $ 5,873
======== ========
See accompanying notes to consolidated financial statements.
39
PURINA MILLS, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
($ IN THOUSANDS IN TABLES)
(UNAUDITED)
1. ORGANIZATION
Purina Mills, LLC ("the Company") was established in October, 2001
through the merger of Purina Mills, Inc. with a wholly-owned subsidiary of Land
O'Lakes, Inc. As a result of the merger, Purina Mills, Inc. was reorganized as a
limited liability company, renamed Purina Mills, LLC, and was contributed to
Land O'Lakes Farmland Feed LLC ("Land O'Lakes Farmland Feed") on October 11,
2001.
Since October 2001, Land O'Lakes Farmland Feed has been integrating the
Company's operations into its own to decrease operating costs and to generate
other integration-related synergies. In January 2003, Nestle Purina PetCare
Company ("NPPC") consented to the transfer of the Purina license from the
Company to Land O'Lakes Farmland Feed. This transfer granted Land O'Lakes
Farmland Feed the exclusive right to use the Purina, Chow and the "Checkerboard"
Nine Square logo on a perpetual, royalty-free basis. In connection with the
transfer of the Purina license beginning January 1, 2003, the Company also
transferred most of its operations and distributed most of its net assets to its
parent, Land O'Lakes Farmland Feed. At June 30, 2003, the Company still owns a
significant amount of property, plant, and equipment assets which generated no
revenue for the Company, as these assets are operated and controlled by Land
O'Lakes Farmland Feed.
2. STATEMENT PRESENTATION
The consolidated financial statements include the accounts of the
Company and wholly-owned and majority-owned subsidiaries and limited liability
companies. Intercompany balances and transactions have been eliminated. The
Company's parent company, Land O'Lakes Farmland Feed, conducts its operations
using property, plant, and equipment assets of the Company. Accordingly, the
consolidated financial statements reflect depreciation expense associated with
these assets for which no reimbursement is received from the parent company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements reflect, in the opinion
of the management of Purina Mills, LLC, 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 statements are condensed,
and therefore do not include all of the information and footnotes required by
accounting principles generally accepted in the United States of America for
complete financial statements. For further information, refer to the audited
consolidated financial statements and footnotes for the year ended December 31,
2002 included in our Annual Report on Form 10-K. The results of operations and
cash flows for interim periods are not necessarily indicative of results for a
full year.
4. SUPPLEMENTAL CASH FLOW INFORMATION
On January 1, 2003, in connection with the transfer of the Purina
license, the Company distributed net assets to Land O'Lakes Farmland Feed
through a non-cash transaction. These net assets totaled $256.1 million and are
summarized as follows:
AT
JANUARY 1,
2003
---------
Current assets .............................. $ 131,911
Investments.................................. 1,142
Property, plant, and equipment, net ......... 6,015
Goodwill and other intangibles, net ......... 199,186
Other assets ................................ 21,491
Current liabilities ......................... (75,796)
Other noncurrent liabilities ................ (27,843)
---------
Total net assets distributed ............... $ 256,106
=========
40
5. RECEIVABLES
A summary of receivables is as follows:
JUNE 30, DECEMBER 31,
2003 2002
------- -----------
Trade receivables .............................. $ 192 $ 345
Notes from sale of trade receivables (see
Note 6)....................................... -- 26,717
Other .......................................... 661 3,002
------- -------
853 30,064
Less allowance for doubtful accounts ........... 25 6,074
------- -------
Total receivables, net ......................... $ 828 $23,990
======= =======
6. RECEIVABLES PURCHASE FACILITY
In December 2001, the Company along with Land O'Lakes, Inc. and Land
O'Lakes Farmland Feed, established a $100.0 million receivables purchase
facility with CoBank, ACB ("CoBank"). A wholly-owned, unconsolidated special
purpose entity ("SPE") was established to purchase certain receivables from the
Company, Land O'Lakes and Land O'Lakes Farmland Feed. CoBank had been granted an
interest in the pool of receivables owned by the SPE. Transfers of receivables
from the Company to the SPE were structured as sales and, accordingly, the
receivables transferred to the SPE were not reflected in the consolidated
balance sheet. In 2003, the Company's receivables, except for receivables of its
wholly-owned and majority-owned subsidiaries and limited liability companies,
were distributed to the parent company, Land O'Lakes Farmland Feed. The total
accounts receivable sold by the Company during the six months ended June 30,
2003 and 2002 were $0.0 million and $458.4 million, respectively.
7. INVENTORIES
A summary of inventories is as follows:
JUNE 30, DECEMBER 31,
2003 2002
-------- ------------
Raw materials .................................. $ 674 $33,207
Finished goods ................................. 744 14,413
------- -------
Total inventories .............................. $ 1,418 $47,620
======= =======
8. INVESTMENTS
The Company's investments are as follows:
JUNE 30, DECEMBER 31,
2003 2002
-------- ---------
Y-Not, LLC ..................................... $ 655 $ 579
Eastern Block, Inc. ............................ 516 524
Eastgate Feed and Grain, LLC ................... 333 296
Harmony Farms, LLC ............................. -- 2,435
ESSV, LLC ...................................... -- 893
Other .......................................... 536 764
------- -------
Total investments .............................. $ 2,040 $ 5,491
======= =======
During the six months ended June 30, 2003, the Company sold its interest in
Harmony Farms, LLC and ESSV, LLC for $3.0 million in cash and recorded a $0.8
million gain on the sale. On January 1, 2003 certain other investments were
distributed to the Company's parent, Land O'Lakes Farmland Feed.
9. GOODWILL AND OTHER INTANGIBLE ASSETS
GOODWILL The changes in the carrying amount of goodwill for the six months ended
June 30, 2003, are as follows:
Balance as of January 1, 2003.......... $ 105,202
Distribution to parent company......... (105,142)
-----------
Balance as of June 30, 2003............ $ 60
===========
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On January 1, 2003, goodwill for the Company was distributed to the
parent company, Land O'Lakes Farmland Feed.
OTHER INTANGIBLE ASSETS A summary of other intangible assets is as follows:
JUNE 30, DECEMBER 31,
2003 2002
------- -----------
Amortized other intangible assets:
Patents, less accumulated amortization of $0 and $1,395, respectively .................. $ -- $14,978
Other intangible assets, less accumulated amortization of $0 and $670, respectively .... -- 2,103
------- -------
Total amortized other intangible assets .................................................. -- 17,081
Total non-amortized other intangible assets-trademarks ................................... -- 76,963
------- -------
Total other intangible assets ............................................................ $ -- $94,044
======= =======
Amortization expense for the six months ended June 30, 2003 and 2002
was $0.0 million and $1.0 million, respectively. On January 1, 2003, other
intangible assets of the Company were distributed to the parent company, Land
O'Lakes Farmland Feed.
10. GAIN ON LEGAL SETTLEMENTS
The Company recognized a gain on legal settlements of $3.0 million and
$0.0 million for the six months ended June 30, 2003 and 2002, respectively,
related to the litigation with vitamin product suppliers against whom the
Company alleged certain price-fixing claims.
11. COMMITMENTS AND CONTINGENCIES
GUARANTEE OF PARENT DEBT
In November 2001, Land O'Lakes, Inc. issued $350 million of senior
unsecured notes, due 2011. The notes are guaranteed by the Company and by
certain of its domestic wholly-owned subsidiaries.
This guarantee is a general unsecured obligation, ranks equally in
right of payment with all existing and future senior indebtedness of Land
O'Lakes, is senior in right of payment to all existing and future subordinated
obligations of Land O'Lakes, and is effectively subordinated to any secured
indebtedness of Land O'Lakes and its subsidiaries, including the Company, to the
extent of the value of the assets securing such indebtedness. The maximum
potential amount of future payments that the Company would be required to make
is $350 million as of June 30, 2003. Currently, the Company does not record a
liability regarding the guarantee. The Company has no recourse provision that
would enable it to recover amounts paid under the guarantee from Land O'Lakes,
Inc. or any other parties.
The notes are not guaranteed by certain majority-owned subsidiaries of
the Company (the "Non-Guarantors"). Summarized financial information of the
Non-Guarantors, which is consolidated in the financial statements of the
Company, as of and for the periods indicated, are as follows:
SIX
MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
2003 2002
------------ ------------
Total assets ................................... $ 1,929 $ 1,933
Net sales ...................................... 2,118 1,859
Net loss ....................................... (20) (625)
In November 2001, Land O'Lakes, Inc. entered into term facilities
consisting of a $325 million five-year Term Loan A facility and a $250 million
seven-year Term Loan B facility. These facilities are unconditionally guaranteed
by the Company and certain of its wholly-owned subsidiaries. The maximum
potential payment related to this guarantee is $448 million as of June 30, 2003.
The Company does not currently record a liability related to the
42
guarantee of the Term Loans, and the Company has no recourse provisions that
would enable it to recover from Land O'Lakes, Inc. or any other parties.
12. RELATED PARTY TRANSACTIONS
The Company records depreciation expense for property, plant, and
equipment assets which are used by the parent company, Land O'Lakes Farmland
Feed, to conduct its business. The Company receives no reimbursement for this
expense, which was $12.1 million for the six months ended June 30, 2003.
For the six months ended June 30, 2003, the Company did not pay for
certain selling, general and administrative expenses. These costs include sales
and marketing support, corporate and other administrative and management costs
which were paid for and expensed by Land O'Lakes Farmland Feed.
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT DESCRIPTION
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*
* Filed electronically herewith
44
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 26th day of April, 2004.
LAND O'LAKES, INC.
By /s/ Daniel Knutson
--------------------------------------------------
Daniel Knutson
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
45