EXHIBIT 99.1
LAND O'LAKES
NEWS RELEASE
FOR MORE INFORMATION CONTACT:
Lydia Botham 651-481-2123
David Karpinski 651-481-2360
LAND O'LAKES REPORTS 2005 FINANCIALS
Net sales of $7.6 billion, net earnings of $128.9 million
February 7, 2006 (Arden Hills, MN) ... Land O'Lakes, Inc. today reported 2005
net earnings of $128.9 million, compared to $21.4 million for 2004. Company
officials indicated that 2005 earnings were bolstered by a $69.7 million
after-tax gain, net of related expenses, on the third-quarter sale of the
company's 38-percent interest in CF Industries (domestic fertilizer
manufacturing). Full-year 2005 results included unrealized hedging gains of $5.3
million, versus unrealized hedging losses of $23.1 million in 2004.
For the fourth quarter, Land O'Lakes reported a net loss of $1.6 million,
compared to a net loss of $10.6 million for the fourth quarter of 2004.
Earnings Before Interest, Taxes, Depreciation and Amortization, as defined in
the company's senior credit facilities (Bank EBITDA), for the quarter was $84.5
million, down from $91.9 million for the fourth quarter of 2004. Company
officials indicated the decline was related to debt reduction efforts,
specifically an $11 million one-time charge related to the fourth-quarter tender
to repurchase $149 million of the company's 8 3/4% unsecured bonds. For the
full year, Bank EBITDA was $271.8 million, compared to $227.5 million for 2004.
Sales in 2005 totaled $7.6 billion, a 1-percent decrease from 2004 sales of $7.7
billion. Fourth quarter sales of $2.0 billion represented a 6-percent increase
over the fourth quarter of 2004.
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Land O'Lakes Financials - Page 2 of 6
Overall, the company reported strong and improved performance in its Feed, Seed
and Agronomy businesses, and solid performance in its Dairy Foods value-added
product categories. This positive performance was partially offset by losses in
its Layers business and Dairy Foods manufacturing operations.
The company also reported significant progress against its key strategic
initiatives of paying down debt and building balance sheet strength, portfolio
management and building its branded businesses.
STRATEGIC INITIATIVES
Paying down debt/building balance sheet strength
Land O'Lakes reduced total debt by approximately $350 million in 2005. The
company ended the year with a significantly improved long-term debt-to-capital
ratio (from 51.9% at the end of 2004 to 41.3% at the end of 2005) and strong
liquidity ($521 million in cash-on-hand and unused borrowing authority). In the
second half of the year, Moody's and Standard and Poor's each upgraded the
company's financial ratings, with both agencies indicating their ratings carried
a positive outlook.
Proactive portfolio management
The company reported progress on several key portfolio initiatives designed to
reposition non-strategic or underperforming assets in 2005. Successful
initiatives included the sales of the company's swine production assets and its
38-percent ownership in CF Industries, Inc. In total, the company generated $385
million in cash from asset dispositions in 2005.
Building branded businesses
The company reported positive performance in its branded and proprietary
businesses and products lines, including the LAND O LAKES(R) brand in Dairy
Foods, Feed and Eggs; the Purina(R) and Lake Country(TM) brands in Feed; CROPLAN
GENETICS(R) in Seed; and AgriSolutions(TM) in Agronomy. Among the 2005
highlights:
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Land O'Lakes Financials - Page 3 of 6
- In Dairy Foods, the launching of LAND O LAKES(R) Light Butter with
Canola Oil and the introduction of a new FlavorProtect(TM) wrapper
for the company's flagship LAND O LAKES(R) Butter;
- In Feed, the launch of such diverse new products as Cornerstone full
growth milk replacer; RangeLand(TM) all-weather beef mineral; and
Ultium(TM) Competition Horse Formula.
- In Seed, the rollout of Roundup Ready(R) Alfalfa, developed in a
10-year collaboration with Monsanto.
DAIRY FOODS
Dairy Foods reported $6.3 million in pretax earnings for the fourth quarter and
$0.4 million for the year, as compared to 2004's pretax earnings of $28.1
million for the fourth quarter and $16.5 million for the year. Dairy Foods
reported sales of $1.06 billion for the quarter and $3.9 billion for the year,
as compared to $1.06 billion and $4.0 billion, respectively, in 2004. Dairy
Foods 2005 earnings included an unrealized hedging loss of $4.2 million, as
compared to an unrealized hedging loss of $2.6 million one year ago.
From a volume perspective, full-year volume in butter and spreads was up 1%,
deli cheese up 2% and total cheese up 1% versus 2004.
The company continued to face significant challenges in its Dairy Foods
manufacturing operations, the result of industry-wide milk supply/processing
demand balance issues, significantly higher energy costs (up more than $10
million year-over-year) and weak whey and mozzarella margins.
Financial performance was improved at the company's Cheese and Protein
International cheese and whey processing facility, which became wholly owned in
December. The company continued to focus on restructuring aimed at a
right-sized, strategically located, profitable manufacturing infrastructure.
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Land O'Lakes Financials - Page 4 of 6
As part of that effort, earlier this month, the company announced plans to close
its Greenwood, Wis., cheddar cheese manufacturing facility, which operated at a
$5 million pretax loss in 2005. The company took a $3.6 million charge against
earnings at the end of 2005 for severance and asset write-downs related to this
plant closing.
FEED
Feed reported fourth quarter pretax earnings of $17.8 million and full-year
pretax earnings of $36.7 million, compared to pretax earnings of $13.9 million
and pretax loss of $7.3 million, respectively, in 2004. Feed earnings in 2005
included an unrealized hedging gain of $5.8 million, while 2004 earnings
included an unrealized hedging loss of $13.6 million.
Feed sales were $705.5 million for the quarter and $2.6 billion for the year,
compared to $603.4 million for the quarter and $2.6 billion for the full year in
2004.
From a volume perspective, livestock feed volume was down 4%, while all other
segments were up. Lifestyle feed volume was up 2%, milk replacer volume up 11%
and ingredients volume up 4%.
Key factors driving improved earnings were cost control, product mix adjustments
and a partial recovery in the markets.
SEED
Seed delivered strong results in 2005, with full-year pretax earnings of $29.3
million, versus $15.8 million for 2004. For the fourth quarter, Seed reported a
$1.6 million pretax loss, compared to $2.0 million in fourth-quarter earnings
one year ago. Seed sales were $121.1 million for the fourth quarter and $653.9
million for the full year,
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Land O'Lakes Financials - Page 5 of 6
compared to 2004's $109.2 million and $518.8 million, respectively. Seed
recorded an unrealized hedging gain of $0.5 million in 2005, as compared to a
$3.0 million unrealized hedging loss the previous year.
For the year, corn volume was up 26%, alfalfa up 24%, soybeans up 16% and
forages up 16% versus 2004.
LAYERS
The company participates in the Layers segment through Moark, LLC. In this
segment, the company reported a full-year pretax loss of $31.8 million, compared
to pretax earnings of $21.0 million in 2004. For the fourth quarter, the Company
reported a $4.2 million pretax loss in Layers, compared to a pretax loss of $6.0
million in the same quarter one year ago. Results in Layers in 2005 included a
$0.8 million unrealized hedging gain, compared to a $1.1 million unrealized
hedging loss in 2004.
This earnings decline can be attributed to a 23% decline in average egg prices
year over year. Egg prices averaged approximately 72 cents per dozen over 2005,
as compared to 91 cents per dozen in 2004.
Sales for the year were $407.0 million, with fourth quarter sales of $119.9
million. This compares to sales of $541.3 million in 2004, and $111.4 million in
the fourth quarter of last year. The decline in sales dollars, like earnings, is
attributable to lower egg prices.
Shell egg volume was up 3% and processed egg product volume up 2% versus 2004.
As previously announced, Moark, LLC became a wholly owned subsidiary of Land
O'Lakes in January 2006.
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Land O'Lakes Financials - Page 6 of 6
AGRONOMY
Land O'Lakes conducts its Agronomy business primarily through the Agriliance
joint venture, in which Land O'Lakes holds a 50-percent interest. The company
reported $95.5 million in pretax earnings in Agronomy for the year, compared to
a $16.7 million pretax loss in 2004. The 2004 loss included a $36.5 million
non-cash impairment charge related to the company's investment in CF Industries
(fertilizer manufacturing), while 2005's earnings include a $69.7 million
after-tax gain (net of related expenses) on the sale of that investment.
Agronomy results included a $0.2 million unrealized hedging loss at the end of
2005, as compared to an unrealized hedging gain of $0.4 million in 2004.
For the quarter, the company reported a $20.0 million pretax loss in Agronomy,
compared to a $46.3 million loss for the fourth quarter of 2004. Again, the CF
Industries impairment was recorded in the fourth quarter of 2004.
CONFERENCE CALL
Land O'Lakes will discuss these results in a conference call scheduled for 12:00
p.m., Central Time, February 7, 2006. The dial-in numbers are: USA -
1-800-905-0392; International - 1-785-832-1523. The Conference ID is 7LANDO. A
replay of the conference call will be available through February 21, 2006 at:
USA - 1-800-839-9303; International 1-402-220-6083.
Land O'Lakes is a national, farmer-owned food and agricultural cooperative, with
annual sales of more than $7 billion. Land O'Lakes does business in all 50
states and more than 50 countries. It is a leading marketer of a full line of
dairy-based consumer, foodservice and food ingredient products across the United
States; serves its international customers with a variety of food and animal
feed ingredients; and provides farmers and local cooperatives with an extensive
line of agricultural supplies (feed, seed, crop nutrients and crop protection
products) and services.
LAND O'LAKES, INC.
CONSOLIDATED BALANCE SHEETS
($ IN THOUSANDS)
DECEMBER 31, DECEMBER 31,
2005 2004
------------ ------------
ASSETS
Current assets:
Cash and short-term investments $ 179,704 $ 73,136
Restricted cash - 20,338
Receivables, net 591,445 558,841
Inventories 453,135 454,015
Prepaid expenses 333,023 284,484
Other current assets 81,075 73,560
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Total current assets 1,638,382 1,464,374
Investments 263,786 470,550
Property, plant and equipment, net 658,208 610,012
Property under capital lease, net 10,442 100,179
Goodwill 327,059 331,582
Other intangibles 96,767 99,016
Other assets 100,414 124,069
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Total assets $ 3,095,058 $ 3,199,782
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LIABILITIES AND EQUITIES
Current liabilities:
Notes and short-term obligations $ 76,465 $ 51,753
Current portion of long-term debt 22,245 10,680
Current portion of obligations under capital lease 1,676 10,378
Accounts payable 976,959 813,328
Accrued expenses 265,924 228,435
Patronage refunds and other member equities payable 29,622 22,317
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Total current liabilities 1,372,891 1,136,891
Long-term debt 639,168 933,236
Obligations under capital lease 7,634 90,524
Employee benefits and other liabilities 165,796 174,877
Minority interests 6,012 9,350
Equities:
Capital stock 1,967 2,059
Member equities 893,518 852,759
Accumulated other comprehensive loss (75,163) (73,792)
Retained earnings 83,235 73,878
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Total equities 903,557 854,904
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Commitments and contingencies
Total liabilities and equities $ 3,095,058 $ 3,199,782
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LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ IN THOUSANDS)
THREE MONTHS ENDED TWELVE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------------- ---------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Net sales $ 2,001,275 $ 1,891,635 $ 7,556,677 $ 7,656,826
Cost of sales 1,852,418 1,704,438 6,971,660 7,063,118
----------- ----------- ----------- -----------
Gross profit 148,857 187,197 585,017 593,708
Selling, general and administrative 110,764 130,805 494,971 500,935
Restructuring and impairment charges 5,357 5,598 6,381 7,815
----------- ----------- ----------- -----------
Earnings from operations 32,736 50,794 83,665 84,958
Interest expense, net 17,523 20,567 79,873 83,114
Other expense (income), net 10,680 (1,599) 9,295 (7,476)
Gain on sale of investment in CF Industries, Inc. - - (102,446) -
Loss on impairment of investment in CF Industries, Inc. - 36,500 - 36,500
Equity in (earnings) loss of affiliated companies 5,378 3,263 (36,692) (58,412)
Minority interest in earnings of subsidiaries 395 325 1,354 1,648
----------- ----------- ----------- -----------
Earnings (loss) before income taxes and discontinued operations (1,240) (8,262) 132,281 29,584
Income tax expense 533 1,803 5,505 1,404
----------- ----------- ----------- -----------
Net earnings (loss) from continuing operations (1,773) (10,065) 126,776 28,180
Earnings (loss) from discontinued operations, net of income taxes 135 (488) 2,167 (6,747)
----------- ----------- ----------- -----------
Net earnings (loss) $ (1,638) $ (10,553) $ 128,943 $ 21,433
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LAND O'LAKES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ IN THOUSANDS)
TWELVE MONTHS ENDED
DECEMBER 31,
-----------------------
2005 2004
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 128,943 $ 21,433
(Earnings) loss from discontinued operations, net of income taxes (2,167) 6,747
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 99,312 107,214
Amortization of deferred financing costs 8,733 5,625
Loss on extinguishment of debt 11,014 -
Bad debt expense 1,967 2,351
Proceeds from patronage revolvement received 8,123 6,043
Non-cash patronage income (1,852) (1,355)
Deferred income tax expense (benefit) 5,177 (4,977)
Decrease in other assets 13,246 5,740
Increase (decrease) in other liabilities 3,570 (3,499)
Restructuring and impairment charges 6,381 44,315
Gain from divestiture of business - (1,438)
Gain on sale of investment in CF Industries, Inc. (102,446) -
Equity in earnings of affiliated companies (36,692) (58,412)
Minority interests 1,354 1,648
Other (7,389) (1,239)
Changes in current assets and liabilities, net of acquisitions and
divestitures:
Receivables (38,964) 37,586
Inventories (6,058) 15,105
Other current assets (50,468) (36,152)
Accounts payable 164,155 72,378
Accrued expenses 17,143 (17,089)
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NET CASH PROVIDED BY OPERATING ACTIVITIES 223,082 202,024
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (70,424) (96,099)
Acquisitions, net of cash acquired (46,101) (12,150)
Payments for investments (5,566) (703)
Net proceeds from divestiture of businesses 2,635 13,068
Proceeds from sale of investments 316,900 2,342
Proceeds from sale of property, plant and equipment 22,197 11,990
Dividends from investments in affiliated companies 35,250 47,846
Decrease (increase) in restricted cash 20,338 (220)
Other 543 860
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NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 275,772 (33,066)
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase (decrease) in short-term debt 21,256 (28,616)
Proceeds from issuance of long-term debt 2,022 17,416
Principal payments on long-term debt (287,344) (146,011)
Principal payments on obligations under capital lease (92,556) (10,367)
Payments for debt extinguishment costs (11,014) -
Payments for debt issuance costs - (4,323)
Payments for redemption of member equities (68,714) (34,615)
Other (1,993) (304)
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NET CASH USED BY FINANCING ACTIVITIES (438,343) (206,820)
NET CASH PROVIDED BY DISCONTINUED OPERATIONS 46,057 724
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NET INCREASE (DECREASE) IN CASH AND SHORT-TERM INVESTMENTS 106,568 (37,138)
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF THE PERIOD 73,136 110,274
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CASH AND SHORT-TERM INVESTMENTS AT END OF THE PERIOD $ 179,704 $ 73,136
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LAND O'LAKES, INC.
EBITDA
($ IN THOUSANDS)
TWELVE
MONTHS
THREE MONTHS ENDED ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ------------
2005 2004 2005
--------- --------- ------------
NET (LOSS) EARNINGS $ (1,638) $ (10,553) $ 128,943
Income tax expense 533 1,803 5,505
Minority interest in earnings of subsidiaries 395 325 1,354
Equity in loss (earnings) of affiliated companies 5,377 3,263 (36,692)
Interest expense, net 17,523 20,567 79,873
Cash patronage income 3,700 2,351 6,302
Joint venture cash distributions 30,213 15,091 34,574
Depreciation and amortization 24,774 25,859 99,312
Non-cash impairment charges 5,029 39,303 6,373
One-time items (excluded) included in bank EBITDA (2,091) (316) (34,882)
Restructuring charges less cash paid (1,104) 4,070 (3,082)
Unrealized hedging loss (gain) 3,388 (4,838) (5,569)
Unrestricted entities - EBITDA (1,606) (5,000) (10,234)
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BANK EBITDA (1) $ 84,493 $ 91,925 $ 271,777
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BANK COVENANTS LTM 12/31/05
- -------------- ------------
Interest expense coverage ratio - required > or = 2.5 3.91x
Leverage ratio - required < or = 4.0 1.71x
Consolidated cash interest expense (2)
INTEREST EXPENSE $ 79,873
Unrestricted subs interest expense (11,293)
Interest earned 10,106
Change in accrued interest 2,773
Interest in discontinued operations 407
Non-cash interest expense (12,441)
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TOTAL BANK CONSOLIDATED CASH INTEREST EXPENSE $ 69,425
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Consolidated Indebtedness (3)
TOTAL INDEBTEDNESS (INCLUDES CAPITAL LEASES AND CAPITAL SECURITIES) $ 747,188
Less capital securities (190,700)
Less MoArk capital lease (9,298)
Less MoArk debt (78,136)
Less other unrestricted subs debt (5,648)
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TOTAL BANK CONSOLIDATED INDEBTEDNESS 463,406
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(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.