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LAND O'LAKES, INC.
NEWS RELEASE
FOR MORE INFORMATION, CONTACT:
Lydia Botham - 651-481-2123
Dave Karpinski - 651-481-2360
LAND O'LAKES REPORTS THIRD-QUARTER RESULTS
Year-to-date net earnings $130.6 million, net sales $5.6 billion
October 24, 2005 (Arden Hills, Minn.) - Land O'Lakes, Inc., today reported its
third-quarter and year-to-date financial results, while also commenting on
individual business unit performance and progress against key strategic
initiatives. Year-to-date, sales are $5.6 billion with net earnings of $130.6
million, compared to sales of $5.8 billion and net earnings of $32.0 million in
the first nine months of 2004. Third-quarter and year-to-date results include a
positive net earnings impact of $82.6 million due to the gain from the sale of
the company's 38-percent ownership in CF Industries, Inc. (fertilizer
manufacturing).
Year-to-date results reflect improved earnings in Dairy Foods, Feed and Seed.
These gains were offset somewhat by losses in the eggs business, the result of
depressed markets in that segment. Year-to-date financial results also include
$8.6 million in unrealized pretax hedging gains, versus unrealized pretax
hedging losses of $28.3 million over the first nine months of 2004. Under
Generally Accepted Accounting Principles (GAAP), these hedging transactions must
be marked-to-market at the end of each accounting period, but the offsetting
impact to the underlying commodity exposure is not recognized until the hedged
commodity is subsequently bought or sold.
For the third quarter, Land O'Lakes is reporting $1.7 billion in sales and net
earnings of $80.4 million, compared to $1.8 billion in sales and a net loss of
$29.9 million in 2004. Third-quarter results include unrealized pretax hedging
gains of approximately $0.7 million, as compared to unrealized pretax hedging
losses of $19.9 million for the third quarter of 2004. Both the year-to-date and
third-quarter sales declines are due primarily to weak egg markets, with average
egg prices over the first three quarters down 27% from one year ago. Company
officials have indicated in the past that the third quarter is historically the
company's weakest, falling after the spring Agronomy and Seed season and before
the strong holiday season for Dairy Foods. Historically, the fourth quarter is
typically the company's strongest.
Bank EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization, as
defined in the company's senior credit agreement) in the third quarter was $92.1
million, versus $47.8 million in the third quarter of 2004. For the first nine
months of 2005, Bank EBITDA was $187.3 million, versus $135.5 million last year.
EBIDTA for 2005 was significantly affected by the sale of the company's
ownership in CF Industries. Excluding the CF industries sale, year-to-date Bank
EBIDTA was $131.5 million. Land O'Lakes indicated that it was increasing its
full-year Bank EBITDA forecast from $240 million to $300 million, which includes
the impact of the CF industries sale.
Land O'Lakes reported on its progress against its key strategic initiatives in
the areas of debt reduction, growth in branded businesses and portfolio
management.
STRATEGIC INITIATIVES
Paying down debt. Total balance sheet debt, including capital leases, was $879
million at the end of the quarter, a $217 million improvement over December 31,
2004. The company voluntarily reduced term debt by $90 million in the third
quarter.
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Land O'Lakes Financials - Page 2 of 4
The company maintained strong liquidity, ending the quarter with a combination
of cash-on-hand and unused borrowing authority of approximately $450 million, as
compared to approximately $200 million at the end of the third quarter 2004. The
company significantly improved its Long-term Debt to Capital ratio, which is at
46.3% as of September 30, 2005, versus 51.1% September 30, 2004.
GROWING BRANDED BUSINESSES. Land O'Lakes innovative, branded products, like
LAND O LAKES(R) Spreadable Butter with Canola Oil and LAND O LAKES(R) Light
Butter with Canola Oil, continue to perform well. In addition, the company
recently launched a new FlavorProtect(TM) wrapper for its flagship butter, and
early indications are that the new wrapper, designed to protect butter flavor
and keep refrigerator odors out, is being well received.
In Ag Services, Land O'Lakes CROPLAN GENETICS brand is helping drive strong
performance in Seed; the company launched RoundUp Ready(R) alfalfa (developed in
collaboration with Monsanto) in June; sales for the AgriSolutions-branded crop
protection product line continue to grow; the company has completed the roll-out
of its new Lake Country feed brand for local cooperatives; and the strength of
the company's LAND O LAKES(R) and Purina(R) feed brands is fueling growth in
lifestyle feeds and helping build market momentum for branded and proprietary
products like Rally(TM) dairy feed and Cow's Match(TM) Calf Growth Formula .
PROACTIVE PORTFOLIO MANAGEMENT. Land O'Lakes continued efforts to intensify the
focus of its business portfolio, with the third-quarter sale of its ownership in
CF Industries. That sale, through a public stock offering, brought $315 million
in cash to the company, representing a $102 million pretax gain.
Earlier in the year, the company also completed the sale of its swine business.
Year-to-date proceeds from asset rationalization efforts are $380 million.
DAIRY FOODS
Dairy Foods sales through September were $2.8 billion, as compared to $2.9
billion on year ago. Sales for the quarter totaled $952 million, basically flat
versus the third quarter of 2004.
Dairy Foods is reporting a pretax loss of $5.9 million through September, a $5.8
million improvement over the first three quarters of 2004. For the third
quarter, the company reported $3.1 million in earnings in Dairy Foods, as
compared to a $3.7 million pretax loss for the third quarter of 2004.
From a volume perspective, year-to-date retail butter volume was up 2% versus
2004, although branded butter was down 4%. Total butter and spreads volumes was
flat versus one year ago, as was total cheese volume, where a 4% increase in
Deli Cheese volume was offset by a volume decline in Dairy Case cheese.
FEED
Feed sales through September were $1.9 billion, down slightly from $2.0 billion
one year ago. Year-to-date, Feed is reporting pretax earnings of $18.9 million,
versus a $21.2 million pretax loss for the first three-quarters of 2004. Feed
earnings were affected by $2.7 million in unrealized pretax hedging gains,
versus $15.8 million in unrealized pretax hedging losses through September of
2004.
For the third quarter, Feed reported $624 million in sales and pretax earnings
of $0.9 million, as compared to sales of $666 million and a pretax loss of $17.2
million one year ago.
Year-to-date Feed volumes were down 6% in the livestock segment, up 3% in
lifestyle feeds, up 12% in milk replacers; and up 3% in ingredients.
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Land O'Lakes Financials-Page 3 of 4
EGGS
Depressed markets had a significant impact on the company's performance in the
Eggs business, which Land O'Lakes participates in through its MoArk joint
venture. Average eggs prices over the first three quarters were 69-cents per
dozen, as compared to 95-cents per dozen over the same period one year ago.
Year-to-date, the joint venture is reporting $287 million in sales and a $27.6
million pretax loss, as compared to $430 million in sales and $27.0 million in
pretax earnings through September 2004. For the third quarter, the joint venture
is reporting $96 million in sales and a $5.3 million pretax loss, as compared to
$111 million in sales and $9.9 million pretax loss for the third quarter of
2004.
Year-to-date, volumes are up slightly in both shell eggs and processed egg
products.
SEED
Seed is reporting $548 million in sales and $31.0 million in pretax earnings
through the third quarter, as compared to $423 million in sales and $13.9
million in pretax earnings one year ago. Seed results included $0.9 million in
unrealized pretax hedging losses, as compared to $6.5 million in unrealized
pretax hedging losses one year ago. For the third quarter, Seed sales are $42
million, with $0.4 million in pretax earnings. In the third quarter of 2004,
Seed reported $49 million in sales and a $3.3 million pretax loss.
Volumes through September are up 23% in corn, 22% in soybeans and 21% in
alfalfa.
AGRONOMY
Land O'Lakes is reporting $115.5 million in pretax earnings in Agronomy through
September, generated primarily through its 50-percent ownership in the
Agriliance joint venture. These earnings included a third-quarter pretax gain of
$87.5 million related to the sale of the company's ownership in CF Industries,
net of related expenses. For the first nine months of 2004, the company reported
$29.5 million in Agronomy pretax earnings. For the quarter, Agronomy is
reporting $81.0 million in pretax earnings, as compared to an $8.5 million
pretax loss one year ago. Notably, Agriliance (which operates on a September
1-August 31 fiscal year) finished its most recent fiscal year with a record
$77.1 million in pretax earnings, its fifth consecutive year of increased
earnings.
INVESTOR CALL
Land O'Lakes, Inc. third quarter earnings call for investors will begin at 1:00
p.m., Eastern Time, Monday, October 24, 2005. Presentation materials related to
the call will be made available on Monday morning at Land O'Lakes Web site,
www.landolakesinc.com, under the heading "Our Company," then "Investor Call" and
will be available through November 7, 2005.
The dial-in numbers are:
USA - 1-800-707-9628
International - 1-785-832-1508
Passcode: LANDOLAKES
A replay of the conference call will be available through November 7, 2005, at:
USA - 1-800-283-4593
International - 1-402-220-0872
The replay access ID is 7245
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Land O'Lakes Financials-Page 4 of 4
Land O'Lakes is a national, farmer-owned food and agricultural cooperative, with
annual sales of more than $7 billion. Land O'Lakes does business in all fifty
states and more than fifty countries. It is a leading marketer of a full line of
dairy-based consumer, foodservice and food ingredient products across the United
States; serves its international customers with a variety of food and animal
feed ingredients; and provides farmers and local cooperatives with an extensive
line of agricultural supplies (feed, seed, crop nutrients and crop protection
products) and services.
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CAUTIONARY STATEMENT
This document contains forward-looking statements within the meaning of The
Private Securities Litigation Reform Act of 1995 that are based on management's
current expectations and assumptions. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from the potential results discussed in the forward-looking
statements. Specifically, management's expectations about strong fourth-quarter
performance could be affected by, among other things, changes in consumer
preferences, industry competition and elevated energy costs. For a further
discussion of important risk factors that may materially affect management's
estimates and Land O'Lakes results, please see the risk factors contained in
Land O'Lakes Annual Report filed on Form 10-K for the year ended December 31,
2004 which can be found, free of charge, on the Securities and Exchange
Commission web site (www.sec.gov) and the company's website
(www.landolakesinc.com).
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LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
SEPTEMEBER 30, DECEMBER 31,
2005 2004
-------------------------------
(UNAUDITED)
ASSETS
Current assets:
Cash and short-term investments $ 111,173 $ 73,136
Restricted cash -- 20,338
Receivables, net 523,749 558,841
Inventories 521,989 454,015
Prepaid expenses 27,149 284,484
Other current assets 29,168 73,560
----------- -----------
Total current assets 1,213,228 1,464,374
Investments 304,111 470,550
Property, plant and equipment, net 671,878 610,012
Property under capital lease, net 10,763 100,179
Goodwill 330,786 331,582
Other intangibles 97,652 99,016
Other assets 103,097 124,069
----------- -----------
Total assets $ 2,731,515 $ 3,199,782
=========== ===========
LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations $ 60,013 $ 51,753
Current portion of long-term debt 8,091 10,680
Current portion of obligations under capital lease 1,861 10,378
Accounts payable 437,477 813,328
Accrued expenses 244,457 228,435
Patronage refunds and other member equities payable 58,207 22,317
----------- -----------
Total current liabilities 810,106 1,136,891
Long-term debt 801,034 933,236
Obligations under capital lease 8,486 90,524
Employee benefits and other liabilities 184,150 174,877
Minority interests 9,637 9,350
Equities:
Capital stock 2,014 2,059
Member equities 897,281 852,759
Accumulated other comprehensive loss (68,912) (73,792)
Retained earnings 87,719 73,878
----------- -----------
Total equities 918,102 854,904
----------- -----------
Commitments and contingencies
-----------
Total liabilities and equities $ 2,731,515 $ 3,199,782
=========== ===========
</Table>
LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------------------- -----------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 1,716,689 $ 1,780,170 $ 5,571,207 $ 5,778,860
Cost of sales 1,589,460 1,686,833 5,135,047 5,372,349
----------- ----------- ----------- -----------
Gross profit
127,229 93,337 436,160 406,511
Selling, general and administrative 128,111 112,227 384,207 370,129
Restructuring and impairment (recoveries) charges -- (273) 1,024 2,217
----------- ----------- ----------- -----------
(Loss) earnings from operations
(882) (18,617) 50,929 34,165
Interest expense, net 19,288 19,495 62,350 62,547
Other expense (income), net -- 269 (1,385) (5,877)
Gain on sale of investment in CF Industries (102,446) -- (102,446) --
Equity in loss (earnings) of affiliated companies 1,709 4,232 (42,070) (61,675)
Minority interest in earnings of subsidiaries 142 203 959 1,323
----------- ----------- ----------- -----------
Earnings (loss) before income taxes and discontinued
operations 80,425 (42,816) 133,521 37,847
Income tax expense (benefit) 6 (14,836) 4,972 (430)
----------- ----------- ----------- -----------
Earnings (loss) from continuing operations
80,419 (27,980) 128,549 38,277
Earnings (loss) from discontinued operations, net of
income taxes 19 (1,903) 2,032 (6,291)
----------- ----------- ----------- -----------
Net earnings (loss) $ 80,438 $ (29,883) $ 130,581 $ 31,986
=========== =========== =========== ===========
</Table>
LAND O'LAKES, INC.
Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------
2005 2004
-------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 130,581 $ 31,986
(Earnings) loss from discontinued operations, net of income taxes (2,032) 6,291
Adjustments to reconcile net earnings to net
cash (used) provided by operating activities:
Depreciation and amortization 74,539 81,353
Amortization of deferred financing costs 5,768 4,632
Bad debt expense 1,122 1,170
Proceeds from patronage revolvement received 3,428 3,686
Non-cash patronage income (958) (1,116)
Deferred income tax expense (benefit) 5,183 (1,154)
Decrease in other assets 8,000 1,722
Increase in other liabilities 3,025 1,439
Restructuring and impairment charges 1,024 2,217
Gain from divestiture of business - (1,636)
Gain on sale of investment in CF Industries (102,446) -
Equity in earnings of affiliated companies (42,070) (61,675)
Minority interests 959 1,323
Other (5,849) (1,569)
Changes in current assets and liabilities, net of acquisitions and
divestitures:
Receivables 32,963 294,182
Inventories (70,112) (27,434)
Other current assets 256,076 203,173
Accounts payable (376,568) (342,368)
Accrued expenses 58,560 (1,204)
- -------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (18,807) 195,018
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (44,465) (68,163)
Acquisitions (42,892) (12,150)
Payments for investments (4,893) (692)
Proceeds from sale of investments 316,448 467
Net proceeds from divestiture of businesses 2,635 7,500
Proceeds from sale of property, plant and equipment 17,942 8,841
Dividends from investments in affiliated companies 5,038 35,155
Decrease (increase) in restricted cash 20,338 (146)
Other 368 523
- -------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 270,519 (28,665)
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in short-term debt (203) (28,829)
Proceeds from issuance of long-term debt 1,751 17,293
Principal payments on long-term debt (135,265) (144,317)
Principal payments on obligations under capital lease (91,859) (7,810)
Payments for debt issuance costs - (4,321)
Payments for redemption of member equities (33,897) (32,886)
Other (279) (119)
- -------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (259,752) (200,989)
NET CASH PROVIDED (USED) BY DISCONTINUED OPERATIONS 46,077 (1,857)
- -------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 38,037 (36,493)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF THE PERIOD 73,136 110,274
- -------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS AT END OF THE PERIOD $ 111,173 $ 73,781
=============================================================================================================
LAND O'LAKES, INC.
EBITDA
($ in thousands)
(Unaudited)
TWELVE
MONTHS
NINE MONTHS ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------------ ----------------
2005 2004 2005
- -------------------------------------------------------- -------------- -------------- ----------------
NET EARNINGS $ 130,581 $ 31,986 $ 120,029
Income taxes expense (benefit) 4,972 (430) 6,806
Minority interest in earnings of subsidiaries 959 1,323 1,284
Equity in earnings of affiliated companies (42,070) (61,675) (38,807)
Interest expense, net 62,350 62,547 82,917
Cash patronage income 2,601 3,013 4,842
Joint venture cash distributions 4,361 34,694 19,452
Depreciation and amortization 74,539 81,353 100,400
Non-cash impairment charges 1,344 2,571 4,148
One-time items (excluded) included in bank EBITDA (32,790) (885) 3,021
Restructuring charges less cash paid (1,978) (1,702) 2,092
Unrealized hedging (gain) loss (8,957) 28,350 (13,795)
Unrestricted entities - EBITDA (8,628) (45,606) (13,180)
- -------------------------------------------------------- -------------- -------------- ----------------
BANK EBITDA (1) $ 187,284 $ 135,539 $ 279,209
======================================================== ============== ============== ================
BANK COVENANTS LTM 9/30/05
Interest expense coverage ratio - required > 2.5 4.11 x
-
Leverage ratio - required < 4.5 2.14 x
-
Consolidated cash interest expense (2)
INTEREST EXPENSE $ 82,917
Unrestricted subs interest expense (13,558)
Interest earned 6,986
Change in accrued interest (88)
Interest in discontinued operations 990
Interest accretion (2,489)
Non-cash amortized financing costs (6,784)
----------------
TOTAL BANK CONSOLIDATED CASH INTEREST EXPENSE $ 67,974
================
Consolidated Indebtedness (3)
TOTAL INDEBTEDNESS (INCLUDES CAPITAL LEASES AND CAPITAL SECURITIES) $ 879,485
Less capital securities (190,700)
Less MoArk capital lease (10,033)
Less MoArk debt (71,118)
Less other unrestricted subs debt (8,938)
----------------
TOTAL BANK CONSOLIDATED INDEBTEDNESS 598,696
================
(1) As calculated as per the Senior Credit Agreements.
(2) Dividends on capital securities are included in interest expense.
(3) Capital securities and external debt of unrestricted subsidiaries are
excluded from the bank indebtedness calculation as per the Senior Credit
Agreements.